Stonepeak has committed to fund the full equity component of financing the Magnolia project, totalling US$1.5bn. The terms of the agreement have changed, and Stonepeak will be taking a preferred interest in the project, leaving Liquefied Natural Gas Ltd PK (OTC:LNGLY) with a 100% equity ownership. This is a vote of confidence for the project.
The key remaining event for Magnolia will be the completion of binding tolling agreements covering enough volumes to enable project sanction. All necessary regulatory milestones have been reached, leaving the company entirely focused on negotiations with potential partners to enable sanction of the 8mtpa project. Within its peer group, Magnolia is well placed to be able to deliver LNG cargoes in the 2021-2022 period, in time with projected demand needs. We have adjusted our valuation, increasing it to A$1.37 /share (US$4.19/ADR).
LNGL has few peers, but looks inexpensive
LNGL has few listed peers. Most LNG export facilities are owned by majors. Cheniere is much larger and already producing LNG. Tellurian Inc (NASDAQ:TELL) (owners of Driftwood LNG project) and Next Decade (IPO ongoing) are planning much larger projects but are some way behind the Magnolia project on regulatory approvals. As a result, the peer group is relatively limited, but does indicate that LNGL is comparatively cheap.
It offers nearer term start-up than its two key peers and more advanced regulatory approvals (although we note Tellurian is backed by Total so has less uncertainty on an anchor offtaker, we think). We would expect LNGL’s valuation discount to unwind as and when the company lists formally on a US exchange (a more natural home than the ASX) and especially when future tolling agreements are signed.
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