COMPANY NEWS: Tractebel pulls out of Atlantic LNG project

Oct. 20, 2003
Tractebel LNG North America LLC has pulled out of the $1.2 billion Atlantic LNG Co. of Trinidad & Tobago's (ALNG) Train 4 expansion project after more than a year of negotiations.

Tractebel LNG North America LLC has pulled out of the $1.2 billion Atlantic LNG Co. of Trinidad & Tobago's (ALNG) Train 4 expansion project after more than a year of negotiations.

Highly placed sources at the company told OGJ last month that Tractebel did not have sufficient value across the LNG chain to warrant the investment and was unable to meet the demands of the Trinidad and Tobago government.

In other LNG news, France's Total SA reported signing an agreement with Royal Dutch/Shell Group to acquire a 25% stake in the Altamira LNG regasification terminal project, marking its first involvement with an LNG regasification terminal.

The terminal, to be built near Port of Altamira on Mexico's eastern coast near Tampico, is expected to start operation during the second half of 2006.

In downstream news:

  • Ashland Inc., Covington, Ky., plans to reduce expenses by $75 million in fiscal 2004. The program will eliminate 500 jobs in Ashland's wholly owned businesses and corporate resource groups, and 80% of the reductions will be completed before Nov. 30.
  • Norsk Hydro ASA, Oslo, has agreed to sell its 25% stake in the 200,000 b/d Scanraff oil refinery at Lysekil, Sweden, to the Sweden-based Preem Petroleum AB, which already owns the other 75% of that refinery.
  • South African petrochemical company Sasol Ltd. and British freight and logistics firm Exel Petroleum applied Oct. 1 to London's Competition Commission for approval to merge their liquid fuels businesses.

In upstream news:

  • International oil major Esso SAF is contemplating cutting 164 jobs in France as part of a study being examined by ExxonMobil Corp. to centralize some European services.
  • Spain's Santander Central Hispano SA (SCH) Sept. 26 made an offer to acquire 16% of additional equity in Cepsa, Spain's second largest oil company, in a bid that would give the banking group a 35.9% holding in the company.

Tractebel, ALNG

Both Trinidad and Tobago Energy Minister Eric Williams and Robert Riley, chairman of BP PLC unit Amoco Trinidad LNG LLC—the largest single shareholder in the Train 4 project—confirmed that Tractebel is out of the project.

Tractebel, the largest importer of LNG into the US, wanted the ALNG Train 4 project to be structured in a way that would maximize income at the Train 4 facility rather than at the wellhead.

The company has no revenue from upstream gas sales, as do most of the other partners, who are wholly owned subsidiaries of BG Group PLC, Repsol-YPF SA, and BP.

But Trinidad and Tobago wanted high wellhead gas prices so that it could increase the country's revenues through higher taxes upstream, limiting the ALNG facility profits to an average 8% return on investment.

Williams emphasized that Tractebel's exit will not affect the expansion.

"It has not affected the project. Work is continuing at the Point Fortin Train 4 site without Tractebel. Tractebel's potential 10% interest will be shared among the other partners in accordance with shareholder covenants among the existing parties. The company's 10% shareholding will be split among the other partners," said Williams.

Williams also noted that already the partners have signed the final agreement establishing the project, which received government sanction on June 14.

BP's Riley said an "omnibus" agreement was reached between the shareholders. "The agreement outlined a clear series of procedures and included the formal passage of the expansion being resolved," he said.

Unlike ALNG's first three LNG trains, under the Train 4 agreement, the Train 4 liquefaction facility has been decoupled from the upstream gas producers even though they also are the shareholders of the plant.

This means the liquefaction facility will operate at an arm's length from its suppliers and will earn an agreed utility rate of return of 8%, and the tax paid to Trinidad and Tobago will be 35% as opposed to the 55% paid by upstream producers at the wellhead.

The processing fee that ALNG will levy for liquefaction will be made up of a production charge, operating costs, and a capital recovery cost.

Williams said the formula mandated by his government means the Caribbean twin islands would earn $4 billion from Train 4 if the Henry Hub gas price average $3/MMbtu, but if it averages $5/MMbtu, then the return to the government coffers would be closer to $10 billion during the project's 20-year life.

The Train 4 agreement also means that on completion of the project, BP's gas sales in Trinidad will reach 2 bcfd. BP remains the largest shareholder in ALNG and has participated in each LNG train expansion.

BP holds a 34% interest in Train 1, 42.5% in Trains 2 and 3, and 37.5% in Train 4 due to Tractebel's decision to stay out of the project.

BP provides all of the 450 MMcfd required by Train 4 and another 600 MMcfd required by Trains 2 and 3. Riley said BP is expanding its LNG business worldwide, and that Trinidad and Tobago was key to these plans.

