Latest Fosters report

Like he said, you have time, but how much time is the question. You may get in cheaper, probably..........



18 August 2015



Liquefied Natural Gas Ltd (LNG.ASX, $2.76/sh, Mkt Cap $1.4b) Bear Head receives 8 mtpa LNG export approval. BUY PT $7.70/sh



Foster Stockbroking acted as Lead Manager to LNG’s $174m Placement at $4.35 in May 2015. Foster Stockbroking received a fee for this service.



Event:

·National Energy Board (NEB) grants license to Bear Head LNG for export up to 8 mtpa of LNG starting 2019.

Comments:

·Yesterday LNG announced the company’s Canadian development project Bear Head LNG received a NEB license for export of up to 8 mtpa of LNG starting 2019, with an expanded authority to increase production to 12 mtpa in 2024. The Bear Head project concurrently received a license to import 800 mcf/day of gas from the US, an amount sufficient to produce up to 8 mtpa of export LNG.

·This announcement continues to see the project team deliver on a number of regulatory approvals following a recent US DOE license to transport US natural gas to the Canadian project and export as LNG to FTA countries. We also reminder investors the project has already secured all of the 10 federal, provincial and local regulatory permits to construct an 8 mtpa facility.

·Together with receipt of all major construction permits in place, the project can now move forward on the next stage of its project milestones and finalise one or more gas transportation routes to the project site in order support a tolling commercial model as being implemented at Magnolia. My recent meetings with management in Houston indicate this is a target for later in Q4 2015 or early 2016.

·We understand the Bear Head LNG project is now awaiting a final ruling from the US DOE on the transport of Canadian gas into the US pipeline network to then be exported from back into Canada and sold as LNG. The final regulatory hurdle would be non-FTA from the US DOE to see ALL regulatory hurdles  in place to achieve FID targeted during 2016.

·FERC has also recognized the Bear Head LNG project as one of only two ‘approved’ Export Terminals. While FERC have no impact on the permitting process for construction, from a recognition point of view when talking to potential off-take customers, this is an important data point (source: http://www.ferc.gov/industries/gas/indus-act/lng/lng-approved.pdf)



·Magnolia Update to New York investors: Last week management presented to a number of US funds in NY through BTIG in the format of a short update and Q&A. Talking to clients who attended these sessions indicates the majority of attendees walked away with a clearer understanding on Magnolia’s delays to the binding tolling agreement with Meridian LNG, delays with a second tolling agreement with GNF and a change to the scope of a fixed price lump sum EPC from 4 mtpa to a full 8 mtpa project. We have good understanding of what transpired with each and remain confident the project will resolved the milestones before the end of 2015.

·Key milestones to be complete in the next 60-90 days for Magnolia include: 1) Second and third binding tolling agreement; 2) KBR EPC contract; 3) Stonepeak equity agreement updated for 4 train scenario; 4) BNP agreement on D/E ratio for a four train project.

Recommendation

·We reiterate our BUY recommendation with a 12mth PT of $7.70/sh.

·Recent weakness in the share price continues given headwinds across the ASX 200 energy names in a low oil price environment. We continue to view the stock as oversold and good buying heading into the early part of Q4 CY15 when we expect final resolution on a number of key milestones. Bear Head project is also not factored into today’s share price despite the considerable regulatory hurdles achieved.



Martin Carolan

Executive Director