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Orbital Direct Offering, plus Golar & New Fortress notes -3

15:41 21-Jul-21

After listening to New Fortress management's presentation, I am adding a GRoDT NFE section to the website for the upcoming earnings call on August 5th.  This won't be of much importance, as development costs won't start falling out of the reports until the 4Q21 iteration.  However, IsoFlex containerization technology and FastLNG jack-up platforms are significant opportunities for small economies and deserve separate tracking.  Also of interest is a plan to separately capitalize and spin off a blue ammonia company to NFE shareholders.  Such a venture is only economically feasible with appropriate pollution taxes, but the technology makes sense to me if carbon capture proves viable.

With the terminals in Brazil coming fully online by 1Q22 New Fortress should starting seeing a ramp toward $1.5b of operating profit or $7.25 of EBITDA by 2023.  If the company can achieve such results, that would justify a $70 NFE price tag for me.  However, I would not be surprised to see chronic corruption and mismanagement in Brazil delay such results.  A Santa Catarina development contract in the coming weeks would be a welcome indication that all is proceeding according to plan in Brazil.  Such risks are even more worrisome for longer term plans elsewhere.  However, management does seem to do a good job of aligning its interests with those of governments, and so far it seems to have avoided going too far into the "frontier" nations that Golar has expressed a desire to graduate from.

Speaking of which, closing comments seemed to indicate that Golar would be holding on to the bulk of its NFE shares.  I had already seen this as the most likely option for the short term, though some form of financing against them would be good.  Consequently, despite addition the website, I am not initiating any NFE position at this time.  In combination of broader market risk, I'm quite willing to regard NFE as a buy the dips opportunity at least until we hear upcoming reports.

Orbital Energy Group has placed 10.4M shares with institutional investors at $3.65.  This dilutes existing investors by 20% and comes right after the company pumped shares with a press release on a contract with Charter to build out 8600 miles of network infrastructure across Louisiana, Alabama, and North Carolina.  This is now a pattern for Orbital of misleading by citing RDOF figures without detailing the impact to its own operations.  My most recent comments about disregarding the company gong forward were well said, especially in light of the tight American job market.

More interesting, but a bit disappointing, is Golar's Hilli expansion with Perenco, which represents only about a third of train 3, going into operation next year.  This was expected, and by my calculations, the initial 200K tons of LNG should add 4 or 5 cents of earnings per quarter, if TTF prices hold up.  Perenco also intends to drill 2 or 3 new gas wells this year and has the option to increase Hilli utilization by up to 400K tons per year from January 2023 through to the end of the current contract in 2026.  That means that Perenco could fully utilize Hilli's capacity by the time the contract is up, but has no obligation to do so, which doesn't inspire confidence, given the operating history.  As a reminder, management has already said that it does not intend to renew the Hilli contract.  In the meantime, I will quote TTF prices in MMBtu going forward, rather than the real-time MWh pricing used in Europe, since it is comparable to American and Asian prices and that is what Golar has cited.

Ultimately though, I reiterate that Asian rather than European demand is what matters here, as America and Germany prepare to issue a vague, toothless warning to Russia over Nord Stream 2.  I still think we're seeing the beginning of the gas ascendancy, though.  So expect to hear more from me around mid-day and possibly even the addition of a GRoDT website section for NFE after the New Fortress update at 11.  NFE shares could easily fall much further in a turbulent market, but at roughly 2x revenue and 11x EPS projections for 2023, the pricing is starting to get interesting.

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