Quarterly Highlights and Appendix 4C
A Message from the Managing Director and Chief Executive Officer
The quarter began with Magnolia LNG gracing the January 2017 cover of LNG Industry magazine, which hailed Magnolia LNG as the next US Gulf Coast project. The quarter closed with delivery of an investor presentation detailing the multitude of competitive advantages that Magnolia LNG has over its competition. The key takeaway from this work is that Magnolia LNG is the only US greenfield project that offers prospective LNG buyers absolute certainty.
- Certainty on design;
- Certainty on costs;
- Certainty on permitting and approvals;
- Certainty on source of equity; and
- Certainty on pricing required to finance a project.
We reiterated our message in April at the Gastech Conference in Japan. Our message is clearly resonating with the LNG industry, and importantly with LNG buyers. While our competitors struggle to offer any firm execution plans, LNGL instead continues to provide certainty on all fronts. The transparency of our disclosures and work at Gastech has prompted buyers to question the basis for promises and price quotes made by our competition. Our fact-based disclosures are truly differentiating Magnolia LNG and demonstrate a significant competitive advantage for LNGL.
I am more confident today in our competitive advantages including our patented OSMR(R) liquefaction technology, our portfolio of diverse projects, and our certainty of cost structure, regulatory approvals, and commercial offerings that separate LNGL as the preferred partner for global LNG buyers. Our focus is to lead the next wave of U.S. LNG contracts.
In keeping with our promise to shareholders, we have managed our liquidity closely consistent with our stated plans. We closed March 2017 with the Company's total cash position at A$49.3 million, and we remain debt free.
- The quarter was dominated by an all-hands-on-deck marketing effort to secure offtake agreements for Magnolia LNG.
- On 23 January 2017, Magnolia LNG announced a non-binding heads of agreement (HOA) with Vessel Gasification Solutions, Inc. (VGS) for sales to KGLNGT terminal in India. The non-binding HOA provides for a 20-year free-on-board (FOB) sale and purchase agreement (SPA) of up to 4 mtpa. The obligations of the parties are conditional upon Magnolia LNG's satisfaction with or waiver of conditions precedent including financial close of the KGLNGT terminal and satisfaction by VGS of defined credit requirements underpinning their LNG purchases within agreed timeframes.
- On 31 March 2017, management conducted an investor presentation and conference call highlighting the competitive advantages and greater certainty of the Magnolia LNG project relative to other LNG projects in North America.
- Managing Director & CEO, Greg Vesey, Chief Commercial Officer, Mr Anthony (AG) Gelotti, Chief Technical Officer, John Baguley, and other marketing staff attended the Gastech international gas and LNG market conference in Tokyo in early April 2017.
- On 30 January 2017, Magnolia LNG announced a further extension of the validity period of the current binding EPC contract with KSJV through 30 June 2017.
- LNGL continued to examine technical improvements in the OSMR(R) technology and plant modular design to further reduce costs.
- On 24 March 2017, Magnolia LNG requested the Lake Charles Harbor and Terminal District proceed with finalizing the Ground Lease for the Magnolia LNG project.
Bear Head LNG:
- The Transport Canada's TERMPOL Review Committee completed their review of the Bear Head LNG TERMPOL report. The TERMPOL review process is a technical review of marine terminal systems and transhipment sites. It is a voluntary review of the proposed shipping route and marine terminal, but mandated under the separate environmental assessment process, and identifies navigational and marine transportation-related recommendations to support a safe shipping environment.
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 March 2017, net operating cash outflow was A$7.1 million, which compared with the net operating cash outflow of A$5.1 million for the three-months ended 31 December 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 March 2017 was A$49.3 million, which compares to A$59.9 million as at 31 December 2016, reflecting a net reduction in reported cash of A$10.6 million. The change in reported cash between periods reflected net cash outflows of A$7.1 million and a non-cash reduction of A$3.5 million from currency translation effect relating to movements in exchange rates associated with cash held in denominations other than the Australian dollar (primarily U.S. dollars). The quarter ended March 2017 included several expenditures of a nonrecurring or annual nature, which inflated the quarterly cash outflow relative to the quarter ended December 2016.
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.
The Company has no debt.
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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