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How High Can Cheniere Energy Partners Fly?

Shares of Cheniere Energy Partners (AMEX: CQP  ) hit a 52-week high yesterday. Let's look at how it got here and whether clear skies are ahead.

How it got here
It's been a wild year for Cheniere Energy Partners and its associates, as an export terminal for liquefied natural gas, or LNG, moves forward. Sabine Pass, which is actually owned by Cheniere Energy Partners and not Cheniere Energy (AMEX: LNG  ) , has made significant progress in recent months on both a regulatory and financing level.

Recently, the Federal Energy Regulatory Commission approved the Sabine Pass project leaving just financing left as a major milestone left to clear. Under a heavy debt load, Cheniere will not be able to finance the project itself, so finding outside funding is key. Blackstone Energy Partners recently announced a $2 billion equity investment in the project, and the company has lined up eight financial institutions to arrange $4 billion more in debt financing. Right now, everything looks like it's moving forward, and construction is expected to start in 2012.

A new industry emerging
The natural-gas drilling business has been hammered because of the low price of natural gas, but that has allowed a new industry to emerge as a result. Natural gas as a fuel has made major strides and those attempting to unlock its potential have become market darlings. Clean Energy Fuels (Nasdaq: CLNE  ) and Westport Innovations (Nasdaq: WPRT  ) are in the same boat as Cheniere, trying to unlock natural gas as a fuel, and have rewarded investors handsomely over the last three years.

CQP Chart

CQP data by YCharts.

Now the question becomes: Can Cheniere Energy Partners continue this run higher?

What's next?
Cheniere Energy Partners still has a long way to go before anything is exported from Sabine Pass. Blackstone's deal allows it to convert its stock units into common units after two liquefaction trains begin commercial operation, something that isn't expected until 2016. The company has already lined up millions of tonnes per year in contracts, so the project should pay off, especially now that Blackstone has entered the equation, but what should we pay? Blackstone got shares for $18 per share and also gets a 4.2% PIK rate -- a sweetheart deal versus what you get for shares right now.

Normal metrics also mean very little to an investment like this, and that's what has me worried about over projecting the potential of Sabine Pass. The company already has a $4.5 billion market cap, $2.2 billion in debt, and stands four years from its prize of exporting natural gas. There's a lot of risk there, and even if I miss out on the next run-up -- which is very possible -- I just can't buy in right now.

Interested in reading more about Cheniere Energy Partners? Click here to add it to My Watchlist, which will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Westport Innovations. Motley Fool newsletter services have recommended buying shares of Westport Innovations and Clean Energy Fuels. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (6) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 27, 2012, at 1:48 PM, azdannyboy wrote:

    The Fool needs to get on board with LNG. They are going to resolve their financial issues shortly and once they are out of the gate and get closer to having the Sabine Pass terminal up and running there is no telling where this company will go. Any time any analyst tries to kick this one to the curb and counts them out LNG jumps the hurdles and continues to shock and amaze. LNG will most likely be up and running in 2015 and it appears competitors will be lucky to be exporting by 2018, that is if they can get regulatory approval which appears might be more difficult based on Congressional concerns and objections from the environmental groups. I am a buyer even at today's price, this one has legs and is running away from the pack.

  • Report this Comment On April 27, 2012, at 2:26 PM, Quaker08 wrote:

    Does anyone know why this company trades on AMEX?

  • Report this Comment On April 28, 2012, at 3:56 PM, lowmaple wrote:

    I'm with the author I'll wait for the next pullback to buy a third.

  • Report this Comment On May 01, 2012, at 11:00 AM, Colorados wrote:

    Motely-fool used to do their research before posting. What happened here? Do you think that 88.8% is not enough ownership? I mean, I took this right off the Google finance beta site. What gives? Are you shorting or what is your motive here? Not that I don't agree that both had a nice run up and it is time to take profits...

    Cheniere Energy, Inc. (Cheniere) is an energy company primarily engaged in liquid natural gas (LNG)-related businesses. The Company operates in three segments: LNG terminal business, natural gas pipeline business, and LNG and natural gas marketing business. The Company owns and operates the Sabine Pass LNG terminal in Louisiana through its 88.8% ownership interest in Cheniere Energy Partners, L.P. (Cheniere)

  • Report this Comment On May 07, 2012, at 7:29 AM, NoFoolRules wrote:

    Risks with CQP & LNG seem to be speculators run the price of Nat gas up in the next couple of years and arbitrage price for Nat gas is less. Also, Companies have significant debt and are piling on much more. There could also be construction delays and other companies entering the Nat gas export business. Will the dividend be cut? Appears we have a window of investment of the next 2 or 3 years? I expect the stock market may have a pull back at some point during that time that may present a better price entry point. I'm neither long nor short at this time.

  • Report this Comment On May 10, 2012, at 10:36 AM, Budsworth wrote:

    I am very concerned about President Obama's latest intervention concerning all Oil and Natural Gas exploration and drilling. Once again, the President has ignored the Constitution and put the Government in charge of private enterprise. He has given the Federal Government the power to control all present and future exploration, drilling, and production of Natural gas and other Fossil fuels at its discretion. It seems he is in no hurry to relieve our dependency on foreign oil. This move creates added risk to any investments which will depend on Private Enterprise moving forward at a more urgent pace. More Federal Bureaucracy will dampen progress, slowing a boom in the future development of a Natural Gas infrastructure across the US. The exportation Natural Gas will also be hampered. A much needed boost to the lack of exports the US now has to offer.

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