What’s Behind Cheniere’s Soaring Stock?

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Aug. 21 (Bloomberg) -- “The Frackers” Author Gregory Zuckerman and Westlake Securities Vice President of Research Chris McDougal discuss the natural gas industry in the U.S. on “Market Makers. (Source: Bloomberg)

Chris mcdougall joins us now.

Great to have you here.

It is one of the definitive book of the shale revolution.

Who is this guy?

One of the most unlikely characters to lead the revolution.

Poor investment banker, emigrant from lebanon.

There are a lot of immigrants who have led this.

Did really well.

Went to ski in aspen for a while and ran out of money.

Started restaurants and bars and then set i will try this energy thing.

He is one of the leaders of the whole revolution that has trans form -- transformed the country.

He started off wanting to build import terminals.

Then he noticed the change coming and said i will raise more money and build export terminals.

How do you do something like that?

He made a convincing argument.

Paulson, blackstone, top investors saying they're running out of natural gas in the country and will have to import natural gas.

Turns out that only we do not need to import it, we have a lot of it.

The stock tumbled, lost all of his money.

He was really in trouble.

He said if we really have this, maybe we should export it.

At the time, no one was thinking about it.

That is why it became the first to get approvals to export.

That speaks to your insight.

How did he get so ahead of everyone else cap go i think it is a combination of the country having an entrepreneurial spirit.

Being very creative driven ceo.

Having a great team, and quite frankly, not distracted by other options.

Right across the river you have the golden past terminal, partly owned by qatar.

There are several years behind turning the terminal into an export facility.

They were really focused on this as key assets and had to figure out something to do with it.

Let me ask you about this from an investor perspective.

The guide makes one hundred 42 million per year, which is justifiable.

If i am an investor i am willing to reward him with the big payday.

A lot of people ask the question, what is so great about the stock if he is not making money you go are they going to turn a profit.

So is there a profit at the end of the tunnel or what is driving the stock?

What is driving the stock is the company has two .5 billion a 20 year fixed-price take or pay contract for years.

2.5 billion of revenue per year for the first this over the that is under construction and going forward.

Another 1.8 or expansion terminals.

Corpus christi awaiting regulatory approval.

You go through the math and give the company said up to generate profits into the 2016. while that is a long way, you have the fixed-price contracts that assure results going forward.

That is giving investors comfort.

To your point, it seems like a big number with no profit but take it as a percentage of market cap, .7%. versus only two percent back in 2011. this is what they were talking about, basically the contract.

It is basically a reservation fee.

I get the right to export.

I may not use it but i will use it anyway.

Two point 4 billion just from that.

In revenue.

It is not a made-up kind of thing.

Believe me, they will be making money.

Investors, they point out it is like a bond.

It is like a contract.

The fascinating thing to me is it should have been exxon or someone like that leading it.

It took entrepreneurs to leave the revolution.

Why is that?

You would think the big integrated conglomerate would come in and own this kind of transportation logistics but the guy doing it is crazy.

Lex because the exports got it wrong.

The experts all said we are running out of natural gas and oil.

He and a lot of entrepreneur said maybe the experts are wrong and do not have much of a choice.

The stock without one.

They did not have much options.

They are the integrated.

Appear play.

Here is my question.

Five years ago we were talking about importing.

Now talking about exporting.

Why are you so sure we'll still be around exporting natural gas than five years?

The growth of natural gas production has been tremendous.

I think that is for fundamental reasons that the u.s. gas markets has that other countries do not.

We have a well-developed industrial and gas transport infrastructure, great technology and the capital markets that really supports all that.

It is important to tremendous growth as we experience what is really a big reduction in pricing.

So we think the market as well supplied going forward.

When you look at the stock, it seems crazy.

These contracts, built in revenue must already be accounted for.

Where is the additional outside coming from?

Where we see it is you have some diced in for the contracts.

Then as you get past those contracted in and fully regulatory approved, you go to the corpus christie fant and the expansion trains.

That is additional revenue.

Both on a contracted basis and she near -- cheniere has the right to sell the excess capacity from the plants.

That is part of it.

We have to leave it there.

Basically they end up exporting on their own.

We will spare the rest of you.

This text has been automatically generated. It may not be 100% accurate.


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