Shares in Liquefied Natural Gas Limited (ASX: LNG) were suspended today before the start of trading. Rising from a low of 25.5 cents in late January to the last traded price of $3.25, the company has already booked a return in excess of 1,000%.
What: The Perth-based gas processing company today announced that it had significantly expanded its presence in the North American Liquefied Natural Gas (LNG) sector by signing an agreement to acquire 100% of a Canadian project called Bear Head. The company already has 100% ownership of the Magnolia project, which is developing an 8 million tonne per annum (MTPA) LNG export terminal in Louisiana in the US.
So What: Managing director Maurice Brand said: “This is a significant transaction for LNG limited and is consistent with our strategic plan to selectively secure sites that meet our criteria”. He added that: “Bear Head had considerable unlocked value and sunk costs that can be readily transformed into an LNG export facility”.
The company plans to transform Bear Head into a 4 (MTPA) LNG export facility with potential for future expansion. The acquisition comes at a cost of US$11 million and substantial investment has already been made by the seller, a subsidiary of Anadarko Petroleum Corporation.
Other advantages of the Bear Head acquisition:
- Bear Head will have significantly lower development costs and potentially faster approval schedules than Magnolia due to work already completed.
- Liquefied Natural Gas is already in discussions with gas transmission companies to transport natural gas to Bear Head.
- Bear Head has excellent LNG export opportunities to European markets.
In addition, it was confirmed that the Magnolia LNG project remains on schedule and budget of US$2.2 billion and will not be affected by the Bear Head acquisition.
Now What: In a recent article I suggested that large US hedge funds see the business model as being similar to the US stock Cheniere Energy, Inc. (NYSEMKT: LNG), which is on a far greater forward earnings multiple. The hedge funds were rumoured to be driving the share price higher. I then gave six reasons why there is further upside for the share price.
To assist in clarifying the business model, this year Woodside Petroleum Limited (ASX: WPL) bought low-cost US gas from Cheniere Energy and took advantage of the price differential by selling into the Asian oil-linked markets.
While this stock is on a roll, in my opinion there is further upside, as the company’s Optimised Single Mixed Refrigerant (OSMR) LNG process technology is of significant value when applied to projects owned by other companies.
Motley Fool contributor Mark Woodruff does not own shares in any of the companies mentioned in this article.
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