Cheniere Energy: Buy, Hold, or Sell

Cheniere Energy (LNG) announced first quarter ended March 31, 2016 total revenue of $67.0 million, slightly below $67.5 million during the same period last year.

Cheniere declared first quarter of 2016 net loss of $74.9 million or $0.08 of net loss per diluted share compared to $178.7 million of net loss or $0.61 per diluted share in first quarter of 2015.

The key downstream energy company reported a slight year-over-year decline in its top line but, a significant year-over-year improvement in its bottom line primarily due to a major write-off of debt issuance expenses by Cheniere Creole Trail Pipeline, L.P.
("CTPL") due to the prepayment of its remaining term loan.

Infrastructure development  

Cheniere is uniquely focused on diversifying its global operations by strategically completing the development of 7 LNG trains on budget and well within the stipulated construction time. Cheniere’s first-mover benefit and significant industry-leading scale allows for a key platform to further integrate its assets. The major businesses of Cheniere include LNG platform, gas procurement and Cheniere Marketing.

The key features of the company’s Sabine Pass Liquefaction Project includes the development of 6 trains with total capacity of 27 mtpa and including approximately 3.8 Bcf/d of export capacity, the construction completion of Train 1 with Trains 2 till 5 still under development. The Corpus Christi LNG terminal project comprises of the development of 5 trains having a net capacity of 22.5 mtpa that comprises of nearly 3.2 Bcf/d of export capacity. Trains 1 to 2 are still under development with initial LNG output expected to be produced by fiscal year 2018 ending.

Cheniere and Bechtel recently declared to have notably completed Train 1 of the Sabine Pass liquefaction project located at Cameron Parish, Louisiana (referred to as "SPL Project") and well within the assigned budget.  In addition, Cheniere has strategically started the development of its second LNG export facility called the Corpus Christi liquefaction project, situated near the Gulf of Mexico and with a total of six trains under development by the end of this year.

The planned operational diversification of Cheniere is believed to deliver sustainable long-term company growth once the currently ongoing weaker global commodity demand and pricing conditions recover completely and the demand for energy again bounces back to historical high levels.

Cheniere is uniquely arranging feedstock for healthy LNG production through balanced operating portfolio techniques including, the signing of 1-7 year term gas supply agreements with producers totaling nearly 2Tcf and average pricing discount of HH-$0.10.

Cheniere has strategically contracted for long-term upstream and direct pipeline transport capacity for key trains 1 and 2 including the capacities at Tennessee P/L, KM Tejas P/L, NGPL P/L and Transco P/L of 0.3 Bcf/d, 0.25 Bcf/d, 0.385 Bcf/d and 0.4 Bcf/d respectively. Further the company is continuously negotiating with some key producers for winning long-term gas supply agreements.

End-market prospects  

The international supply or demand basics actually support the ongoing LNG expansion with global LNG demand estimated to almost double from 2015 till 2030. Demand-supply gap is forecasted to open soon after 2020 with growing trade and current production declining in some regions. Going forward, about 42 LNG trains must take FID as of 2025 to match the estimated demand till 2030. There’s sustainable long-term prospective growth from new markets with accelerated maturing of the older import markets.

A robust regional expansion at a CAGR of 4% is estimated till 2030 and Pacific Basin is expected to account for about 75% of total imports till 2030. Moving ahead, LNG is estimated to play a larger role at the Atlantic Basin in Europe with continued decline in domestic production coupled with buyers seeking supply diversity. Also, there’s expanding usage of LNG in the region’s maritime transport after 2020 depending on the strategic marine ECAs.

The planned capturing of near-term and long-term global LNG demand through strategic contracts with key customers is expected to drive sustainable long-term company growth while delivering attractive shareholder returns with the improving international commodity pricing environment.

Conclusion

Overall, the investors are advised to “Hold” their position in Cheniere Energy, Inc. considering the company’s significant long-term growth prospects as the global commodity demand and pricing environment recovers gradually and completely. The PEG ratio of 39.22 signifies notable company growth and somewhat better than the industry’s growth average of 1.21 only. However, Cheniere needs to optimize its debt-burdened balance sheet with significant total debt of $18.42 billion against weaker total cash position of $1.10 billion only, restricting Cheniere to continue with its daily operations profitably.
Published on Jun 27, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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