Freeport LNG: A Miss For ConocoPhillips ?

Oct. 09, 2014 1:22 PM ETCOP
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Long Only, Dividend Growth Investing, Oil & Gas

Contributor Since 2013

David Boehler is an independent investor, MOOC lover, focused on dividend growing stocks, especially future dividend contenders, challengers, kings and champions .


  • Freeport LNG got approval from FERC.
  • This is only the third approved LNG export project.
  • ConocoPhillips decided to leave this LNG export site.

One more authorization

FreePort LNG is based in Texas, having the aim of receiving LNG for liquefaction and export. On July 30, the FERC gave its consent for the starting of the site's construction operations.

Initially, ConocoPhillips (COP) was part of the Freeport LNG project, whose duty was to import LNG. However, after the LNG production notably increased in the USA, the project became an export site and it was at that moment when ConocoPhillips decided to retire from the project. In the latest 10-Q, we point out the fact that COP signed an agreement in July 2013 to end the long-term contract which linked the company to Freeport LNG if the financing and the authorization of the FERC was received. Currently, the enterprise is continuously withdrawing from the Freeport project and paying close to $500 million as termination fee (see note 3 from the latest 10-Q SEC filling).

Prior to this, only two similar authorizations were provided by the FERC, the first one to Cheniere (LNG) for Sabine Pass in Texas, and the second one to Sempra Energy (SRE) for the Cameron LNG site in Louisiana.

These two enterprises are perceived by the investors as having a high growth potential due to the future LNG exports for the consuming countries, mainly in Asia.The 5-year performance for each stock is a just stellar.

The project

Freeport LNG is a project designed to have three liquefaction trains. These trains have a capacity of 4.4 millions tons per year (mtpa), for each train, arriving to a full capacity of 13.2 mtpa. To make a comparison, this capacity is comparable to the Corpus Cristi project by Cheniere.

With obtaining the authorization of FERC, the beginning of the construction is expected in the fourth trimester of 2014, and the start-up of the first train in 2018. The two other trains are planned to be brought into operation in 2019. It is important to know that several commercial agreements for a period of 20 years were already signed and the full usage of the three trains is guaranteed, thanks to the contracts signed with Osaka Gas and Chubu Electric Power for train 1, BP for train 2 and Toshiba for train 3.

A disengagement for reinvesting elsewhere?

While the LNG export is a very promising market to the United States, with enterprises as Cheniere having exceptional stock-exchange performances, we therefore inquired of the reason why ConocoPhillips wanted to withdraw from the project.

Once again, the project was initially meant to import LNG. In order for the site to be able to export now, the total cost is estimated at around $14 billion, and I believe that this sum may be used by COP for other projects all around the world (especially LNG in Australia with the APLNG joint venture in Queensland) with much more potential, bringing much more value to the shareholders.

I advise dividend growth investors and long term investors to go long COP.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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