Offtake Agreements Provide Cornerstone for Frontieras North America to Raise Hundreds of Millions of Dollars for Large Scale Project Financing of FASForm Plant
June 13th, 2024
Written by Matthew McKean, CEO and co-founder of Frontieras North America (LinkedIn)
Frontieras North America is an energy and environmental technology company bringing breakthrough hydrocarbon product innovation to the established commodities market traditionally supported by crude oil processing. Frontieras’ combination of signed offtake agreements and the anticipated high margin to service debt ratios provides the foundation for raising $850 million to complete its initial FASForm™ plant in West Virginia.
In the energy sector, “offtake agreements” are considered a major milestone necessary for success. Offtake agreements, used to acquire project financing through the exchange of future income, offer reassurance to lenders and investors, and reduce the perceived risk associated with the project by ensuring a steady revenue stream over the long term. For lenders, the existence of offtake agreements minimizes cash flow uncertainty and enhances the project's credit-worthiness, making it more attractive for financing. Additionally, offtake agreements help Frontieras to negotiate better financing terms, such as lower interest rates or longer tenures, thereby reducing the overall cost of capital. The importance of offtake agreements cannot be overstated to the success of launching capital intensive projects. Specifically, offtake agreements:
Provide project lenders with documentary evidence which supports and validates the financial models and projections upon which the ability to repay is based.
Establish the contractual framework for a long-term business arrangement between the project company and an offtaker for the purchase and sale of all or substantially all the project output.
Provide fixed or contractually adjusted prices for ten years or longer.
Long-term commitment provided by an offtake agreement plays a significant part in the financing approval process.
Frontieras’ vision is to deliver affordable, available, and abundant energy in a no-waste environment. By reimagining coal and other hydrocarbons potential, Frontieras will capitalize on the Solid Carbon Fractionation™ process that was developed by Frontier Applied Sciences that breaks down the hydrocarbons into their core elements. Frontieras’ FASForm plant extracts high value liquids and gases from solids while producing a reformed coke product known as FASCarbon™. FASCarbon is a net-new energy product. Frontieras FASForm produces several other high value gas and intermediate liquid fuels, including hydrogen, methane, naphtha, kerosene (jet fuel) and diesel. Producing these products helps address the current energy crisis by providing energy security for multiple sectors. FASForm also captures and repurposes key coal constituents– methane, hydrogen, sulfur and ammonia. The extraction of these products in the FASForm process provides Frontieras with additional revenue streams, aligns with Frontieras’ zero-waste policy, and creates a self-sustained organization that is committed to repurposing and unlocking intrinsic value coal.
Frontieras North America has advanced the engineering of the patented FASForm method and apparatus, from concept, to engineering FEL-1 and FEL-2, utilizing the test results and findings of Frontier Applied Sciences’ test unit (code named: Alfred). Collectively, these actions have allowed Frontieras to secure the site for its first FASForm plant and refine the FASForm process to identify its true gas, liquid and solid yields. Frontieras’ next step focuses on the capital raise to construct its FASForm plant and securing offtake agreements. In securing offtake agreements, Frontieras will be able to enter the market confidently and have open dialogs with various lending institutions knowing that financial assurances are in place to validate the cash flow forecasts that form the basis for loan repayment for construction of FASForm Plants.
While off-take agreements vary in how they are structured, each establishes a long-term contractual framework defining a business arrangement between the project and an off-taker and the terms under which the project will sell and the offtaker will buy.
Specific Offtake Agreement benefits include:
Today, Frontieras North America is an independent company that was formerly a subsidiary of Frontier Applied Sciences (FAS), a privately held entity formed in 2010. FAS holds patents on five continents that cover more than 3.7 billion people including the United States and Canada. Frontieras North America currently controls the licensing rights to the USA and Canada. Specifically, the West Virginia Frontieras’ FASForm plant will process 7,500 tons of coal per day, or roughly 2.7 million tons annually. FASForm’s West Virginia output will represent approximately 0.5% of the United States’ annual coal production.
Specific outcomes from the FASForm process include:
Produces 2.3 barrels of liquid fuels from each ton of coal processed.
Frontieras’ closed-loop process produces over 20 million standard cubic feet per day (mmscfd) of hydrogen used to power the facility and hydro-treat the fuels, making Frontieras the first plant powered by hydrogen in the United States.
Produces FASCarbon™, a metallurgical coke that serves as an injection replacement carbon for steel manufacturing or fuel for coal-fired plants that burns hotter and cleaner, with lower emissions.
Offtake agreements play a pivotal role in securing financing for large-scale projects by providing a guaranteed market for the project's output of commodity products. Ultimately, these agreements will act as a cornerstone for Frontieras’ project viability. 2024 will be a pivotal year for the oil and gas energy markets in the United States and countries around the world.
Frontieras will continue to share our insights on all things energy related and continue to focus on the delivery of abundant, available and affordable energy with the construction of the first FASForm plant. These perspectives on the global energy market are my own. If you are interested in learning more about Frontieras, its FASForm technology, or the Frontieras management team, please visit www.frontieras.com.