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I'm surprised that there was no debate yesterday about the actual P90 cost estimate of £379mn for both Phases of the cavern construction.
This is quite a jump from the initial £308mn mentioned in the 2015 Baringa Model projections, on which a 12% IRR could be earned by Infa.
One of my questions to JW will be, is the 12% floor on the IRR deliverable at the higher capex estimate. Is the offtake partner onside with this new higher capex level and Infa's need to build in a sustainable IRR to manage the project?
I presume the third party has had sight of these costings via a NDA already, and that didn't prevent them signing a LOI, but it would be very reassuring to see the economics remaining attractive for Infa after this FEED disclosure.
I'm reassured by this line in the rns O&W
"The P90 estimate is consistent with the economic modelling undertaken on the Project and therefore InfraStrata proceeds into the next phase of development with a high level of confidence from a technical, cost and economic basis."
Older, the initial comment highlights the expectant budget range. The IRR will also likely be irrelevant from any previous modelling given the project life is expected to increase to around 40 years. “The economic modelling undertaken was on a range of cost estimates of £100m - £120m for delivering Phase 1 (2 caverns) and £300m - £330m for Phase 2 (adding an additional 6 caverns, resulting in a total of 8 Caverns). The combined FEED studies have delivered P90 cost estimates of £114m for Phase 1 and £265m for Phase 2, with an additional risk allowance for a total of £11.6m for both phases.” Total for all 8 caverns is £379m as you alluded to, phase 1 for two caverns came in under budget at £114m and phase 2 similarly under budget. Their initial cost projections were in the range of £400-£450m.
In addition to spuds response, the comment made by JW also further cements the points I’ve highlighted below. “Completing FEED successfully and receiving independent confirmation that the Project can be constructed within our financially modelled ranges is a credit to the entire team that has worked on the Project. We are now working on planning the next development stages of the project whilst ensuring all elements come together for a successful final investment decision before the end of H1 2019. I would like to thank Costain, Deep KBB, Atkins and WSP for the delivering the FEED study in the time available to realise the EU Grant."
" for a successful final investment decision before the end of H1 2019"
Small point but previously mentioned June for FID, looks like could be slightly quicker
Yes, tidd, I see that, and it's mighty impressive.
But threw me was reference to page 9 of the Jan 2018 corporate presentation on the Infa website.
There, it clearly refers to a Project Capex of £308mn. Indicative only, I grant you, but it was the only figure publicly available until yesterday. If Infa had been using an internal cost estimate of £400-450mn, it was nowhere in the public domain as far as I can see.
But the bottom line is, Infa are very very comfortable with that P90 estimate. That's what matters, to progress the project with very serious money.
I've been reading the rns again.
£114mill for 2 caverns and all infrastructure (gas plant, brine leaching plant, brine pipelines etc) make £265mill for another 6 caverns look expensive!!
I think total for 8 caverns is £265mill well under modelling estimate!!!
This needs clarity from the company. We are confused, on this bb.
https://twitter.com/JohnWoo64494325/status/1065882714971258880?s=19 Nice!
I hope someone who has twitter will tell him not to spare expense on safety and quality of the construction. We do want the thing to last afterall! But knowing the upfront capex costs will be a great bit of certainty for us
There is your clarity OW, straight from the horses mouth via the CEO John Woods tweet this morning. I dont see the ambiguity in the RNS personally it’s pretty clear.
I seem to remember an estimate of over £400m, so definitely under.
Allenby Capital research of 10th Nov 16, gives £308m, with 65% debt.
Just seen JW's tweet.
Very, very happy with that clarification.
And that's before lengthening the project's life to 40 years. I wonder what IRR number he will come up with on December 5th?