Baupost Continues American Shale Theme With LNG Investment

13F Baupost GroupBaupost Group

Seth Klarman’s Baupost Group has made another move into the natural gas sector, taking a 6.69% stake in Australian firm Liquefied Natural Gas Ltd (ASX:LNG), reports Angela Macdonald-Smith for The Sydney Morning Herald (full securities filing can be found at the bottom of this post). LNG’s stock price fell more than 7% following the news, but it is still up more than 1000% for the last twelve months with nearly all of those gains coming in the last three months.

Baupost made similar investment in Cheniere Energy

Last month we found out that Baupost had made a similar investment when the $27 billion hedge fund’s first quarter 13F revealed that it had allocated 7.72% of its portfolio to Cheniere Energy, Inc. (NYSEMKT:LNG). You could be forgiven for confusing the two companies: they both use LNG as their stock tickers (though on different exchanges of course), and they are both working on liquefied natural gas export facilities on the Gulf of Mexico – Liquefied Natural Gas Ltd (ASX:LNG), in Louisiana and Cheniere on the Lousiana-Texas border. Cheniere is up 136% over the last twelve months.

See exclusive info on Baupost’s equity positions in the US and abroad here.

LNG Ltd positioned to benefit from American shale boom

Liquefied Natural Gas Ltd (ASX:LNG), has seen its stock price surge as the market comes to terms with the potential value of CEO Maurice Brand’s claim that its Magnolia LNG facility could be among the first five ready to export gas out of the US. America’s shale deposits are being turned into a natural gas boom, and even though gas reserves are ironically far below their long-term average, there are concerns about transport capacity not being able to keep up with still rising production levels.

Eventually the US will have enough gas reserves to start exporting large quantities, and the first export facilities will find themselves sitting at a lucrative point in the supply chain. The deal has attracted other institutional investors including Dan Loeb’s Third Point LLC who are getting involved now that the market is starting to price in future sales well in advance. Early backers, who bought in at AU$0.55 per share have already tripled their investment and there appears to be room to grow.

The $3.5 billion Magnolia LNG facility will have two production trains each with a capacity of 2 million tons of liquefied natural gas per year. It also has non-binding agreements with Gas Natural Fenosa, AES Corporation, and Russian-owned Gunvor already in place, but unless something happens to disrupt American shale (such as unexpected regulations) it’s hard to see the company having a hard time selling its services.

Filing PDF

Baupost Group

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About the Author

Michael Ide
Michael has a Bachelor's Degree in mathematics and physics from Boston University and Master's Degree in physics from University of California, San Diego. He has worked as an editor and writer for several magazines. Prior to his career in journalism, Michael Worked in the Peace Corps teaching math and science in South Africa.

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