Private equity firm Blackstone Group views its foundation investment in the Cheniere Energy Inc. affiliate that owns and operates the Sabine Pass LNG export terminal as a mission accomplished, and the group is open to moving on, the chief of Blackstone's energy-focused business said.
During a Sept. 18 chat with S&P Global Platts and S&P Global Market Intelligence reporters at the Gastech conference in Houston, Blackstone Energy Partners head David Foley said the firm would consider selling its 202 million shares in Cheniere Energy Partners LP a 41% stake currently valued at $9.7 billion if a good offer came along.
The reason Blackstone might consider such a move is that Cheniere has made it. The biggest exporter of U.S. LNG, with the Sabine Pass terminal in Louisiana, a second one in Texas and a proposed expansion, is financially healthy, and the investment is no longer considered risky. Blackstone prefers to get in on the ground floor and build an asset up before moving on, said Foley, who sits on the board of the parent company.
"Everything we own, we have to consider selling at some point," Foley said. "We're very happy with the investment. It's great. If someone else sees that value and wants to make an offer, we'd have to consider it."
"We hold things for a long time, not forever," Foley added.
A Cheniere spokesperson declined to comment on Foley's remarks.
History with Sabine Pass
Blackstone was the first major backer of Cheniere's flagship export terminal at Sabine Pass. In 2012, the firm poured $1.5 billion into Cheniere Energy Partners, a limited partnership formed by Cheniere Energy, to help fund Sabine Pass. At the time, many banks were skeptical about the global market for U.S. LNG.
That agreement called for the Blackstone-held class B units to convert to common units after the third liquefaction train at the facility entered service. In July 2017, Cheniere Energy Partners filed forms that revealed those shares had converted to 198,978,886 common units to be issued to a Blackstone fund at a value of about $6.34 billion. It was more than four times what Blackstone originally invested.
The investment has grown since then. Cheniere now operates five trains at Sabine Pass and is building a sixth. It operates two trains at its export terminal near Corpus Christi, Texas, and is building a third. A midscale liquefaction expansion also has been proposed at the Texas site.
Foley's description of Blackstone's current stake in Cheniere Energy Partners is in line with the firm's position at the end of the second quarter. Blackstone held about 203 million shares, or about 42%, of Cheniere Energy Partners as of June 30, according to S&P Global Market Intelligence data.
"When we made the investment, there was a meaningful amount of risk," Foley said. "You're going to build something that hasn't been built before. How are you going to finance it? Are customers going to pay? Is it going to be on time and on budget? All [the answers] seven years ago were kind of unknown. And our investment was going to be in the form of a security that didn't pay a cash dividend. It just paid in-kind. You got a piece of paper that said 'IOU.'"
Future investment in industry
As for further investment in the U.S. LNG sector, Blackstone views few of the second wave of export projects now being developed as compelling options in terms of risk versus reward. The firm chases risk, but risk that makes sense, Foley said. He said he is skeptical of the assumptions some developers are making.
"There are a lot of projects," Foley said. "Everyone with a bit of oceanfront real estate and a dock can put in the queue and say, 'Hey, I'm an LNG project.' But that's not sufficient. I think it's quite difficult now to do. And greenfield projects that aren't on an existing regas facility have a much higher cost position, and ultimately, it's a commodity business."
Harry Weber is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.