RE:RE:RE:Cheniere Good catch on Cheniere Q2 Results, to add RBC on Aug 10 published a note titled "Ace in the Hole - Flexing JKM Contract Value".
Our View:
TOU’s LNG exposure is understood by the market, however Street estimates do not appear to reflect the most recent improvement in JKM pricing (Cal ’23 up +30% MoM). Based on this outlook, we now carry Tourmaline's JKM exposure as 6% of 2023 nat gas volumes, but generating roughly 23% of corporate cash flows at our base outlook (and 35% at the current strip)
Key points:
Cheniere export agreement - a well-timed deal. Tourmaline’s 15-year term agreement with Cheniere Energy to supply 140,000 mmcf/d of nat gas (~6% of TOU 2023E nat gas volumes) to the Corpus Christi liquefaction terminal is set to commence in January 2023. Tourmaline has secured pipeline tolls to the facility of $0.86/mmbtu and will receive international prices exposure at Japan/Korea Market (JKM), less liquefaction and shipping fees which we estimate at US$6/mmbtu.
JKM Cal ’23 quintupled since the deal was struck; now represents 6% of TOU’s 2023E gas volumes and 35% of cash flow at strip. Our RBC base estimates incorporate '23 JKM pricing of ~US$32/mmbtu (updated quarterly; strip as of mid-July), which equates to annual cash flow (marketing revenue) of $1.6 bn from the contract. At strip, we peg total cash flow generated by contract to be ~$2.4 bn (or 35% of TOU’s 2023E cash flow) - meaningful considering the contract represents only 6% of TOU’s 2023E nat gas volumes.
Sensitivities – choose your own adventure. In the table below we provide cash flow sensitivities for a range of JKM and HH pricing scenarios. We estimate US$1 increase in JKM pricing to result in roughly C$50-55 mm of incremental after tax cash flow in 2023. TOU has hedged approximately 10% of the JKM volumes at an average price of ~US$23/mmbtu, and we would expect the company to take advantage of the current strength by layering on additional hedges at even more attractive prices.
Me, I'm looking forward to another nice juicy quarterly Special Dividend . . .