The Energy Department has issued a second permit to export liquefied natural gas (LNG) from the United States. The license, awarded to Freeport LNG Expansion LP and FLNG Liquefaction LLC, will result in overseas shipping of 1.4 billion cubic feet of gas every day from a terminal on the Texas Gulf Coast. This is only the second such permit to export US LNG. While exports by Freeport are not likely to start before 2017, the market has already started contemplating more such licences being issued by the department going forward.
Chicago Bridge & Iron Company’s Prospects Improved
For once, the move is likely to help engineering and construction firms such as Chicago Bridge & Iron Company N.V. (NYSE:CBI) (FRA:BDZ). The company is an integrated engineering, procurement and construction (EPC) services provider with a focus on the energy, petrochemical and natural resource industries. The company recorded revenue of $2.3 billion during the first quarter 2013, representing an 87 percent jump. While nearly 60 percent of this came from an acquisition, the remaining amount was primarily due to increased construction activities related to LNG mechanical erection and gas processing projects. The company has been winning new projects internationally in this area, including engineering services for an offshore LNG platform in the Norwegian Sea worth approximately $180 million, and scope increases on its refinery project in Colombia worth nearly $175 million. Chicago Bridge & Iron’s prospects are improved by the fact that it has already worked on the front-end engineering and design for the Texas Gulf Coast plant. In fact, it would be a surprise if the company fails to win additional contract work at the plant. Its shares have advanced 23 percent over the last month but are still available at forward price earnings of 12.4.
Fluor Corporation (NYSE:FLR) is another industrial construction and engineering player strong in the hydrocarbon, chemical and petrochemical industries. Although based in Texas, Fluor Corporation is an international player involved in offshore production facilities. It continues to see significant opportunities in the Canadian oil sands market apart from unconventional gas projects in various geographical locations. Oil and gas is the biggest segment for this company with revenues of $9.5 billion, amounting to 34.5 percent of global revenues in 2012. Fluor Corporation is currently trading at a price earnings ratio of only 14.2 times projected earnings for 2014 and has a debt equity ratio of 0.15. Early this month, Deutsche Bank initiated coverage on the stock with a Buy rating and a price target of $84, indicating potential upside of 27 percent.
Beyond construction plays
Another player set to benefit from the relaxed norms is Teekay LNG Partners L.P. (NYSE: TGP) which offers international transportation services for LNG in addition to liquefied petroleum gas (LPG ) and crude oil. The Energy Department’s stance indicates that more such licenses will be rolled out thus increasing business volumes for transporters like Teekay. As of December 31, 2012, the company’s fleet consisted of 27 LNG carriers. With a young fleet that has an average age of 6 years as of year end, the company was able to boost its margins from 25.6 percent in 2011 to 35.5 percent last year. This improvement in margins is substantial and even though margins simply cannot keep going up, current levels are good enough to be maintained. The company has a debt equity ratio of 1.69 which is not very high for this capital intensive business and will support margins to stay at healthy levels. Despite its vastly improved results and margins from previous year, the stock has gained only 18 percent over the last 12 months and offers an excellent dividend yield in excess of 6 percent.
Even though the Energy Department said it would move cautiously on additional approvals, oil and gas industry groups are expected to lobby hard to open the door a bit more. The positives such as job creation and reduction of the U.S. trade deficit which played in favor of Freeport will likely bring more export volumes.