01—Abstract
Summary
Summary of the 10-K/A filed June 26, 1997. Cited figures are marked; the original filing is the authoritative source.
Cheniere Energy, Inc. is a development-stage oil and gas exploration company with no operating revenues and no proved reserves.
Its fiscal year ended August 31, 1996, and it reported a net loss of $121,847a ($0.01 per share) from inception on February 21, 1996. Its main asset is a $4.0 million investment in a proprietary 3-D seismic program over a 255-square-mile area of the Louisiana Transition Zone, with a 50% participation right. The company does not expect meaningful operating revenues before 1998.
Total assets were $5.15 millionb, total liabilities $0.72 million, and shareholders' equity $4.43 million at August 31, 1996. The central investor issue is funding. Under the amended Exploration Agreement, the company must make further seismic payments, and management states it lacks sufficient capital to cover them.
Subsequent events disclosed in the filing show $8.0 millionc paid to the program between September 1996 and June 1997, with at least $1.5 million still due on June 21, 1997 (with a 30-day grace period). Failure to pay can cut the company's prospect interest sharply, to a figure tied to its contributions, and can lead to a discontinuance. The company has relied on private placements, Regulation D and S sales, warrants, and a $425,000 bridge loan.
The company also terminated its planned purchase of a Poseidon working interest in the offshore California Bonito Unit, saying it wants to concentrate resources on the 3-D program. Note that the filing shows the ticker as CHEX on the OTC Bulletin Board, not LNG, and the company had applied for a Nasdaq SmallCap listing. Investors should weigh the speculative exploration thesis, the thin operating history, and the near-term financing requirement.
02—Key points
Key Highlights
- Development-stage company with no operating revenues, no proved oil and gas reserves, and no expected meaningful revenues before calendar 1998.
- The $4.0 million investment in the 3-D Exploration Program (a 255 sq. mile seismic survey in West Cameron Parish, Louisiana) is the principal asset, representing about 78% of total assets at August 31, 1996.
- Subsequent to year-end, the company paid $8.0 million into the 3-D program, with at least $1.5 million still due on June 21, 1997, which the company said it lacks sufficient capital to cover without new funding.
- Net loss of $121,847 from inception (February 21, 1996) to August 31, 1996, with G&A of $103,814 and interest expense of $19,833, partially offset by $1,800 in interest income.
- Balance sheet at August 31, 1996 showed cash of $1.09 million, total assets of $5.15 million, liabilities of $0.72 million, and shareholders' equity of $4.43 million.
- The Poseidon Petroleum purchase (60% working interest in six Bonito Unit leases, offshore California, with $18 million in production payments) was terminated by mutual agreement.
- Reorganization in July 1996 with Bexy Communications made Cheniere Operating the operating subsidiary; the company is quoted on the OTC Bulletin Board under CHEX and has applied for a Nasdaq SmallCap listing.
03—Questions
Frequently Asked Questions
Does Cheniere Energy generate revenue or have proved oil and gas reserves?
No. The company reported no operating revenues for the period from inception to August 31, 1996, has not established oil and gas production, and has not booked proved reserves. It states it does not expect meaningful operating revenues before calendar 1998.
What is the company's main investment and what could it earn?
The company's principal investment is a $4.0 million interest in the 3-D Exploration Program with Zydeco Exploration, targeting onshore and shallow offshore Louisiana Transition Zone prospects. It has the right to earn up to a 50% participation, but its actual interest depends on whether it continues to meet payment obligations. Failure to pay could reduce its prospect interest to a fraction tied to its contributions, or to a vested 25% if it has funded $8 million or more.
Can the company meet its future funding obligations?
Management says it does not currently have sufficient capital to meet future payment requirements. Remaining obligations include at least $1.5 million due June 21, 1997, with a 30-day grace period. The company plans to fund these through equity sales, further borrowings, and/or selling portions of its interest in the program, but states there is no assurance it will succeed.
What happened to the planned offshore California acquisition?
The company had agreed to acquire Poseidon Petroleum's 60% working interest in six undeveloped Bonito Unit leases offshore Santa Barbara County, California, with production payments totaling $18 million. In a subsequent event, the parties mutually agreed to terminate the purchase agreement without liability, and the company said it decided to concentrate its resources on the 3-D Exploration Program.
Who controls the company and are there related-party issues?
William D. Forster holds about 26.8% of shares and BSR Investments, Ltd. holds about 24.5%, though BSR is controlled by the father of director Charif Souki, who disclaims beneficial ownership. Officers and directors as a group held about 27.3% before the offering. Buddy Young, the former Bexy CEO, is a consultant at $75,000 per year through July 3, 1998.
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