Cheniere Energy Partners LP
(CQP - Get Report)
Trading on the AMEX, Cheniere owns the Sabine Pass LNG terminal in Louisiana, where it's developing an LNG processing plant intended for import and export. The company has secured the necessary permits and plans to begin construction on the plant in early 2012, with operations scheduled to commence in 2015.
At first glance, the stock doesn't appear attractive. Under a heavy $2.2 billion debt load, Cheniere has been struggling for years and, because of development costs for the new plant, it registered a weakened operating income in the first nine months of 2011 -- $50.4 million compared vs. $78.1 million generated a year earlier.
However, Cheniere's fortunes are on the verge of improving rapidly. The company has recently signed three multi-billion dollar contracts for LNG production from the new plant: a 20-year, $8 billion contract to supply LNG to UK-based BG Group; a 20-year, $9 billion contract with Spain's Gas Natural Fensoa; and a 20-year contract of undisclosed value with India's state-run energy company Gail India.
All this is great news for shareholders, since the contracts could add at least $410 million annually to the company's coffers and enable growth in a dividend that hasn't been raised since 2007.
BG Group predicts demand for LNG exports from the United States will triple in the next few years, so there should be no lack of customers for Cheniere LNG exports. The annual production capacity of the new LNG plant is designed to exceed 9 million tons.
Risks to consider: Cheniere is raising $300 million through an equity offering, but will likely be making multiple unit offerings in the next three years to fund construction of its new plant. These offerings will dilute the ownership of existing unit holders.
Action to take: Of the three, my top pick is Atlas, because of its distribution growth and ability to fund expansion organically. If the construction sector strengthens, then NuStar becomes more attractive as demand for asphalt improves. At present, NuStar's asphalt operations are a drag on earnings. Cheniere has the highest dividend, but is the most risky of the three pipeline companies, since its growth prospects depend on a yet-to-be-built plant.
L. Springer does not hold positions in any securities mentioned in this article.
StreetAuthority owns shares of VLO in one or more if its "real money" portfolios.
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