Image Source: Cheniere Energy investor presentation
One thing that Cheniere Energy (LNG -0.73%) has been good at over the past several months is generate headlines. First, we saw the company become an activist investor battleground between Jim Chanos and Carl Icahn. Then, we saw the company's board of directors give its founder and CEO a boot over the direction of the company. And recently, it launched the first LNG export cargoes from its Sabine Pass facility owned by its subsidiary partnership Cheniere Energy Partners (CQP). Despite all this media attention, it hasn't exactly been good for the company's stock price.
Now that Cheniere is an investment in exporting LNG from the US and not just the concept of exporting, there are a few catalysts that could give its struggling stock price a boost. Here's a quick look at three things that could help to get Cheniere's shares back up and running.
Better than expected operational performance
Based on the investor presentations that Cheniere Energy has put out over the past few years, there is a lot of clarity on how much money the company is going to make. Some of that is merited because it has several long term, fixed price contracts in place that ensure a certain amount of revenue. Of all these projections and models, there is one thing that can't be adequately factored in, and that is operational performance and costs.
Image Source: Cheniere Energy investor presentation
With LNG exports a relatively new thing in the US, it's hard for investors to look at these costs and say whether they are conservative, generous, or in the ballpark. If the company were able to keep its O&M costs and plant maintenance capex down, then we could potentially see the company's margins expand beyond its initial projections. That would go a long way in improving the profitability that Cheniere was initially projecting and would certainly help to boost its beleaguered stock price.
Better than expected results from its non-contracted volume sales
This catalyst is kind of in the same vein as its operational costs because it's one of the places where there is variability in the company's projections. As of today, more than 85% of Cheniere's export capacity is locked in with those 20 year contracts it has signed over the past few years. The only real variability is the price of gas and the 15% premium it charges on top of Henry Hub gas prices as a feedstock cost.
Image Source: Cheniere Energy investor presentation
That other 15% is where things could get interesting for the company. So far, it has inked a few shorter term deals that will help to ensure that the company's facilities are running at close to full capacity. However, if the company does decide to invest in the additional liquefaction trains at both Sabine Pass and Corpus Christi, then the company could have as much as 9 million tons per year of LNG to sell on the open market.
If LNG demand and natural gas prices across the world were to see any significant increases in the next couple of years, that play well into the marketing arm of Cheniere and give shares an added boost that isn't built into the company's current projections.
Nixed projects today opening market share tomorrow
Of the potential reasons that Cheniere Energy could see its shares increase, this is the one that is the furthest down the horizon, but it's based on what is happening today in the oil and gas market.
Recently, we have seen the price of natural gas, and more specifically LNG, decline. The largest reason for this decline has been several new LNG export projects coming online. On top of Cheniere's own Sabine Pass sending its first cargoes, Chevron's (CVX 1.54%) long anticipated Gorgon LNG facility is bringing its product to the market for the first time. This is leading to a glut in LNG today and as a result, LNG prices in critical end markets such as Europe and China have declined 35% since the beginning of 2016.
This is going to likely have some widespread effects over the next couple of years as other companies look to make final investment decisions on other LNG export facilities. Royal Dutch Shell (RDS.A) (RDS.B) already nixed its Arrow LNG facility in Australia last year; Woodside Petroleum recently announced that it and its partners Shell and BP are shelving the $40 billion Browse LNG project; and its looking like the two major LNG projects in Western Canada -- Chevron's Kitimat LNG and Petronas' Canada LNG -- are looking less certain by the day.
The lack of these projects on the table today means that there could be an opportunity to fill LNG demand several years from now, and Cheniere's construction and feedstock costs have made it one of the low cost options out there to meet future demand.
Image Source: Cheniere Energy investor presentation
Granted, the company has decided to take a more conservative growth approach than former CEO Charif Souki had envisioned -- one of the reasons the board terminated him. At the same time, the company could see share prices rise significantly if the window for more LNG exports from the US opens again and the company seizes the opportunity with new facilities.
What a Fool believes
For the most part, the next few years of Cheniere's results are already baked in. The fixed fee contracts with volume commitments pretty much ensures the company's revenue stream over a pretty long period. There is some wiggle room around some of the less known variables like operational costs and sales of non-contracted volumes. If these two things were to swing in Cheniere's favor, then shares might see a boost from the better than expected results.
Longer term, though, Cheniere has an opportunity to capture greater market share if other parts of the world become a little more cost conscious of LNG prices over the next few years. If the company really wants to see its share prices rise, it will try to take some of that market with expanded facilities.
