How is Cheniere financing its significant capital expenditures for LNG projects?

Cheniere is financing its substantial capital expenditures through a combination of sources. As of June 30, 2006, the company had cash and cash equivalents of $657.6 million. It also utilizes project-level debt, such as the Sabine Pass Credit Facility ($149 million drawn), and has issued corporate debt like Convertible Senior Unsecured Notes ($325 million) and a Term Loan ($595.5 million). The company anticipates needing significant additional funding beyond its current resources to complete its long-term business plan.

What is the significance of the adoption of SFAS No. 71 for the Natural Gas Pipeline segment?

The adoption of SFAS No. 71, effective in the second quarter of 2006, allows Cheniere to account for certain natural gas pipeline costs as a regulatory asset if they are likely to be recovered through future rates established by regulators. This resulted in the capitalization of $12.3 million in pipeline development costs that were previously expensed. This accounting change significantly improved the reported net income for the Natural Gas Pipeline segment and reduced the overall net loss for the company in the current period.

What impact has the adoption of SFAS No. 123R had on the financial results?

Effective January 1, 2006, Cheniere adopted SFAS No. 123R, requiring the recognition of share-based compensation expense based on fair value. This led to an increase in non-cash compensation expense recognized in the current period. For the second quarter of 2006, this amounted to $4.2 million in non-cash compensation expense related to stock options, which increased the net loss for the quarter. For the six months ended June 30, 2006, this expense was $8.7 million.

LNG 10-Q Quarterly Report Q2 FY2006 — Revenue, Net Income, EPS

Q: What is the primary driver behind the reported net loss for the quarter?

The primary drivers of the net loss were ongoing general and administrative expenses of $12.4 million and interest expense of $11.1 million. These were partially offset by interest income of $10.3 million and an income tax benefit of $5.6 million. Importantly, a $4.5 million credit to LNG receiving terminal and pipeline development expenses, resulting from the application of SFAS No. 71 and the reclassification of pipeline development costs to a regulatory asset, significantly improved the reported net loss. Without this credit, the net loss would have been substantially higher.

Summary

Cheniere Energy, Inc. (LNG) reported its financial results for the quarter ended June 30, 2006. The company experienced a net loss of $3.6 million, or $0.07 per share, an improvement from the $9.7 million net loss in the same period of the prior year. This improvement was largely driven by a significant income tax benefit of $5.6 million and a credit to LNG receiving terminal and pipeline development expenses due to the application of SFAS No. 71, which reclassified certain previously expensed pipeline development costs to a regulatory asset. Excluding this credit, the net loss would have been $15.9 million. Despite the net loss, Cheniere continued to make substantial capital investments in its core LNG receiving terminal and natural gas pipeline projects. Property, plant, and equipment increased significantly, reflecting ongoing construction. The company's liquidity remains a key focus, with substantial capital requirements estimated for its LNG terminal and pipeline developments. Cheniere anticipates needing significant additional funding beyond its current cash on hand to execute its long-term business plan.

Key Highlights

1Net loss for the quarter was $3.6 million ($0.07 per share), an improvement from $9.7 million ($0.18 per share) in Q2 2005.
2Recognized a significant income tax benefit of $5.6 million for the quarter.
3Applied SFAS No. 71, reclassifying $12.3 million of pipeline development costs to a regulatory asset, which significantly impacted the reported net loss and segment results.
4Significant capital expenditures continue for LNG receiving terminal and natural gas pipeline construction, with total assets growing to $1.45 billion.
5Long-term debt increased to $1.06 billion, with new borrowings under the Sabine Pass Credit Facility.
6Adopted SFAS No. 123R (Share-Based Payment) in 2006, leading to increased non-cash compensation expense recognized in the period.
7The company's primary focus remains the development of its LNG receiving terminal and pipeline infrastructure, which require substantial future capital investment.

Cheniere Energy, Inc. Quarterly Report for Q2 Ended Jun 30, 2006

Summary

Key Highlights

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