SGX quizzed Noble on US$80.5m loss over derivatives

It was hit by the negative performance of some coal and carbon steel contracts.

The Singapore Exchange (SGX) asked Noble Group to explain why its gains from commodity contracts and derivative instruments fell by US$80.5m. This followed the release of its financial statement for the first quarter of 2018.

In an announcement, Noble said this includes a US$65m decline of its long-term physical commodity contracts, hit by the impact of contract-specific performance reserves against certain contracts in its Energy Coal and Carbon Steel Materials businesses.

This also caused its fair value gains on commodity and other derivative financial instruments to sharply drop from US$513.3m to US$385.7m.

This wasn’t the only aspect of its financial statement that was questioned. SGX asked Noble provide a breakdown of the $57.3m loss it had incurred over supply chain assets.

Noble said it lost US$22.05m due to the lost value of “non-current assets” or its investments which are classified as equity instruments through other comprehensive income. “The group performs impairment tests on these investments on an annual basis or when an indicator of impairment exists.”

It also lost US$36.2m of prepayments due to losses of “certain amounts” from trading counterparties included in prepayments, deposits, and other receivables. These losses were identified based on how the company’s Credit Risk function assessed their recoverability.

The company also declared that it gained US$907,000 from the sale of Territory Resources Limited in Q1.

Meanwhile, the sale of Noble Americas Corp (NAC) caused its profit on supply chain assets from discontinued operations to go up to US$50.1m.

SGX also questioned Noble on its share of profits and losses of joint ventures and associates, which jumped to US$134m in Q1. Noble said this was due to the increase in value of its investment in Harbour Energy LP – which has, as Noble said, “benefitted from an increase in the fair value of their asset portfolio.”

“The group accounts for its investment in Harbour Energy LP using the equity method of accounting, less any impairment losses,” it added. During the finalisation of Noble’s 2017 financial statement, Harbour Energy had not yet reported its own financial results, and so Noble was forced to use the latest information it had from 9M2017.

“The group records the profit and loss impact of the group’s share of the fair value movement recognised by Harbour Energy LP through quarterly equity pick-up,” Noble said.

Noble also reported a US$18.6m increase of its income from net expenses due to “performance fee distributions” accrued from its investment in Harbour Energy.

The company also explained its losses from associates, which narrowed down from US$3.7m to US$200,000 due to reduced losses from PT Atlas Resources and Baralaba Coal. Part of the investment in the former was also renamed as “long-term equity investment,” so it was not classified as a loss.

Meanwhile, finance costs jumped to US$65.1m as they were accrued from 8.75% senior notes due 2022.