Will share my letter to the board sent May 12, 2019;
Dear Board,
I'm an Australian investor. Loyal shareholder of 3 years. Was present at the AGMs in Lake Charles Oct 25th 2017 & Sydney on 15th Nov 2018 and have toured the impressive Magnolia site!
Since investing in LNG LTD I have been very supportive of our CEO and assembled, world class team. Investors have been sold a wonderful story... from where the company was founded in Perth by visionary Maurice Brand who selected amazing site locations in the Port of Lake Charles, Louisiana, for Magnolia and Nova Scotia, Canada for Bear Head. We have a fully permitted site for Magnolia, equity financing secured, EPC contract locked in, KMLP PA locked in, an opportunity to license OSMR technology, debt free and a strong partner in IDG energy, the first and only Chinese investor to invest directly in US LNG projects!
In being educated on the LNG industry and in knowing up until January 16, 2018 when Cheniere signed a 1mt SPA with Trafigura, the last time a US company had signed a contract before that was way back on October 28, 2015, Cheniere locking in Engie for 1mt... I've understood the macro environment was not conducive to signing SPAs during that period. In 2018, the haze lingering around the future outlook for LNG began to disappear with buyers jumping off the fence, showing renewed interest in securing long term, 20yr contracts necessary to finance new US projects (unless major IOCs took FID on their balance sheets), signalling the arrival of the next wave. I've ignored the circus/ noise created by Venture Global signing SPAs to the tune of 8mt considering the bargain basement prices their company have been selling offtake for ($1.75 - $2.25). Anadarko Mozambique has contracted 10.5mt (of required terminal capacity 12.88mt) while Cheniere's landmark 20yr deals with CNPC & Petronas for 1.2mt, 1.1mt respectively (signed in early/ late 2018), are the types of contracts I take note of and believe we should be following. Although these companies are signing deals, for the time being I'm not thinking, why are we not.
The timing of the trade war has been very unfortunate for Magnolia’s prospects to reach FID in 2019, but I do believe we have effectively leveraged our partnership with IDG and should see SPAs executed once a resolution is concluded. However, In light of the trade negotiations breaking down between the US & China with seemingly no trade pact in sight over the near term future, I'm concerned with my company's direction/ strategy from here onwards to see Magnolia across the line. Our CEO in May 2018 was quoted in an interview with Bloomberg saying, " for us it's been about strictly marketing to China " - totally understandable given the country's insatiable demand for LNG due to their government's policies to phase out coal and clean up the skies! So at that moment, one can make the assumption we have no alternative worldwide countries on our radar. Backtracking to October 30, 2018, Mr Vesey tweeted, " we remain confident in our ability to reach FID on Magnolia whether or not China participates "... then at the AGM in Sydney on the 15th of November, made the point known to reassure we are not solely reliant on securing Chinese customers. In an interview with Xinhua news in Shanghai on April 3, 2019 he stated, " we want to be China's favourite LNG company ". That's all fine but where are we looking to find alternative customers should the trade war not abate by year's end, with the possibility of slipping into 2020? Who else are we talking to or trying to target? We’ve purely focussed our marketing efforts on securing Chinese customers with no real word suggesting otherwise.
Shareholders have been left in the dark in respect to who our customers outside of China could be. Transparency in answering this question has been evaded by GV on numerous occasions, the latest occasion being while on the BNEF panel in Shanghai when the moderator asked, " where are you seeing the customer interest at this point, who are you pitching to? " GV... " If you think in terms of growth, it's probably 1 3rd Europe, 2 3rds Asia, to be kind of simple. " It's the kind of answer shareholders have become accustomed to hearing, being very vague and giving off no indications of promising negotiations with alternative countries.
So it's hard to get a bearing on where we're going to land because we've had years of hearing, " we're in extensive negotiations, we're in advanced negotiations, we're talking to customers for 3 times Magnolia's capacity ". Shareholders are getting no assurances we're on the right track to capitalise on the seemingly wonderful position we appear to be in (with shovel ready status) or a sense of how close we are or how real our " advanced " negotiations are with off-takers who will be part of Magnolia's portfolio.
