LNG 2Q2017 Earnings: On the verge of breakout; guidance raised; raising ST-Target to $65/sh

LNG 2Q2017 Earnings: On the verge of breakout; guidance raised; raising ST-Target to $65/sh || In our opinion, Cheniere needs to buy back all CCH HoldCo II Convertible Senior Notes (CCH Holdco 2 Convertibles), but conversion unlikely before March 1, 2020. So, we feel investors won’t be concerned until 2019. So, we’re upgrading our ST-Target to $65/share from $44. Regardless, we believe 10% automatic discount on conversion price is a mistake. Cheniere continues to show marketing and trading (M&T) power, accounting for more than half of revenue. We like it. We like that Cheniere’s looking at ways to deploy future FCF, but not thrilled about foreign and liquids-based ventures; we believe there are many US opportunities involving E&P, pipelines or M&T. We’re surprised and disappointed Cheniere could not roll-up CQH but we believe roll-up of CQH and CQP will happen in due time. We believe new Midship pipeline feels right but mid-scale LNG plant feels wrong. We feel there are better ways to finance expansion program, but, LT, company faces under-leverage problem. We’d like Cheniere to take excess cash flow to pay dividend after rolling up CQH and CQP and after its third act. Though loose now, we expect global LNG markets to tighten quicker than current expectations and believe Europe would continue to migrate towards hub pricing/trading, and Asia is likely to start hub pricing/trading.

Continue Reading →

LNG 1Q2017 Earnings Note

1Q17 show cases power of M&T; LNG cash flow power taking shape ||
In our opinion, Cheniere needs to buy back all CCH HoldCo II Convertible Senior Notes (CCH Holdco 2 Convertibles). We don’t like 10% automatic discount on conversion price. We believe Quarter showed power of marketing and trading (M&T) accounting for more than half of revenue. We like it. We like that Cheniere is looking at ways to deploy future FCF, but not thrilled about foreign investments and liquids-based ventures; we believe there are many US involving E&P, pipelines or marketing and trading (M&T) or all 3. We’re surprised and disappointed Cheniere could not roll-up CQH but we believe roll-up of CQH and CQP will happen in due time. We believe new Midship pipeline feels right but mid-scale LNG plant feels wrong. We believe that there are better ways to finance expansion program, but, long-term, company faces under-leverage problem. We’d like Cheniere to take excess cash flow to pay dividend after rolling up CQH and CQP and after its third act. Though loose now, we expect global LNG markets to tighten quicker than current expectations and believe Europe would continue to migrate towards hub pricing/trading, and Asia is likely to start hub pricing/trading.

Continue Reading →

LNG 2017 Analyst Day Note

Analyst Day reinforces strong value proposition and incremental info ||

We are puzzled by Cheniere’s suggestion that both its convertibles will convert at $94/share
We understand why 4.875% convertible unsecured notes due 11/2021 may convert at $94/share
However, the 11% CCH Holdco 2 convertible senior notes should convert 10% below or at about $84.60/share given the 10% discount to the then trading price of LNG
We’ve long held that Cheniere – and US in general – would be low cost LNG producer and would hold competitive advantage
US has close to 1 TCF of natural gas at full production cost of about $3/MMBTU at HHUB or some $18/BOE, even including Cheniere’s 15% markup on gas supply and $3/MMBTU fixed fee, plus $2.50/MMBTU in transport cost to Asia, US LNG supply would be priced at some $9/MMBTU or about $54/BOE vs. expected global price of oil north of $60/BBL, which doesn’t include transport or processing costs for LNG
Cheniere estimates full delivery cost to be closer to about $8/MMBTU to Asia
Cheniere has potential to double its LNG production capacity to 22 trains from full capacity of 11 (6 at Sabine Pass (SPL) & 5 at Corpus Christi (CCL)) of which SPL 6 and CCL 4&5 are fully permitted, given its leased land capacity that’s adjacent to both facilities
Tightening LNG markets by 2020 would necessitate new supplies; however, new construction takes 4-6 years or more to complete and very few, if any new FIDs have been reached over the past three years, which gives LNG and one other in the US an advantage in bringing new capacity to market given fully permitted sites ready for construction

