I see (in line with our usual policy) the **elli Report is big...

I see (in line with our usual policy) the **elli Report is big on speculation and light on actual financial facts when it comes to our company, so here are a few facts from last year's Edison Report

LNGL has an agreement with KBR for a lump sum turnkey contract for the Magnolia project for US$4.354bn. We expect this to be 70% debt funded, with the remaining 30% or so coming from its equity partner, Stonepeak Infrastructure Partners. Funding of the Bear Head project is less certain, although we expect similar debt structuring capacity.

The move by BNP Paribas (former debt coordinator) to exit all oil and gas investments in 2017 was a set-back and the company will likely need to raise equity in the next 12 months to fund project development costs and marketing costs.

The structuring of the financing is also key as investors could see large swings in valuation depending on the amount of debt it can attract, while the prices negotiated for the tolling fees (or SPAs) will also have an impact (At the time of this report the tolling fee was $2.75).

The larger the debt facility, the higher the equity returns for the partners. Our modelling indicates an unlevered project IRR in 2018 of 11% (and levered equity cash flow IRR of 17%, assuming 70% debt).

Capex Fixed price turnkey contract with KBR for US$4.354bn gross (excludes other costs of 15.5% and debt interest repayments at an assumed rate of 6.5%).

Equity partner Stonepeak will contribute the required equity funding of US$1.5bn on a redeemable preferred basis on a 12-year tenor. No partner secured yet, but it’s assumed to be a partner seeking similar returns as Stonepeak.


Risks
If SPAs are used at Magnolia, the company would be more exposed to movements of Henry Hub (HH). As we note elsewhere, the futures curves of HH has lowered and flattened over the years since fracking was introduced; LNGL needs to secure the funding for the development of the projects. For the Magnolia project, this is US$4.4bn (gross excluding other costs, $5bn including other costs, but excluding capitalised interest). Of this, we assume $1.5bn is funded by Stonepeak, with the rest funded through debt. Without this funding, the Magnolia project’s (and hence LNGL’s) value could be uneconomic or severely compromised. We assume that the project is 70% debt funded at an interest rate of 6.5%. If debt cannot be found at this level then the NPV of LNGL’s stake could fall materially; Magnolia is subject to federal and state taxes, which we assume to be 25% over the life of the project (including tax holidays and breaks), with a 2% land tax (2% of asset value, with a five year tax break extendable for a second five-year period). For Bear Head, we apply the 31% corporate tax rate (including state tax); LNG pricing risks: our base case assumption is that the tolling fee will be $2.75.


Project financing cost
The key to how much of the project’s value current investors will be able to retain is the level of debt that can be raised for development. With 30% already covered by the Stonepeak agreement we assume debt will cover the rest. However, if this is too optimistic new funding sources may have to be found, diluting current shareholders’ interests. For simplicity, we model that all debt is provided by a bank facility and that this is paid off as quickly as possible with project free cash flows. We assume that the rest (70%) of the project financing will be achieved through debt and at an effective interest rate of 6.5%.



Hopefully this helps **elli's analyst with his timelines and free cash flow!!!!