10-QPeriod: Q3 FY2005

Cheniere Energy, Inc. Quarterly Report for Q3 Ended Sep 30, 2005

Filed November 4, 2005For Securities:LNG

Summary

Cheniere Energy, Inc. (LNG) reported a net income of $7.7 million for the three months ended September 30, 2005, a significant improvement from a net loss of $5.6 million in the same period of the prior year. This turnaround was largely driven by a $20.2 million gain from the sale of an investment in Gryphon Exploration Company. Excluding this one-time gain, the company would have reported a net loss, indicating that core operations are still incurring losses, primarily due to substantial LNG receiving terminal development expenses and increased general and administrative costs associated with business expansion. The company's balance sheet shows a substantial increase in assets, with cash and cash equivalents rising to $738.9 million from $308.4 million. This increase is attributed to significant financing activities, including the issuance of Convertible Senior Unsecured Notes and a Term Loan. Long-term debt has also increased substantially, reflecting these financing efforts to fund its ambitious LNG terminal projects. Investors should note the significant ongoing capital expenditures for the development of multiple LNG receiving terminals, which will require substantial future funding.

Key Highlights

  • 1Reported a net income of $7.7 million for Q3 2005, compared to a net loss of $5.6 million in Q3 2004, driven by a $20.2 million gain on the sale of an investment.
  • 2Cash and cash equivalents significantly increased to $738.9 million as of September 30, 2005, up from $308.4 million at December 31, 2004, due to strong financing activities.
  • 3Total assets grew substantially to $1.29 billion from $333.6 million, reflecting investments in property, plant, and equipment, particularly for LNG terminal construction.
  • 4Long-term debt increased to $919 million, primarily from the issuance of $325 million in Convertible Senior Unsecured Notes and a $600 million Term Loan.
  • 5LNG receiving terminal development expenses increased to $4.1 million in Q3 2005 from $3.4 million in Q3 2004, indicating continued investment in project development.
  • 6General and administrative expenses more than doubled to $6.5 million in Q3 2005 from $2.2 million in Q3 2004, reflecting significant business expansion.
  • 7The company is actively developing four LNG receiving terminals and has secured key TUAs with Total and Chevron USA for the Sabine Pass LNG terminal.

Frequently Asked Questions

The primary driver of Cheniere's improved net income of $7.7 million for the three months ended September 30, 2005, was a $20.2 million gain recognized from the sale of its investment in Gryphon Exploration Company. Without this one-time gain, the company would have reported a net loss.

Cheniere is funding its extensive capital expenditures for LNG terminal development through a combination of sources, including existing cash balances, proceeds from debt issuances (such as the Convertible Senior Unsecured Notes and the Term Loan), equity issuances, and anticipated capacity reservation fees from terminal use agreements (TUAs). The company also utilizes project-level debt financing where applicable.

Operating expenses have increased primarily due to higher LNG receiving terminal development expenses, which are associated with engineering, permitting, and regulatory processes for its various LNG projects. Additionally, general and administrative expenses have significantly increased due to the overall expansion of the company's business operations and staff.

Construction of the Sabine Pass LNG terminal began in March 2005, with operations expected to commence in 2008. The project has secured key terminal use agreements (TUAs) with Total and Chevron USA. The company is also developing other LNG terminals, including Freeport LNG, Corpus Christi LNG, and Creole Trail LNG, each in various stages of development and permitting.