Despite a triple-digit revenue increase, Liquefied Natural Gas Ltd (ASX: LNG) (or "LNGL") reported an interim $20 million net loss due to development costs associated with the company's LNG project development in the US.
Here are the key half-year results:
– Revenue $469,005, up 442.5%
– Earnings before tax minus $20 million, down from a loss of $7.7 million
– Net profit after tax (NPAT) minus $20 million, down from a loss of $7.7 million
– Earnings per share minus 4.37 cents per share, down from a minus 2.27 cps
– Dividend per share no interim dividend was declared
Half-year business highlights:
— The Perth-based company, which has LNG projects in Australia, the US and Canada, saw progress in efforts to get permits and approvals for its Magnolia LNG processing project in Louisiana. In January, LNGL responded to the Federal Environmental Regulatory Commission's (FERC) request for more data. FERC approval must be secured before the Magnolia LNG project can achieve financial close and commence construction. LNGL plans financial close for mid-2015.
— The company acquired the Bear Head LNG project located in Nova Scotia, Canada, for US$11 million. Seven of the ten environmental and engineering permits needed to progress the project have been received previously. LNGL is now applying to raise the export license for up to 12 million tonnes per annum of LNG and announced plans to expand initial facility production capacity from 4 mtpa to 8 mtpa.
— LNGL is also applying to the US Department of Energy for authorisation to export natural gas to Canada for a 25-year period. The US still restricts most oil and gas exports due to regulations created around the time of the '70s oil shocks', so special permission is required.
LNGL's stock had an incredible run-up from early March 2014, rising from about $0.37 a share to as high as $4.49 last September. Since then the stock has pulled back to $3.55. The company has great potential if the Magnolia LNG project achieves approval and is constructed.
Currently, the project's estimated development cost for 8 million tonnes of LNG production capacity is US$3.5 billion. Investors should realise that LNG production will not begin until its projected start in 2018 once the go-ahead to commence construction is received.
Although crude oil prices have collapsed since July last year, LNGL's business is insulated for the most part because its fixed tolling fee agreements put the commodity risk onto the tolling partners that will trade LNG on global markets.
However, the company is at an early development stage and hasn't generated a full-year reported net profit. There are still risks with getting necessary approvals and completing the Magnolia LNG project construction. I would suggest investors stick with established companies with a past record of stable, growing profits.
