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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
[_]2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission File No.COMMISSION FILE NO. 0-9092
CHENIERE ENERGY, INC.
(Exact name as specified in its charter)
DelawareDELAWARE
(State or other jurisdiction of incorporation or organization)
95-4352386
(I. R. S. Identification No.)
1200 Smith Street, SuiteSMITH STREET, SUITE 1740
Houston, TexasHOUSTON, TEXAS
(Address orof principal place of business)
77002-4312
(Zip Code)
(713) 659-1361
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] NO [_].[ ].
As of May 14, 1999,12, 2000, there were 22,670,75242,989,572 shares of Cheniere Energy, Inc. Common
Stock, $.003 par value, issued and outstanding.
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CHENIERE ENERGY, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
Page
----
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet.................................................Sheet............................................ 3
Consolidated Statement of Operations.......................................Operations.................................. 4
Consolidated Statement of Stockholders' Equity.............................Equity........................ 5
Consolidated Statement of Cash Flows....................................... 7Flows.................................. 6
Notes to Consolidated Financial Statements................................. 8Statements............................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 11Operations................................................. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk................. 13
PartRisk...... 11
PART II. Other InformationOTHER INFORMATION
Item 2. Changes in Securities...................................................... 13Securities and Use of Proceeds....................... 11
Item 5. Other Information.......................................................... 13Information............................................... 11
Item 6. Exhibits and Reports on Form 8-K........................................... 14
Signatures.................................................................................. 158-K................................ 12
SIGNATURES........................................................................ 13
2
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, December 31,
ASSETS 2000 1999
1998------ ------------ ------------
(Unaudited)
ASSETS
------
CURRENT ASSETS
Cash $ 83,732626,707 $ 143,8681,175,950
Accounts Receivable 288,012 97,837
Subscriptions Receivable - 500,0001,491,252 906,569
Debt Issuance Costs, net 115,679 138,909
Prepaid Expenses and Other Current Assets 151,670 8,8331,195,874 1,223,864
------------ ------------
TOTAL CURRENT ASSETS 523,414 750,538Total Current Assets 3,429,512 3,445,292
OIL AND GAS PROPERTIES, full cost method
Unevaluated 20,737,609 20,000,425Proved Properties, net 9,255,380 9,459,041
Unproved Properties, not subject to amortization 22,418,284 20,648,923
------------ -----------
Total Oil and Gas Properties 31,673,664 30,107,964
FIXED ASSETS, net 79,167 89,511860,172 928,019
------------ ------------
TOTAL ASSETSTotal Assets $ 21,340,19035,963,348 $ 20,840,47434,481,275
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Liabilities $ 916,2632,764,573 $ 523,1441,772,324
Notes Payable 1,974,980 1,974,9803,748,459 4,963,213
------------ ------------
Total Current Liabilities 2,891,243 2,498,124
------------ ------------
LONG-TERM NOTES PAYABLE
Related Party - 2,000,000
Other - 25,020
------------ ------------
- 2,025,020
------------ ------------
PRODUCTION PAYMENT 400,000 -
------------ ------------6,513,032 6,735,537
STOCKHOLDERS' EQUITY
Common Stock, $.003 par value
Authorized: 45,000,00060,000,000 shares
Issued and Outstanding: 21,786,277 and 18,973,74942,708,640 shares at March 31, 19992000
and 40,212,473 shares at December 31, 1998, respectively 65,359 56,9221999 128,126 120,637
Preferred Stock, $.0001 par value
Authorized: 5,000,000 shares
Issued and Outstanding: none
- -
Additional Paid-in-Capital 22,137,213 20,084,928Paid-in Capital 35,202,810 33,203,344
Accumulated Deficit Accumulated During the Development Stage (4,153,625) (3,824,520)(5,880,620) (5,578,243)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 18,048,947 16,317,330Total Stockholder's Equity 29,450,316 27,745,738
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITYTotal Liabilities and Stockholders' Equity $ 21,340,19035,963,348 $ 20,840,47434,481,275
============ ============
============
The accompanying notes are an integral part of theThe accompanying notes are an integral part of these financial statements.
