LNG Insight PDF

Lower Crude Prices Forecast to Reduce Global Reserves Growth,
Increase Impairments 7
THURSDAY, JUNE 4, 2020 - VOL. 1, NO. 162
Daily Rundown
• Mozambique LNG is expected to finalize its
financing this month
• The funding commitments come as over $80 billion
of LNG investments have been taken off the table
worldwide
• Global oil and gas exploration is poised to decline
given the fall in crude prices
NEWS
Mozambique LNG Project to Finalize $15B
Financing in Possible Sign of Market’s
Strength
Mozambique liquefied natural gas (LNG), the nation’s first
onshore export project, is set to finalize $15 billion of financing
commitments this month, according to South Africa’s Rand Merchant
Bank (RMB), which is among those funding the facility.
The move comes at a challenging time for the LNG market as a
supply glut and the Covid-19 pandemic have complicated sanctioning
as well as funding for projects and expansions. With a 26.5% stake
in Mozambique LNG, Total SA would operate the facility.
“It will be a remarkable achievement in the circumstances,” said
RMB’s Jonathan Ross, who oversees oil and natural gas coverage.
“The backdrop could not have been worse for Total and partners to
raise huge volumes of long tenor funding -- the economic fallout of
Covid-19 has put enormous pressure on banks’ funding and capital,
and has triggered an oil price crash.”

RMB has other funding commitments, including the Coral South
Floating LNG (FLNG) project offshore Mozambique. Coral South is a
first-of-its-kind endeavor for the country led by Eni SpA. ExxonMobil,
which has a stake, said earlier this year development was moving ahead.
However, the major has delayed a final investment decision on the
Rovuma LNG export project, which would be onshore Mozambique.
The $20 billion Mozambique LNG project was sanctioned one
year ago. It includes developing the Golfinho and Atum
...cont' pg. 4
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THURSDAY, JUNE 4, 2020
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See NGI’s LNG Glossary Here
. . . from NEWS -Mozambique LNG Project to Finalize $15B Financing, pg. 1

on prices and other terms.
Given the collapse in the arbitrage spread between the United
fields offshore Mozambique and constructing a two-train liquefac-
States and markets in Asia and Europe, more than 40 U.S. cargoes for
tion plant with a planned capacity of 12.9 million metric tons/year
July delivery have been canceled, shipbroker Poten and Partners said
(mmty). Total acquired Anadarko Petroleum Corp.’s stake last year
during a webinar on Wednesday, while another 33 were canceled for June.
after Anadarko was acquired by Occidental Petroleum Corp.
“LNG investment really went through the eye of the storm at
Mitsui & Co., India’s ONGC Videsh, Mozambique state-owned
the peak of the crisis,” said Poten financial adviser Melanie Lovatt
Empresa Nacional de Hidrocarbonetos, Thailand’s PTTEP, Bharat
of the pandemic’s impacts.
Petroleum and Oil India Ltd. have also partnered on the project.
Major LNG players have taken $80 billion of investments off
LNG financing has wavered this year. As the spot market has further
the table, according to Poten. Since March, at least 85 mmty of liq-
developed and prices have cratered, it’s become a buyer’s world and offtak-
uefaction capacity has been postponed.
ers have become more aggressive in their demands for long-term supply.
As the pandemic took a toll on the global economy, companies
Gas prices have come under extraordinary pressure given the
tapped credit lines and put banks under stress. Lovatt noted that
supply surplus and the demand destruction caused by the coronavi-
concerns spread across all sectors that funding requests would be
rus. Storage stocks in Europe are overflowing, and while prices have
denied or financing costs would spike. While things looked bleak,
firmed somewhat in Asia, buyers there are hunting for bargains on
“the market seems to be stabilizing,” she said.
both spot deals and term supplies, searching for major concessions
...cont' pg. 6
Poten said liquefaction sponsors closed on $8 billion of financ-

ing in May, including Nigeria LNG’s seventh train, the third train at
Freeport LNG in Texas and bonds for Cheniere Energy Inc. as part
of the ongoing refinancing program, among others.
Lovatt said more funding is imminent beyond the Mozam-
bique signing this month. By the end of June, she said $23 billion of
liquefaction debt could close, including for Russia’s Arctic LNG 2,
Venture Global’s Calcasieu Pass export project in Louisiana and the
sixth train at Sabine Pass LNG. n
SUPPLY Financial reports analyzed by the federal agency regarding

Lower Crude Prices Forecast to Reduce global spending found E&D climbed in 2019 from 2018 by 13% to
$361 million for 102 publicly traded operators.
Global Reserves Growth, Increase “As a result of significant crude oil price declines in 2020,
Impairments however, global proved reserves will likely be revised downward,
Oil and natural gas exploration and development (E&D) is and E&D expenditures will also likely decline,” said EIA researchers
predicted to decline in line with lower crude prices, which in turn led by principal contributor Jeff Barron. “Several companies have
would ding the value of proved reserves, the Energy Information already announced large budget reductions.”
Administration (EIA) said Thursday. EIA based its analysis and its recently published 2019 Financial
Review primarily on the reports of the publicly traded operators, but
the conclusions may not represent the sector as a whole as private
operators are not required to issue financial reports.
According to the financial reports reviewed, however, the 102
companies produced 22.2 billion boe.
“Dividing these companies’ E&D expenditures by their com-
bined production volumes provides a ratio of $16/boe in 2019, or
about one-quarter of the average Brent crude oil price of $64/bbl,”
according to EIA.
In EIA’s Short-Term Energy Outlook issued in May, Brent crude
was forecast to average $34/bbl in 2020. If the crude price forecast
is on the money, EIA said E&D expenditures per boe could decline
to under $10/boe this year if E&D spend remains at around 25% of
the Brent price.
Because crude prices directly affect the profitability of E&D
projects, “changes in the prices companies use to develop their calcu-
lation of reserves can significantly affect their proved reserves levels
and the volume of reserves they can claim as additions,” ...cont' pg. 9
...cont' pg. 8
researchers noted.
The U.S. Securities and Exchange Commission (SEC) requires
publicly listed operators to value proved reserves at the end of every
year using the average crude price from the first trading day of each
month during the year.
“On the first trading day of the first six months of 2020, the
front-month Brent futures closing price averaged $44/bbl, or 30%
lower than the 2019 full-year average of $63/bbl,” EIA noted.
Operators routinely take one-time impairment charges for a
quarter or a year for oil and gas assets that decline in value to less
than the cost of developing them, based on the SEC requirements.
Impairments represent the decrease in value of the assets a company
owns, typically the proved reserves.
The current low oil price environment, said researchers, “sug-
gests that the 102 companies EIA analyzed will likely post large
negative revisions to their proved reserves in 2020.” n
NGI’s LNG Insight is published daily, each business day by Intelligence Press, Inc. (703) 318-8848.
In addition to LNG news and data, NGI also publishes an array of business intelligence services covering the North American
continental natural gas market.
Please visit us at naturalgasintel.com for more information.
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Lower Crude Prices Forecast to Reduce Global Reserves Growth,

THURSDAY, JUNE 4, 2020 - VOL. 1, NO. 162

and has triggered an oil price crash.”

See NGI’s LNG Glossary Here

. . . from NEWS -Mozambique LNG Project to Finalize $15B Financing, pg. 1

Poten said liquefaction sponsors closed on $8 billion of financ-

SUPPLY Financial reports analyzed by the federal agency regarding

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