New Fortress Energy (NFE) -- LNG Entrepreneurs Making Hay...
Posted: Sun Apr 24, 2022 6:19 am
...while the sun shines.
I've bought quite a bit of this stock, mostly over the last week. The stock has gone idiotic ever since they made that blockbuster announcement on 3/31, in which they said they had filed to build an offshore LNG liquefaction facility 16 miles off the coast of Louisiana, and made the shocking statement that they hoped to get it going by 1Q '23. This type of development speed is totally unheard of in the LNG world. They are calling this initiative their "Fast LNG" initiative, and this facility in LA is actually the 2nd one they have started working on. The first one, which is being constructed as we speak, is going to go offshore The Democratic Republic of the Congo and will be liquefying gas that is, for the most part, stranded gas, in a field discovered by ENI. This Congo facility is a tolling arrangement with ENI, but with one very important additional provision -- NFE has retained the option to acquire up to half of the gas they process into LNG for their own account -- an option that NFE is certain to exercise fully for the foreseeable future, given how valuable LNG is these days..
After the LA facility announcement Stifel jacked up their PT on this from $45 to $68, saying:
"While finding capital needed for the project is TBD, even with more equity capital, we believe it should be extremely accretive" for New Fortress, Stifel analyst Ben Nolan writes, seeing the Louisiana project along with another in Congo and possibly other projects to come as unlocking the "growth engine."
New Fortress management's Q1 2023 start-up target for the project seems optimistic, Nolan says, but "even if delayed six months, with the forward curve above $22/MMBtu in 2023, getting any incremental liquefaction capacity that soon could result in an investment payback period of less than 12 months."
This is a facility that will probably run full tilt for as long as it is technically feasible, yet it will pay out in less than a year. This is some pretty crazy economics boys & girls.
But just like the old Gin-su Knives commercial -- "but wait -- there's more!"
As shown in slide 10 of their latest slide deck:
For Europe to reduce natural gas from Russia by 30-50%+, world needs additional 35-50 MTPA of LNG
Fast LNG is part of the solution
LNG demand expected to exceed supply by up to 164 MTPA by 2030(iii) unless additional liquefaction capacity is constructed and expeditiously comes online However, LNG supply is constrained: • current LNG volumes are largely already committed • little additional LNG supply coming online in next 2 yrs(ii) • new traditional liquefaction projects take 4-5 years to develop.
I see these first 2 offshore LNG facilities as being just the beginning of a huge new business for NFE, which should be easily repeatable. For example, why not set up one of these babies offshore Vancouver? The price of your feedstock would be a helluva lot less than offshore LA.
One trick they are using to keep costs down, as you mention in your post, is that they are just taking old jack-up rigs and floaters that are ready to be scrapped, buying them for scrap value, and then retrofitting them for their use in any of their LNG businesses.
NFE already has very successful businesses going in the midstream and downstream (i.e. regasification) parts of the LNG business. See their website for more background and a very good SA article on them is at https://seekingalpha.com/article/448112 ... -cash-flow
Although the Stifel guy says their financing for the LA project is "TBD" I'm not too worried about that issue at this time. They have said that they are going to try to sell one or more of their more mature projects, to raise in excess of $1B cash, plus they have a lot of unused borrowing capacity on their bank line, so I don't think they will need to raise any equity to get this project financed.
The stock price took a pretty good hit over the last week, most likely due to the fact that a large shareholder blew out about $14M worth of his position on 4/19. I looked at this event as a great buying opportunity -- the guy sold less than 1% of his position and with the stock having appreciated so much leading up to that I'm not surprised at all that he took some chips off the table. Fear of future sales could provide an overhang on the stock price I suppose, but I believe the news of future developments by these guys ought to overcome said overhang pretty easily.
I've bought quite a bit of this stock, mostly over the last week. The stock has gone idiotic ever since they made that blockbuster announcement on 3/31, in which they said they had filed to build an offshore LNG liquefaction facility 16 miles off the coast of Louisiana, and made the shocking statement that they hoped to get it going by 1Q '23. This type of development speed is totally unheard of in the LNG world. They are calling this initiative their "Fast LNG" initiative, and this facility in LA is actually the 2nd one they have started working on. The first one, which is being constructed as we speak, is going to go offshore The Democratic Republic of the Congo and will be liquefying gas that is, for the most part, stranded gas, in a field discovered by ENI. This Congo facility is a tolling arrangement with ENI, but with one very important additional provision -- NFE has retained the option to acquire up to half of the gas they process into LNG for their own account -- an option that NFE is certain to exercise fully for the foreseeable future, given how valuable LNG is these days..
After the LA facility announcement Stifel jacked up their PT on this from $45 to $68, saying:
"While finding capital needed for the project is TBD, even with more equity capital, we believe it should be extremely accretive" for New Fortress, Stifel analyst Ben Nolan writes, seeing the Louisiana project along with another in Congo and possibly other projects to come as unlocking the "growth engine."
New Fortress management's Q1 2023 start-up target for the project seems optimistic, Nolan says, but "even if delayed six months, with the forward curve above $22/MMBtu in 2023, getting any incremental liquefaction capacity that soon could result in an investment payback period of less than 12 months."
This is a facility that will probably run full tilt for as long as it is technically feasible, yet it will pay out in less than a year. This is some pretty crazy economics boys & girls.
But just like the old Gin-su Knives commercial -- "but wait -- there's more!"
As shown in slide 10 of their latest slide deck:
For Europe to reduce natural gas from Russia by 30-50%+, world needs additional 35-50 MTPA of LNG
Fast LNG is part of the solution
LNG demand expected to exceed supply by up to 164 MTPA by 2030(iii) unless additional liquefaction capacity is constructed and expeditiously comes online However, LNG supply is constrained: • current LNG volumes are largely already committed • little additional LNG supply coming online in next 2 yrs(ii) • new traditional liquefaction projects take 4-5 years to develop.
I see these first 2 offshore LNG facilities as being just the beginning of a huge new business for NFE, which should be easily repeatable. For example, why not set up one of these babies offshore Vancouver? The price of your feedstock would be a helluva lot less than offshore LA.
One trick they are using to keep costs down, as you mention in your post, is that they are just taking old jack-up rigs and floaters that are ready to be scrapped, buying them for scrap value, and then retrofitting them for their use in any of their LNG businesses.
NFE already has very successful businesses going in the midstream and downstream (i.e. regasification) parts of the LNG business. See their website for more background and a very good SA article on them is at https://seekingalpha.com/article/448112 ... -cash-flow
Although the Stifel guy says their financing for the LA project is "TBD" I'm not too worried about that issue at this time. They have said that they are going to try to sell one or more of their more mature projects, to raise in excess of $1B cash, plus they have a lot of unused borrowing capacity on their bank line, so I don't think they will need to raise any equity to get this project financed.
The stock price took a pretty good hit over the last week, most likely due to the fact that a large shareholder blew out about $14M worth of his position on 4/19. I looked at this event as a great buying opportunity -- the guy sold less than 1% of his position and with the stock having appreciated so much leading up to that I'm not surprised at all that he took some chips off the table. Fear of future sales could provide an overhang on the stock price I suppose, but I believe the news of future developments by these guys ought to overcome said overhang pretty easily.