Glencore’s core business of marketing held up well in 2019 but the trader took a $2.8 billion impairment charge, driven in part by the loss of its oil exploration licences in Chad.
The company reported an overall net loss of $400 million. Its oil trading business held up well in the year, but it took a $538mn charge on its Chadian production. Other impairments included $514mn on its Prodeco coal operations and $435mn on its investment in a Colombian coal mine.
The Chad write down came about as a result of Glencore expensing historical cost allocations on exploration licences. The company said it had tried to extend the licences on its Chad East licences, acquired when it bought Caracal Energy in 2014, but had been unable to reach an agreement with the government. As such, all the value of exploration in Chad has been cancelled.
Glencore said the loss of its exploration assets in Chad would have no impact on its production and development work on the Mangara, Badila and Krim fields, which it groups as Chad West. These fields are held under exploitation licences.
Glencore bought Caracal for around $1.4bn. The trader has said it carries its Chadian oil assets at a value of $804mn, based on a price assumption of $65-72 per barrel. A 10% reduction in the price curve could lead to an impairment of around $202mn.
Chad’s Société des Hydrocarbures du Tchad (SHT) has a $379 million net debt to Glencore as of the end of 2019, which has been reduced from $393mn since 2018. The debt is paid down through future oil deliveries over 10 years.
This debt was restructured in early 2018. Chad had borrowed the money in 2014 in order to buy Chevron’s assets in the country. In hindsight, the debt and purchase deals were particularly badly timed.
SHT is not the only African state-backed company to owe Glencore money. The trader has also provided $375mn to Congo Kinshasa’s Société Nationale d’Électricité (SNEL) and $156mn to Société Nationale des Pétroles du Congo (SNPC). These will be repaid in power and oil deliveries respectively.
SNPC is seeking to restructure its debt, which is owed to Glencore and a syndicate of banks.