10-QPeriod: Q3 FY2006

Cheniere Energy, Inc. Quarterly Report for Q3 Ended Sep 30, 2006

Filed November 6, 2006For Securities:LNG

Summary

Cheniere Energy, Inc. (LNG) reported a net loss of $33.1 million for the third quarter of 2006, a significant increase from the $8.0 million net income reported in the same quarter of the prior year. This shift is primarily driven by increased operating costs and development expenses related to its large-scale LNG terminal and pipeline projects, as well as higher interest expenses. Despite the quarterly loss, the company's balance sheet shows substantial assets, with total assets growing to $1.61 billion from $1.29 billion in the prior year-end. This growth is largely attributable to significant investments in property, plant, and equipment, reflecting ongoing construction of its Sabine Pass LNG terminal and pipeline infrastructure. The company's liquidity remains a key focus, with cash and cash equivalents decreasing to $586.8 million from $692.6 million. However, Cheniere recently announced a significant financing transaction involving the issuance of senior secured notes, intended to refinance existing debt and fund the completion of its Sabine Pass LNG receiving terminal projects. Investors should monitor the successful execution of this financing and the progress of construction and regulatory approvals for its major infrastructure projects, as these will be critical to the company's future revenue generation and profitability.

Key Highlights

  • 1Net loss of $33.1 million for the quarter ended September 30, 2006, compared to a net income of $8.0 million in the prior year's same quarter.
  • 2Total assets increased to $1.61 billion from $1.29 billion at year-end 2005, driven by significant investment in LNG terminal and pipeline construction-in-progress.
  • 3Cash and cash equivalents decreased to $586.8 million from $692.6 million at year-end 2005.
  • 4Long-term debt increased to $1.26 billion from $917.5 million at year-end 2005, reflecting significant borrowings for project development.
  • 5The company adopted SFAS No. 123R (Share-Based Payment) effective January 1, 2006, resulting in $15.975 million in stock-based compensation expense for the nine months ended September 30, 2006.
  • 6Cheniere is progressing with its major LNG terminal and pipeline projects, with construction underway at Sabine Pass LNG and preliminary site work initiated at Corpus Christi LNG.
  • 7The company announced a significant financing effort, agreeing to issue $550.0 million of senior secured notes due 2013 and $1,482.0 million of senior secured notes due 2016, to fund project completion and refinance debt.

Frequently Asked Questions

Cheniere Energy reported a net loss of $33.1 million for the third quarter of 2006, a significant shift from the $8.0 million net income in the same quarter of 2005. This loss is primarily driven by increased LNG terminal and pipeline development expenses, higher general and administrative costs, and substantial interest expenses related to its ongoing project financing and construction.

Cheniere is funding its LNG terminal and pipeline projects through a combination of sources, including existing cash balances, borrowings under its Amended Sabine Pass Credit Facility, and proceeds from a significant planned issuance of senior secured notes. The company estimates total capital expenditures of approximately $3 billion for its three LNG receiving terminals and $800 million to $1 billion for related natural gas pipelines.

Construction of Phase 1 of the Sabine Pass LNG receiving terminal is underway with operations anticipated in 2008. Phase 2 of Sabine Pass and preliminary work at Corpus Christi LNG are also progressing. Key risks include delays in regulatory approvals, potential cost overruns due to commodity price fluctuations and labor costs, and the successful completion of its financing arrangements. The company's success is heavily dependent on its ability to secure sufficient funding and bring these projects online on a commercially viable basis.

Cheniere adopted SFAS No. 123R (Share-Based Payment) effective January 1, 2006, which requires the recognition of share-based compensation expense at fair value. This resulted in $15.975 million in stock-based compensation expense for the first nine months of 2006, impacting its net loss. Additionally, the company adopted SFAS No. 71 for its natural gas pipeline segment, leading to the recognition of regulatory assets.