LNG

Japanese companies JGC Corp. and Chiyoda Corp. and US engineer KBR who built the onshore Ichthys liquefaction and export plant at Bladin Point near Darwin in Australia, have lost a Court of Appeal case for a US$1.9 billion claim against a power station sub-contractor.

US engineering company KBR, a world leader in liquefaction plant construction projects, said it would exit most of its LNG on-site building ventures and other related projects because of the global reduction in energy investments.

The Houston, Texas-based company will now refocus on its government contracts and technology businesses, according to a conference call statement to investors and letters to employees from Chief Executive Stuart Bradie.

“KBR will no longer engage in lump sum, blue collar construction services,” said Bradie, explaining that the Covid-19 pandemic accelerated the decision to leave fixed-contract energy projects.

KBR holds contracts for engineering and construction services for several LNG export projects, including Freeport LNG’s Train 4 expansion at Quintana Island in Texas, Pieridae Energy’s proposed Goldboro LNG facility in the Canadian province of Nova Scotia and Glenfarne Group's Magnolia LNG project in Louisiana.

Freeport LNG has delayed its expansion project to 2021 and planned to seek new bids for construction.

KBR gave no details of potential impairments in its next earnings because of the LNG and energy construction pull-back, though it said in a recent strategy Webcast on June 16 that it expected the energy business to be “marginally profitable” in 2020.

CEO Bradie is expected to disclose more details when the second-quarter results are released in July

Bradie told investors in the conference call that about 85 percent of the company's forecast earnings for 2020 are expected to come from the government-related contract business, up from about 11 percent in 2015.

KBR said the changes would mean “significant realignment” in some offices as the management transforms the business to the new structure and to new ways of working, while exiting certain markets and regions.

KBR appears to be only existing “construction services” and is expected to continue with its consulting business in the energy and related sectors.

Its most recent energy contract awarded in May 2020, was a master service agreement and feasibility study by Japanese resources company JX Nippon Oil & Gas Exploration Corp.

The contracts will be executed by KBR’s Energy Solutions division, which includes sectors such as onshore oil and gas, LNG liquefaction and regasification, floating LNG and refining.

KBR said it was building on a strong and successful portfolio in the of options for Carbon Capture and Sequestration (CCS), alongside blue hydrogen production relating to oil and gas fields in Southeast Asia.

In the JX Nippon project, KBR will provide technical consultancy services in relation to developing concepts and technology recommendations for the capture of carbon-dioxide (CO2), re-injection and production of blue (carbon free) hydrogen.

The project will be led primarily from KBR's consulting hub in Singapore.

May 20 (LNG) - LNG and energy engineering company, KBR of the US, has signed a joint venture agreement with NIPIneftegas JSC to establish a new engineering and support services company in Kazakhstan, the former Soviet Republic which is a big supplier of pipeline natural gas to China.

   “With support from KBR and NIPIneftegas, the venture called KBR-NIPILLP, will provide engineering, procurement, design and related services for projects across the upstream, midstream and downstream oil and gas sectors, within the Republic of Kazakhstan,” said a statement. Kazakhstan supplied 7.5 billion cubic metres of natural gas to China last year and plans to gradually increase this total to 10 Bcm per annum. 

JGC Holdings Corp., the leading Japanese LNG and energy engineering firm, has appointed the former executive at KBR of the US, Farhan Mujib, as the company’s new Senior Executive Vice President for JGC’s overseas engineering, procurement and construction business.

Pieridae Energy, the developer of the German-backed Goldboro LNG project in the Canadian Atlantic province of Nova Scotia, has had its purchase of Royal Dutch Shell’s midstream and upstream assets in the southern foothills of Alberta blocked by the provincial regulator.

KBR, the US engineering company with a strong energy and LNG presence, has been awarded a master service agreement and feasibility study by Japanese resources company JX Nippon Oil & Gas Exploration Corp.

The US export project, Magnolia LNG, and its owners LNG Ltd have been purchased by a London-listed energy infrastructure firm for US$2.25 million from Australian insolvency administrators appointed to oversee asset dispersals.

Petroleos Mexicanos (Pemex), the Mexican oil and gas producer, appears to have nothing left in its locker to cope with the current global crisis and may have to call on US credit lines for its pipeline natural gas and LNG imports after its corporate and state ratings were reduced.

