I'm a bit unsure of what to make of this deal myself and am left wondering if I still have reasons to hold LNG. The potentially huge upside is now gone.
However a couple of thoughts going through my head that I'll put out there:
1. what will be the affect if AOE (or any other major SH) decide they have no need to continue holding LNG? There could be selling pressure for a very very long time.
2. LNG now have much lower risk and no additional capital expendure on the project - which means they can stay alive and undiluted for a long time. This is important for point 3 below.
3. The possible royality revenue is extremely attractive in my opinion. What do you think the average price of oil will be over the next 20 years! There are probably more terms/conditions than provided in the initial release (in terms of the $60 and $80 figures going forward), but my opinion is that the price in just a few years could well be closer to $200 or more than to $60. And the increasing input costs that would be a result of future high inflation (of which I expect) will not be bourne by LNG, but rather by AOE and others. I'm sure there will be allowances in the fine print regarding this, but the general idea is still valid in my opinion. I subscribe to the theory of impending mid-term energy shortages and also high inflation due to reckless world world monetary policy - this is the basis of my lofty expectations for future oil price.
4. AOE needs FishLand to commercialise their resources so will be doing everything they can to do so. If it doesn't get built (for whatever reason, T/O, etc) then LNG would've been screwed any - at least this way (this sale)they/we have some cash.
5. possible conflicts of interest, options, etc still gives me a slight feeling of unease - but this is not a unique (to LNG) problem!
Anyway - just a bit of rambling/thinking aloud. Bit of a quiet thread so hopefully get some discussion around what this sale all means (especially interested in point 3 above).
To sum up my opinion: step 1 - FishLand happens step 2 - LNG don't misuse funds and with low cash burn/expenditures can survive long term and collect royalies if nothing else. step 3 - oil price increases immensely over 20 years
Cheers and good luck, bbeenn
LNG Price at posting:
68.0¢ Sentiment: Hold Disclosure: Held
