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Mitsui, Marubeni Join Marathon's Equatorial Guinea LNG Export Project

Marathon Oil Corp. and the Government of Equatorial Guinea said they have agreed to sell small interest stakes in the Equatorial Guinea liquefied natural gas (LNG) project to Japan's Mitsui & Co. and Marubeni Corp. The LNG export terminal is expected to begin commercial operations in late 2007 with the majority of its LNG headed to the Lake Charles, LA, import terminal.

Mitsui and Marubeni bought 8.5% and 6.5% stakes in the project, respectively. Following completion of the deal in the third quarter, Marathon will own 60% of the project with Compania Nacional de Petroleos de Guinea Ecuatorial (GEPetrol), the national oil company of Equatorial Guinea, holding a 25% stake.

Marathon CEO Clarence P. Cazalot said Mitsui and Marubeni bring "long-term LNG experience" to the project and "a commitment to future growth that will support our shared vision of creating an Equatorial Guinea LNG hub with the possibility of multiple LNG trains.

"This transaction will provide us added financial and marketing flexibility necessary to realize this vision, while at the same time ensuring we capture the significant current and future value we expect the Equatorial Guinea LNG project to deliver to its owners," he said.

Koichi Mochizuki, COO of the energy division of Marubeni, said, "We are particularly excited about the proximity to the expanding U.S. LNG market. We are, therefore, looking forward to working with the other partners, with a shared vision of success and growth in the LNG business arena."

Construction progress on the Equatorial Guinea LNG project continues according to plan. Developers said the project is expected to be one of the lowest cost LNG operations in the Atlantic basin with an all-in LNG operating, capital and feedstock cost of $1/MMBtu at the loading flange of the LNG plant.

The project is being built on the northwest side of Bioko Island at Punta Europa, near Equatorial Guinea's capital city of Malabo. Key plant facilities will include two LNG storage tanks and marine facilities that will allow for the berthing, mooring and loading of LNG ships ranging in size from 90,000 to 160,000 cubic meters of both membrane and spherical design.

While the contracted off-take rate is 3.4 million metric tons per year and the off-take term is 17 years, the plant is expected to have the ability to operate at higher rates and for a longer period of time. Efforts are under way to acquire additional gas supplies through exploration and commercial means in order to expand the utilization of this LNG facility, the companies said.

Natural gas for the project will be purchased from the Alba field participants -- Marathon, Noble Energy and GEPetrol -- and the LNG will be sold to BG Gas Marketing Ltd (BGML), a subsidiary of BG Group plc, under a 17-year purchase and sale agreement beginning in late 2007. BGML will purchase the LNG on a free-on-board (FOB) basis at Bioko Island, Equatorial Guinea, with pricing linked principally to the Henry Hub index.

BGML intends to target the Lake Charles import terminal as the primary destination for the LNG. However, the agreement provides destination flexibility for the LNG, enabling BGML to take advantage of prevailing market conditions at other import destinations around the world.

Total project cost is estimated at $1.4 billion, of which $1 billion is for engineering, procurement and construction costs. As of June 30, it is expected that 60-65% of the total project costs will have been incurred.

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