Liquefied Natural Gas Limited (ASX:LNG)

Gregory M Vesey
MD & CEO
Market Cap (AUD): 24.8M
Sector: Energy
Last Trade (AUD): 0.043 +0 (+0%)
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1. About

Liquefied Natural Gas Limited corporate offices are based in Perth, Western Australia, with offices in Houston, Texas; Lake Charles, Louisiana; and Halifax, Nova Scotia.

The Company is currently developing LNG export terminal projects in the United States, Canada and Australia having combined aggregate design production capacity of 20 mtpa, with expansion options.

The Company’s focused approach distinguishes LNGL as a pure LNG infrastructure investment opportunity.

Liquefied Natural Gas Limited’s business model applies the Company’s wholly owned and developed OSMR® LNG process technology, which centers on delivering four key principles: industry’s lowest full cycle cost; optimized plant energy efficiency; shortened development and construction schedules; and an overall smaller environmental impact footprint, including  reduced carbon emissions relative to other LNG technologies.

2. Business model

 

The Company operates the following divisions:[1]

 

Division

Revenue ($’000)

% of Revenue

% of Segment Profit

Profit drivers[2]

LNG Infrastructure

        N/A 

N/A

(45.0%)

LNGL’s net loss after income tax for the year ended June 30, 2018 totaled A$22.8 M, which compared with a loss of A$29.3 M in the year ended June 30, 2017. The 2018 fiscal loss included the aforementioned project development costs of A$11.4 M, A$1.2 M of share-based payment expenses, and A$12.3 M in administration, corporate, and compliance costs in the period

Technology & Licensing

N/A

N/A

(5.2%)

Unallocated

$2,184

100.0%

(49.8%)

3. Strategy

 

Key strategies include:[3]

 

The Company applies a three-path execution strategy to realize its Vision:

  • Develop projects using its OSMR® Technology Solutions
  • Use OSMR Technology Solutions to gain entry into new and existing third-party projects
  • License the OSMR technology to third-parties
  • The Company’s ‘Energy Link’ strategy is to safely develop mid-scale LNG export terminals to link proven gas reserves with existing LNG buyers. The Company aim to remain at the forefront of approach to LNG development and processing technology to ensure the Company’s LNG terminal development projects are world competitive in terms of capital and operating costs, operating efficiencies, and ecological impact. The Company seek to ensure its neighboring communities benefit from its operations on an enduring basis while the Company minimize and mitigate any potential impact of its presence
  • Its approach to site selection and project development reflects the importance placed on existing infrastructure, land access, gas supply, regulatory regime, and other similar differentiating key business drivers
  • The Company looks to contract on a fixed-price, turnkey basis using LNG industry experienced EPC contractors. The modular construction approach and consistent use of EPC contractors allows repeatability with respect to the OSMR® liquefaction trains, further improving economics
  • The Company is continually evaluating additional growth opportunities that would benefit from its ‘Energy Link’ strategy
  • Its preference for modular fabrication translates into inherently safer construction and reduced on-site labor while providing a high degree of quality and schedule control
  • The Company are continually evaluating additional growth opportunities that would benefit from its ‘Energy Link’ strategy

4. Markets

 

[4]

Industry (Australia)

Industry Revenue (2018)

Growth rate  (annual 13-18)

Oil and Gas Extraction

$55 billion

 5.8%

Gas Supply

$11 billion

2.3%

5. Competition

 

Major competitors include:[5]

 

  • Lakes Oil N.L (ASX: LKO)
  • Norwest Energy N.L. (ASX: NWE)
  • Karoon Gas Australia Ltd. (ASX: KAR)
  • Metgasco Ltd. (ASX: MEL)
  • Mustang Resources Ltd. (ASX: MUS)

6. History

 

2002[6]  

Liquefied Natural Gas Limited formed

 

2004   

Listed on Australian Stock Exchange (ASX code: LNG)

 

2005 – 12   

Developed OSMR® technology and worked project opportunities, including Fisherman’s Landing LNG

 

2012   

Magnolia LNG site procured

 

2014   

Sponsored US ADR initiated over-the-counter

Acquired Bear Head LNG

 

2015   

Magnolia LNG signed gas pipeline interconnect agreement with Kinder Morgan Louisiana Pipeline

U.S. Patent granted for OSMR® Technology

Magnolia LNG executed EPC contract with KBR SK JV

 

2016   

Magnolia LNG received its FERC Order to operate an LNG plant and export LNG

Bear Paw Pipeline received construction approval

 

2016   

Management announced a redundancy and restructuring initiatives

 

2017   

Magnolia LNG received its FERC Notice to Proceed

Magnolia LNG secured $1.5 billion equity commitment from Stonepeak Infrastructure Partners

 

2018   

LNGL extends Meridian LNG offtake agreement

LNGL raises a $28.2 M through share placement

7. Team

 

Board of Directors[7]

 

