Investors take US FLNG operator to court over ‘artificially inflated’ stock prices

Multiple parties have filed a federal securities class action against New Fortress Energy (NFE), a U.S. energy infrastructure player, that operates a floating liquefied natural gas (FLNG) facility off the coast of Altamira, Mexico, for damages caused by a drop in stock prices.

The Kirby McInerney law firm has called investors to step forward to serve as lead plaintiff in a class action lawsuit filed on September 17, 2024, in the U.S. District Court for the Southern District of New York against the operator of the Fast LNG development, comprising three repurposed jack-up rigs offshore Mexico.

The firm has dubbed its first unit, FLNG 1, which started production in mid-July, “the fastest large-scale LNG project ever developed.” The unit, which is said to be producing at or above its nameplate capacity of 1.4 million tons per annum (mtpa), is expected to help pave the way for the establishment of a new FLNG hub off the east coast of Mexico.

The legal proceedings were filed on behalf of all investors who purchased or otherwise acquired the U.S. firm’s securities between February 29, 2024, to August 8, 2024. Investors have until November 18, 2024, to apply to the court.

Since approximately 205 million shares of NFE’s common stock were said to be outstanding on August 6, 2024, the complaint states that these shares could be held by thousands, if not millions, of people from the U.S. and possibly beyond. 

NFE released its second quarter 2024 financial results on August 9, 2024, days after announcing the first LNG cargo load for Energos Princess LNG carrier and scheduled maintenance lasting several days.

The firm revealed an adjusted EBITDA well below its previous expectations – $120 million as opposed to the projected $275 million. The guidance for the remainder of 2024 was lowered, attributing “disappointing” results to delays in placing its FLNG 1 project into service, which the firm said cost $150 million per quarter in lost operating margin.

When the news was disclosed, NFE shares dropped from $17.02 per share on August 6, 2024, to $13 per share on August 9, 2024, representing an estimated 23.6% decrease.

As investors claim to have received only “overwhelmingly positive statements” before this, they believe material adverse facts related to the Fast LNG projects in Mexico, including the FLNG 1 project, were concealed from them and feel they purchased New Fortress Energy’s common stock “at artificially inflated prices.”

The lawsuit alleges that New Fortress failed to disclose to investors that the Fast LNG projects would not meet the company’s publicly stated progress, specifically that the FLNG 1 would be in service by March 2024. Even after it was announced how much these delays cost, the firm continued misrepresenting the speed at which facilities were being built, based on the information within the filing.

Securing $700 million financing commitments for its second unit, FLNG 2 – which the firm announced in February and confirmed in July – is listed as one of the examples of how NFE “materially misled investors” concerning its revenue outlook for 2024.

“Defendants made materially false and misleading statements and engaged in a scheme to deceive the market and a course of conduct that artificially inflated the price of New Fortress’ common stock and operated as a fraud or deceit on Class Period purchasers of New Fortress’ common stock by materially misleading the investing public,” states the complaint. 

“Later, Defendants’ prior misrepresentations and fraudulent conduct became apparent to the market, the price of New Fortress’ common stock materially declined, as the prior artificial inflation came out of the price over time. As a result of their purchases of New Fortress’ common stock during the Class Period, Plaintiff and other members of the Class suffered economic loss, i.e., damages under federal securities laws.”

In September, the United States Department of Energy (DOE) gave its authorization for NFE to export up to around 1.4 million tonnes per annum of LNG to non-free trade agreement countries from the FLNG 1 asset for five years.

Last month, the project completed its third cargo loading. After being loaded onto the BW Pavilion, the cargo set sail for the firm’s LNG import and regasification facility in Puerto Rico.