Norway’s BW Offshore (OL:BWO) said that the Barossa floating production storage and offloading (FPSO) vessel project for Santos (ASX:STO) is experiencing some cost increases due to price inflation for materials.
However, the company said yesterday in its quarterly results that the inflation is covered by “project contingency”. BW Offshore said it “is focused on locking in suppliers and equipment packages to manage costs and maintain schedule amid increasing stress on global supply chains.”
In the third quarter, BW Offshore said it continued to progress the Barossa FPSO project according to plan, including completing the debt financing and the equity joint venture partnership for the project.
First steel cut for the FPSO hull was achieved in September ahead of original schedule, it added.
The Barossa FPSO is financed by a 14-year combined construction and long-term debt facility of $1,150 billion with a syndicate of nine international banks and by $240 million from the equity joint venture, consisting of BW Offshore (51%) and ICMK Offshore Investment (a 50:50 JV of ITOCHU Corporation and a subsidiary of Meiji Shipping Co Ltd) (25%) and Macquarie Bank (24%).
In addition, about $1 billion in pre-payments will be paid by the Barossa Upstream Joint Venture Partners during the construction period. These pre-payments are linked to progress and milestones on the project. By end September a total of $133 million has been received as per plan, said BW Offshore.
Santos announced in March that BW Offshore will build, connect and operate the FPSO for its Barossa project. The contract marks the largest capital expenditure component of the $3.6 billion Barossa offshore gas and condensate project designed to backfill the ageing Darwin LNG export terminal.
Under a hybrid financing agreement, the Barossa joint venture will lease the FPSO following an upfront prepayment of around half the capital cost and hold an option to buy-out the floater. This “achieves an overall reduction of approximately $1 billion in capital expenditure,” Santos said at the time.
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