Shares of liquified natural gas (LNG) company Venture Global (VG +9.38%) soared by 24.3% this week. This week’s move comes in response to an excellent set of first-quarter earnings released on Tuesday, and the announcement of separate five-year LNG supply deals with TotalEnergies and Vitol.
Venture Global and the closure of the Strait of Hormuz
According to the International Energy Agency (IEA), about 20% of global LNG trade passes through the Strait of Hormuz, and its closure is positively affecting companies that produce and transport LNG in the West, with Venture Global being a prime example.
Today’s Change
(9.38%) $1.22
Current Price
$14.23
Key Data Points
Market Cap
$35B
Day’s Range
$13.40 – $14.40
52wk Range
$5.72 – $19.50
Volume
23M
Avg Vol
27M
Gross Margin
44.05%
Dividend Yield
0.48%
The company is benefiting from higher LNG prices in its uncontracted LNG streams due to the lack of supply through the Strait, and it’s also able to sign long-term contracts because energy companies need to secure long-term LNG supplies.
The TotalEnergies deal is a new five-year agreement to provide 0.85 million tonnes per annum (mtpa), and the Vitol deal is for an increase to 1.7 mtpa from 1.5 mtpa over five years. For context, LNG flow through the Strait is usually about 80 mtpa to 86 mtpa.
Securing long-term revenue
Indeed, management outlined that it had increased its share of expected cargo on a contracted basis to 84% in the first quarter from 69% in March of last year. While the increase in contracted revenue tends to reduce its exposure to spot LNG pricing, it secures the company’s long-term cash flows, allowing it to invest in capacity expansion with confidence.
Image source: Getty Images.
Where next for Venture Global
The positive trading environment for the company led management to raise its full-year earnings before interest, taxation, depreciation, and amortization (EBITDA) to $8.2 billion to $8.5 billion from $5.2 billion to $5.8 billion previously. In addition, the need to repair damaged LNG infrastructure in Qatar, plus an increased sense of risk around investing in the region, and Venture Global’s plans to aggressively ramp capacity “to over 100 million tonnes of annual production by 2030,” according to CEO Michael Sabel, positions the company to benefit in the coming years.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
