Inpex increases Ichthys stake

20 December, Week 50, Issue 549

Japan’s Inpex has struck a deal to acquire a 4% stake in the Ichthys LNG project from Total for US$1.6 billion. Inpex is the operator of the US$40 billion project. The price agreed covers the cost overrun at the project, with the final bill coming in at US$45 billion.  

The Japanese company previously held 62.245%, while Total had 30%. Following completion of the deal, Inpex’s share will reach 66.245%, while Total’s will drop to 26%. The transaction is subject to regulatory approval by the Australian government. 

The plant began producing condensate on October 1, with LNG coming on October 22 and LPG on November 19. LNG volumes will ramp up to 8.9 million tpy, of which 70% is contracted to Japanese customers, with both trains now operational. LPG will reach 1.65 million tpy and condensate 100,000 bpd at peak. 

The stake transferred includes holdings in the upstream aspect, Blocks WA-50-L and WA-51-L, in addition to the downstream company, which owns the pipeline and assorted liquefaction equipment. 

In its statement on the deal, Inpex said this would contribute to security of supply for Japan, while also responding to the energy needs of Asia and the rest of the world. The agreement is also in keeping with its Vision 2040 and medium-term business plan, announced in May of this year. 

Total’s head of exploration and production, Arnaud Breuillac, said the sale was “part of our constant portfolio review to optimise our capital allocation”. 

The project was one of a wave of Australian LNG projects that had experienced “major cost overruns and delays during their construction phase. The final capex estimate provided by the operator is around US$45 billion, to be compared to an updated figure around US$40 billion in 2017,” Breuillac continued. A 30% share of the US$5 billion cost overrun is US$1.5 billion.

Despite the sale, the Total official said the company remained committed to the project. 

Inpex acquired an exploration permit on the block in 1998, reaching FID on the plant in January 2012. 


Adding it up

Total’s sale allows the company to come out of the construction phase and into production without any further expenditure, a crucial measure to ensure investor happiness. One of the points winning the French company favour at its September investor day was a commitment to capital discipline, with spending at US$15-17 billion until 2020.

However, the decision comes at a price. While Ichthys was expensive to build – more so than initial estimates – the project’s production appears highly lucrative. According to Bernstein Research predictions, in late November, output from the Australian plant will generate cash margin of US$38 per boe, when priced at US$70 per boe. Operating cash flow, it continued, would reach more than US$5 billion per year by 2022. 

One point raised by Bernstein was how Inpex might have to choose between expanding Ichthys and moving ahead with the 9.5 million tpy Abadi liquefaction plan in Indonesia. “Another remote greenfield LNG project is not what investors want to see. Ichthys expansion would be far better for shareholder returns, but this appears to be less favoured by the company,” the note said. Inpex could add another two trains at the Ichthys site, there is scope for four more, and the pipeline from the offshore is already sufficiently large to handle such an increase.


Edited by

Ed Reed


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