Quarterly Highlights and Appendix 4C
A Message from the Managing Director and Chief Executive Officer
Liquefied Natural Gas Limited (LNGL or the Company) is positioned for success in 2017 and beyond. Our North American projects have successfully achieved milestones that provide indisputable evidence that Magnolia LNG and Bear Head LNG should be at the forefront of supplying the next wave of global LNG demand.
The Magnolia LNG project enters 2017 shovel ready and first in-line to satisfy demand for new LNG supply. Our team is solely focused on completing our marketing of Magnolia LNG's offtake capacity in order to take FID (a financial investment decision). The project has all required FERC and DoE permits and approvals, has construction price certainty through its industry competitive LSTK EPC contract price with KSJV, certainty of gas supply, equity via a commitment from Stonepeak Infrastructure Partners, and a debt financing process led by BNP Paribas.
For LNG buyers attempting to determine which US greenfield LNG project is most likely to succeed and thus to contract with, you must look no further than Magnolia LNG. Once bankable offtake is sold, Magnolia LNG will move straight to financial close and construction. The project has no other obligations to meet.
As LNG developments are considered, Magnolia LNG is the most viable greenfield liquefaction project in the world today.
Likewise, Bear Head LNG has completed its regulatory permitting process. Bear Head markets itself as a viable outlet for stranded Canadian natural gas resources looking for economic access to global LNG markets, demand, and pricing. Bear Head is uniquely positioned as a key component of an East Coast Canada export strategy. Our Fisherman's Landing LNG site remains a viable project as our team looks to find feed gas supply in sufficient quantities to progress towards an FID decision.
In keeping with our promise to shareholders, we have managed our liquidity closely consistent with our stated plans. We closed December 2016 with the Company's total cash position at A$59.9 million. The Company has no debt.
- On 23 November 2016, the US Federal Energy Regulatory Commission (FERC) issued its Order on Rehearing fully reaffirming its 15 April 2016 authorization of the proposed Magnolia LNG export facility. In doing so, FERC entirely rejected the Sierra Club's arguments, basing its rejection largely on recent decisions from U.S. federal appeals courts that have found FERC's approach is proper and consistent with U.S. Supreme Court precedent.
- Following receipt of the FERC's Order on Rehearing, the US Department of Energy (DoE) granted the Magnolia LNG project authorization to export liquefied natural gas from the proposed facility in Lake Charles, Louisiana, USA to countries with which the United States has not entered into a free trade agreement (non-FTA approval) on 1 December 2016.
- On 6 December 2016, Magnolia LNG and Meridian LNG Holdings Corp announced a further extension of certain conditions precedent for the Meridian LNG offtake agreement from 31 December 2016 to 30 November 2017. All other provisions of the governing agreements not specifically amended by this extension remain in full force and effect.
- Magnolia LNG is in the process of agreeing a further extension of the validity period of the current binding engineering, procurement, and construction (EPC) contract with KSJV (a KBR - SKE&C joint venture led by KBR). Both LNGL and KSJV are intent to continue their Magnolia LNG relationship through a further extension of the binding lump sum turnkey (LSTK) EPC contract. As an interim step, on 23 December 2016, the companies announced an extension of the EPC contract through January 31, 2017 as a bridge to agreement on a longer term extension.
Bear Head LNG:
- By release dated 23 December 2016, Bear Paw Pipeline Corporation Inc. (Bear Paw), an indirect wholly owned subsidiary of LNGL, announced receipt of its environmental assessment (EA) approval from Nova Scotia Environment (NSE) for its natural gas pipeline. Bear Paw is proposing to construct and operate a 62.5 km natural gas pipeline from Goldboro to the proposed Bear Head LNG liquefied natural gas export facility in Point Tupper, Richmond County, Nova Scotia. The Goldboro to Point Tupper pipeline connects Bear Head LNG to the North American natural gas pipeline network.
