French methane gas firm LFDE may bring forward profitability target - CEO

La Francaise de l Energie SA

25/08/2016 17:11

* LFDE focusing on building strong local partnerships 
    * Shares down since June IPO 
    * Sees Belgian expansion as logical next step 
 
    By Alan Charlish 
    Aug 25 (Reuters) - French coal bed methane gas producer La 
Francaise de l'Energie  LFDE.PA  said it may achieve a key 
profitability target earlier than forecast thanks to its 
strategy of building strong local partnerships with utilities 
and industrial users of gas. 
    The company has certified coal bed methane (CBM) gas 
reserves in Lorraine, northeastern France, covering roughly six 
years of French gas consumption. 
    LFDE, which had a muted debut on the Paris stock exchange in 
June, is set to produce gas from Lorraine in the first half of 
next year. 
    Chief Executive Julien Moulin told Reuters in a telephone 
interview he did not envisage any tie-up with a big energy group 
in the short-term. 
    The company, whose shares are trading around 16 percent 
below the IPO price, is instead concentrating on building 
partnerships with local and regional companies, such as power 
utilities and industrial users, that currently import their gas. 
    That gives LFDE an advantage because "we don't need to add 
the transportation costs and the distribution costs that other 
gas suppliers in France will have to add," he said. 
    "The first production phase will be 100 percent sold to 
local utilities and local industrial players," Moulin said. 
    Moulin said the company expected to achieve a positive cash 
flow, a key measure of profitability, around 2021 or 2022. 
    "With some of the regional partnerships or local 
partnerships that we are discussing as we speak, I think there 
is an opportunity to bring forward the free cash flow positive 
guideline. But we haven't discussed that in detail," he said. 
    Figures released by the company at the time of its IPO show 
that for the final six months of 2015 cash flow linked to 
operational activities was a negative 1.1 million euros while 
the operating loss was 1.5 million euros. 
    Gas prices have fallen sharply in recent years, with U.S. 
benchmark Nymex Henry Hub futures  NGc1  trading at less than 
half of early 2014 highs. 
    In spite of this, Moulin is confident of La Francaise de 
l'Energie's ability to make a profit under any market 
conditions. 
    "For France, our objective is by 2025 to reach about five 
percent of French consumption. It's roughly a 10 billion euro 
($11.29 billion) annual market for gas," he said. 
    France, which imports almost all of its natural gas, does 
not allow hydraulic fracturing, or fracking, due to 
environmental concerns, but it has issued permits for the 
extraction of CBM -- found in natural fractures in coal seams. 
    Having gained its first access to Belgium with the 
acquisition in July of Gazonor, which holds two permits in the 
country, LFDE sees further expansion there as a logical next 
step. 
    "We spent several years modelling the basins that are of 
interest to us ... They extend into Belgium. So we've got a good 
understanding of the characteristics of the coal, the gas 
content ... We feel it's natural that we could look at the other 
side of the border," Moulin said.     
($1 = 0.8857 euros) 
 
 (Reporting by Alan Charlish; Editing by Adrian Croft) 
 ((alan.charlish@thomsonreuters.com; +48 58 772 0920;)) 
 
Keywords: FRANCE FRANCAISE ENERGI/