State-owned Equinor ASA of Norway is writing off its $982 million liquefied natural gas project in Tanzania (TLNG), as overall economics have not improved sufficiently to justify keeping it on the balance sheet. This will be reflected in adjusted earnings for EPI division in fourth quarter 2020 results.
“Equinor will continue to engage Tanzania in negotiations on commercial, fiscal and legal frameworks that may provide a viable business case for TLNG in future,” said the firm’s senior vice president forinvestor relations Peter Hutton.
Equinor, formerly Statoil, has declared impairment of TLNG as a result of Tanzania delaying to approve the building of an onshore gas processing plant and export facility to enable commercial production for exploration firms to monetise the discovery.
“The TLNG project has an anticipated break-even price well above portfolio average for Equinor and is at this time not competitive within this portfolio,” said Mr Hutton in a briefing note issued the firm’s shareholders.
Impairment will be reversed if the firm successfully negotiates with Tanzania to make the project economically viable.
Equinor’s capital markets update in February 2020 showed oil and gas projects with expected start-up by 2026 having an average break-even below $35 per barrel based on today’s estimates.
“While progress has been made in recent years on the commercial framework for TLNG, overall project economics have not yet improved sufficiently to justify keeping it on the balance sheet,” the firm said.
Industry players said Equinor’s decision to write off value of TLNG was influenced by factors like global prices of natural gas dropping, and the environment for investing in Tanzania due to intention to change production sharing agreements.
Equinor has been in Tanzania since 2007, when it signed a production sharing agreement with Tanzania Petroleum Development Corporation.
Some $2.1 billion was invested between 2010 and 2017 in exploration of offshore Block 2 in the south eastern part of Tanzania.
Fifteen wells were drilled leading to nine discoveries of over 566 trillion cubic litres of gas.