The SP is languishing at a rock bottom 41c - The board knocked back a proposal back in Dec 2017 (from memory) to list on the US stock exchange, a move that would of guaranteed a substantial increase in SP considering our milestones achieved. The reason for that decision being, to allow the company to remained focused on marketing off-take. Fair enough... in hindsight though, over the past 18 months of patiently waiting, waiting and waiting for SPAs to be signed... so far empty handed due to a " general malaise " in the market place, surely this was an opportune time to switch to the US stock exchange? Surely while we wait this trade war out and concluding contracting is on hold, another golden opportunity presents itself to make the move and create value for long suffering shareholders! Next Decade is listed on the Nasdaq at $5.44 (USD), Tellurian at $9.28 (USD), and we’re priced @ 41c Aussie! With our list of critical milestones required to move to construction complete, staying on the ASX is crushing LNG LTD’s market cap and I must say, by remaining there, the company is not “ grabbing the bull by the horns “ to create/ maximise shareholder value!
Hope you all take the time to consider my thoughts and see things from a loyal, long term holders perspective. I remain hopeful of LNG LTD's prospects... but we do need a vision right now, more than any other passed time during this arduous journey. It’s been a long time since our last conference call, one at this moment would be respected.
All t.he best. Jordan.
Still hold faith in GV but the board should have deadlines set to attain long term performance goals because he’s being rewarded handsomely to be in this privileged position.
The industry in total is suffering demand / price uncertainty over the long term. Near term supply pricing has also delayed purchase decisions for some offtake customers. Mr Cavicchi, Charif Souki & Meg Gentle have all touched upon this issue with Meg’s comments on the BNEF panel in Shanghai early April as follows:
Moderator - “ What are the hubs that matter these days? What the contracts look like? What are the buyers looking for in terms of what hub you’re pricing off of? “ Meg Gentle CEO Tellurian - “ So when we talk to buyers, the overwhelming first priority is flexibility and then they really struggle as they look for a pricing mechanism... whether indexing to HH or indexing to oil is going to be advantageous for them. Since they don’t really need long term contracts per se, they’re really managing price risk if they are entering into long term contracts so they are seeking the absolutely lowest price! We have been trying to convert our long term pricing to JKM index really because it’s the most liquid index today and looks like the price clearing point for LNG trading.
It’s clearly evident meaningful SPAs (VG not included) have not been flowing freely in 2019, barely in fact, while its also clear the worldwide, proposed export terminals are heavily reliant upon the Chinese, who’s demand to a degree can be confidently predicted & relied upon. With other major buyer markets, it’s difficult to foresee future demand through a crystal ball; I’ve covered specific countries in my report on 7/4/19’ with a particular emphasis on European outlook;
Europe’s demand is definitely growing but they still have problems building infrastructure while also having really low utilisation rates! Although Europe holds roughly 20% of total global regasification capacity, regasification utilisation rates have generally been low, averaging 27% in 2017 (up from 25% in 2016). LNG regasification capacity followed by regasification utilisation rates for European countries in 2017 were;
Italy 11mt, 55%
Portugal 6mt, 48%
France 25mt, 30%
Spain 50mt, 24%
Belgium 7mt, 16%
UK 35mt, 14%
Netherlands 9mt, 9%
Competition from pipeline gas coupled with weaker gas demand in the power sector have led to lower regasification utilisation rates in recent years. Record pipeline imports from Russia and Norway have further squeezed LNG in many markets. Nonetheless, LNG imports into Europe increased in 2017 owing to unusually high power demand after a hot and dry summer, reduced hydropower output, and higher coal prices. As I’ve made known before, domestic gas production in Europe is also on the decline. Only three new European regasification terminals have been completed in the past three years, in Poland, France and Turkey. Given low regasification utilisation rates across Europe, significant increases to regasification capacity may not be required despite the anticipation of higher LNG imports into Europe moving forward.
Excerpts from the Financial review on May 17, 2019;
LNG Ltd voiced its "strong hope" that China and the US would strive for an agreement, noting that businesses in both nations "remain anxious to transact with each other". It said a resolution of the dispute would also likely lead to increased urgency in other LNG markets.
This is a tell tale signal for me that once a historic trade pact is settled, multiple SPAs will be signed sealed and delivered. Where we will lasso customers outside of China is a lottery!
Finishing up, I received a positive response from the Chairman of the board in which he stated, “ we will certainly discuss your concerns at length at our next board meeting. “
Even though Magnolia is fully de-risked from a regulatory, equity financing & epc contract standpoints, final piece of the puzzle being 20yr contracts... the high risk element has returned in confronting fashion because this trade war looks set to be battled out in the trenches for a long while to come, in which case an additional CR will be required if venturing into 2020.
A pivitol momemt will come at the G20 meeting in Japan, June 28-39, when Xi meets with Trump.
Our formidable position remains unchanged despite our rivals catching up. IDG won’t jump ship... they made their choice after assessing all viable candidates prior to parking their capital. We just got to keep rolling with the punches, keep moving forward and stay focused on the positives - our moment will come!
JK.
