8-KMaterial AgreementsRegulation FDExhibits & Filings

Cheniere Energy, Inc. 8-K Report, Material Agreement (May 30, 2014)

Filed May 30, 2014For Securities:LNG

Summary

Cheniere Energy, Inc. (LNG) announced a significant development on May 30, 2014, with its subsidiary Corpus Christi Liquefaction, LLC (CCLNG) entering into a 20-year Liquefied Natural Gas (LNG) Sale and Purchase Agreement (SPA) with IBERDROLA, S.A. (IBE). This agreement positions IBE to purchase approximately 0.76 million tonnes per annum of LNG from Cheniere's Corpus Christi liquefaction facility, commencing with the second liquefaction train. The SPA also includes provisions for bridging volumes from the first train, providing immediate revenue potential. The pricing mechanism is structured with a base price of $3.50 per MMBtu, plus 115% of the monthly Henry Hub natural gas futures contract price, with a portion subject to annual inflation adjustments. The agreement includes flexibility for IBE to suspend deliveries, though payment obligations for the fixed portion remain. This SPA is a crucial step in advancing Cheniere's Corpus Christi project, contingent on regulatory approvals, financing, and a final investment decision for the second train. The 20-year term, with an option for a 10-year extension, highlights the long-term commitment and potential revenue stream for Cheniere.

Key Highlights

  • 1Cheniere's subsidiary, Corpus Christi Liquefaction, LLC (CCLNG), signed a 20-year LNG Sale and Purchase Agreement (SPA) with IBERDROLA, S.A. (IBE).
  • 2The SPA commits IBE to purchase approximately 0.76 million tonnes per annum (mtpa) of LNG from the second liquefaction train at the Corpus Christi facility.
  • 3Bridging volumes from the first liquefaction train are also included, starting from its commercial operation date until the second train is operational.
  • 4The contract sales price is set at $3.50 per MMBtu plus 115% of the monthly Henry Hub natural gas futures price, with partial inflation adjustment.
  • 5IBE has the flexibility to suspend LNG deliveries by providing notice, though it remains obligated to pay the fixed portion of the contract price for suspended volumes.
  • 6The SPA has a 20-year term, commencing with the first commercial delivery from the second liquefaction train, and includes a 10-year extension option for IBE.
  • 7The full development of the second liquefaction train is contingent upon obtaining regulatory approvals, securing financing, and making a positive final investment decision.

Frequently Asked Questions

The primary significance is the announcement of a material definitive agreement – a 20-year LNG Sale and Purchase Agreement (SPA) between Cheniere's subsidiary and IBERDROLA. This agreement secures a long-term customer for Cheniere's Corpus Christi liquefaction project, specifically for the second liquefaction train, and is a crucial step towards advancing the project's development and securing future revenue streams.

The SPA involves IBERDROLA purchasing approximately 0.76 mtpa of LNG from Cheniere's second liquefaction train, starting from its commercial operation. The pricing is linked to the Henry Hub natural gas price, plus a fixed component and an inflation adjustment. The agreement also includes provisions for bridging volumes from the first train and allows IBERDROLA some flexibility to suspend deliveries, with specific payment obligations.

Cheniere's obligation to proceed with the second liquefaction train is contingent on several key conditions being satisfied or waived. These include receiving all necessary regulatory approvals for construction and operation, securing financing for the train, making a positive final investment decision, obtaining regulatory authorizations for LNG exports, and issuing an unconditional notice to proceed with construction.

The LNG Sale and Purchase Agreement has a firm term of 20 years, commencing on the date of the first commercial delivery of LNG from the second liquefaction train. IBERDROLA also holds the right to extend this term for an additional period of up to 10 years.