What is the primary purpose of this 8-K filing?

This 8-K filing announces the entry into a material definitive agreement: an LNG Sale and Purchase Agreement (SPA) between Cheniere's subsidiary, Sabine Pass Liquefaction, LLC, and Korea Gas Corporation (KOGAS). It details the key terms of this significant long-term contract.

What are the key financial implications of this SPA for Cheniere Energy?

The SPA provides Cheniere with a long-term, contracted revenue stream for a significant portion of its liquefaction capacity. The pricing mechanism, linked to Henry Hub natural gas prices plus a fixed component, offers a degree of upside potential while covering costs and providing a base return, thereby de-risking the project's financing and development.

What are the conditions precedent that must be met before the SPA becomes fully effective for Cheniere?

Before Sabine Liquefaction is obligated to proceed, several conditions must be satisfied or waived. These include obtaining all necessary regulatory approvals for the third liquefaction train, securing financing for its construction, making a positive final investment decision (FID), and having the required regulatory authorizations for exporting LNG from the U.S. in place.

What is the duration of the contract and what is the annual volume of LNG to be purchased?

The LNG Sale and Purchase Agreement has a 20-year term, commencing upon the first commercial delivery from the third liquefaction train. KOGAS has the option to extend this term for an additional period of up to 10 years. The annual contract quantity is approximately 3.5 million tonnes per annum (mtpa), equivalent to 182,500,000 MMBtu.

LNG 8-K: Material Agreements

Summary

Cheniere Energy, Inc. (LNG) announced a significant development through its subsidiary, Cheniere Partners, with the signing of a 20-year LNG Sale and Purchase Agreement (SPA) with Korea Gas Corporation (KOGAS). This agreement, effective from the commercial delivery of the third liquefaction train, obligates KOGAS to purchase approximately 3.5 million tonnes per annum (mtpa) of Liquefied Natural Gas (LNG). This pact represents a crucial step in securing long-term offtake for Cheniere's Sabine Pass liquefaction project, providing substantial revenue visibility and de-risking the project's development.

Key Highlights

1Cheniere Partners, through its subsidiary Sabine Pass Liquefaction, signed a 20-year LNG Sale and Purchase Agreement (SPA) with Korea Gas Corporation (KOGAS).
2The SPA covers the sale of approximately 3.5 million tonnes per annum (mtpa) of LNG, equivalent to 182,500,000 MMBtu annually.
3The contract term is 20 years, commencing upon the first commercial delivery from the third liquefaction train, with an option for KOGAS to extend for an additional 10 years.
4KOGAS will pay a contract sales price of $3.00 per MMBtu plus 115% of the New York Mercantile Exchange Henry Hub natural gas futures contract for the delivery month, with an inflation adjustment on the fixed portion.
5The agreement is contingent upon several conditions, including regulatory approvals, securing necessary financing, a positive final investment decision for the third liquefaction train, and effectuating export authorizations for LNG from the United States.
6The SPA includes provisions for delivery suspension by KOGAS, termination clauses for both parties under specific circumstances (e.g., force majeure, non-performance, bankruptcy, payment defaults), and conditions related to the commencement of commercial operations.
7This agreement marks a significant step towards advancing Cheniere's Sabine Pass liquefaction project and securing long-term export capacity.

Cheniere Energy, Inc. 8-K Report, Material Agreement (Jan 30, 2012)

Summary

Key Highlights

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