Long: Cheniere Energy (LNG)

Long: Cheniere Energy (LNG) Current Price: $ 39.24 Target Range: $59 - $70

Presentation by:

Yunus Jaffrey

Jason Odom

Ken Wang

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Agenda Company Background

LNG Market

Certainty of Business Model

MLP Structure

Valuation

Risks


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Company Background


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Cheniere Energy Houston-based energy company operating in

Liquefied Natural Gas (LNG) related businesses

Owns and operates Sabine Pass, one of only two terminals authorized in the U.S. to export LNG

Other Business Units: Creole Pipeline, Cheniere Marketing, and Corpus Christi LNG Terminal

Uniquely positioned to capitalize on the emerging U.S. energy renaissance


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LNG Market


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Supply and Demand

Surging U.S. natural gas output combined with export constraints have pushed down domestic prices relative to international markets

Global consumers are eager to gain access to U.S. supply


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Cheniere will be a major beneficiary of the U.S. Export Story

Sabine Pass is one of only two facilities in the U.S. to receive DOE approval to export LNG to both FTA and Non-FTA countries

Cheniere’s operations in the Gulf Coast have significant resource access and cost savings advantages


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Certainty of Business Model


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Cheniere has a highly predictable revenue and cost structure

1.03b MMBtu currently contracted for 20 years to investment-grade customers:

BG Energy, Korea Gas, and Total SA

Capital expenditure financing already secured through long-term debt/loans with set interest costs


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Corpus Christi: Further Upside Corpus Christi facility pending full non-FTA

export and construction approval

Three additional LNG trains to be built

Two LNG tanker berths

Based on Sabine Pass and other recent approvals, we believe Corpus Christi facility will be approved by 2014

In our view, Corpus Christi will represent approximately $10 -$14 of upside for LNG shares


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MLP Structure


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Cheniere and CQP (MLP) Cash Flow Structure

Quarterly distributions of cash flow

GP and LP structure similar to hedge funds

GP takes greater percent of the profit as distributions increase

MLP Distribution Structure

Quarterly Distribution/Unit Marginal % Interest Distributions

From To Limited Partner General Partner

Tier 0 $0.00 $1.70 98% 2%

Tier 1 $1.70 $1.96 98% 2%

Tier 2 $1.96 $2.12 85% 15%

Tier 3 $2.12 $2.55 75% 25%

Tier 4 $2.55 - 50% 50%


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Valuation


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Sabine Pass Brownfield Projects Have Cost Advantage Relative to Competitors

Brownfield projects (highlighted below) converts existing infrastructure into liquefaction facilities Enjoy lower cost relative to greenfield projects


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Market misevaluates discount rate and likelihood of regulatory approval

Sell-side analysts using 9% or higher WACC

We believe this is too high given Cheniere’s predictable cash flows and costs

Possible reasons for high WACC

Uncertainty around regulatory approval

Corpus Christi approval timeline

Emerging nature of US LNG exporting

Alternative approach

WACC similar to cost-of-debt for a yield-like instrument

WACC based on conventional comps computation


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Target Price: $59 - $70 Corpus Christi is likely to

be approved by regulatory agencies and start production by 2018

Sabine Pass brownfield projects provide significant cost advantage

LNG is a yield instrument due to the predictable nature of cash flows and GP interest

Share Contribution Under Street Assumption

Share Contribution

Business Unit Street Assumptions Bull Case

Cheniere Energy Partners LP (MLP) 17.06$ 28.46$

General Partner Ownership 8.63$ 14.46$

Cheniere Marketing 3.36$ 4.65$

Corpus Christi Terminal 9.90$ 22.84$

Cheniere Energy (LNG) Share Price 38.95$ 70.42$

Sensitivity Analysis

Corpus Christi Project Probability

0% 20% 40% 60% 80% 100%

5.0% $58 $64 $70 $76 $82 $88

5.5% $53 $58 $64 $70 $76 $82

6.0% $48 $53 $59 $65 $70 $76

6.5% $43 $49 $54 $60 $66 $71

7.0% $40 $45 $51 $56 $61 $67

7.5% $37 $42 $47 $52 $58 $63

8.0% $34 $39 $44 $49 $54 $60

8.5% $31 $36 $41 $46 $52 $57

9.0% $29 $34 $39 $44 $49 $54

9.5% $27 $32 $37 $42 $46 $51

10.0% $25 $30 $35 $39 $44 $49

WA

CC


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Risks


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Risks Environmental opposition

Regulatory changes

Long-run changes in global LNG prices


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The UVA Honor Code

The University of Virginia,

and the Darden School of Business, abide by an Honor Code, which applies to this competition.

