By Echo Wang, Curtis Williams and David French
(Reuters) - Venture Global LNG was forced to nearly halve the valuation it is seeking in its U.S. initial public offering (IPO) after investors balked at the company's estimated long-term profit for liquefying gas for export, investors told Reuters.
The company is the second-largest exporter of liquefied natural gas in the United States, itself the world's largest exporter of the supercooled fuel.
The listing is a rare opportunity for investors to gain equity-market exposure to U.S. LNG, and a test of both the company's potential in the energy export business and market faith in the pro-oil and gas policies expected from President Donald Trump's administration.
The Arlington, Virginia-based firm on Wednesday slashed its price range by more than 40% to upper guidance of $65 billion, down from $110 billion. The revised IPO plan, first reported by Reuters on Tuesday, offers additional shares to bridge some of the gap in fundraising from the lower valuation.
Investors questioned whether Venture Global makes enough money to justify the initial IPO price, several investor sources invited to buy shares in the proposed New York flotation told Reuters.
"We are having a hard time getting to the market cap, and I know a few other dedicated funds we've spoken to are not remotely close either," said one investor prior to the revision who, like all the sources who spoke to Reuters, did so on condition of anonymity to discuss confidential information.
Venture Global did not respond to a request for comment.
The initial prospective asking price greatly exceeded Cheniere Energy (NYSE:LNG) on an earnings multiple basis, the sources said. Cheniere is the largest U.S. LNG exporter and the best comparison for Venture Global, the sources said.
"I would feel better if the valuation were closer to Cheniere," said a second investor.
Future earnings forecasts would require Venture Global to hit all its growth targets and need market and pricing dynamics to go its way, investor sources said.
For example, Venture Global said in its IPO filing it expects to earn around $4.52 per million British thermal unit "over time" on what it charges customers for its service.
This is despite liquefaction fees traditionally being between $2 and $3 per MMBtu in the United States, according to the document.
Even after the revision to price guidance and the number of shares offered, the top end of the proposed $23-$27 per share price range would still raise as much as $1.9 billion and value Venture Global as highly as $65.3 billion, per Reuters calculations. That would make it one of the ten largest U.S. energy companies by market capitalization.
Pricing at, or near, the top of the range would also mark the largest oil and gas company IPO in the United States since Plains GP Holdings (NASDAQ:PAGP) listed in 2013.
The timing of the proposed stock market listing, just days into Trump's second term, was aimed at benefiting from the President's policy pledge to increase U.S. oil and gas production. Measures to facilitate that include reducing regulations and accelerating permitting.
The IPO is for a tiny percentage of the company founded by Michael Sabel and Robert Pender in 2013, and was pitched as an opportunity to buy into their rapid growth story.
Venture Global plans a massive increase in output, taking production from around 10 million tonnes per year today to 143.8 million tonnes a year by 2031, according to the filing. That would make it one of the largest LNG companies in the world.
LITIGATION
Hanging over the prospects for both Venture Global and its IPO is ongoing litigation involving some of the world's largest energy companies for cargoes exported from Venture's first project, the Calcasieu Pass plant.
The company agreed long-term sales contracts with companies including BP (NYSE:BP), Shell (LON:SHEL) and Edison.
The buyers say they have not received cargoes under those contracts since the plant came online in 2022. Venture Global has argued the plant remains in start-up phase, and so it is not yet bound to deliver contracted cargoes to long-term buyers.
Venture Global has earned billions of dollars more by selling the cargoes on the spot market than it would have by delivering to the long-term buyers. Losing the dispute could also cost the company billions, according to the IPO document.
WILL IT HAPPEN?
An IPO is never guaranteed to price within the initial range given at the start of the formal marketing process, so changes are common. The final price depends on conversations between the company, advisers, and potential investors.
Venture Global could cancel the flotation and remain private if it feels investors want a valuation it considers too cheap.
The IPO cash is earmarked for general corporate purposes, including possible costs incurred ahead of green-lighting future LNG projects, per the document.
A delay could be favorable, allowing Venture Global to settle litigation and make progress on its expansion, as well as for the market to absorb the impact of Trump's energy policies.
The company currently has two operational plants and has three more LNG projects in various stages of development near the Gulf of Mexico in Louisiana.
"We're torn on the deal, as the valuation looks high but it's a fascinating story," said a third investor, before the price revision.