KBR excerpts about Magnolia

This was from a conference call 6 June - apologies for fromatting...

Q&A



: I guess I'll kick it off, because we should have plenty of time for Q&A. Obviously, the
Magnolia contract, just there's been a lot of press out there and KBR's positioning there. But can you just sort of help us
understand the OSMR technology, what the benefits are, how KBR plays an expertise in that role? I mean, I guess it's
supposed to be a lower-cost solution, but I think it's a new technology, so, historically, what risk that bears to KBR.



: Yeah. Good question. I think the risk – let's just talk about that first. So, we're designing that
facility to 2 million tons. We would typically give a process guarantee of 98% of capacity. In this particular case, we're
guaranteeing 1.7 million tons. So, quite a significant headroom and conservative position in terms of the technology
and where we sit from a liability perspective; so I think it's worth stating that upfront.
I think that the second piece is that this technology has been looked at independently by four world-class engineering
companies who did independent reviews of the technology, and all came back positive. In a sense, each of the
component parts of the technology are proven, not just proven together, and really the big difference is using ammonia
as the cooler. And KBR's position in the ammonia world is well understood. We're one of the leaders if not the leading
technology provider in ammonia.

So, we've put a deep-dive into the technology. We understand how the interface works. We really have strong pedigree
as you know in LNG and obviously in ammonia, so those two coming together. So, we feel pretty good about the
technology. We feel pretty good about the conservatism in terms of the position we're taking opposite the guarantees on
that technology and there's a number of reports out there that would back that up, from independents, not just ourselves.
So that – I mean, the key advantages are really in CapEx, but also in OpEx.



: So, you would have a third technology in LNG when this project is completed. And we also
probably should add that they have a second site in Canada, Bear Head.



: Well that, I guess, was my second question because we've talked about Bear Head, but how far
along do we have to be with Magnolia? I mean like is it one of those situations where they want to see how this plays
out with Magnolia and then Bear Head, you know, enemy would move ahead and how does that...



: Yeah. I mean, I think that's right, one would follow the other.​

: But we shall also add we're doing already some early engineering on Bear Head.

: Yeah, just a couple of follow-ups on the Magnolia project.



: Yeah.



: There was another firm that was working on it, and then you were brought in. Can you elaborate on sort of why
that happened? And then the second question is, is there going to be an issue getting the project financed given that it's
a new technology? Thank you.



: So, the last question first. We've been to see the debt side and the equity side for Magnolia.
There is no lack of funding availability for this project. The project itself, well, it's situated in Lake Charles. The Kinder
Morgan gas pipeline runs through the edge of the property, so access to gas is not an issue. The offtake, which is​

always the big question in these developments, the first 2 million tons is already committed to E.ON in Europe, the

German utility. So, again, that's public disclosure, so that's very powerful.
The financing in terms of the equity commitment and the debt commitment are there. [ph] PNB (17:43) Paribas are
providing the debt and the equity is coming through a fund called Stonepeak.



: Stonepeak.



: So, that's a very good – and the company itself, LNG Limited, is listed in the Australian Stock
Exchange. I think its market cap is actually $2.5 billion or thereabouts today. So, they've raised money through that
process as well. So, it's in good shape financially. The key component that's missing at the moment is the EPC price,
and that's the piece we're working on.
The associated infrastructure with this project, much of it in place, there's a jetty there, deepwater access, no dredging
required. Some of the infrastructure, like tanks need to refurbish, but they're there. So, there's a lot of associated
infrastructure, the mix, the cost model compelling. So, we feel excited about this.
The other thing I would say about the Magnolia project is its capital intensity is much less than your big 5-million-ton,
6-million-ton trains. So, if you're looking at a sort of an opportunity going forward beyond Magnolia, where you've got
national or sort of developing nations or national oil companies are looking to develop their industry, the level of
capital intensity to get this technology, a 2-million-ton train up and running, and then you add another train and another
train, but you're actually adding revenue while you're looking at the second and third trains, is very attractive. So, we
feel that we're very excited about Magnolia. So, we believe it's a project that can go ahead. We believe the component
parts are in place, and it was brought to us because of our capability in LNG and ammonia [indiscernible] (19:23)
technology. So, does that answer your question?​

: Yes. Thank you.