Rising costs set to trigger Chiyoda losses in Qatar

04 April 2008
Japanese firm set to announce further $150m drop in revenues from Qatari liquefied natural gas projects.

Japan’s Chiyoda Corporation could make a loss in 2008 because of rising costs at its liquefied natural gas (LNG) operations in Qatar.

The company has already lowered its operating profit estimate for the year to 31 March from $214m to $68m, after a sharp increase in construction costs on the LNG projects, caused by rising labour charges and lower productivity.

However, it is now poised to announce a further $150m drop in revenues from its operations in Qatar, following crisis talks over the construction of two gas trains with the client Qatargas. This would wipe out all its profits.

Chiyoda said on 31 March that it had reached agreements with its clients for new deadlines and compensation targets for the Qatargas II joint venture, and for its work on the RasGas 3 project.

However, an executive close to Chiyoda tells MEED that discussions on the changes for Qatargas 3 (train six) and Qatargas 4 (train seven) are likely to reveal further losses of at least $150m. This is in addition to the $146m downward revision already made.

“Chiyoda is saying that it has had its bad day, but the industry is not so sure,” says the executive.

“It is likely to have to book another $150m writedown, possibly as soon as May, when discussions are completed.”

One Tokyo-based energy analyst says there is a chance Chiyoda could slide into the red, given the possibility of additional costs on its Qatar LNG ventures.

“Profitability is already at a low level and depending on how the next round of talks proceed, Chiyoda may yet face a further slide,” says the analyst.

Chiyoda says payments for the last two LNG trains under construction remain outstanding, but it has declined to put a figure on any possible further writedown until discussions have been completed with Qatargas.

The Japanese company’s problems follow the financial difficulties suffered in Qatar earlier this year by French contractor Technip, a joint venture partner of Chiyoda on several major Qatari LNG projects.

Technip said it would incur charges of nearly $300m in the fourth quarter because of delays on its Qatar projects.

Chiyoda and Technip were previously rebuffed by Qatargas on a claim of more than $700m in additional payments to cover spiralling costs on a host of linked LNG pro-jects being built (MEED 15:02:08).

The final major LNG projects on which Chiyoda and Technip are working are Qatargas 3 and 4, each of which involve a train of 7.8 million tonnes a year. Construction of the first is expected to be completed by 2009, with the other following six to 12 months later.

Financial analysts tracking the performance of Technip and Chiyoda estimate that the profit margins the two companies will have for the onshore work are now below 10 per cent.

The two companies are due to receive a combined total of about $5.8bn in revenues from all their Qatari projects.

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