Continue Reading →

LNG 4Q2016 Earnings Note

2017 is the year that Cheniere transforms into an operating company

In our opinion, Cheniere needs to buy back all CCH HoldCo II Convertible Senior Notes (CCH Holdco 2 Convertibles). We don’t like complexity and dilutive effect on equity. We believe Sabine Pass LNG (SPL) is not end, but should’ve been 1st of 3 acts, the 2nd which is Corpus Christi LNG (CCL) but we believe there is potential for 3rd act involving E&P, pipelines or marketing and trading (M&T) or all 3. We are surprised and disappointed Cheniere could not roll-up CQH but CQP is more likely as FCF starts to build, in our view. We’re unenthusiastic about Cheniere venturing into liquids export and equally unexcited about foreign ventures, but we’re willing to give Cheniere benefit of doubt given Jack’s leadership and past track-record. We believe new Anadarko basin pipeline feels right but mid-scale LNG plant feels wrong. We’d prefer focusing on CCL 3 and even SPL 6. We believe that there are better ways to finance expansion program, but, long-term, company faces under-leverage problem. We’d like Cheniere to take excess cash flow to pay dividend after rolling up CQH and CQP and after its third act. Though loose now, we expect global LNG markets to tighten quicker than current expectations and believe Europe would continue to migrate towards hub pricing/trading, and Asia is likely to start hub pricing/trading.

Continue Reading →

LNG 4Q2016 Earnings Quick Note

2017 is the year that Cheniere transforms into an operating company ||

Note: Please note that due to 5 companies (NRG, CNP, PNM, LNG, SRE) reporting on one day, we will be writing Quick Notes for all of the companies reporting today followed by full notes later in the week ||

This is the year in which we believe that Cheniere transforms into an operating company from a development company, in our opinion
While we do not expect Cheniere to be FCF positive until 2020 or so, it will be the first full year of liquefaction operations at Sabine Pass (SPL) on trains 1 and 2 (at least for most of the year) with trains 3 and 4 expected to achieve full operations this year
SPL Train 3: Expected to be completed by 1Q2017
SPL Train 4: Expected to be completed by 2H2017
SPL Train 5: Expected to be completed by 3Q2019
Corpus Christi (CCL) train 1: Expected to be completed by 1Q2019
CCL train 2: Expected to be completed by 2Q2019
We continue to believe that SPL train 6 and CCL train 3 will be completed
As expected, LNG demand appears to be growing faster than market expectations with 6% demand growth in 2016

Continue Reading →

LNG 3Q2016 Earnings Note

Feels like LNG is blind man trying to figure out way to mountain top ||

In our opinion, Cheniere needs to buy back all CCH HoldCo II Convertible Senior Notes (CCH Holdco 2 Convertibles). We don’t like complexity and dilutive effect on equity. We believe Sabine Pass LNG (SPL) is not the end, but should’ve been only first of three acts, the second which is Corpus Christi LNG (CCL), but we believe there is potential for third act involving E&P, pipelines or marketing and trading (M&T) or all three. We like that Cheniere is to roll-up CQH, and expect roll-up of CQP in long-term. We’re not positive on Cheniere venturing into liquids export and equally unenthusiastic about foreign ventures, although we’re now willing to give Cheniere benefit of doubt given Jack’s leadership and past track-record. We believe new Anadarko basin pipeline feels right, but mid-scale LNG plant feels wrong. Instead Chenier should focus on CCL 3 and even SPL 6, in our opinion. We believe that there are better ways to finance expansion program, but, long-term, company faces under-leverage problem. We’d like Cheniere to take excess cash flow to pay dividend after rolling up CQH and CQP and after its third act. Though loose now, we expect global LNG markets to tighten and expect Europe to continue to migrate towards hub pricing/trading, and Asia to start hub pricing/trading.

