Attention! Liquefied Natural Gas Ltd (ASX: LNG) shareholders look away now…
Source: Yahoo! Finance
After soaring as much as 1,400% in 2014, shares of the prospective natural gas tolling facility owner have plummeted more 50% over the past three months having crumbled 33% in the past month alone!
The catalyst behind the falls is undoubtedly the swooning oil price, which is likely placing pressure on LNG Ltd's prospective tolling partners.
So what?
LNG Ltd plans to develop liquefaction facilities in North America: one in Louisiana, USA; and another in Nova Scotia, Canada. Unfortunately, developing these facilities isn't cheap.
The Magnolia plant, based in Louisiana, is the company's flagship project and will cost well north of $US2 billion for the first phase of development.
To get to production (previously forecast for 2018), LNG Ltd is seeking both equity and debt funding. It has an equity funding partner identified, Stonepeak Infrastructure Partners.
In an ASX announcement to the market today, LNG Ltd said it, "continues to discuss the provision of equity by Stonepeak Infrastructure Partners and debt arrangement with BNP Paribas in relation to the 8 mtpa Magnolia LNG Project."
In order to secure debt funding for the project, LNG Ltd will need to sign binding tolling agreements with the gas producers that will use its services once in production. LNG Ltd has already signed one agreement for roughly 1.7 million tonnes per annum (mpta) with an option to extend that to 2mpta.
It's targeting a total of 8mtpa.
Tolling agreements are traditionally long-term supply agreements (usually 20 years) and give lenders confidence in a projects viability. Specifically, it'll reassure the debt financiers of LNG Ltd's ability to service future interest repayments.
To that effect, the company said, "Marketing of binding offtake agreements for the remaining 6 mtpa of Magnolia LNG capacity continues with a number of investment‐grade, as well as some non‐investment grade counterparties."
It added, "Certain negotiations (with investment‐grade counterparties) are advanced and progressing through the internal investment decision authorisation processes attendant to each counterparty."
Should you buy LNG Ltd shares?
With shares falling 8% in the first hour of ASX trading this morning, it is obvious investors are growing anxious about the prospects of the unprofitable company in the face of plummeting commodity prices. I recently warned that if delays occurred, the company's shares would be hard hit.
Unfortunately, as it stands, investors buying in today would only be betting the company has the ability to secure these binding agreements. While there are many noteworthy investors on the company's shareholder list (which won't like to see it fail) and LNG Ltd could be a significantly larger company in years ahead, I advise new investors hold off buying shares until we get some more updates on its progress at Magnolia, and the Bear Head project in Canada.
