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.
