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Renergen

South African LNG and helium play

Initiation | Oil & Gas | 13 Mar 2018

Renergen represents a unique opportunity for investors. The company holds the first, and currently only, onshore petroleum production right in South Africa. While it is already producing and selling gas, production is set to accelerate in the next 18 months as it moves to liquefied natural gas (LNG) production, primarily serving the growing domestic heavy duty truck market. The move to LNG also unlocks the potential to extract and sell helium, adding material upside to economics (c 35% upside to NAV). With gross 2P reserves of 142 bcf of methane and c 2.2% of additional helium (Renergen 90% WI), our risked core NAV on a fully diluted basis is ZAR19.0/share. We estimate additional funding of c ZAR240m is required to become self-funding, in addition to a secured ZAR218m of term loan.

Liquefied Natural Gas

Moving towards FID in 2018

ADR Outlook | Oil & Gas | 13 Feb 2018

Liquefied Natural Gas’s (LNGL) Magnolia development is up to 30 months ahead of other US-based greenfield liquefaction plants in regulatory approvals, putting it in prime position for buyers/traders looking to take advantage of the expected rebalancing of the LNG market in 2022-23. With low capex/opex/gas prices, the project has the potential to be very lucrative for partners selling to Europe/Asia. As a result, we now expect LNGL to sign tolling agreements and move towards FID in 2018, with first production in 2023. We have updated our valuation, which falls from US$3.79/ADR (A$1.25/share) to US$3.23/ADR (A$1.00/share). On a longer-term basis, this valuation should grow as the project is de-risked by tolling agreements and moves towards first LNG.

Liquefied Natural Gas

Moving towards FID in 2018

Outlook | Oil & Gas | 13 Feb 2018

Liquefied Natural Gas’s (LNGL) Magnolia development is up to 30 months ahead of other US-based greenfield liquefaction plants in regulatory approvals, putting it in prime position for buyers/traders looking to take advantage of the expected rebalancing of the LNG market in 2022-23. With low capex/opex/gas prices, the project has the potential to be very lucrative for partners selling to Europe/Asia. As a result, we now expect LNGL to sign tolling agreements and move towards FID in 2018, with first production in 2023. We have updated our valuation, which falls from A$1.25/share (US$3.79/ADR) to A$1.00/share (US$3.23/ADR). On a longer-term basis, this valuation should grow as the project is de-risked by tolling agreements and moves towards first LNG.

Liquefied Natural Gas

Improving macro environment

ADR Update | Oil & Gas | 29 Nov 2017

The Magnolia development remains one of the most competitive LNG development projects (greenfield or brownfield) globally. Industry is starting to recognize that the current LNG oversupply will move towards undersupply within five years and there are few projects on track to fill the resulting gap. This should put Magnolia increasingly in the spotlight for buyers looking to fulfil demand in 2023 onwards. LNGL management has indicated it is in discussions with many companies across a diverse set of geographies and interests. We have adjusted our valuation to account for a delayed expectation of project FID, reducing it slightly to $A1.25/share (US$3.8/ADR).

Liquefied Natural Gas

Improving macro environment

Update | Oil & Gas | 29 Nov 2017

The Magnolia development remains one of the most competitive LNG development projects (greenfield or brownfield) globally. Industry is starting to recognise that the current LNG oversupply will move towards undersupply within five years and there are few projects on track to fill the resulting gap. This should put Magnolia increasingly in the spotlight for buyers looking to fulfil demand in 2023 onwards. LNGL management has indicated it is in discussions with many companies across a diverse set of geographies and interests. We have adjusted our valuation to account for a delayed expectation of project FID, reducing it slightly to $A1.25/share (US$3.8/ADR).

Liquefied Natural Gas

Stonepeak increases its involvement

ADR Update | Oil & Gas | 10 Jul 2017

Stonepeak has committed to fund the full equity component of financing the Magnolia project, totalling US$1.5bn. The terms of the agreement have changed, and Stonepeak will be taking a preferred interest in the project, leaving LNGL with a 100% equity ownership. This is a vote of confidence for the project. The key remaining event for Magnolia will be the completion of binding tolling agreements covering enough volumes to enable project sanction. All necessary regulatory milestones have been reached, leaving the company entirely focused on negotiations with potential partners to enable sanction of the 8mtpa project. Within its peer group, Magnolia is well placed to be able to deliver LNG cargoes in the 2021-2022 period, in time with projected demand needs. We have adjusted our valuation, increasing it to A$1.37 /share (US$4.19/ADR).

