Jordan Blum, editorial director, Hart Energy: We are here at the massive Gastech Exhibition & Conference 2024 in Houston. I'm joined by Ben Dell, the co-founder and managing partner of Kimmeridge. Thank you so much for joining us. You’re [with] Kimmeridge obviously, but we're here at the Commonwealth LNG stand. As of just June, you all are now the over 90% owner of Commonwealth. If I could just get you to take a little bit of a step back and just explain how that all came to be and your excitement about Commonwealth going forward.

Ben Dell, co-founder and managing partner, Kimmeridge Energy Management: Sure. I appreciate that and I appreciate you making the time today. We're very excited about what we're doing here at Commonwealth. When we started out about a year ago, we had a view of building a British Gas to the United States integrated business from wellhead to water. We started investing in South Texas in the dry gas business through an entity which we referred to as Kimmeridge Texas Gas. And our view was that we wanted to have 20% to 30% of our gas supply going directly into the international market being priced at TTF [title transfer facility], JKM [Japan Korea marker] or Brent contracts. Really that was about building diversification. What it led us to was a detailed workup of all the LNG projects around the Gulf Coast to see where we could participate and what we could start up. And we concluded that Commonwealth from an engineering and design standpoint, being a modular design was one of the lowest-cost LNG facilities that could be delivered.

We also liked this location at the mouth of the coast because we think congestion as we go over the next few years will become more of an issue. And so that originally started with a 2-million-ton offtake agreement and a convertible note, and then for better or for worse, depending on how you look at it, the [Biden administration LNG] pause came into effect and really that created the opportunity for us to take control of the project. As a result, as you say, we became more than 90% majority owner [of Commonwealth] and are really now in a position where we can drive the development of this project and ultimately put our ambitions into effect.

JB: So you mentioned the pause, now you're looking at FID [final investment decision], a little bit delayed, but in the first half of 2025. Then you also just had the federal court ruling asking FERC [Federal Energy Regulatory Commission] to re-evaluate things from a climate impact perspective. Can I get you to just elaborate as much as you can on where things stand both legally and with FERC and how optimistic you are going into FID?

BD: I think to be clear on FERC ours is very different to some of the other opinions handed down and the vacated other FERC permits. And ours was a very narrow scope written by the same judge and I think is ,at least our view, managing more on a shorter timeframe, at least within the DOE [Department of Energy] timeframe. With regard to the DOE pause, it's obviously frustrating. Our application has been in for 22 months. I think it's one of the longest applications that sat with the DOE and we obviously want to see the project move forward. I think realistically, whichever administration comes in, we see a path that we can get our permit.

I think there's probably a three [month] to four month spread between the two administrations, but one of the things I've stressed is we want to go out and demonstrate like we did in Colorado in the upstream, that we can build a best in class project. Best in class from an operating standpoint, from a cost standpoint, from an environmental standpoint. We want to have one of the lowest environmental footprints out there. And I think we're ideally placed to meet any incremental requirements that are required by the DOE in their new evaluation.

JB: So you're still pretty optimistic about 2025 and everything in place with contracts and buyers.

BD: Pretty optimistic.  I break the world down into: from an engineering standpoint, where do we stand? We've actually had more time to think about our engineering design. I think we've optimized it and as a result, I feel very comfortable about where we are from an execution of the operation standpoint. When I think about the commercial standpoint, we've seen great commercial progress. One of the things I stress is we're not going to be the company that's announcing, we just want to put together 8 million tons of offtakers with best-in-class partners. And I think we're making great progress to that. Our goal is to have all our SPAs signed by the end of December, and I think we have good visibility doing that.

 I think when you look at the financing standpoint, we have our financing partners in place. We obviously as Kimmeridge have changed the dynamic from a capital availability standpoint. We aim to be the majority equity holder of this project, so we feel very comfortable where the financing markets are and our ability to tap those. Obviously the permitting we have one permit left to get that's the same thing. But realistically, as we wrap our EPC [engineering, procurement and construction] at the end of this year, we'll wrap that associated with where we are on the DOE and whoever comes in and whoever the next administration is. So with the view that we can do the same through 1Q, 2Q and ideally an FID in June.

JB: I don't want to get too deep into politics, but with debate and everything going on, it seems like both sides are speaking more pro energy than you would've liked or previously expected maybe.

BD: Yeah, I'm not sure a Brit should ever opine on the U.S. Look, I think there's a growing realization. We've talked about it a lot at Kimmeridge, which is what everybody wants is the same thing. Low cost energy on demand with no carbon footprint. The reality is you can take your existing assets and decarbonize them, and that means lower their footprint and then remove your residual carbon. And then you have the emergence of renewables, which you need to pair with storage mechanisms, predominantly industrial scale batteries, which have their own target. The transition will take 30 [years] to 40 years. If we want to reduce coal consumption globally, we have to double natural gas consumption and that's coupled with taking renewables up five times through the 2050. So this sort of view that you're going to leave the oil and gas infrastructure and go straight to renewables and skip the in-between is I think unrealistic.

And what you're seeing on a political level is a growing realization that it's hard and that it will take time. And then you need to optimize all the assets that you have in front of you. Taking U.S. natural gas through LNG and putting it into Indian markets, Chinese markets, emerging markets is one of the most impactful things we can do from an emission strategy globally. And I think it's important to note Commonwealth will have the ability to deliver the first net zero cargo on a Scope 1 and Scope 2 where we know what the impact is from wellhead to water open to the consumer. I think that's going to be unique in the LNG space, and I think it's going to show the next generation of projects what you could really achieve.

JB: It seems like there's a lot of bullishness on the timing of Commonwealth meshing well with global LNG demand growth as well.

BD: I think so. Global LNG demand growth comes in waves. As I've looked at it, there's periods of overbuild and under build, but structurally this is a market that will double or triple over the next 20 [years] to 30 years. So we're extremely optimistic. I think from a U.S. standpoint, it's critical for the U.S. to be a key supplier of energy into the global market. And the reality is you are developing somewhat of a duopoly between Qatar and the U.S., and I think it's important that the U.S. keeps pace.

JB: Right at the beginning of our conversation. You mentioned Kimmeridge Texas Gas. I wanted to see if I could get you to elaborate on the growth plans there in the Eagle Ford and maybe anywhere else. I know things didn't quite work out with the SilverBow Resources acquisition, but just kind of the M&A strategy going forward.

BD: I think the core of our strategy is being organic. If you look at Kimmeridge Texas Gas today, we're [producing] around 400 MMcf/d, around 10%, 15% liquids with some dry gas. We run two rigs, we continue to bring down our days to drill, optimize our fracking and improve our economics. And we've seen pretty good, well performance in the assets we are developing. Organically, we expect to go 400 [MMcf/d], 500 [MMcf/d], 600 [MMcf/d], 700 [MMcf/d], 800 [MMcf/d], 900 [MMcf/d] by 2029. When you think about that, with 2 million tons, we'll have 25%, 30% of our volumes essentially hitting the international markets. That said, we are still looking at the inorganic M&A space. We'd like to be a 2 Bcf/d company, and we'd like to be across the Gulf Coast.

So we're going to continue to explore those opportunities. SilverBow to us is one of many different opportunities that has been in the platform that we were looking at and evaluating. Unfortunately, that didn't work out from a transaction standpoint, but I don't think that's going to temper our ambitions of what we're doing on the Gulf Coast. And obviously with Dave Lawler joining the team, it's a phenomenal addition for us and we're excited about how they're performing.

JB: Great. And again, thank you so much for joining us here at Gastech. I really appreciate it. To read and watch more, please visit online at hartenergy.com.

Comments