01—Abstract
Summary
Summary of the 10-K filed March 29, 2000. Cited figures are marked; the original filing is the authoritative source.
Cheniere Energy, Inc. (Houston-based, Nasdaq SmallCap: CHEX) filed its 10-K for fiscal 1999 in March 2000 as a pre-revenue exploration company that had only just begun production.
Its only producing asset is the West Cameron Block 49 discovery in Louisiana state waters (Redfish and Stingray wells), which generated $1.6 milliona of 1999 oil and gas revenue from about 651 MMcfe of net production starting September 1999. Proved reserves are small: roughly 5.96 Bcfe, with a standardized measure of $7.6 million at year-end prices. The bulk of the balance sheet, about $20.6 million of the $34.5 million in total assets, is unproved properties tied to a licensed 8,700 square-mile 3-D seismic database from Fairfield Industries and a proprietary Cameron Parish survey.
The company reported a 1999 net loss of $1.75 millionb, or $0.07 per share, on 25.8 million weighted average shares, and it has no current legal proceedings. The central investor concern is liquidity and going-concern risk. At year-end 1999 Cheniere had $3.4 million in current assets against $6.7 million in current liabilities, a working capital deficit of $3.3 million, and $4.96 million of short-term notes, most maturing in mid-2000.
The auditors (PricewaterhouseCoopers) issued a going-concern qualification. Management plans to fund operations through equity raises, which it says have been successful historically; through subsequent-period equity sales of $1.76 millionc; through partial working-interest sales, including a March 2000 exploration agreement with Samson Offshore Company; and through vendor financing. The company also owes about $200,000 per month in seismic reprocessing payments through December 2001, so dilution and further financing are likely.
For investors, the filing describes a high-risk, early-stage exploration story with minimal reserves, heavy dependence on dilutive financings, a controlling shareholder group of roughly 17%, and very thin trading history. The stock traded between $0.19d and $1.75 in early 2000, which underscores the volatility and risk of the equity.
02—Key points
Key Highlights
- 1999 revenue of $1.61 million from first production in September 1999 at West Cameron Block 49, with a net loss of $1.75 million ($0.07 per share)
- Proved reserves of about 5.96 Bcfe at year-end 1999, all in one field, with a standardized measure of $7.57 million; PV-10 is based on year-end prices of $25.47/bbl oil and $2.34/mcf gas
- Going-concern qualification from PricewaterhouseCoopers, with a working capital deficit of $3.29 million and $4.96 million of short-term notes payable, most maturing by mid-2000
- Unproved oil and gas properties of $20.6 million, mainly the 8,700 sq. mi. Fairfield 3-D seismic license, make up most of the $34.5 million in total assets
- March 2000 exploration agreement with Samson Offshore Company, which takes a 50% working interest in Gulf of Mexico prospects and pays a disproportionate share of drilling costs, is a key partial-interest funding source
- Heavy dilution risk: 40.2 million shares outstanding at year-end 1999 (42.4 million by March 24, 2000), 8.5 million warrants and 2.2 million options outstanding, and roughly 33% of authorized common stock still unissued
- Only 18 full-time employees, with no key-person insurance and no employment agreements, and a controlling interest of about 17% held by director William D. Forster and BSR Investments
03—Questions
Frequently Asked Questions
Is Cheniere Energy a going concern, and what keeps it operating?
The auditors flagged substantial doubt about the company's ability to continue as a going concern. Cheniere had a $3.3 million working capital deficit at year-end 1999 and $4.96 million in notes due by mid-2000. Management plans to continue raising equity, sell partial working interests to industry partners, and use vendor financing. Since year-end it has raised $1.76 million in equity and repaid $755,000 of bridge notes.
How much oil and gas does Cheniere actually produce and reserve?
Production is small. In 1999 it produced about 651 MMcfe net from two wells at West Cameron Block 49, and it had roughly 5.96 Bcfe of proved reserves at December 31, 1999, all from that one field. Revenue was $1.6 million, and the company has no other producing properties.
What is the main value driver behind the stock?
Much of the value rests on unproved properties of $20.6 million, mainly the 8,700 sq. mi. Gulf of Mexico 3-D seismic database and the Cameron Parish survey. These are meant to generate drillable prospects, but none were proved productive at the time of filing. The company also says it will need significant capital for drilling and seismic reprocessing payments of about $200,000 per month through December 2001.
How dilutive could future financing be for shareholders?
Potentially very dilutive. The company had 40.2 million shares outstanding at year-end 1999, with about 8.5 million warrants and 2.2 million options outstanding, and it stated that it is likely to issue more shares to raise capital, repay notes, or fund exploration. Recent equity sales, such as units at $0.75 and $0.33 per share, were priced well below the early-2000 trading range, and the stock traded as low as $0.19.
Why did the net loss narrow compared with the prior year?
The loss narrowed only modestly, to $1.75 million from $1.64 million in 1998, and the comparison is mixed. Revenue of $1.6 million from first production offset most of the increase in costs, but G&A rose to $1.9 million as the company added staff and licensed seismic data, and DD&A rose to $1.36 million. The 1998 results also included $818,000 of arbitration costs, and some G&A was capitalized into oil and gas properties.
04—Continue