- Following the close of the Annual General Meeting on 17 November 2016, Mr Paul Cavicchi became Chairman of LNGL's Board of Directors. The previous Chairman, Mr Richard Beresford, remains on the LNGL Board as Non-Executive Director.
- On 25 November 2016, 1,000,000 new ordinary shares were issued following the exercise of 1,000,000 options, at an Exercise Price of A$0.46 per share, in relation to capital raising advisory services from Foster Stockbroking. At the date of this report, there are no further options issued and outstanding.
- On 30 November 2016, 1,600,000 Incentive Rights (960,000 Performance Rights and 640,000 Retention Rights) were issued to Greg Vesey (Managing Director & CEO of LNGL) following approval at the 2016 AGM on 17 November 2016.
- On 2 December 2016, 66,499 ordinary shares were issued from the conversion of 73,111 Non-Executive Director (NED) Rights.
- On 13 December 2016, 732,304 NED Rights were issued following approval at the 2016 AGM on 17 November 2016.
- The number of performance rights reported to the ASX on 13 December 2016 in the Appendix 3B totalling 13,311,098 reduced by 226,807 to 13,084,291 due to the forfeiture of Performance Rights by a staff member who left the Company.
- On 27 January 2017, 952,137 ordinary shares were issued from the conversion of 952,992 Incentive Rights relating to a 2014 Incentive Rights grant held by Mr Paul Bridgwood, a former KMP (key management personnel) and employee of LNGL. Upon vesting, the number of Performance Rights outstanding reduced from 13,084,291 to 12,131,299.
During the three-months ended 31 December 2016, net operating cash outflow was A$5.1 million, representing a reduction of 37% compared to the net operating cash outflow of A$8.1 million for the three-months ended 30 September 2016. Management believes the liquidity management plan remains on course to deliver its goal of liquidity into 2019 but acknowledges there remain risks to realizing the goal.
LNGL's total cash balance as at 31 December 2016 was A$59.9 million, which compares to A$61.7 million as at 30 September 2016, reflecting a net reduction in reported cash of A$1.8 million. The change in reported cash between periods benefited from foreign exchange movements on US dollar denominated cash holdings. As disclosed in the Appendix 4C, the total net reduction in cash of A$1.8 million consisted of outflows of A$5.1 million relating to operations, no investing activities, and a net inflow of A$0.4 million relating to financing activities. The remainder of the reported reduction in cash relates to an unrealized foreign exchange translation effect of A$2.9 million.
LNGL maintains a material portion of its existing cash and cash equivalents denominated in US dollars. The preponderance of forecasted cash outflows are denominated in US dollars, supporting maintenance of a majority of cash and cash equivalents denominated in US dollars as a foreign exchange risk mitigation strategy. Because LNGL's reporting currency is Australian dollars, the US dollar denominated cash balances are translated to Australian dollars at each balance sheet date, with the net effect reflected as unrealized gain (loss) from translation as a period end-to-period end reconciling item in reported cash balances.
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About Liquefied Natural Gas Ltd
- Magnolia LNG, LLC (Magnolia LNG), a US-based subsidiary, which is developing an eight mtpa or greater LNG export terminal, in the Port of Lake Charles, Louisiana, USA;
- Bear Head LNG Corporation Inc. (Bear Head LNG), a Canadian based subsidiary, which is developing an 8 mtpa or greater LNG export terminal in Richmond County, Nova Scotia, Canada with potential for further expansion;
- Bear Paw Pipeline Corporation Inc. (Bear Paw), proposing to construct and operate a 62.5 km gas pipeline lateral to connect gas supply to Bear Head LNG; and
- LNG Technology Pty Ltd, a subsidiary which owns and develops the Company’s OSMR(R) LNG liquefaction process, a mid-scale LNG business model that plans to deliver lower capital and operating costs, faster construction, and improved efficiency, relative to larger traditional LNG projects.
Liquefied Natural Gas Ltd