The socialist government of President Andrés Manuel López Obrador, which had made boosting Pemex’s declining output one of its core objectives, is now being squeezed on the financial front after reversing previous administration’s policies and keeping private companies out of the energy business.

Before then crude price slump and coronavirus impacts Pemex had produced 1.7 million barrels a day of crude on average in January 2020, below government forecasts and just half of peak production of 3.4M barrels in 2004. 

Analysts said that with oil prices where they are, 75 percent of Pemex’s oil and gas fields will only generate losses if output is not cut.

They added that the risks goes well beyond Pemex as the Mexican government relies on the energy company to fund 18 percent of the national budget with its oil sales.

US company S&P Global Ratings has now downgraded Pemex and its subsidiaries PMI Trading Ltd., PMI Norteamerica SA and MEX Gas Supply and conducted similar action on the sovereign credit rating.

“Recurring government aid to Pemex over the last 12 months reinforces our assessment of an almost certain likelihood of extraordinary government support if the company were to run into financial difficulties,” explained S&P Global.

“Therefore, the ratings on Pemex continue to mirror those on the sovereign debt,” it added.

López Obrador was aiming to build a large new oil refinery in an $8 billion project with which he hoped to divert Mexican oil exports to domestic use and cut dependence on US fuel imports.

The Mexican President had reversed the policies of the previous administration that had decided to gradually cut Pemex loose from state funding for its monopoly business.

Some of the refinery contracts were awarded in July 2019 for the project in the southern port of Dos Bocas to companies including US LNG and energy engineers KBR Inc., Fluor Corp. as well as Samsung Engineering of South Korea and several Mexican companies.

The refinery in the President’s home state of Tabasco was scheduled to process 340,000 barrels per day of Mexico’s benchmark grade, Maya heavy crude, and to be completed by 2022. 

S&P Global downgraded its foreign currency and local currency ratings on Pemex to “'BBB” and “BBB-plus” from “BBB-plus” “A-minus”  respectively, and maintained a negative global scale ratings outlook after similar action on Mexican government debt.

“Lower oil and natural gas prices anticipated over the next two years will jeopardize the execution of Pemex’s business plan, because weaker cash flow will limit the ability to fully fund its multi-annual capital investment needs,” explained the S&P report.

“In this context, we see limited room for Pemex to improve its very weak credit metrics any time soon,” stated the US firm.

“In addition, low cash flow generation prospects and an extended period of adverse financing conditions could gradually tighten the company's liquidity,” it added.

“Therefore, we have revised downwards our stand-alone credit profile (SACP) on Pemex to “CCC-plus” from “B-minus,” said the report.

“The negative outlook on Pemex mirrors that on the sovereign and reflects our view that the close relationship between the company and the sovereign will remain unchanged in the next couple of years,” S&P explained.

“Our assessment also captures the integral link between Pemex and the government, given its full ownership of the company and the high government involvement in all strategic decisions,” it added.

“We consider that our assessment has been reinforced over the last 15 months through recurring government aid to Pemex in the form of capital contributions, legal amendments to alleviate the company's tax burden, the monetization of certain assets, and close collaboration to deter fuel theft,” said the credit report.

“Another factor captured in our assessment is the reversal in Mexico's energy policy under the current administration, which repositions Pemex at center stage and curbs the participation of private players in the domestic energy sector,” added S&P.

The US ratings firm said it expect a “pronounced hit” to the Mexican economy with the combined shocks of the coronavirus in Mexico itself and in the US, its main trading partner, and lower oil prices.

“These shocks, while temporary, will worsen already weak gross domestic product (GDP) growth dynamics for 2020-2023 that reflect, in part, low private-sector confidence and poor investment dynamics,” it said. 

Japanese LNG engineering company JGC Corp. said it was moving forward with its contracts in the southeast African nation of Mozambique and with the LNG Canada joint venture.

KBR, the US engineering and LNG contractor, was awarded a major project management consultancy services contract for the Ghasha portfolio of gas projects by Abu Dhabi National Oil Company in the United Arab Emirates, the oldest LNG producer in the Middle East.