LNG 0.00% 4.3¢ liquefied natural gas limited

Based on estimates we carried out a couple of years back, with a...

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    Based on estimates we carried out a couple of years back, with a x14 multiple for earnings, I think we arrived at a value of Maggy of around the $12 mark, fully operational, assuming pricing remains within the usual + 5 - 10% contingency level for the EPC phase. Given the maturity of the design and the way EPC contracts are typically worded and structured I'd guess that the risk of blowing that number to the upside is low. Essentially that means the EPC contractor has allowances in their lump sum price for items such as wet weather, industrial disputes, technical/design issues arising during construction etc. This is the norm and the 'turn key' nature of these contracts results, typically, in a high level of price comfort with the client.

    Before anyone starts to talk of the cost blow-outs in virtually all of the Australian LNG facilities, they were not built under an EPC model, they were 'build to print', and the designs changed dramatically during execution and hence the blow outs. We do not have that risk.

    The real client risk is to 'time', with leakage in that area not usual, typically due to weather and often due to commissioning delays as these facilities are complex and the commissioning phase is highly dependant on the successful sequential completion of each phase of the process, so one delay can lead to another and it's nearly impossible to catch up. 'Liquidated damages' are the clients fall back position to recover delays (cost of), although they aren't always enforced. I'm not sure about the EPC industry in the US as to whether they are typically enforced or not though.

    I just want to add my 5 cents worth, on the recent AGM. I didn't go, as I was tied up with work, however the outcome was not unexpected. My slant on proceedings:-

    1. Management of large corporate companies have one thing common, they have very healthy egos. So if anyone is expecting any of our team to walk away and admit defeat, then you'll be waiting for a while. The challenge will be to keep the technical and delivery team together, however this was addressed well during the meeting. Continuity is important now, albeit that it comes at a cost.

    2. Our team is well credentialed, that's a given from my perspective. I'm sure they are struggling with getting a 'start-up' to have market cred, but they will be doing their best in that regard. The macro picture seems to have been working against us for a few years and clearly the Trump/Xi trade issue is not helping. A change of any senior management now would be a disaster, so be careful what you ask for. And ask yourself what type of person you think might replace them, you could end up in a circular argument i.e. sure, sack GV, but the best applicant for the role might just be ....GV.

    3. I personally don't place any credence on what was said, intimated or assumed regarding prospective BTA leads from the AGM. Management needs clear air to do their job, and they say what they say to keep shareholders off their backs. Comments were made at last years AGM that aren't dissimilar to those made this year. Listen to the webcast of the 2017 meeting and you'll hear GV make various comments, such as not presenting to another AGM without a signed BTA due to shareholder reaction. And I'd expect that if another 12 months goes by with nothing, the same comments will be made. It's human nature for us to hang on every word looking for a positive.

    4. GV has added to the confusion of shareholders with remarks such as "it's all about china" etc, and then backflip comments thereafter to the effect of "....fully assignment with or without China". It certainly doesn't help but he's damned if he says anything and damned if he doesn't. We have no option but to either have faith, and let them do their thing, or move onto another stock.

    5. I also don't pay any credence to the fact that the other proposed facilities aren't catching up. They are, and recent stream lining of the FERC approval process doesn't help us maintain our advantage. But for the moment, we still have it, and will so until well into next year.

    I still firmly believe we will succeed but I'm not holding my breath, it may take another lengthy period of time. The macro supply/demand situation varies depending on who you listen to, but the movement away from coal is real now, China is choking on pollution and they alone can tip the balance to shortfall, as they ramp-up with lower emission alternatives. LNG is a great segway to renewables so we are in the right market.

    All the best to us all, I'm hoping Timbo's comforting optimism will be rewarded. He's helped me through some 'dark' periods previously, and I've got a feeling I'll be looking for more reassurance down the stretch.

    Borty
 
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