KUALA LUMPUR: The elimination of the overhang of future leverage increase following the cancellation of the proposed C$36bil (RM124bil) Pacific NorthWest liquefied natural gas (LNG) project in western Canada, is credit positive for Japan Petroleum Exploration Co (Japex) said Moody’s Investor Service.
The ratings agency said on Monday that it previously had not incorporated the full magnitude of the potential increase in leverage in its assessment on Japex, a minority owner of the planned facility, given the event risk entailed amid the low gas price environment and uncertainty around timing.
Japex has a 10% stake in the Pacific NorthWest LNG project consortium.
On July 25, 2017, Pacific NorthWest LNG, which is majority-owned by Petroliam Nasional Berhad (Petronas), announced it had scrapped plans to build the LNG export facility in British Columbia given low LNG prices.
“The elimination of the overhang of future leverage increase is credit positive for Japex.
“The project cancellation nonetheless comes as Japex is seeking to reduce its reliance on exploration and production, integrate its upstream and downstream businesses and expand its power-generation operations.
“Japex had planned to export the gas that would be liquefied at this site to its Soma LNG terminal in Fukushima, Japan,” it said in a note.
The Soma LNG terminal is scheduled to begin operations in March 2018 to leverage the company’s gas-pipeline infrastructure in Northern Japan and to fuel natural-gas power generation at Soma Port.
“By not engaging in the LNG project, Japex’s future leverage would be lower than if it proceeded with the project.
“Still, we think the company will seek other opportunities to diversify its business away from E&P under its medium-term business plan.
“We don't rule out the possibility of large investments by Japex leading to rising debt levels, which would be credit negative,” it said.
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