South Korean KOGAS has decided to invest in the Area-4 Coral South floating LNG project in Mozambique. On 18 January, KOGAS’ board green-lighted an investment in the 3.3mn mt/yr (5bn m³/yr) FLNG project, subject to a final
investment decision by all the project partners. One partner in the venture is understood to have not yet given its board approval to the venture.
If the project goes ahead, KOGAS will invest US$513-million in the FLNG project through KG Mozambique, its 100%owned subsidiary, from 2017 to 2022, and guarantee up to US$640-million of the project’s debt funding. The FLNG facility aims to start commercial operations from 2022 with a target production volume of around 3.4-million metric tons/yr for 25 years.
The project is to develop and produce natural gas from Area-4 of the Coral gas field, which is 10% owned by KOGAS, after completion of exploration. The remaining stake is owned by ENI East Africa (70%) – which is in turn held by the operator ENI and China National Petroleum Corporation (CNPC). Portugal’s Galp and Mozambique’s ENH each has 10% of the project and have both given board approval for the investment.
The information was revealed by Moody’s Investors Service in a note published on 19 January in which the rating agency stated that KOGAS’ credit quality will not be immediately affected the decision. “The investment is of a manageable size and is unlikely to signal an aggressive expansion by KOGAS in exploration and production projects overseas”, said Mic Kang, a Moody’s vice president and senior analyst.
The investment and debt guarantee will have minimal impact on KOGAS’ financial profile, because they will be spread out over the next five years, and because a large portion of the investment is already accounted for in Moody’s projected capex of KRW2-3-trillion per annum over the next two to three years, the rating agency said.
Moody’s expects KOGAS’ funds from operations (FFO)/debt and FFO/interest cover will stay at 6% to 8% and 3.0x-3.5x over the next 12 to 18 months, slightly up from 5% to 7% and 2.5x-3.0x in 2015-16, owing to increasing operating cash flows from its core domestic gas utility business.
Execution risk associated with the FLNG project (such as project delays and cost overruns, which are common to infrastructure projects) will likely remain manageable, because, as a minority shareholder, any additional investment required from KOGAS should be small relative to its overall operating cash flows.
Its regulated domestic gas utility business will allow the company to accommodate such additional investment and generate sustainable cash flow, Moody’s said.
In addition, Moody’s expects project risk will decrease once the FLNG facility is completed, particularly because the binding agreement with BP, which is conditional on the final investment decision by all project partners, will cover the sale of all LNG produced at the FLNG facility for a period of over 20 years.
Moody’s believes that KOGAS will take a prudent approach to other investments in overseas projects over at least the next two to three years, owing to the Korean government’s tight supervision over its financial health under the mid- to longterm financial management plan.
In November 2016, Agencia de Informacao de Moçambique reported Coral FLNG’s overall project cost at least US$8-billion, of which US$2.8-billion has
already been invested by partners during the field’s exploration. The US$513-million to be invested by KOGAS thus represents its 10% share of the amount yet to be invested.
It’s understood that CNPC has not yet given its board’s approval to the project – a requirement before the overall final investment decision is reached.
Source: Natural Gas World/LNG World News
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