Ann: Magnolia LNG EPC Contract Extended, page-90

The ever so under fire GV... justified or unjustified? You all know my answer! Our CEO has been at the helm since April 2016, milestone after milestone being ticked off with not 1 stumbling block that has blocked our march towards FID. Yes, the jury is out on his and the company's marketing skills, has been using words for a long time like "finalising off-take agreements" and throwing out statements in press releases with time frames like "we remain confident in signing off-take agreements with credit worthy buyers later this year or early in 2018". You feel management are being misleading and should be held accountable? The reality is... they have no idea when a buyer is going to pull the trigger and only release genuine statements IMO judged by their feelings on how close or how advanced they believe our discussions are to securing contracts! They must remain optimistic with their choice of words and projections, otherwise we also lose faith in the future.

A majority of understandably restless shareholders have chosen to ignore/ not acknowledge the facts (of the past) and the facts are, which have been repeated over & over by management and top industry experts, that the macro conditions were not conducive to sign BTA contracts since 2015 till the arrival of 2018. Period!! Who's going to invest in new export projects when the massive glut arrived and the price of oil was hovering in the low $30s per barrel in early 2016?? No wonder the legend MB decided to say goodbye, he could simply see no light at the end of the tunnel for a long while to come!

During the boom times for new projects reaching FID, between 2011-2015, the statistics are:

2011 - 26.9mt worth of new projects reach FID * Price of Brent Crude Oil was above $100/BBL all year bar 24 days, reaching a high on Apr 8 of $126.65 *

2012 - 23.7mt FID * Brent Crude Oil above $100/BBL all year bar 24 days, reaching a high on Mar 12 of $126.22 *

2013 - 29.1mt FID * Brent Crude Oil above $100/BBL all year bar 5 days, reaching a high on Feb 8 $118.90 *

2014 - 27.6mt FID * Brent Crude Oil above $100/BBL all year until Sept 09 where it hits $99.16 and begins to tumble/ crash triggered. Reached high on Jun 19 of $115.06 *

2015 - 20.3mt FID * Brent Crude Oil below $100/BBL all year, reaching a high on May 5 of $67.52 and a low on Dec 22 of $36.11 * Freeport Train 3 (4.4mt), Corpus Christi Train 1 & 2 (9mt), Sabine Pass Train 5 (4.5mt), Cameroon Kribi Train 1 (2.4mt) were the projects to reach FID.

To further have GV's back amidst his band of naysayers, several analysts like Reuters, who produced a report on Feb 14 2018 headlined, "Asia's soaring gas demand opens window for new LNG projects" , made the following comments:

" Asia’s LNG market has been glutted since 2015, following massive development that began in the early 2000s. But a gasification programme in China last year and strong economic growth across Asia pushed up demand, contributing - along with a cold winter - to a doubling of LNG spot prices LNG-AS from mid-2017.   
The market is expected to remain relatively tight for the remainder of 2018, with China’s gas programme continuing and delays at several export projects.  This unexpected tightening potentially opens the way for new projects for the first time in several years. Many projects were delayed or axed when oil and gas prices started tumbling in mid-2014. Now energy companies are returning to health as prices have improved ".

Another report i remember reading read along the lines of, "the fog is beginning to clear and buyers are beginning to realise that the market looks set to enter undersupply by early 2020s, so investment in new export projects needs to happen now to guarantee supply ".

Boom - 2 important BTA's signed early this year by Cheniere with CNPC (20 years, 1.2mt starting 2023) and Mozambique's Anadarko with EDF (15years 1.2mt).

New demand will continue to surge - interesting to see yet another import terminal proposed (by Jera, Marubeni) for Australia for 2mt -  crazy to comprehend when considering our huge amount of natural gas reserves and incredible that it's going to be cheaper for domestic consumers to afford imported LNG than from our own grounds!!

Many aspiring "mega projects" are not going to be economically viable - was great news hearing one of our perceived competitors (although shouldn't be) , Rosneft's Arctic LNG 16.5mt, was knocked back/ denied exporting rights by Russia's Energy Committee because of concerns there would be interference with Gazprom's monopoly. This reason was challenged by our COO who stated, " Arctic LNG in any fashion anywhere continues to surprise me; it simply cannot be economic unless oil goes back over $100/BBL and there is massive liquids production to underpin the LNG economics - LNG alone could not survive in the expected range of LNG pricing over the next decade + if an Arctic project was knocked back, the reason was probably economic despite what the rational provided said ".

In closing, lets not forget GV's experience in overseeing the marketing & trading department while working with Chevron, his official position reading, President of Natural Gas & Vice President Gas Supply and Trading from Feb 2011 - Dec 2015. His organisation was responsible for signing the following SPA's during that period:

SK 4.15mt  5yrs  signed Jan 21 2015
Tohoku .9mt  20yrs  Oct 1 2013
Chubu 1mt  20yrs  Mar 28 2013
Tepco .4mt  20yrs  Jun 18 2012
Verve/Synergy .85mt  Nov 30 2011
Kyushu .7mt  20yrs  Sep 15 2011
Tepco 3.1mt  20yrs Jul 26 2011
JX Nippon .3mt  15yrs  May 10 2011
Kyushu .3mt  20yrs Jan 24 2011

Its been a promising start to 2018 with 4.7mt worth of known contracts signed + Gazprom's renegotiation of prior contract with Gail for possibly an additional 6mt + Petronas contract with H-Energy Mideast (conditions undisclosed). I wouldn't say its raining BTA's all around us, so why aren't we signing deals. And the writing is not on the wall... GV has till the end of the year to realistically reach the 4mt goal!

But its certainly time to giddy up!