Be wary of self-proclaimed “analysts” on the internet NOTE: During the writing of this post, the article/analysis that I’m referencing has been “removed from the site at the author’s request, due to an error in analysis.” Nonetheless, the comments still remain at the time of this writing and do make interesting reading. Hopefully the “analyst” that wrote the piece has learned a valuable, though clearly painful, lesson.
As part of my role as an analyst in CTRM market, I spend much of my time talking with industry colleagues, reading news and digging around the internet to find the thoughts/opinions of knowledgeable experts in related fields. During one of my web research efforts yesterday, I visited Seeking Alpha, a website that describes itself as “a platform for investment research, with broad coverage of stocks, asset classes, ETFs and investment strategy. In contrast to other equity research platforms, insight is provided by investors and industry experts rather than sell-side analysts.” Fair enough – its a research platform with content provided by experts and knowledgeable (assumed) investors.
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I landed on the site during a search to find out the current status of the first cargo of LNG to leave Cheniere’s Sabine Pass facility. The article that caught my attention on the SA platform was titled “Cheniere Energy’s Contracts Are Misleading”…wow. That’s pretty big news. Clicking on the article, I also found the author, one Brandon Dempster, noted in his summary bullet points that “Their (Cheniere) contracts include termination clauses, for which buyers’ can find an easy loophole.” Bigger wow. If that’s the case, the whole company has been essentially built on quicksand and is certain to go down in flames as the assumed value of these 20-year contracts funded the multi-billion dollar facility; and that value was supported by take-or-pay clauses which protect Cheniere’s revenues in the event that a LNG buyers didn’t live up to their side of the bargain.
Long story short, the author, after an extended analysis of the fee related to the non-taking of the cargo, makes the claim that he has discovered what apparently no one else was smart enough to notice…the contracts on which Sabine Pass were funded and constructed can be abrogated by the LNG buyer simply not paying their invoice in any given month (if that invoice is greater than $30 million). I won’t go into the full details of this conclusion, but suffice it to say that the contract he references in no way provides such an out for the buyer. Despite the mental gymnastics that helped him arrive at his jarring conclusion, simple logic should have stopped him from ever entertaining the belief that such a out could ever exist, or at a minimum provoked him to ask real experts about it before embarrassing himself by committing words to screen.
As I noted, these contracts are the cement on which Cheniere and their facilities are built. These agreements, worth billions of dollars, would have been written and vetted by the most experienced lawyers money could buy. Logic dictates that those involved in the negotiations, writing, execution and financing of those agreements would know considerably more about the risks and contingencies that any single “analyst” like Mr. Dempster, particularly in light of the fact that he turns out to be a nineteen year-old college student.
I was going to submit a comment to this particular “analyst” to let him know that he was wildly off-base in his conclusion, but several others had beaten me to that punch.
So, why is a somewhat reputable site like Seeking Alpha giving a such a platform (with a by-line and a high rank in Google search results) to a 19 year-old college kid when the impacts of what he writes can far exceed his knowledge, understanding and experience (he is essentially accusing Cheniere of fraud and such an accusation will impact the company’s stock price and value if enough people believe it)?
A smaller question would be, “What kind of arrogance does it take to make you believe you have discovered something that no real expert (including untold numbers of lawyers, analysts, and bankers/institutional shareholders that are risking billions on these agreements) haven’t noticed?” Perhaps this question is really greater than this single event and more reflective the state of our society…but I’m not going there.
I’ll close with a bit of advice to Mr. Dempster…as a working analyst who graduated college three decades ago and has been around this industry in one form or another since, I never start from the position that I know more than those experts that created that which I am analyzing. When doing real analysis, the first words that leave you mouth, or your key board, should be a question, not a conclusion.
BTW, Cheniere has delayed the first cargo from Sabine Pass until as late as March due to electrical problems at the plant…
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Author: Patrick Reames 5 February 2016
Website:http://www.ctrmcenter.com/patrick-reames-founder-and-managing-director-of-comtechadvisory/
Category: Blog, Industry News, Opinion
About the Author: Mr. Reames possess a deep understanding of the energy and commodities markets, developed through hands-on experience and managerial oversight of energy and commodity operations, including exploration, production, gathering, plant and pipeline operations. Additionally, he has 5 years of energy commodity trading, transportation, and risk management experience with Hess Corp. (formally known as Amerada Hess), a Fortune 100 integrated energy marketing company. Over the last fifteen years, he has been focused primarily on information technology serving energy and commodity trading, marketing, and risk management. Prior to founding Commodity Technology Advisory, he led the CommodityPoint division of UtiliPoint International, providing expert CTRM market analysis and advisory services to dozens of clients in North America, Europe and the Asia/Pacific region.
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Author: Patrick Reames 5 February 2016
