01—Abstract
Summary
Summary of the 10-K filed October 14, 1997. Cited figures are marked; the original filing is the authoritative source.
Cheniere Energy, Inc. (Houston-based, Nasdaq SmallCap: CHEX) filed this 10-K for the fiscal year ended August 31, 1997 as a pre-revenue development stage company.
It has no oil and gas production, no proved reserves, and no operating revenues, and it does not expect meaningful revenue before calendar 1998. Its sole material asset is a $13.5 milliona investment in a proprietary 3-D seismic exploration program with Zydeco Exploration in Cameron Parish, Louisiana, which earns the company up to a 50% working interest. The company reported a net loss of $1.68 million ($0.14 per share) for the year, including a non-cash $624,400 charge for stock issued to investment bankers.
Total assets were $13.8 millionb against liabilities of $0.9 million, and the company holds only $235 thousand in cash. The central investor risk is liquidity. An estimated $2.9 million Excess Seismic Cost payment is due to Zydeco on December 31, 1997, and management states it does not presently have sufficient capital to make it.
Failure to pay would reduce the company's working interest, and under the agreement's discontinuance provisions could cut its prospect ownership to a fraction of its contribution. Management plans to fund operations through equity sales, further borrowings, and/or selling portions of its program interest, but none of these is assured. The company also disclosed a related-party $500,000c bridge loan from Sam B.
Myers, Jr., which was repaid in September 1997. The filing is essentially a pre-drilling story. Seismic processing continues through 1998, with leasing expected in early 1998 and first drilling targeted for the second quarter of 1998.
Investors are therefore underwriting a speculative exploration thesis on undrilled prospects, dependent on both continued financing and the partner's technical work. The company has two full-time administrative employees and sublets its headquarters from its partner, Zydeco.
02—Key points
Key Highlights
- Development stage company with no revenues and no proved oil and gas reserves; first meaningful revenue is not expected before 1998.
- Net loss of $1,676,468 ($0.14/share) for FY ended August 31, 1997, versus $121,847 in the prior partial period, driven by G&A expenses of $1.71 million including a $624,400 non-cash stock charge.
- Primary asset is $13.5 million in unevaluated oil and gas properties representing investment in the 3-D Exploration Program with Zydeco Exploration (228 sq. mile survey in Cameron Parish, Louisiana).
- Liquidity risk: an estimated $2.9 million payment to Zydeco is due December 31, 1997, and management states it lacks sufficient capital to make it; non-payment would reduce the company's working interest.
- Balance sheet at August 31, 1997: total assets $13.84 million, total liabilities $0.89 million, shareholders' equity $12.95 million, cash of only $234,764.
- Equity-funded history: $14.6 million net raised through private placements, with 14.16 million shares outstanding and no dividends paid.
- Timeline: seismic processing through 1998, lease nominations in Q1 1998, and first drilling expected in Q2 1998; the company has two full-time employees.
03—Questions
Frequently Asked Questions
Can Cheniere Energy meet its $2.9 million payment due December 31, 1997?
Management states the company does not presently have sufficient capital to meet the payment and cannot assure it will secure the funds. It plans to rely on cash balances, equity sales, further borrowings, and/or sales of part of its 3-D Exploration Program interest, none of which is assured. If it fails to pay, its working interest and prospect ownership would be reduced.
When could Cheniere generate revenue or first drill a well?
The company says it has no expectation of meaningful operating revenues before calendar 1998. Seismic processing and interpretation continue through year-end 1997 and into 1998, with leasing and lease option exercises planned for Q1 1998 and first drilling expected in Q2 1998.
What is the company's exposure to its partner, Zydeco?
Zydeco performs the planning, land, geologic, and interpretive work, designs seismic acquisition, and will operate prospects under a joint operating agreement. Zydeco also subleases the company its Houston headquarters on a month-to-month basis. If the company defaults, Zydeco may fund the deficiency and recover it from the company's interests, and may trade the aggregate prospect interests to third parties.
Why did the net loss increase compared with the prior period?
The loss rose to $1.68 million from $0.12 million mainly because G&A expenses increased to $1.71 million. This includes a one-time non-cash $624,400 charge for 200,000 shares issued to investment bankers, higher professional and insurance costs, a full year of salaries and occupancy, and $164,812 in professional fees for the terminated Poseidon California acquisition.
Are there any related-party or legal concerns?
The company borrowed $500,000 at 10% from Sam B. Myers, Jr., CEO of Zydeco Energy's parent, secured by seismic data and lease interests. The note was repaid with interest on September 22, 1997, and its collateral released. The company reports no pending legal proceedings.
04—Continue