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LNG pioneer Cheniere due for consolidation as value grows, investment bank says

Cheniere Energy Inc. should simplify its corporate structure once the U.S. LNG export pioneer's value has sufficiently grown, said analysts at the energy investment bank Tudor Pickering Holt & Co.

"Ideally, [Cheniere] rolls [Cheniere Energy Partners LP]/[Cheniere Energy Partners LP Holdings, LLC] into one liquid entity once Cheniere appreciates in value as [Cheniere Energy Partners] is in its high splits and any sort of consolidation will reduce the complexity of the structure," they wrote in an Oct. 12 note initiating coverage of the three entities.

The potential merger of Cheniere's master limited partnership and the partnership's holding company would not be Cheniere's first attempt at consolidation. It offered in 2016 to buy out all Cheniere Energy Partners LP Holdings units it did not already own for $1.01 billion. Talks fell through, however, after the holding company's board could not agree to an exchange ratio for the stock-for-stock deal.

Cheniere Energy Partners, through which Cheniere owns the flagship Sabine Pass LNG export terminal and Cheniere Creole Trail Pipeline LP, is also an outlier among its midstream MLP peers because it does not produce steady distributions, according to Tudor Pickering Holt.

"The typical C-corp./MLP relationship involves project development at the C-corp. and a drop down to the MLP once the project is completed. This structure takes advantage of the lower cost of equity at the MLP to then send cash back up to the C-corp. for, ideally, more accretive project development," they added. "However, due to a switch from regasification to liquefaction, [Sabine Pass] is being developed at the MLP level. This is far from ideal from a distribution consistency standpoint."

Cheniere began exporting LNG from Sabine Pass in February 2016, and the Federal Energy Regulatory Commission has authorized service at four of the facility's trains, capable of producing 4.5 million tonnes per annum each of LNG. Train 5 is under construction, while a sixth train awaits a final investment decision. Two trains at Cheniere's Corpus Christi liquefaction terminal are also under construction, but the company recently changed the facility's expansion plan to a modular model that the company hopes will attract buyers looking for smaller volumes. A possible third train at Corpus Christi also awaits a final investment decision.