Company Overview: Liquefied Natural Gas Limited is engaged in the business of developing liquefied natural gas (LNG) export terminal projects in the United States, Canada and Australia. The Company's segments are LNG Infrastructure, and Technology and Licensing. The LNG Infrastructure segment focuses on identification and progression of opportunities for the development of LNG projects. The LNG Infrastructure segment includes project development activities, construction activities, and production and sale of LNG via offtake arrangements with external parties. The LNG Infrastructure segment includes the aggregation of the Magnolia LNG project, Bear Head LNG project and Fisherman's Landing LNG project. The Technology and Licensing segment is involved in the development of LNG technology, through research and development activities. The Company's subsidiaries include LNG International Pty Ltd, Gas Link Global Limited, LNG Management services Pty Ltd and LNG Technology Pty Ltd.


LNG Details

LNG is known to be a developer of mid-scale LNG export terminal and has been developing 20 mtpa of capacity using OSMR® process technology. The continued demand for long term contracts with rising LNG spot prices is expected to help the group with increase in additional uses including LNG bunkering. The group’s Magnolia LNG is said to be well-positioned for feed gas supply optionality. Further, it has lately welcomed the investment by IDG Energy Investment Group Limited which has highlighted to support LNG and its Magnolia LNG project as this is expected to be one of the best positioned U.S. liquefaction projects to deliver LNG exports to Asia. The move is thus expected to unveil long-term potential in the LNG space.

Funds Raising through Share Placement for marketing efforts: Liquefied Natural Gas Ltd.’s (ASX: LNG) stock skyrocketed 14.94% on June 04, 2018, after the company announced about raising the gross proceeds of A$28.2 million before costs through a Share Placement. The company has entered into a binding subscription agreement for a Share Placement of fully paid ordinary shares in the capital of LNG through an investment made by IDG Energy Investment Group Limited, which is an investment holding company listed on the Stock Exchange of Hong Kong and affiliated with IDG Capital. The placement of shares will take place through the issuance of 56,444,500 ordinary shares at A$0.50 per ordinary share, which is 14.1% premium to the volume weighted average price of LNGL shares on the ASX over the 30-trading day period ending June 01, 2018 of $0.44. After the close of the Share Placement, IDG Energy Investment will hold a 9.9 percent interest in LNG. For this share placement, no shareholder approval is required. Moreover, LNG will use the net proceeds from the Share Placement in support of ongoing liquefied natural gas (LNG) offtake marketing efforts, focused on Magnolia LNG, and for general corporate purposes as it will provide additional liquidity to LNG. Magnolia LNG is a planned 8+ million tonnes per annum (mtpa) LNG export terminal in the Port of Lake Charles, Louisiana, U.S. Further, the strategic relationship with IDG Energy Investment will provide LNG with additional opportunities to market LNG volumes given IDG Energy Investment’s portfolio of infrastructure investments, including regasification interests. IDG Energy Investment is bullish on the long-term outlook for U.S.-sourced LNG into China, and IDG is looking forward to immediately begin working with LNG to assist them in unlocking this market. Additionally, the settlement is scheduled to be completed on or before June 15, 2018 and the placement of shares is expected to be issued on that date. CIBC Capital Markets is acting as Financial Advisor to LNG and IDG Energy Investment has no current intention of increasing its proportionate shareholding in LNG above 9.9%.

March 2018 Quarter Performance: During the March 2018 quarter, Magnolia LNG and Meridian LNG have agreed to extend the financial close date of their legally binding offtake agreement to June 30, 2018. LNG’s initial agreement with Meridian LNG had included the firm capacity rights at Magnolia for up to 2 million tonnes per annum (mtpa) for an initial term of 20 years with an option to extend by a further five years. During this third quarter of 2018, the marketing of Magnolia LNG capacity continued with serious discussions with credit-worthy customers seeking three to four times the planned project capacity. Currently, all offtake agreement negotiations are for initial 20-year terms under liquefaction tolling agreements (LTA) or sales and purchase agreements (SPA). Though the discussions and negotiations related to offtake are confidential, however the company believes that the progress LNG made towards selling LNG capacity at Magnolia LNG during the third quarter of Liquefied Natural Gas Limited’s (LNGL or the Company) fiscal year will prove to be extremely valuable towards finalizing sale agreements. Moreover, LNG has received an increased interest in Bear Head LNG (BHLNG) on the Canadian East Coast as Western Canadian LNG projects have been cancelled or delayed. The company continues discussions on the agreements with producers and pipeline partners in support of advancing Bear Head towards an eventual final investment decision (FID). Bear Head also continues to work to close remaining conditions associated with its completed suite of permits. Additionally, LNGL in the March 2018 quarter continued to examine technical improvements in the OSMR technology and plant modular design to further reduce costs. LNG had continued to engage with third-parties interested in using the OSMR technology in their projects. On the other hand, the number of unlisted rights as at March 2018 quarter end was 14,903,442, which reflects the reduction of 47,500 rights from the 26th February 2018 half-year report balance of 14,950,942. This amount was further reduced to 14,616,472 after quarter end due to an additional forfeiture of 286,970 rights. The forfeitures reflect the rights lost by employees who left the company.
 

