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Stock Analyst Update

A Top Natural-Gas Pick Makes an Intriguing Move

Plus, Shell gets dealt out, eBay calls an audible, and more.

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On Thursday, Cheniere Energy (LNG) announced that it is converting its wholly owned subsidiary, Cheniere Energy Partners LP, to a master limited partnership (MLP) and selling 8% of the limited partner shares through an initial public offering. Cheniere Energy Partners will in turn own 100% of the Sabine Pass regasification terminal. The announcement that Cheniere is converting one of its terminals to an MLP is not a surprise to Morningstar analyst Justin Perucki, as management had made it known to him that it was a distinct possibility. However, the announcement comes much sooner than Perucki expected, as Sabine will not turn cash flow positive until late 2008. Perucki's initial thoughts are that Cheniere wants to take advantage of the recent hot demand for MLPs, or else is in need of additional financing. Motivation for the conversion notwithstanding, Perucki is leaving his fair value estimate unchanged at this time while he investigates the finer details of the offering.
 Full Analyst Report: Cheniere Energy

Shell Sells Stake in Sakhalin II
On Thursday, Royal Dutch Shell (RDS.A) and its partners in the Sakhalin II energy project agreed to sell a 50% stake (plus one share) in the venture to Russia's Gazprom for $7.45 billion. Shell's position in the project will be reduced to 27.5% from 55%, but the firm will remain as technical advisor to the group. To date, investments in both phases of Sakhalin II have amounted to about $14 billion, which means that Gazprom is paying slightly more than historical cost for its controlling stake in the project. Ideally, Morningstar analyst Elizabeth Collins would prefer that Shell and its partners had received more compensation from Gazprom. However, the investment climate in Russia is rarely ideal, and it appears that ceding control to Gazprom was necessary for the project to proceed on schedule, free of interference from Russian regulators. Another positive is that Shell and its partners will be receiving cash, rather than positions in one of Gazprom's oil and gas projects, which means they're not being indirectly forced to maintain their investments in Russia. Therefore, Collins views the deal as a wash for Shell, explaining why she's not changing her fair value estimate. In the future, Morningstar's energy team will be skeptical of any major oil company's decision to increase its investment in Russia, as the Sakhalin II affair represents only the latest snafu for private energy companies operating in this resource-rich country. 
 Full Analyst Report: Royal Dutch Shell

Jeffrey Ptak has a position in the following securities mentioned above: EBAY. Find out about Morningstar’s editorial policies.

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