INTERVIEW: Commonwealth LNG to ‘shuffle’ offtaker mix under new owner Kimmeridge

Commonwealth LNG developer Kimmeridge is re-evaluating the mix of offtakers it wants to support the Louisiana export project, Managing Partner Ben Dell told S&P Global Commodity Insights in a Sept. 19 interview.

The comments, following Kimmeridge's June acquisition of a controlling stake in the project, strongly suggested that the new Commonwealth owner planned to end at least some of the previous agreements tied to the project with a permitted peak capacity of 9.5 million metric tons per year.

The developer is already in talks with other potential investment grade companies and expects to have 8 MMt/y of LNG signed under firm contract by the end of 2024, including 2 MMt/year that Kimmeridge intends to keep from the project, according to Dell, who co-founded Kimmeridge and oversees the investment activity across the private equity firm, speaking during an interview at the Gastech conference in Houston.

"We came into this project three months ago, and we had a view we wanted to shuffle the offtake of that," Dell said. "There's been a number of historical announcements. That is not our expectation of what the 8 MMt/y of offtakers will be."

Commonwealth earlier Sept. 19 announced signing a preliminary long-term deal to sell Swiss commodity trader Glencore 2 MMt/y of gas for a period of 20 years. The heads of agreement also calls for Glencore to buy an equivalent natural gas supply from subsidiary Kimmeridge Texas Gas, a producer with acreage in South Texas.

The supply gas under the deal will be sold under a netback agreement at international prices.

Before the acquisition by Kimmeridge, Commonwealth had announced one firm sale and purchase agreement, a deal with Australia's Woodside for 2 MMt/y of LNG announced in September 2022. The developer has also announced it has preliminary agreements totaling 6 MMt/y, including an agreement with an unnamed European utility, US producer EQT, Switzerland-based trading house MET Group and an agreement announced in 2023 with Kimmeridge.

If Commonwealth is able to finalize the talks for 8 MMt/y of offtake, "we should be right down the fairway from a financing standpoint" toward a final investment decision on the project that Kimmeridge is targeting for the first half of 2025, Dell said. Beyond those potential counterparties, Dell said Commonwealth has a bench of other possible offtakers "and a bench behind that bench."

But to reach the FID milestone, Commonwealth needs to secure key permitting approvals from US regulators.

Permitting risk

Commonwealth is among the projects most affected by the US Department of Energy's "pause" on new export authorizations, having built significant commercial momentum headed into 2024. The permitting hold, announced by the White House in January, has been a major topic of discussion at Gastech, where market participants from the US and overseas described it as a source of heightened uncertainty about the future of the US supply.

The Louisiana project in July suffered another blow in July when a US federal appeals court ordered the Federal Energy Regulatory Commission to fix flaws in its analysis of greenhouse gas emissions and cumulative air quality impacts associated with the project, without going as far as canceling the underlying permit.

Dell described the DOE hurdle as the bigger obstacle. The agency said its pause would last until the agency can update the analyses it uses for determining whether the exports are in the public interest, and the outcome remains unclear, despite the agency recently issuing its first permit since the freeze for a small offshore project.

But Kimmeridge also took control of Commonwealth once the pause was already in place, which Dell described as a "driver" of the talks over the acquisition and a factor already baked into its investment thesis.

"Whichever administration comes in, ultimately, the pause will not be in perpetuity," Dell said.

"I won't say time is our friend, but it's not so bad for us because our upstream business is growing behind it" by around $100 million of incremental EBITDA per year, Dell said.

If the permitting hold persists deep into 2025, "I'll still be here," Dell said.

Growth ambitions

Kimmeridge Texas Gas's position in South Texas includes 148,000 net acres, where net production stands at 400 MMcf/d. The company wants to grow output organically by around 100 MMcf/d each year and arrive at 1 Bcf/d by the end of the decade, according to Dell, who said Kimmeridge believes natural gas to be a 30-year growth business.

With the offtake from Kimmeridge, the firm expects between 25-30% of its natural gas production to be priced in international markets by the time the facility begins operation, Dell said.

Kimmeridge is still evaluating inorganic growth opportunities, prioritizing the Gulf Coast region, but the back end of the gas price curve makes dealmaking difficult, Dell said.

"I think sellers want $4-4.50 in terms of that's where they see the market going," Dell said. "Buyers are looking at a strip that's $3.50-4. So, it doesn't sound like a big difference, but you put a 15-20% price spread into models, it's been difficult to close those gaps."

As of Sept. 18, the 2026 and 2027 Henry Hub forward strips were priced at $3.54/MMBtu and $3.56/MMBtu respectively, according to M2MS data from Platts, part of S&P Global Commodity Insights.

When the fund manager with a history of shareholder activism acquired Commonwealth, the firm also named former BP executive David Lawler as the new CEO of Kimmeridge Texas Gas.

Dell described that move as part of a broader strategy to grow its gas platform across the Gulf Coast.

"This to me is a point on a path," Dell said. "It is not the finished product."

Kimmeridge wants to become "the BG of the US," Dell said, referring to the major LNG player that Shell acquired in 2016.

"We didn't bring Dave Lawler in and the team we put in because we don't have big ambitions," Dell said.