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Australia' s LNG Limited appoints voluntary administrators in sign of potential insolvency

Highlights

Future of Magnolia LNG project in Louisiana uncertain

Commercial, financial struggles have beset developer

Houston — Australia's LNG Limited has appointed voluntary administrators from PricewaterhouseCoopers, in a sign that the Magnolia LNG developer may be preparing to enter bankruptcy or liquidation. CEO Greg Vesey has also stepped down from the board.

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The developments, announced Friday, followed the April 13 withdrawal of a takeover offer for LNG Limited that the company had said was the best chance to save the up to 8.8 million mt/year export project that it has been pursuing in Louisiana.

The future of the project and the company's US operations was not clear. PwC officials were reviewing the parent company's assets and planned to contact creditors afterward, according to a statement on LNG Limited's website.

In Australia, voluntary administrators are usually appointed by a company's directors after they decide that the company is insolvent or likely to become insolvent.

Administration is akin to bankruptcy in Australia. In some cases, administrators may be appointed for the purpose of liquidation. LNG Limited had most recently said it only had enough cash to fulfill its obligations until May.

PwC officials were installed to speak for the company. Reached via WhatsApp, a spokeswoman, Lisa Macnamara, said she could not immediately address questions about Magnolia LNG or the status of certain LNG Limited executives, including Vesey.

The precipitous decline of the company's operations comes amid weak global LNG market conditions that have been exacerbated by the coronavirus pandemic. Widespread stay-at-home orders have caused overall demand to drop and led to a further decline in international prices, a trend that started before the virus was first observed in China in December.

LNG Limited's financial challenges started well before that, and only got worse afterward.

Magnolia LNG received its certificate authorization from US regulators to build Magnolia in 2016. It also secured a fully wrapped engineering, procurement and construction contract. What it was unable to do in the four years since was reach any firm offtake deals with buyers of the LNG it planned to produce. Most North American developers need such contracts to be able to secure financing for the billions of dollars for construction.

The commercial struggles continued even after the company's bargain offering for Magnolia capacity, which Vesey disclosed to S&P Global Platts in April 2019 on the sidelines of an industry conference in China. Vesey said the company was willing to take as little as $2.35/MMBtu and 113% of Henry Hubto secure offtake agreements.

Last fall, the company announced a preliminary deal for 2 million mt/year of supply that was to be tied to a proposed Vietnamese power project, but that transaction still had yet to be finalized at the time the administrators were appointed Thursday.

When the takeover offer for LNG Limited from an energy investor with ties to floating regasification facilities in Asia and Europe was announced February 28, LNG Limited said the deal was critical to being able to save Magnolia LNG. The alternative was the risk of administration or liquidation, it said at the time.

Insolvency would trigger contract clauses that could allow counterparties to terminate the project's EPC contract and its port lease for its 115-acre site along the Calcasieu Ship Channel.