10-Q/APeriod: Q3 FY2001

Cheniere Energy, Inc. Quarterly Report (Amendment) for Q3 Ended Sep 30, 2001

Filed May 14, 2002For Securities:LNG

Summary

Cheniere Energy, Inc. (LNG) filed an amendment to its 10-Q for the period ending September 29, 2001, revealing a significant increase in net loss to $5.06 million for the third quarter, compared to a $81,131 loss in the prior year. This deterioration is primarily attributed to a substantial non-cash ceiling test write-down of $2.97 million related to declining oil and gas prices, alongside increased general and administrative expenses stemming from its new LNG receiving terminal business development. The company's oil and gas revenues also declined due to lower production and prices. Financially, Cheniere faces liquidity challenges, with operating cash flows insufficient to meet future needs. The company is exploring various avenues for capital, including divestitures, equity offerings, and project participation sales. A notable strategic shift is the increasing focus on its Liquefied Natural Gas (LNG) receiving terminal business, evidenced by acquisition of site lease options and associated increased G&A expenses. The company's investment in its unconsolidated affiliate, Gryphon Exploration Company, continues to be a significant factor, with Cheniere's equity interest being diluted due to Gryphon's cash calls, which Cheniere has declined to participate in.

Key Highlights

  • 1Net loss widened significantly to $5.06 million for Q3 2001, up from $81,131 in Q3 2000, largely due to a $2.97 million non-cash ceiling test write-down on oil and gas properties.
  • 2Revenues decreased by 67% to $395,540 in Q3 2001, primarily driven by lower production and natural gas prices.
  • 3General and Administrative (G&A) expenses more than quadrupled to $1.16 million, mainly due to costs associated with developing the LNG receiving terminal business.
  • 4Cheniere's investment in Gryphon Exploration Company shows a loss of $929,482 for the quarter, and Cheniere is declining further cash calls, leading to dilution of its ownership stake.
  • 5The company reported a working capital deficit of $441,017 as of September 30, 2001, and explicitly stated that cash flows from current operations are inadequate to meet future liquidity requirements.
  • 6Significant progress is being made on the LNG project, including the acquisition of a lease option on a potential site in Freeport, Texas, though this also incurs new costs.
  • 7The company sold proprietary seismic data for $2.5 million in September 2001, generating cash and partially offsetting the operational losses.

Frequently Asked Questions

The primary reason for the substantial increase in net loss to $5.06 million in the third quarter of 2001, compared to $81,131 in the prior year, is a non-cash ceiling test write-down of $2.97 million. This write-down was necessitated by a decline in oil and gas prices, which caused the capitalized costs of the company's oil and gas properties to exceed their ceiling value.

Cheniere acknowledges that its current operating cash flows are insufficient to meet future liquidity requirements. The company is actively pursuing several strategies to secure necessary capital, including the divestiture of producing oil and gas properties, selling interests in its exploration program prospects, selling participation in its LNG project, and potentially through additional offerings of its equity securities.

Cheniere is increasingly focusing on developing its Liquefied Natural Gas (LNG) receiving terminal business. This is evidenced by the acquisition of site lease options, such as the one in Freeport, Texas. This strategic shift has led to a significant increase in General and Administrative (G&A) expenses, particularly in legal, professional, and consulting fees related to these new initiatives.

Cheniere accounts for its investment in Gryphon using the equity method. Gryphon has issued cash calls that Cheniere has declined to participate in, leading to a dilution of Cheniere's ownership interest. For the third quarter of 2001, Cheniere reported an equity in net loss from Gryphon of $929,482. Further dilution is anticipated if other investors fully participate in upcoming cash calls.