Liquefied Natural Gas Ltd (OTC:LNGLF) has continued to progress the Magnolia project, with EPC contracts signed in recent months that put the project on a much firmer footing and effectively fix costs for the development (now out to 31 December 2016). Although the contracts call for a higher capital cost than previously guided, Magnolia should still be at the lower end of LNG development costs and have lower operating costs, encouraging investment by tolling partners. We expect tolling agreements to be signed in 2016 to enable financial close (the FERC order has just been received). Given the low costs and continued need for global LNG supply, we continue to believe that Magnolia should proceed, albeit in a tougher environment. We have substantially remodelled the projects given the new information, resulting in a new NAV of A$1.0/share (US$2.8/ADR).
Low-cost solution despite increased costs
Despite an increased capital cost, Magnolia should benefit from one of the lowest LNG break-even prices of development projects globally, given the low US gas prices and low capex/opex costs in the proprietary OSMR process, which has been given further boosts by increased guaranteed volumes by marquee contractors.
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