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Cheniere Energy Seals LNG Supply Deal With CNPC, Stock Jumps


Cheniere Energy, Inc. LNG recently announced that the company has agreed to sell liquefied natural gas ("LNG") to China National Petroleum Corporation (“CNPC”) through two sale and purchase agreements. The deal marks China's first ever long-term contract targeted to import U.S. LNG. Following the news of the deal, Cheniere Energy stock jumped 4.6% last Friday.

Cheniere Energy and CNPC signed a memorandum of understanding during President Trump’s visit to China last November, which resulted in this deal.

Deal Details

Per the deal, Corpus Christi Liquefaction, LLC and Cheniere Marketing International LLP, two of Cheniere Energy’s units will sell around 1.2 million tons of LNG per year to PetroChina International Company Limited, which is wholly owned by PetroChina Company Limited PTR. State-run CNPC is the owner of PetroChina Company. The deal requires Cheniere Energy to start part of the supply this year while the rest is slated for 2023. Both parts of the deal are expected to continue through 2043. Cheniere Energy and CNPC have agreed keep LNG price indexed to the Henry Hub price. The LNG price will also assume a fixed component.

Deal Rationale

This long-term deal is crucial for the natural gas exporter and is expected to help Cheniere Energy with its development plans. The company is still at the expansion stage, which means high capital spending and cash outflow in the foreseeable future. Cheniere Energy expects the deal to support its Corpus Christi Train 3 development in Texas, which saddled the company with a substantial leverage and credit burden. The company has a long-term debt to capital ratio of 95.8%, much higher than the industry's 49.3%.

Moreover, the deal enables Cheniere Energy to meet the rising demand for LNG in China and strengthens its hold in Asia. Per China's pollution control measures, the use of coal for heating purposes is expected to go down. It will give a boost to LNG demand in the country in the coming years. By 2030, China is believed to become the largest LNG importer.

Price Performance

Cheniere Energy has gained 15.5% in the last year versus the 22.9% fall of its industry.

About Cheniere Energy

Houston, TX-based Cheniere Energy – founded in 1983 – is primarily engaged in businesses related to liquefied natural gas through its two business segments: LNG terminal, and LNG and natural gas marketing. The company boasts of low-cost gas resources.

Being the first company to receive Federal Energy Regulatory Commission (FERC) approval to export LNG from its 2.6 billion cubic feet per day Sabine Pass terminal in Cameron Parish, LA, Cheniere Energy enjoys a distinct competitive advantage over other players to ship overseas. However, exporting natural gas – by setting up large liquefication plants – is a very capital-intensive undertaking, with each unit running up multi-billion dollar bills. This has translated into a huge debt load for Cheniere Energy – currently nearly $25 billion.

Zacks Rank and Stocks to Consider

Cheniere Energy carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the oil and energy sector are Cabot Oil & Gas Corporation COGand Pioneer Natural Resources Company PXD. Both the companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX -based Cabot is an independent energy company. Its sales for the fourth quarter of 2017 are expected to increase 36% year over year. For 2017, the bottom line is expected to be up 342.9%.

Irving, TX- based Pioneer Natural Resources is an independent oil and gas exploration and production company. Its revenues for the first quarter of 2018 are expected to improve 15.6% year over year. For 2018, the bottom line is anticipated to be up 149.5%.

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