Liquefied Natural Gas

Stonepeak increases its involvement

Update | Oil & Gas | 10 Jul 2017

Stonepeak has committed to fund the full equity component of financing the Magnolia project, totaling US$1.5bn. The terms of the agreement have changed, and Stonepeak will be taking a preferred interest in the project, leaving LNGL with a 100% equity ownership. This is a vote of confidence for the project. The key remaining event for Magnolia will be the completion of binding tolling agreements covering enough volumes to enable project sanction. All necessary regulatory milestones have been reached, leaving the company entirely focused on negotiations with potential partners to enable sanction of the 8mtpa project. Within its peer group, Magnolia is well placed to be able to deliver LNG cargoes in the 2021-2022 period, in time with projected demand needs. We have adjusted our valuation, increasing it to US$4.19/ADR (A$1.37 /share).

Liquefied Natural Gas

Marketing mode

ADR Update | Oil & Gas | 06 Apr 2017

Liquefied Natural Gas Ltd (LNGL) has made progress in the last six months towards Final Investment Decision (FID). Signing binding tolling agreements is key and encouragingly, the company is in discussion with potential partners for over three times the 8mtpa capacity. Importantly, the project retains its (non-binding) offtake agreement with Meridian and a heads of agreement with Vessel Gasification Solutions (VGS). Technically, the project is in good shape, with certainty over costs (until June 2017) and non-FTA approval received, while discussions with Stonepeak over extension of equity funding are advancing and debt funding capacity should be available. We have tweaked our DCF-based valuation for actual cash levels and FX rates, resulting in a broadly unchanged value of US$3.84/ADR (or A$1.26/share).

Liquefied Natural Gas

Marketing mode

Update | Oil & Gas | 05 Apr 2017

Liquefied Natural Gas Ltd (LNGL) has made progress in the last six months towards Final Investment Decision (FID). Signing binding tolling agreements is key and encouragingly, the company is in discussion with potential partners for over three times the 8mtpa capacity. Importantly, the project retains its (non-binding) offtake agreement with Meridian and a heads of agreement with Vessel Gasification Solutions (VGS). Technically, the project is in good shape, with certainty over costs (until June 2017) and non-FTA approval received, while discussions with Stonepeak over extension of equity funding are advancing and debt funding capacity should be available. We have tweaked our DCF-based valuation for actual cash levels and FX rates, resulting in a broadly unchanged value of A$1.26/share (or US$3.84/ADR).

Liquefied Natural Gas

Good start to the year

ADR Update | Oil & Gas | 31 Jan 2017

Liquefied Natural Gas (LNGL) has already announced two encouraging updates in 2017. On 30 January, the EPC contract with KSJV was extended to the end of June 2017, giving greater construction price certainty as and when the final investment decision (FID) is taken. On 23 January, it announced a Heads of Agreement (HOA) with KG LNG terminal in India for 4mtpa for 20 years. While non-binding, this suggests the company is making progress towards financial close for Magnolia’s 8mtpa export project. As it works to retain as much cash as possible until the FID is reached, LNG is making good progress towards monetizing the OSMR technology and Magnolia project. We leave our valuation unchanged, but note that if a binding contract is agreed with KG LNG it would be a major step towards realizing the significant potential of the Magnolia project. Bear Head (with all environmental approvals obtained) remains a further option on the growing LNG trade in years to come.

Liquefied Natural Gas

Good start to the year

Update | Oil & Gas | 31 Jan 2017

Liquefied Natural Gas (LNGL) has already announced two encouraging updates in 2017. On 30 January, the EPC contract with KSJV was extended to the end of June 2017, giving greater construction price certainty as and when the final investment decision (FID) is taken. On 23 January, it announced a Heads of Agreement (HOA) with KG LNG terminal in India for 4mtpa for 20 years. While non-binding, this suggests the company is making progress towards financial close for Magnolia’s 8mtpa export project. As it works to retain as much cash as possible until the FID is reached, LNG is making good progress towards monetising the OSMR technology and Magnolia project. We leave our valuation unchanged, but note that if a binding contract is agreed with KG LNG it would be a major step towards realising the significant potential of the Magnolia project. Bear Head (with all environmental approvals obtained) remains a further option on the growing LNG trade in years to come.

Liquefied Natural Gas

Magnolia progresses

ADR Update | Oil & Gas | 19 Dec 2016

The Magnolia project has received two positive pieces of news in the last few weeks, which helps move the process towards project sanction and possible first LNG in 2022. The Department of Energy (DoE) has authorized non-FTA exports for Magnolia’s LNG, following a decision by US Federal Energy Regulatory Commission (FERC) to deny a rehearing on the Magnolia project requested by the Sierra Club. This is a big step as it allows for exports to all LNG markets globally including Europe, China and Japan. For the moment, we leave our valuation unchanged at A$1.3/share (falls slightly on an ADR basis to US$3.8), but note these announcements pave the way to signing offtake and financing agreements and project sanction in 2017/18.