Riley said BP considers Trinidad and Tobago its fifth most important operation area, more important that even the North Sea.

Total, Mexico

If approved by Mexican authorities, Total's acquisition in the Mexican LNG terminal at Altamira will mean it will hold a 25% interest in two of the LNG project companies—marketing firm Gas del Litoral and Terminal de LNG de Altamira.

The former has been awarded a 15-year contract from the Comisión Federal de Electricidad to supply 5 billion cu m/year of natural gas from the new regasification terminal and the latter will build, own, and operate the terminal.

Already a major player in the LNG market, Total commercialized nearly 6 million tonnes of LNG during 2002 and holds stakes in five LNG plants worldwide, the company said.

Ashland cutting costs

Ashland Chairman and CEO James J. O'Brien said, "Reducing our costs is a pivotal part of our strategy to produce top-quartile results relative to our peers. Becoming a low-cost, operationally excellent organization is critical to serving our customers, enhancing our financial strength and restoring our ability to grow."

O'Brien noted that Ashland eliminated 200 jobs in fiscal 2003 and recorded $8 million in severance and related costs in earlier periods. When added to the 500 positions currently being eliminated, the combined total of 700 jobs equals 7% of Ashland's salaried employees.

Ashland is examining additional cost reductions through a realignment of activities across the corporation and through outsourcing, he said. Estimates of potential savings and transition charges have not yet been made.

Regarding the recently announced personnel changes, Ashland expects to record $18 million in before-tax charges.

Norsk Hydro, Preem Petroleum

Norsk Hydro is exiting the refining business with the sale of its Scanraff refinery stake for 1.4 billion kroner to Preem Petroleum. The deal is expected to close in the fourth quarter, pending approval from authorities.

The transaction is expected to yield a 600 million kroner net gain for Norsk Hydro, and there will be no tax effect, the company said.

Norsk Hydro said it would meet its refined products needs for its Swedish retail marketing operation through a long-term supply agreement with Preem.

Sasol Oil, Exel Petroleum merger

Sasol said it has worked closely with Exel since 1997. If approved, the newly formed company, Sasol Liquid Fuels Business (LFB), will incorporate the liquid fuels interests of both firms. The commission's response is expected by Dec. 31, Sasol said.

LFB will cover the "entire value chain," starting with crude oil procurement for Sasol's 64% stake in National Petroleum Refiners Pty. Ltd.'s refinery at Sasolburg, South Africa, and receiving blending components from the Synfuels refinery at Secunda, South Africa, Sasol said.

Exel Chairman Jomo Sono said, "We have a secure supply of product from the industry leader. We will have greater access to capital and technology for future expansion—and the prospect of a meaningful share of [South Africa's] biggest and most competitive fuel company."

Exel held a 3.7% share of South Africa's gasoline market and a 7% share of its diesel market as of June, Sasol said.

Esso, cost study

An Esso spokesman told OGJ that options are being studied, and that nothing has been decided yet. The suggested job cuts are the framework of a project to centralize numerous services, such as computer services or human resources.

Esso SAF Chairman and CEO Patrick Henzle met with the Central Workers Committee in September and October to discuss the project aimed at bolstering corporate efficiency and reducing costs.

The trade unions have suggested that job cuts in Europe could be as high as 1,500, but the Esso spokesman was not able to confirm or deny this figure.

SCH, Cepsa

Total SA, which is a majority stakeholder in Cepsa with 45.28%, reacted strongly to SCH's offering. On Oct. 13, Total said it had filed an arbitration procedure against SCH with the Netherlands Arbitration Institute in The Hague.

SCH and Total had an agreement, signed in 1990, requiring mutual consent for any changes in the stake of either partner. Total said that it was not notified of SCH's plans to acquire a larger stake in Cepsa.

SCH claims that the 1990 agreement no longer applies following the July approval by Spain's Parliament of the Aldana Law, which forbids pacts signed since 1988 between shareholders that collectively hold more than 25% of a company's capital.

When asked about the reasons behind SCH's bid, some analysts said it could relate to voting rights within Cepsa. In 1990, the Spanish government accepted Total's Cepsa stake holding, but limited the company's voting rights.

Total has only 36.9% voting rights, while SCH controls 33.2% of the votes with its current 19.9% Cepsa shareholding. Cepsa might have feared that the end of the mutual pact under the new law would give Total majority voting rights, analysts said.

Analysts also noted that SCH's offering does not exceed 16%, meaning that SCH wishes to remain beneath the 50% stakeholder point, which would force it to launch a full takeover bid for Cepsa.