Did You Catch This LNG Development?

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As its ticker symbol suggests, Cheniere Energy (NYSEMKT: LNG) is a company focused on the liquefaction and exportation of natural gas to other countries. Let’s take a look at a recent development surrounding the energy player, while broadening our focus to the entire domestic natural gas market.

An important development

The company recently announced that it had completed financing and began construction on Trains 3 and 4 for its Sabine Pass Liquefaction Project. Each train can liquefy approximately 1 billion cubic feet of natural gas per day. Cheniere's subsidiaries have obtained around $5.9 billion in financing for the project.

The Sabine Project is located in Cameron Parish, Louisiana, well positioned about four miles from the Gulf of Mexico. Cheniere has obtained the necessary FERC and DOE approvals for trains 1 and 2, which are now 26% complete. The company still has a long way to go before it reaches profitability, as its first-quarter results show that it is operating at a loss. The company reported a loss of $117.1 million, or $0.54 per share, versus a $56.4 million loss reported in the prior year quarter. This was higher than analysts' prediction of $0.34 per share.

Recent performance

Still, Cheniere's stock price has performed well, up over 50% year to date. The stock has a high short float of 5.7%, with over 13 million shares being shorted as of May 15. 

In addition, there have been 29 insider sales of shares, representing 2 million shares in the past three months. Multiple insider sales can often be a bearish indicator, but it’s tough to be sure. Some hedge fund managers are betting on the eventual profitability of the company, and that’s what we’re watching the closest. Dan Loeb of Third Point, for example, holds a large position of 4 million shares. Click here to see a discussion of Loeb's other holdings.


Cheniere has a competitor the natural liquid gas market in ConocoPhillips (NYSE: COP). ConocoPhillips has an ownership interest in the Freeport Liquid Natural Gas Project. The Department of Energy recently approved this project to export domestic liquefied natural gas to countries without a free trade agreement with the United States. The project is still subject to environmental review, but could eventually export up to 1.4 billion cubic feet per day.

ConocoPhillips may be a more attractive vehicle for investment in the sector, with a P/E ratio of 10.07 and a dividend yield of 4.24%. ConocoPhillips is not totally dependent on the Freeport Project, and therefore has other sources of revenue. Natural gas, as a commodity, is subject to volatile price swings, which may impact the profitability of an export business.

Chesapeake Energy

There are more pure play natural gas companies for investors. Chesapeake Energy (NYSE: CHK) is a natural gas and oil exploration company. Chesapeake has been in the news over the past year due to the ousting of its CEO Aubrey McClendon. McClendon and the Chesapeake board were accused of inappropriate business dealings that allowed McClendon to have a personal ownership interest in each well the company drilled; McClendon eventually left the Company.

The negative news hurt the share price, but Chesapeake has recovered and is up over 33% year to date. The company reported first-quarter operating cash flow of $1.18 billion, an increase of 29% from the prior year quarter.

SandRidge Energy and Chevron

SandRidge Energy (NYSE: SD) is another natural gas exploration company encountering some difficulties of late. Like Chesapeake, SandRidge has come under fire for the business dealings of its CEO Tom Ward. Click here to read more about Ward and SandRidge. Ward has been paid $117 million as compensation by SandRidge since 2007, and shareholder activists are questioning whether this compensation is appropriate. SandRidge's share price is down over 20% year to date. The stock is heavily shorted with a short float of 14.27%.

Similar to ConocoPhillips, Chevron is a larger natural gas play that is investing heavily in shale oil natural gas production. Chevron has a P/E ratio of 9.14, and a dividend yield of 3.29%. Chevron appears to be more stable, although the share price is likely heavily influenced by the price of crude oil.

Final thoughts

Liquid natural gas may be an important part of the United States’ energy economy in the coming years. However, Cheniere is heavily dependent on the success of the single line of exporting natural gas, whereas other companies such as Chevron and ConocoPhillips are more diversified. Although Chesapeake and SandRidge are more traditional pure natural gas plays, both companies have suffered from management issues recently. Investors should closely examine the best way to invest in the future of liquefied natural gas. Discover the secrets of Insider Monkey’s market-beating strategy here.

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This article is written by Joshua Reider and edited by Jake Mann. Insider Monkey's Editor-in-Chief is Meena Krishnamsetty. Meena has long positions in CHK and COP. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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