By participating in this competition, you affirm that you have abided by the competition rules and have not lied, cheated, or stolen in the preparation or

delivery of your pitches.

For more information about the UVA Honor Code, please see the below link:

http://www.virginia.edu/uvatours/shorthistory/code.html




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Appendix


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Cheniere Structure


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Management Expertise Visionary management: when the NG market

shifted in 2008, Cheniere CEO Charif Souki had just spent $2b building Sabine Pass as an import facility. Faced with a dire situation, Souki instead began converting the facility to an export terminal, gaining a significant lead on rivals.

First-mover advantage

Significant management holdings of LNG (~12%) and CQP (~43%)


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Sabine Pass Is Only U.S. Terminal With Full Regulatory Approval

Both the DOE and the FERC must approve LNG export projects

Only after FERC approval does the DOE review an application

Corpus Christi project is 4th on DOE list

Expected approval by 2014

Sabine Pass 5th and 6th liquefaction terminals are 5th on DOE list


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DOE and FERC Timeline Sabine Pass terminal only project fully

approved for full exportation

Corpus Christi project expected to be approved in 2014

U.S. DOE Applications for LNG Exports

Order To Be Processed Company DOE Approval FERC Approval

- Cheniere Sabine Pass T1-T4 Yes - 8/7/2012 Yes

- Freeport LNG Pending Yes

- Lake Charles Exports Pending No

- Dominion Cove Pending Pending

1 Freeport LNG Expansion No No

2 Cameron LNG No No

3 Jordan Cove Energy Project No Pending

4 LNG Development Company No Pending

5 Cheniere Corpus Christi No Pending

6 Cheniere Sabine Pass T5-T6 No Pending


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Regulatory Uncertainty 2011: Sabine Pass 1-4 liquefaction facilities were approved in 2011

Shortly thereafter political debate if U.S. should export gas

DOE halts approval process

2011: DOE commissions NERA to study economic effects of exportation of natural gas

Late 2012: NERA publishes report in full support of exportation

2013: DOE approves Freeport LNG export project In decision DOE writes: “The market, not government, should determine

the price and other contract terms of imported or exported natural gas.”

Market believed DOE would only approve exports totaling 6.0 bcf/d. Current export approval level is 6.37 bcf/d

6.0 bcf/d was only the “low” export case set by the NERA study

We believe DOE will accelerate projects approvals to a pace of one per 45-90 days and there will be no bcf/d export cap level


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Comparables Comparable Cos Trading

Multiples Implied Total

Enterprise Value Implied Equity Value

Multiple of Projected Fins.

(2020) x Low High = Low High - Net Long-Term Debt = Low High

Pure Play

Revenue $6,730 0.52 8.4 $3,500 $56,532 $5,574 ($2,074) $50,958

EBITDA $4,710 11.96 46.87 $56,332 $220,758 $5,574 $50,758 $215,184

Net Income* $2,043 22.58 152.12 $46,131 $310,781 $5,574 $40,557 $305,207

Book Value** $2,235 1.67 3.44 $3,732 $7,688 $5,574 ($1,842) $2,114

All Comps

Revenue $6,730 0.52 19.7 $3,500 $132,581 $5,574 ($2,074) $127,007

EBITDA $4,710 11.96 46.87 $56,332 $220,758 $5,574 $50,758 $215,184

Net Income* $2,043 22.51 152.12 $45,988 $310,781 $5,574 $40,414 $305,207

Book Value** $2,235 1.67 3.44 $3,732 $7,688 $5,574 ($1,842) $2,114

Average Implied Value (Pure Play) $27,424 $148,940 $21,850 $143,366

Average Implied Value (All Comps) $27,388 $167,952 $21,814 $162,378

*Net Income calculated using DCF EBITDA and interest charges, 5% estimated D&A, and 35% statutory tax rate

**Calculated using BV as of 11/12/2013


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Shale Revolution: Unprecedented U.S. natural gas production growth in the last 5 years

Shale production technologies have allowed the U.S. to tap into significant domestic oil and natural gas resources

U.S. production has outpaced domestic demand, putting the U.S. on the path to become a net exporter of LNG in the next decade

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US Natural Gas Production (trillion cubic feet)


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Sources Slide 6, 7, 9, 12, 21, 24: Cheniere October 2013

Corporate Presentation

Slide 14: ITG Investment Research: “LNG: DOE Gives Markets a Chance”. 6/17/2013.

Slide 27: EIA: “Annual Energy Outlook 2011”


Long: Cheniere Energy (LNG)

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