BG will pay Energy Transfer for the export facility on a "tolling basis" for 25 years and has an option to extend that contract at a fixed rate.
The oil giant will be responsible for construction management, operations, and will bear the cost of gas procurement from Energy Transfer's pipeline business. Financing for the project mostly lies with Energy Transfer, with costs expected to be in the range of $11 billion, according to Rajendran, who expects financing to be split 75% debt, 15% third party equity financing, and 10% from the company's cash flows.
The project development agreement between BG Group and Energy Transfer Equity, however, has a final investment decision slated for 2015, meaning that there is some uncertainty.
Bank of America Merrill Lynch analyst Gabe Moreen said in a recent client note Lake Charles could drive increased distributable cash flow growth for Energy Transfer Equity through rising cash flows, distributions from limited partner interests such as Energy Transfer Partners and a LNG MLP IPO.
The Ukrainian LNG Export Spotlight
The crisis in the Ukraine may further underscore the strategic imperative of U.S. LNG exports, and solidify confidence in the Lake Charles project, Rajendran said. In a sum-of-the parts analysis, Rajendran values Energy Transfer's Lake Charles project at $6-to-$7 a share and gives the facility a 75% probability of success, pending further regulatory approvals. The analyst expects Energy Transfer to file for LNG export licenses in the next month.
"It can increase the push on government agencies such as the DoE and FERC to push through more export licenses," Rajendran said of the Ukrainian crisis. Credit Suisse counts Energy Transfer equity as one of its "focus list" stocks and gives the company a $52 a share 12-month price target. Cheniere Energy is also rated 'outperform' at Credit Suisse.
Energy Transfer Equity shares have gained 11% year-to-date and were near five-year highs at $45.58 in Thursday morning trading.
For BG Group, deterioration in many of the company's global oil and gas operations may underscore its efforts to move to the North American market through the company's partnerships with Energy Transfer.
BG Group recently warned on its profitability in Egypt amid unrest in the region and analysts expect uncertainty on some of the company's core businesses in Australia and Brazil.
Kingdon Sees Opportunity
Philip Hilal of hedge fund Kingdon Capital Management highlighted Energy Transfer Equity as a top pick at a February investor conference, and cited positive catalysts for the pipeline giant such as its Lake Charles LNG export facility.
At the Harbor Investment Conference, Hilal valued Energy Transfer Equity at $60 a share and noted that public shareholders may not fully value the company's soon-to-be spun Lake Charles assets.
Since Hilal's presentation, Energy Transfer shares have outperformed the S&P 500, especially as geopolitical tensions between Russia and NATO escalated in late February and early March.
Energy Transfer Equity shares rose 13 cents in Thursday trading, as stocks around the world plummeted on an escalating crisis between Russia and Ukraine. Shares in the company closed at $45.53.
-- Written by Antoine Gara in New York