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US regulators approve LNG-by-rail plan
US NORTHEAST
FEDERAL regulators in the US have approved the use of trains to ship LNG to Gibbstown, New Jersey, from Wyalusing in north-eastern Penn- sylvania. This is the first route in the country on which the transportation of LNG by rail will be allowed, and brings New Jersey a step closer to building its first terminal for the fuel.
The plan is being proposed by New Fortress Energy’s logistics subsidiary Energy Transport Solutions. It involves liquefaction of gas pro- duced in Pennsylvania’s prolific Marcellus shale play and its shipment via rail to Gibbstown. Once the terminal in Gibbstown has been built, the LNG can be exported from there.
The US Pipeline and Hazardous Materials Safety Administration (PHMSA) announced its approval of the plan on December 6, saying it was satisfied that Energy Transport could safely operate the trains. This came despite objections to the project by environmental groups, which argued that transporting the fuel by train posed a risk to public safety, especially in densely pop- ulated areas.
“PHMSA’s technical evaluators have deter- mined that the special permit provides an equiv- alent level of safety to what is required under the
Hazardous Materials Regulations, and recom- mend that the permit be granted,” the agency said in a statement.
The permit only covers shipments between the two points, in a specific type of tanker. The PHMSA also directed Energy Transport to submit its plans for the quantities of LNG to be shipped, and their timing, within 90 days, adding that the company must prepare local emergency responders to deal with any poten- tial release of LNG. These conditions need to be complied with 6-12 months before shipments begin.
Energy Transport’s plan previously envisaged using at least 360 truck trips per day to carry LNG to Gibbstown, over a distance of about 175 miles (281km). According to local media reports, it is currently unclear whether the trains will fully substitute the trucks or will be used in addition to them.
The approval follows an Executive Order issued by US President Donald Trump in April calling for new regulations that would allow the transportation of LNG by rail for the first time. The PHMSA has proposed new rules for LNG- by-rail shipments in response.™
INVESTMENT
Chesapeake makes debt financing moves
US
CHESAPEAKE Energy announced a series of debt financing moves last week. The com- pany said its lenders had agreed to loosen cer- tain restrictions on its ability to incur debt. The move cleared up a prior “going concern” issue, Bloomberg reported.
The company also announced that it was securing an additional $1.5bn loan package from a group of banks. Proceeds will be used to finance a tender offer for unsecured notes issued by its subsidiaries, Brazos Valley Longhorn and Brazos Valley Longhorn Finance. The proceeds will also be used to fund the retirement of Brazos Valley’s secured revolving credit facility.
“Chesapeake expects these transactions to improve its financial flexibility, as they will allow Brazos Valley and its subsidiaries to support Chesapeake’s current and future debt,” the com- pany said in a statement.
Chesapeake also unveiled plans to buy back $700mn of notes due in 2025 at discounted prices, as well as swapping other bonds for new securities.
The moves were welcomed as a step forward in Chesapeake’s efforts to reduce leverage. How- ever, concerns still remain over the company’s longer-term performance. The debt-laden
company warned last month that it might not survive if low oil and gas prices continued into 2020 – and indeed prices show no sign that they may dramatically improve.
The company has taken steps to improve financial discipline under CEO Doug Lawler in recent years, but the price environment has made it more difficult to generate positive cash flow.
A TD Securities analyst, James Spicer, was among those urging caution when considering Chesapeake’s performance last week. “I’m not sure that it solves their problems,” Spicer was reported by Bloomberg as saying of the compa- ny’s debt financing moves. “The underlying issue is generating free cash flow. The company is say- ing it can, but I think it’s very much a show-me story for investors.”
A Bloomberg Intelligence energy analyst, Spencer Cutter, was cited by the news service as saying Chesapeake needed oil prices of around $60 per barrel and natural gas prices around $2.75 per million British thermal units ($76.07 per 1,000 cubic metres) in order to maintain production and generate free cash flow. Oil and gas are currently trading slightly below those levels.™
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w w w . N E W S B A S E . c o m Week 49 11•December•2019