01—Abstract
Summary
Summary of the 10-K/A filed July 20, 2004. Cited figures are marked; the original filing is the authoritative source.
Cheniere Energy's Amendment No. 2 to its 2003 Form 10-K (filed July 20, 2004) is primarily an administrative filing: it replaces prior auditor reports relating to the 2001 financial statements of Cheniere and Gryphon Exploration, and adds auditor consents for incorporation into registration statements.
It also re-presents the full 2003 financial statements and attaches Gryphon's 2002 audited financials. The company's economics in 2003 were dominated by its pivot toward LNG receiving terminals: revenue was only $657,467a (all overriding royalty interests in oil and gas discoveries), while LNG terminal development expense reached $6.7 million and total G&A was $9.2 million, producing a loss from operations of $9.0 million. The reported net loss of $5.3 million was narrowed by a $4.76 million gain on the sale of a 60% interest in the Freeport LNG site and a $423K gain on a 10% limited partner stake sold to Contango, offset by a $4.47 million equity loss from Freeport LNG and a $3.0 million minority interest benefit tied to the Corpus Christi LNG partnership.
The balance sheet strengthened over the year. Total assets rose to $24.6 million and stockholders' equity to $19.1 millionb, but cash was only $1.26 million and working capital was just $155,526 at year-end. Cash burn from operations was $7.6 million in 2003, financed largely by a $4.4 million common stock sale and $2.8 million in minority-partner contributions.
The company's liquidity position changed materially after year-end: in January 2004 it raised $13.9 millionc net from a private placement of 1.1 million shares at $13.50, received a further $2.5 million from Freeport LNG, and repaid its $1 million credit line. The pro forma working capital would have been roughly $17.8 million. The company carried no income tax provision given its NOL carryforwards of about $26.5 million, fully offset by a valuation allowance.
For investors, the key issues are the early-stage nature of the business, the reliance on equity and partner funding to pursue LNG terminals, the cash-flow dependence on partner contributions and asset sales, and the going-concern history noted in the 2001 liquidity note. Oil and gas revenue is minimal, and the company has no hedges and is exposed to commodity price swings, though those exposures are small relative to its LNG strategy.
02—Key points
Key Highlights
- 2003 revenue was only $657K, all from overriding royalty interests; the company is essentially a pre-revenue LNG terminal developer.
- Operating loss widened to $9.0M in 2003 (from $3.7M in 2002), driven by $6.7M of LNG terminal development expense and $9.2M total G&A.
- Net loss of $5.3M ($0.36/share) was flattered by a $4.76M gain on the sale of 60% of the Freeport LNG site and a $423K gain on a 10% partnership stake sale, offset by a $4.47M equity loss in Freeport LNG.
- Year-end working capital was just $155,526 and cash was $1.26M; operating cash burn was $7.6M in 2003.
- January 2004 private placement raised $13.9M net at $13.50/share, plus $2.5M from Freeport LNG and $1M debt repayment, materially improving liquidity (pro forma working capital about $17.8M).
- Accumulated NOL carryforwards of about $26.5M are fully reserved, so no tax provision was recorded; the company is not presently a taxpayer.
- This amendment is administrative: it replaces 2001 auditor reports (PwC replaced by UHY Mann Frankfort and KPMG for Gryphon) and adds consents, with no restatement of 2003 results disclosed.
03—Questions
Frequently Asked Questions
Why did Cheniere file this 10-K/A, and does it change the 2003 financial results?
The amendment replaces the prior auditor reports covering the 2001 financial statements of Cheniere and Gryphon Exploration, adds updated auditor consents, and attaches Gryphon's audited 2002 financial statements. The filing does not disclose any restatement of the 2003 results.
How is Cheniere funding its LNG terminal development?
Largely through equity and partner capital: a $4.4M common stock sale and $2.8M of minority-partner contributions in 2003, sales of partial interests in Freeport LNG ($4.76M and $0.42M gains), and a January 2004 private placement of $13.9M net. The company also relies on a $5M bank line of credit, which was repaid in January 2004.
What is the main risk to the investment case?
The company has minimal revenue and recurring operating losses, with about $9M in operating loss in 2003 and only $155K of working capital at year-end. Its LNG terminal projects are in the preliminary stage, with costs largely expensed, and depend on FERC approvals and continued access to capital. The 2001 financial statements carried a going-concern qualification.
Why was net loss smaller than operating loss?
One-time gains on asset sales ($4.76M on Freeport LNG and $0.42M on a limited partnership interest) and a $3.0M minority interest benefit from Corpus Christi LNG more than offset a $4.47M equity loss from Freeport LNG, reducing the net loss to $5.3M.
What happened to liquidity after year-end 2003?
In January 2004 Cheniere raised $13.9M net from 1.1 million shares at $13.50, received the final $2.5M Freeport LNG installment, repaid the $1M credit line balance, and saw about $2.2M in warrant and option exercises. Management expects its liquidity needs for the next twelve months to be met through these resources and other sources, including planned sales of regasification capacity.
04—Continue