Mr. Paul J Cavicchi – Chairman

Mr. Gregory M Vesey – Managing Director and Chief Executive Officer

Mr. Richard Jonathan Beresford – Non-Executive Director

Mr. D Michael Steuert – Non-Executive Director

Ms. Leeanne Kay Bond – Non-Executive Director

Mr. Philip Moeller – Non-Executive Director

 

Management team

 

Mr. Gregory M Vesey – Managing Director and Chief Executive Officer

Mr. Michael Reed Mott – Chief Financial Officer

Mr. John Baguley – Chief Operating Officer

Mr. Joseph B’Oris – Chief Development Officer

Ms. Kinga Doris – General Counsel/Joint Company Secretary

Ms. Lisa Vassallo – Vice President, Human Resources

Mr. Andrew Gould – Group Development Manager/Joint Company Secretary


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8. Financials

 

2018 Full Year Results Presentation

 

Financial Year 2017/18 (ended 30 June)[8]

 

 Division

Revenue ($’000)

% Change

Segment Profit ($’000)

% Change

LNG Infrastructure

                      N/A

N/A

($10,252)

12.3%

Technology & Licensing

N/A

N/A

($1,183)

(61.8%)

Unallocated

$2,184

137.9%

($11,348)

32.8%

Total

$2,184

137.9%

($22,783)

22.3%

9. Risk

 

Major risks include:[9]

 

Risk and Uncertainties

The business activities of LNGL are subject to various risks and uncertainties that may affect the future performance of LNGL’s results of operations and financial condition. While many of the risk factors are largely beyond the control of LNGL and its Board, LNGL will seek to mitigate the risks where possible and economically viable. LNGL is subject to risks that are specific to LNGL and its businesses, risks that are specific to the LNG industry at-large, and general business risks. The following represent examples of such risks (the list is not exhaustive). Risks specific to LNGL include available liquidity to maintain its operations, a myriad of project development risks, future financing requirements at both corporate and project levels, dependency on key contractors and corporate alliances, counterparty and credit risks, key personnel risks, and technology and intellectual property risks. Industry specific risks include fluctuations in demand for LNG globally, industry competition, prices paid for liquefaction capacity, the availability of gas feedstock and pipeline capacity outright as well as the need for such feedstock and capacity to be at economically competitive prices, government policy and regulation, evolving health and environmental policies and regulations, industrial dispute risks, availability of qualified construction and operations workforce, and country risks. General business risks include economic cycles, commodity price fluctuations, foreign currency and interest rate exposures, general legal and taxation matters, and other similar factors.

 

Interest Rate Risk

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s cash and term deposits held with two Australian financial institutions. The interest rate risk is managed by the Group through analysis of the market interest rates and its exposure to changes in variable interest rates. At balance sheet date, the Group had the items set out in C1 with exposure to Australian variable interest rate risk.

 

Foreign Exchange Risk

Foreign exchange risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Group has transactional currency exposures, mainly due to costs incurred in currencies other than its functional currency, such as United States dollars, Canadian dollars and Indonesian rupiah. The Company’s current policy is not to implement hedging instruments but to maintain cash in foreign currencies to protect against the risk of adverse exchange rate movements. When exchange rates are favorable against budget assumptions the Company will accept the prevailing exchange rate on the date of payment, otherwise the Company will affect payment from its foreign currency holdings.

 

Credit Risk

Financial assets that potentially subject the Group to credit risk consist primarily of cash, trade and other receivables, and term deposits. The Group places its cash with high quality Australian financial institutions with Standard and Poor’s credit rating of A-1+ (short term) and AA- (long term). The Group’s exposure to credit risk arises from potential default of the counterparty, with a maximum exposure equal to the carrying amount of these financial assets. It is the Group’s policy that customers who wish to trade on unsecured credit terms will be subject to credit verification procedures. Receivable balances are monitored on an ongoing basis to reduce the Group’s exposure to bad debts. At balance sheet date, the Group’s credit risk relates mainly to trade and other receivables of $60,000 (2017: $114,000).

 

Liquidity Risk

Liquidity risk arises from the financial liabilities of the Group and the Group’s subsequent ability to meet their obligations to repay their financial liabilities as and when they fall due. The Company continues to operate in accordance with its liquidity management plan (LMP) begun in the 3rd quarter of fiscal 2016. During fiscal 2018, the Company undertook two liquidity enhancing events: (i) the sale of 56,444,500 of ordinary shares for net proceeds totaling $27,231,000 and (ii) sold Gladstone LNG Pty Ltd for proceeds totaling $1,293,000. With these incremental funds in combination with existing cash on hand and through applying its LMP, the Company estimates that the existing cash position can sustain the company through mid-2020. At June 30, 2018, except for payables, the Group had no debt (2017: nil). At June 30, 2018, $25,000,000 was invested in a short-term (three-month) interest bearing investment with CIBC. The investment has a term ending on September 28, 2018. Other cash reserves are held in term deposit with the ANZ Banking Group, with funds transferred as necessary to the Group’s working accounts to meet shortterm expenditure commitments. All financial assets and liabilities (set out in B1, B2, C1 and C2) have a maturity of less than six months except for finance leases which have maturities which range through 2018.