Gasol: On Your Mark, Get Set...
Edison | Sep 05, 2012 03:11PM ET
Gasol’s strategy has been more clearly laid out in recent weeks and the company has announced its maiden deal -- an agreement in principle to form a partnership with Benin to supply gas, to further develop gas infrastructure and help manage its stake in the West African Gas Pipeline (WAGP). This follows hot on the heels of the option agreement with Afgen, which means investors can start to look forward to the first steps in Gasol’s strategy. The appointment of a new chairman, the convertible bond issue and the consolidation of shares are all positive steps that indicate the company’s strategy is starting to unfold.
BenGaz Deal Signals A New Start
Gasol has announced an agreement in principle with Benin to form a JV to invest in Benin’s gas supply and distribution. There are three elements to the announcement: (i) Gasol will form a JV with BenGaz to develop gas distribution and infrastructure;
(ii) all gas sold by the JV will be purchased from Gasol; and (iii) Gasol will provide management assistance to BenGaz for its stake in the WAGP. We await formal confirmation of this deal with definitive agreements in Q412, but note that this first deal is a significant step. The news follows other developments in recent weeks: appointing a new chairman, announcing the option agreement with Afgen and the reverse stock split, which all point to a new start at the company and represent a first flowering of its strategy.
Other Short-Term Potential -- LNG Regas
The option agreement signed on 28 August allows the company access to Afgen’s project pipeline (currently three LNG projects in advanced stages) for 75% of fair value. The projects are likely to be the supply of LNG to supply-constrained markets via a floating regasification unit. The gas will then be used to supply industry or used for power generation.
Valuation: Still Conceptual
As yet, the company is difficult to value -- we will have to wait for an announcement of an LNG project in due course to make tangible estimates. However, we note that the strategy of leveraging its regional connections to better supply West Africa with gas is sound and should lead to value creation in the long term. We look forward to potential deals with interest.
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