What is the primary significance of this Sale and Purchase Agreement (SPA) for Cheniere Energy?

The SPA is highly significant as it secures a long-term, substantial buyer for Cheniere's liquefied natural gas (LNG) production from its Sabine Pass facility. The fixed sales charge component provides a degree of revenue certainty, crucial for financial planning and investor confidence, and it underpins the economic viability of Cheniere's liquefaction projects.

What are the key financial terms of the SPA regarding pricing and payment?

GNA is obligated to pay a fixed sales charge of $2.49 per MMBtu for the full annual contract quantity, regardless of actual purchase volumes. Additionally, GNA will pay a contract sales price for delivered LNG, which is set at 115% of the relevant month's Henry Hub natural gas futures settlement price. The fixed charge will be paid monthly, with a portion subject to inflation adjustment.

What conditions must be met before Sabine Liquefaction is obligated to proceed with the second LNG train under this SPA?

Sabine Liquefaction must satisfy several key conditions, including obtaining all necessary regulatory approvals for the second LNG train, securing financing arrangements, making a positive final investment decision for the project, and having certain other agreements in place that facilitate the SPA's objectives. These conditions must be met or waived, with a deadline of December 31, 2012, for the commencement of the 20-year term.

Are there any termination clauses or risks associated with this agreement for Cheniere?

Yes, the SPA includes various termination clauses for both parties. GNA can terminate under specific force majeure events or if Sabine Liquefaction fails to make timely deliveries. Sabine Liquefaction can terminate if the Gas Natural Fenosa guarantee ceases or if GNA fails to execute certain agreements. Both parties can terminate if certain conditions precedent are not met by the specified deadline, or in cases of bankruptcy or significant payment defaults by the other party.

LNG 8-K: Material Agreements

Summary

Cheniere Energy, Inc. (LNG) announced a significant development through its subsidiary Cheniere Partners, L.P., specifically Sabine Pass Liquefaction, LLC. On November 21, 2011, the company entered into a material definitive agreement, an LNG Sale and Purchase Agreement (SPA) with Gas Natural Aprovisionamientos SDG S.A. (GNA), a subsidiary of Gas Natural Fenosa. This SPA represents a long-term commitment for the sale and purchase of liquefied natural gas (LNG), outlining terms for delivery, pricing, and duration that are crucial for Cheniere's growth and revenue projections. The agreement details a substantial annual contract quantity of 182,500,000 MMBtu (approximately 3.5 million tonnes per annum) over a 20-year term, with GNA holding extension options. A key feature for investors is the revenue certainty provided by a fixed sales charge of $2.49 per MMBtu, payable regardless of actual purchase volumes, along with a contract sales price tied to Henry Hub futures. The SPA also includes specific conditions precedent for Sabine Liquefaction to proceed with its second liquefaction train, including regulatory approvals, financing, and a final investment decision, with a critical deadline of December 31, 2012, for these conditions to be met.

Key Highlights

1Entry into a 20-year LNG Sale and Purchase Agreement (SPA) with Gas Natural Aprovisionamientos SDG S.A. (GNA).
2Agreement to sell 182.5 million MMBtu (approx. 3.5 mtpa) of LNG annually.
3GNA to pay a fixed sales charge of $2.49 per MMBtu, ensuring baseline revenue for Cheniere.
4Contract sales price for LNG is linked to 115% of the New York Mercantile Exchange Henry Hub natural gas futures contract.
5Gas Natural Fenosa provides an irrevocable guarantee for GNA's payment obligations.
6SPA commencement is contingent upon satisfaction of several conditions, including regulatory approvals, financing, and a final investment decision for Sabine Liquefaction's second LNG train.
7A key deadline of December 31, 2012, is set for the satisfaction or waiver of conditions precedent for the SPA's 20-year term.

Cheniere Energy, Inc. 8-K Report, Material Agreement (Nov 21, 2011)

Summary

Key Highlights

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