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Update: Critical six months

Despite the fall in oil and gas prices over the last six months, Liquefied Natural Gas Limited (LNGL) should be largely insulated from the effects of the fall in oil prices over the last six months. While many LNG markets are linked to oil prices, the revenues of Magnolia (and its other projects) are achieved through fixed tolling fee agreements. As a result, the main risk to LNGL due to the oil price is whether it can reach project sanction and financial close (due in mid-2015) – this is dependent on a number of parties, including EPC contractors and tolling partners. It is the tolling partners that take the commodity risk, trading LNG on the global markets. These are all large companies with long-term horizons. We have refreshed the valuation, which produces a risked DCF-derived NAV of A$2.8/share. This value should increase over the years towards first production. A multiples/cash flow analysis backs up our value, implying a 2015-20 CAGR of over 25%.