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Liquefied Natural Gas Limited shares fire up on latest Queensland deal: Should you buy?

Shares in listed prospective natural gas export terminal owner, Liquefied Natural Gas Limited (ASX: LNG) (“LNGL”), are trending over 6% higher today following the good news flow from its Australian-based subsidiary.

LNGL owns three subsidiaries spread throughout Australia, Canada and the United States, which hope to construct liquefaction facilities for export of LNG. So far this year, shares in LNGL are up 1,161%.

Whilst the group’s flagship assets, Magnolia and Bear Head, lie in North America, news today that its Australian subsidiary, Gladstone LNG, has received an extension on its Agreement for Lease of its Fisherman’s Landing project and signed a non-binding memorandum of intent (MOI) have sent its share price upwards.

Gladstone Ports Corporation extended LNGL’s site Agreement for Lease until 31 March 2014, with the option for another year, at a fee of $1 million. However, the group has said no resources will be diverted away from its North American projects and no significant capital will be committed until binding agreements have been materially advanced.

The MOI signed with Tri-Star Petroleum Company (Tri-Star) could help supply gas to the Fisherman’s Landing project and support development of a 1.5 million tonnes per annum (mtpa) LNG train. The group had previously received necessary approvals for a 3mtpa facility. By comparison, LNGL’s Magnolia project is expected to be an 8mpta facility.

LNGL says it will work with Tri-Star to negotiate a legally binding gas sales agreement (GSA) for 90 PJ per year. In conjunction with an LNG buyer, the parties would negotiate a tolling agreement for processing the gas.

Managing Director Maurice Brand said: “The variation to the Agreement for Lease with Gladstone Ports Corporation and MOI with Tri-Star are major steps towards recommencing the development of [Fisherman’s Landing].”

The Fisherman’s Landing project was once the flagship asset in LNGL’s portfolio but hit a roadblock in 2010 when the proposed supplier of its gas, Arrow Energy, was acquired by PetroChina and Shell.

Mr Brand said much work needs to be completed and there are no guarantees of success if the project is to be revived: “Shareholders need to be aware that a number of steps need to be finalised before the project could recommence, including executing a legally binding GSA; tolling agreement; engineering, procurement, construction and commissioning contract and project financing of both equity and a debt facility.”

Should you buy in now?

Given the potential revival of the Fisherman’s Landing project I expect a modest re-rating of target prices currently placed on LNGL’s stock because analysts were ascribing very little value to the project. Whilst LNGL’s shares have soared over 1,000% since I first recommended them, I still believe even if just the Magnolia facility can be completed, the current share price will prove extremely cheap. But know this, it’s a high-risk/high-reward investment opportunity.

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Motley Fool Contributor Owen Raszkiewicz owns shares in Liquefied Natural Gas Limited.   

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