Gasol Plc: First LNG Project Could Be Close; Demand Strong

We believe Gasol (GAS.L) could be close to its first liquefied natural gas (LNG) re-gasification project. As stated in a recent media report, the company has signed Memorandums of Understanding (MoU) to provide gas to a Middle Eastern country and Benin and Togo (it continues negotiations elsewhere). We have therefore explored what a potential smaller-scale project could look like and examined the main drivers to value creation. Our illustrative, theoretical modelling indicates that a project in a benign marine environment close to existing gas infrastructure (possible in the Middle East) could generate value well above Gasol’s market cap for a restricted initial capital outlay. First revenues could come in 2014 and would be the first step in Gasol’s larger strategy of supplying gas to gas-hungry West African markets.


First LNG project could be close, demand is strong
Gasol recently acquired the option for a number of gas development projects in West Africa and elsewhere. Recent strengthening of its management team and press reports indicate that the company is willing and able to launch its first project. Margins between LNG and other energy sources such as diesel are such that provision of LNG would be beneficial to West African markets, which are forecast to continue to grow strongly in coming years.

Valuation creation with restricted capital outlay
Our illustrative project has low capex requirements; floating storage and regasification units (FSRUs) would be leased, while initial capital requirements would be determined by proximity to gas infrastructure and harbour requirements, but could be low (we tentatively estimate $10-15m). By entering long-term contracts with large or government-backed gas companies (with additional credit enhancement if necessary), Gasol will be able to reduce risk and attract financing that could cover the majority of initial capital requirements, leaving only perhaps 20% of cash needed from equity.

Valuation: First project could be strongly positive
Our analysis is a first look at possible drivers for a project and we will have to wait until a deal is announced for further details. However, it is clear that overall market pricing and demand are not impediments to these projects and that the company could create significant value by supplying LNG to gas-starved markets. Our first blush analysis indicates that an NPV@15% of over $15m is possible, with an equity contribution of as little as $1-3m, with first revenues possible in 2014 if a deal is announced soon (as the company is hoping). We look forward to the company announcing a first deal, but until this is done we do not ascribe any value. We leave our forecasts and valuation unchanged.

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