01—Abstract
Summary
Summary of the 10-K filed March 29, 1999. Cited figures are marked; the original filing is the authoritative source.
Cheniere Energy, Inc. (Nasdaq SmallCap: CHEX) is a development-stage company with no operating revenues and no proved oil and gas reserves.
Its sole project is a 50% working interest in a proprietary 3-D seismic exploration program with Zydeco Exploration in Cameron Parish, Louisiana's Transition Zone. Drilling of the first test well began in February 1999, and the company has identified fifteen prospects for an initial drilling program. For fiscal 1998 the company reported a net loss of $1.64 milliona ($0.10 per share), largely driven by G&A expenses of $1.66 million, including $818,000 in arbitration costs related to the Zydeco dispute.
Total assets were $20.8 millionb, mostly $20.0 million of unevaluated oil and gas properties, and stockholders' equity was $16.3 million. The investment case rests on financing risk. PricewaterhouseCoopers included a going-concern paragraph in its audit opinion.
The company had $4.0 millionc of bridge notes, of which $2.0 million was exchanged for equity in early 1999 and $2.0 million remained outstanding with an extended maturity of April 15, 1999. Cash was only $144,000 at year-end 1998, and management plans to raise capital through common stock sales, partial sales of prospect interests, and vendor financing. The company's December 1998 arbitration award, which largely confirmed Cheniere's seismic data ownership and prospect rights, removes a significant overhang, but it does not resolve the near-term funding need.
The filing is an early-stage exploration story, not a producing company. Value depends on whether the initial wells find commercial hydrocarbons and whether the company can keep financing its share of drilling without heavy dilution.
Shares outstanding were 21.8 million as of March 26, 1999, and the stock traded at roughly $0.44 to $1.44d in the fourth quarter of 1998. Equity financing has been priced at or below $1.00 per share in recent transactions.
02—Key points
Key Highlights
- Development-stage company with zero operating revenues and no proved reserves; all $20.0M of oil and gas property costs are unevaluated.
- Net loss of $1,637,844 ($0.10/share) for 1998, versus $1,676,468 ($0.14/share) for the fiscal year ended August 31, 1997; G&A was $1.66M, including $818K in arbitration-related expenses.
- Going-concern qualification from PricewaterhouseCoopers; cash was only $143,868 at December 31, 1998, against $4.0M of bridge notes (now $2.0M outstanding, due April 15, 1999).
- December 1998 arbitration award confirmed Cheniere's 50% ownership of the proprietary 3-D seismic data and its prospect rights, resolving the Zydeco dispute in its favor on key points.
- Drilling of the first test well in the 228-square-mile Survey began in February 1999; fifteen prospects identified, with depths of 10,000 to 16,000 feet.
- Dilutive financing pattern: 2.8 million shares were issued in exchange for $2.0M of notes at $0.72 per share, and warrants were repriced to $1.50 and $2.00; shares outstanding rose from 14.5M to 19.0M during 1998 and reached 21.8M by March 1999.
- Total stockholders' equity of $16.3M and total assets of $20.8M, with the balance sheet dominated by unevaluated oil and gas properties.
03—Questions
Frequently Asked Questions
Does Cheniere generate any revenue or have proved reserves?
No. The company reported no operating revenues in 1998, 1997, or 1996 and has not established proved oil and gas reserves. It is classified as a development-stage enterprise, and all of its oil and gas properties are unevaluated and not yet subject to depletion.
What is the company's main asset and what is its position?
Its main asset is a 50% working interest in a proprietary 3-D seismic exploration program with Zydeco Exploration covering 228 square miles in Cameron Parish, Louisiana. Cheniere paid 100% of the first $13.5 million of seismic costs plus its $2.9 million share of excess costs, completing its earning obligations. The company has invested $20.0 million in oil and gas properties in total.
Is there a risk the company cannot continue operating?
Yes. The auditor's report includes a going-concern paragraph. Cash was only $144,000 at year-end 1998, and $2.0 million of notes matured on April 15, 1999. Management plans to raise funds through equity sales, sales of partial interests in prospects, and vendor financing, but there is no assurance these will succeed.
How did the arbitration with Zydeco affect the company?
The December 1998 arbitration panel confirmed Cheniere's 50% ownership of the seismic data, its right to review Zydeco's interpretations, and its right to acquire up to 50% of prospects. It also ruled that Zydeco could not bill Cheniere $1,115,143 for seismic costs incurred after December 31, 1997. The company spent $817,870 on the arbitration in 1998.
How dilutive has financing been for shareholders?
Substantially. Shares outstanding grew from about 14.5 million at December 31, 1997 to 19.0 million at year-end 1998 and 21.8 million by March 26, 1999. Recent sales and debt conversions were priced between $0.67 and $0.75 per share, and warrants were repriced to as low as $1.50 and $2.00. The company has never paid a dividend.
04—Continue