LNG Initiation Report

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Market Price (1/29/2016): $30.05/share; ST-Target: $33/share; NIV: $144/share

LNG: Triumphant re-revival is in question now

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 were confident of Cheniere’s revival under Charif Souki’s leadership, but wait to see, if new stewardship will have long-term vision, judgment, knowledge, experience, savvy and credibility to return stock to lofty levels of its recent past. 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 believe that CCL trains #4&5 will be some of the last liquefaction plants to be built in continental US. 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. We also expect US to become a baseload producer of LNG in concert with Qatar and Russiain long-term Iran too – with countries like Australia and certain African and Asian producers to be swing producers.

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