Commercial status (Source: Company Reports)

Financial Position during the March 2018 Quarter: During the third quarter ended March 31, 2018, LNG has posted the net operating cash outflow of A$5.7 million compared with the net operating cash outflow of A$5.3 million for the three-months ended December 31, 2017. LNG’s total cash balance as at March 31st, 2018 was of A$27.5 million (inclusive of $4.1 million of restricted cash), which compares to A$33.0 million as at December 31, 2017. This reflects a net reduction in reported cash of A$5.5 million. The change in reported cash between periods reflected net cash outflows of A$5.7 million, and a non-cash impact of A$0.2 million from currency translation effect relating to movements in exchange rates associated with cash held in denominations other than the Australian dollar (primarily U.S. dollars). Further, the company remains debt free at the end of the March 2018 quarter. Meanwhile, LNG’s liquidity management plan is in place and is on course to fund operating requirements into 2019. LNG contemplates the continuity of normal business activity in delivering its goals of reaching financial investment decisions, constructing, and operating its liquefaction projects. LNG has the ability to extend the available liquidity beyond existing capacity, which is however dependent upon the future successful raising of incremental funding through any one or a combination of the successful marketing of offtake capacity and the resulting financing of one or more of its projects, marketing of the OSMR technology and services and the sale of equity and/or debt or the sale of assets.


BHLNG value chain economics (Source: Company Reports)

Update on the Exit of Fishman’s Landing LNG Project: LNG has completed the exit from the Fisherman’s Landing project as the company executed the Share Sale Agreement with a third-party (the Buyer) for the acquisition of all the shares of LNGL’s wholly-owned subsidiary, Gladstone LNG Pty Ltd. The buyer of the Company’s wholly-owned subsidiary, Gladstone LNG Pty Ltd, is LNG Queensland Pty Ltd. In return, LNG has received US$800,000, previously held in a trust account under a previously disclosed Licence Transfer Agreement, and a reimbursement for security deposits posted by Gladstone LNG related to the Fisherman’s Landing project licences. As per the terms of the Agreement, the Buyer got the ownership of the proposed Fisherman’s Landing LNG project, including the licences and the opportunity to utilize LNG’s OSMR technology on a future LNG project at the Fisherman’s Landing Gladstone site. LNG Queensland Pty Ltd is expected to pay LNG an additional US$4 million if financial close is achieved for an LNG project at the site.


LNG Exports and Imports (Source: Company Reports)

Competitive Advantages: LNG has full cycle cost and energy efficient OSMR technology and implementation strategy. The company has a mature regulatory, engineering, contracting, and financing status. LNG focuses on minimizing the ecological impacts. Further, LNG has strong stakeholder relations and experienced management team with highly capable technical and operational personnel. Moreover, the US LNG contractual advantages for LNG are level negotiating field, transparent market driven pricing, legal certainty, independent court system, cancellation rights, flexible deliveries / no destination clause and make-up rights. Additionally, Magnolia LNG competitive advantages for the company are LSTK EPC contract, all FERC permits, all environmental permits, DOE Non-FTA approval, Pipeline Precedent Agreement, equity commitment and operations and maintenance contract

Stock Recommendation: LNG stock has risen 21.95% in one month as on June 04, 2018. Meanwhile, the investment from IDG Energy Investment represents a sound endorsement to the LNG buying community of LNGL’s business strategy, the OSMR liquefaction technology, and the Magnolia LNG and Bear Head LNG projects, respectively. The company has closed March 2018 quarter with the total cash position at A$27.5 million, and remains debt free. Additionally, there is continued demand for long term contracts and the LNG spot prices are expected to increase. Further, LNG demand is expected to increase as the additional uses are found for the fuel. Therefore, based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $ 0.490.
 

LNG Daily Chart (Source: Thomson Reuters)

 
Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.