Kogas hires adviser for Santos GLNG stake sale
By MIN-JEONG LEE and DAVID WINNING
SEOUL -- South Korean state-run utility Kogas has selected Samsung Securities to advise on the potential sale of a stake in Australia's $18.5 billion GLNG liquefied natural gas project.
The process--to be jointly run by Rothschild--will consider the sale of two-thirds of Kogas's 15% stake, which the Korean company acquired in late 2010 for $688 million, a person familiar with the matter added.
The move comes as projects like GLNG that aim to convert coal seam gas to LNG for export are facing headwinds from rising labor and equipment costs and a high Australian dollar, eroding potential returns for investors. Confidence in the sector is also being overshadowed by competition from potential new gas exporters like the U.S. and Canada, which are preparing to ship LNG to Asia.
GLNG, operated by Australia's Santos and also counting Malaysia's Petroliam Nasional and France's Total as major shareholders, has already overrun its budget by 16% from an original forecast of $16 billion.
Analysts think further overruns are inevitable, not least because the budget was put together when the Australian dollar was at a lower rate against the U.S. dollar. In a December report, Goldman Sachs predicted it will cost $20.6 billion to build.
The GLNG project is one of four multibillion dollar gas-export projects under construction or planned at Gladstone, a port city in eastern Australia's Queensland state. BG Group is leading development of the Queensland Curtis LNG project, while the Australia Pacific LNG venture of Origin Energy, ConocoPhillips and Sinopec, is targeting first exports in 2015. Royal Dutch Shell and PetroChina are yet to decide whether to begin building their Arrow Energy LNG project.
"No final decisions have been made on whether to divest the stake in the Gladstone project," a Kogas spokesman said by phone. Any decision will be made based on recommendations by the advisers, he said, declining to comment further.
The GLNG project involves building two processing trains, capable of producing a combined 7.8 mtpa of LNG a year. Kogas will take 3.5 million tons of this, a similar amount will be delivered to Petronas and the remainder is to be sold on the spot market.
The move comes two years after Kogas, the world's largest corporate buyer of LNG, said it may sell around a 10% stake in the Gladstone project to Korean or Japanese companies. It has been seeking ways to alleviate its hefty debt burden, an obstacle that has held the firm back from aggressively expanding its overseas gas assets. According to the company's latest financial statement, it had a debt ratio of 361% as of end-September 2012.
One of the company's most successful ventures has been a Mozambique gas project with Eni. Kogas has said it would like to increase its current 10% stake in the offshore gas field given good prospects that more reserves will be found.
A Kogas executive, however, has said Kogas would need strategic partners to help finance any further stake increase, given the wide scope of other projects it needs to pay for and execute.
Corporate activity among LNG projects at Gladstone remains high, even though none of the projects is expected to ship LNG this year. BG Group last year sold an additional 40% interest in the first production facility at its Queensland liquefied natural gas project to CNOOC for US$1.93 billion, giving the Chinese company a half-share in the plant.
Origin and Conoco are currently seeking a buyer for a combined 15% stake in APLNG, which would reduce their holdings to 30% each.
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