Chicago Bridge & Iron: Heading Up a $15 Billion LNG Project

Oxford Resource Explorer Weekly Wire

Shares of our energy infrastructure company Chicago Bridge & Iron Company N.V. (NYSE: CBI) soared last Friday on news that Anadarko Petroleum Corp. (NYSE: APC) selected Chicago Bridge & Iron as the main contractor for the $15 billion liquefied natural gas (LNG) project it’s undertaking in Mozambique.

While the selection of Chicago Bridge & Iron hasn’t been officially announced, Bloomberg Business indicated “people familiar with the matter” said Chicago Bridge & Iron is the main contractor. Shares soared more than 8% after the article appeared last Friday.

Why the big pop in Chicago Bridge & Iron shares? The Mozambique LNG project is one of the few energy megaprojects undertaken since the crude oil price collapse.

Concerning the Mozambique project, Al Walker, Anadarko chairman, president and CEO, said, “We believe, as we go into the next decade, Mozambique will emerge as the third-largest exporter of LNG in the world.”

Incredibly, Chicago Bridge & Iron continues to garner new business, even in the face of one of the worst oil collapses.

Many investors and analysts alike dumped Chicago Bridge & Iron shares during the oil collapse. Why? They feared Chicago Bridge & Iron’s projects would be delayed or canceled altogether.

However, megaprojects like Mozambique’s LNG project take years of planning and construction. Large companies in the energy sector know this.

That’s why Chicago Bridge & Iron was such a great “Buy” earlier this year. Chicago Bridge & Iron shares plummeted from a high of $87 per share to a rock-bottom low of $34 per share in January 2015.

Shares currently trade at $55.01, just about the middle of their 52-week range. Subscribers who purchased shares after I recommended them in late March are enjoying gains as high as 19%.

However, I believe there’s still plenty of upside ahead for one of the world’s largest energy infrastructure companies. There are plenty of other LNG export terminals in the planning stages, and you can bet Chicago Bridge & Iron, the world’s largest energy infrastructure company, is going to be engineering and building lots of them.

Let’s take a closer look at the Mozambique LNG project. Anadarko and its partners have been drilling offshore Mozambique deepwater wells since 2010. Take a look at the map below, courtesy of Anadarko.

The 25 wells drilled to date have discovered an estimated 50 trillion to 70 trillion cubic feet of recoverable natural gas. These are world-class natural gas fields.

Further exploration may add additional recoverable reserves. The yellow area on the map denotes Anadarko’s lease area, and red denotes the current estimated size of the natural gas fields.

The offshore fields are roughly 45 kilometers from shore and will require up to six separate pipelines to bring gas to the onshore facilities. Once completed, the offshore system is expected to produce 4 billion cubic feet of gas per day.

Mozambique LNG is the overall manager of the project. The LNG processing plant is a major part of the onshore facilities.

The processing plant will receive raw natural gas from the subsea pipelines. It will remove moisture and other impurities in the gas and convert it into LNG.

The LNG will then be stored in giant cryogenic storage tanks. From there, it will be transferred through insulated pipelines to the marine terminal facilities where it will be loaded onto LNG tanker ships.

In addition to the natural gas facilities, there is plenty of other infrastructure that needs to be developed. Administration buildings, housing for up to 10,000 construction workers, access roads and a new airport will all be undertaken as part of the project.

In addition to offshore drilling, Anadarko is heading up the onshore liquifaction and storage segment of the project.

That’s the part Chicago Bridge & Iron will be involved in.

But that’s not the only LNG project Chicago Bridge & Iron is working on. On May 13, Chicago Bridge & Iron announced it was awarded a contract from NextDecade LLC.

The contract involves the front-end engineering and design as well as the engineering, procurement and construction related to NextDecade’s Rio Grande LNG export project in Brownsville, Texas.

Once completed, the Rio Grande LNG export terminal will have six liquefaction trains. The output capacity will be 4.5 million tons of LNG per train per year.

Chicago Bridge & Iron’s two big contract wins and the uptick in oil prices have created a nice tailwind for its shares. However, even at current levels, shares of Chicago Bridge & Iron are significantly undervalued.

The stock currently trades at a price-to-earnings (P/E) ratio of 10.24. That’s about half of the industry’s average P/E of 20.4.

In addition, plenty of big players are buying into the Chicago Bridge & Iron story. David Einhorn’s firm, Greenlight Capital, snapped up more than $123.4 million worth at an average price of $42.93.

In addition to Greenlight, Berkshire Hathaway and BlackRock also own big positions in Chicago Bridge & Iron. Now is a great time to add a few shares of this energy infrastructure giant to your portfolio.

Good investing,

Dave

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