Continue Reading →

LNG 2Q2016 Earnings Note

LNG: Revelations little; uncertainty great; strategy mystery ||

In our opinion, Cheniere needs to buy back all CCH HoldCo II Convertible Senior Notes (CCH Holdco 2 Convertibles). We don’t like complexity and dilutive effect on equity. We believe Sabine Pass LNG (SPL) is not the end, but should’ve been only first of three acts, the second which is Corpus Christi Liquefaction (CCL), but we believe there is potential for third act involving E&P, pipelines or marketing and trading (M&T) or all three. We look for Cheniere to roll-up CQP and CQH in long-term. We’re not positive on Cheniere venturing into liquids export and equally unenthusiastic about foreign ventures, although we’re now willing to give Cheniere benefit of doubt given Jack’s leadership and past track-record. We would like CCL 3 and even SPL 6 to have more merchant exposure. We believe that there are better ways to finance expansion program, but, long-term, company faces under-leverage problem. We’d like Cheniere to take excess cash flow to pay dividend after rolling up CQH and CQP and after its third act. Though loose now, we expect global LNG markets to tighten and expect Europe to continue to migrate towards hub pricing/trading, and Asia to start hub pricing/trading.

Continue Reading →

Appointment of Jack Fusco to CEO is likely good for shareholder value

Cheniere Energy appoints Jack Fusco, former CEO and Executive Chairman of Calpine Corporation, as its President and CEO
Jack has a long track record – since his days at Orion Power Holdings – of increasing shareholder value at every business he has led
His strength has been taking strategically wayward companies and bringing discipline, focus and efficiency back into the consciousness of the organization and developing a core strategy that is clear, simple and easily executable
His nature is to be risk-averse, perhaps too much so, in our opinion
What we expect under Jack’s leadership:

Continue Reading →

LNG 1Q2016 Earnings Note

LNG: Revelations little; uncertainty great; strategy mystery ||

In our opinion, Cheniere should buy back all CCH HoldCo II Convertible Senior Notes (CCH Holdco 2 Convertibles). We don’t like complexity and dilutive effect on equity. We believe Sabine Pass LNG (SPL) is not the end, but should’ve been only first of three acts, the second which is Corpus Christi Liquefaction (CCL), but we believe there is potential for third act involving E&P, pipelines or marketing and trading (M&T) or all three. We look for Cheniere to roll-up CQP and CQH in long-term. We’re not positive on Cheniere venturing into liquids export and equally unenthusiastic about foreign ventures. We would like CCL 3 and even SPL 6 to have more merchant exposure. We believe that there are better ways to finance expansion program, but, long-term, company faces under-leverage problem. We’d like Cheniere to take excess cash flow to pay dividend after rolling up CQH and CQP and after its third act. Though loose now, we expect global LNG markets to tighten and expect Europe to continue to migrate towards hub pricing/trading, and Asia to start hub pricing/trading.

Continue Reading →

LNG 4Q2015 Earnings Note

LNG: Revelations little; uncertainty great; strategy mystery ||

In our opinion, Cheniere should buy back all CCH HoldCo II Convertible Senior Notes (CCH Holdco 2 Convertibles). We don’t like complexity and dilutive effect on equity. We believe Sabine Pass LNG (SPL) is not the end, but should’ve been only first of three acts, the second which is Corpus Christi Liquefaction (CCL), but we believe there is potential for third act involving E&P, pipelines or marketing and trading (M&T) or all three. We look for Cheniere to roll-up CQP and CQH in long-term. We’re not positive on Cheniere venturing into liquids export and equally unenthusiastic about foreign investments. We would like CCL 3 and even SPL 6 to have more merchant exposure. We believe that there are better ways to finance expansion program, but, long-term, company faces under-leverage problem. We’d like Cheniere to take excess cash flow to pay dividend after rolling up CQH and CQP and after its third act. Though loose now, we expect global LNG markets to tighten and expect Europe to continue to migrate towards hub pricing/trading, and Asia to start hub pricing/trading.

Continue Reading →