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.