2013 has been a fascinating year for the energy space, and many signs point to 2014 being a great year as well. Of course, not every company has as much potential as others, and some companies may not be slated to do as well as others. Here are three companies that may not be too exciting for investors during 2014
Cheniere Energy (LNG 0.04%): There are some certainties that make Cheniere Energy an attractive company. It has a major leg-up in the U.S. liquefied natural gas export market with the first facility slated to come online in 2015. It also has started up the construction of a second facility in Corpus Christi evident in the recent $9.5 billion deal with construction company Bechtel. This second facility is slated to come online in 2018. Add these things together and you get a company that will have a strong cash-generating machine that will fuel its strong dividend yield once Cheniere Energy Partners (CQP 0.11%) starts to generate surplus operational cash.
At the same time, this is what makes Cheniere Energy such a difficult investment in 2014, it is still not generating any revenue from these ventures yet. Sure, the company receives some contract royalties from Total (TOT +0.00%) and Chevron (CVX 1.27%) from when its facilities were geared for LNG import, but in no way do they cover the capital expenditures necessary to get these facilities up and running.
There is also the chance that much of the earnings power for this company is already priced into the stock. Based on its investor presentations, EBITDA from liquefaction trains 1-4 -- the ones that have export license approval -- is expected to be about $1.95 billion. Using that figure, its total enterprise value-to-EBITDA is 8.66 times. Compare that to refiners, which for all intents and purposes follow a similar business model of upgrading a raw energy source. Companies in this industry have an average total enterprise value-to-EBITDA of 5.5 times.
Again, this isn't to say that in the long run Cheniere Energy will be a bad investment, but it's awfully hard to justify investing in a dividend player that doesn't have asset-generating cash to pay that dividend.
InterOil (NYSE: IOC): In many ways, the issue with investing in InterOil over the next year or so is very similar to investing in Cheniere Energy. Both of these companies are plays on assets that have not yet generated any revenue from those assets that makes it an attractive investment.
The great news for InterOil is that it finally signed a deal that will make it possible for the company to produce natural gas from its Elk/Antelope field that may have as much as 9 trillion cubic feet of natural gas according to the company. The not-so-great news is that it gave up operational control of the field to its new partner, Total.
Also, part of the deal requires a few appraisal wells to be drilled, which will not be complete until 2015, and Total will not make a final investment decision on these fields and a potential LNG export facility until 2016. Add that up and you get InterOil waiting as many as five years until it actually generates revenue from producing natural gas.
Based on that, any changes in InterOil's stock is probably not going to be correlated with the actual fundamentals of the business because earnings will be based solely on payments from Total, which we know already. Perhaps in a few years InterOil will turn out to be a major success, but we are still years away and any bets on that now are pure speculation.
Alpha Natural Resources (NYSE: ANR): It's pretty easy to be down on coal companies right now, but of all of them, Alpha Natural Resources seems to be struggling the most. Alpha's biggest problem is a real estate problem: location, location, location.
A majority of the company's operations are in the Central Appalachia region of the United States, which has been the region of the country that has suffered the most from the downturn in coal prices. So far, Alpha has reduced its Central Appalachian coal production by 50%, and the price it can get for thermal coal from this region does not even cover the cash costs to produce it at this time.
Alpha and almost every other coal company's CEO have talked about the coal market turning the corner and demand picking up soon. As a coal investor, there is one issue that should give you pause heading into 2014: Several companies shuttered operations and slowed production during the downturn, and they all will be clamoring to increase volumes once demand picks up. That fight for increase volumes could also keep prices from growing, and hamper the prospects of companies like Alpha for much longer than many would hope.
What a Fool believes
Energy companies had a great run in 2013, and the prospects of the industry look like the good times could continue into 2014. Overall, though, it doesn't look like these three companies will be invited to the party, though, and you would probably be better off looking to invest in other places.