3
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months Ended
March 31,
Cumulative
------------------------------- from the Date---------------------------
2000 1999
1998 of Inception
----------- ----------- ------------------------- ------------
RevenueRevenues
Oil and Gas Sales $ -1,173,605 $ - $ -
----------- ----------- -------------
Management Fees 230,000 --
------------ ------------
Total Revenues 1,403,605 --
------------ ------------
Operating Costs and Expenses
Production Costs 81,725 --
Depreciating, Depletion and Amortization 925,957 10,344
General and Administrative Expenses 707,009 323,699
------------ ------------
Total Operating Costs and Expenses 1,714,691 334,043
195,394 4,256,819
----------- ----------- ----------------------- ------------
Loss from Operations Before Other IncomeInterest and Income Taxes (311,086) (334,043) (195,394) (4,256,819)
Interest Income 8,709 4,938
5,894 142,195
Interest Expense - - (39,001)
----------- ----------- ----------------------- ------------
Loss From Operations Before Income Taxes (302,377) (329,105) (189,500) (4,153,625)
Provision for Income Taxes - - -
----------- ----------- ------------- --
------------ ------------
Net Loss $ (302,377) $ (329,105)
$ (189,500) $(4,153,625)
=========== =========== ======================= ============
Net Loss Per Share (basic and diluted) $ (0.02) $ (0.01) $ (0.30)
=========== =========== ===========(0.02)
============ ============
Weighted Average Number of Shares Outstanding 40,869,676 19,508,942
14,457,866 13,785,646
=========== =========== ===========
The accompanying notes are an integral part of the============ ============
The accompanying notes are an integral part of these financial statements.
4
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock Additional Total
--------------------------------------------- Paid-In RetainedAccumulated Stockholders'
Per Share
Shares Amount Capital Deficit Equity
--------------------- -------- ------------ ---------- ----------- ------------ ------------------------
Sale of Shares on April 9, 1996 $0.012 6,242,422Balance - December 31, 1998 18,973,749 $ 18,72756,922 $ 56,27620,084,928 $ -(3,824,520) $ 75,003
Sale of Shares on May 5, 1996 1.50 2,000,000 6,000 2,994,000 - 3,000,000
Issuance of Shares to an Employee
on July 1, 1996 1.00 30,000 90 29,910 - 30,00016,317,330
Issuance of Shares in ReorganizationExchange for Notes 2,812,528 8,437 2,016,583 -- 2,025,020
Repricing of Warrants to Former Bexy ShareholdersExtend Bridge Notes 35,702 35,702
Net Loss -- -- -- (329,105) (329,105)
---------- --------- ------------ ------------ ------------
Balance - 600,945 1,803 (1,803)March 31, 1999 21,786,277 65,359 22,137,213 (4,153,625) 18,048,947
========== ========= ============ ============ ============
Balance - -
SaleDecember 31, 1999 40,212,473 120,637 33,203,344 (5,578,243) 27,745,738
Issuances of Shares on July 30, 1996 2.00 50,000 150 99,850 - 100,000
Sale of Shares on August 1, 1996 2.00 508,400 1,525 1,015,275 - 1,016,800
Sale of Shares on August 30, 1996 2.00 500,000 1,500 998,500 - 1,000,000Stock 2,496,167 7,489 2,099,011 -- 2,106,500
Expenses Related to Offerings - - - (686,251) - (686,251)
Issuance of Warrants - - - 12,750 - 12,750(99,545) (99,545)
Net Loss - - - - (121,847) (121,847)
----------- ------- -----------$ (302,377) (302,377)
---------- -------------------- ------------ ------------ ------------
Balance - AugustMarch 31, 1996 9,931,767 29,795 4,518,507 (121,847) 4,426,455
Sale of Shares on September 12, 1996 2.00 50,000 150 99,850 - 100,000
Sale of Shares on September 16, 1996 2.00 80,250 241 160,259 - 160,500
Conversion of Debt 2.00 105,000 315 209,685 - 210,000
Sale of Shares on October 30, 1996 2.25 457,777 1,373 1,028,627 - 1,030,000
Issuance of Warrants - - - 6,450 - 6,450
Sale of Shares on December 6, 1996 2.25 475,499 1,426 1,068,448 - 1,069,874
Sale of Shares on December 9, 1996 2.50 400,000 1,200 998,800 - 1,000,000
Sale of Shares on December 11, 1996 2.25 22,222 67 49,933 - 50,000
Sale of Shares on December 19, 1996 2.50 200,000 600 499,400 - 500,000
Sale of Shares on December 20, 1996 2.50 220,000 660 549,340 - 550,000
Sale of Shares on February 28, 1997 4.25 352,947 1,059 1,498,967 - 1,500,026
Sale of Shares on March 4, 1997 4.25 352,947 1,059 1,498,966 - 1,500,025
Sale of Shares on May 22, 1997 3.00 535,000 1,605 1,603,395 - 1,605,000
Issuance of Shares to Adjust Prices of
Shares Sold on February 28 and March 4* - 294,124 883 (883) - -
Sale of Shares on June 26, 1997 3.00 33,333 100 99,900 - 100,000
Sale of Shares on July 24, 1997 3.00 250,000 750 749,250 - 750,000
Issuance of Shares in Connection with
Financial Advisory Services 3.125 200,000 600 624,400 - 625,000
Sale of Shares on July 30, 1997 3.00 100,000 300 299,700 - 300,000
Sale of Shares on August 19, 1997 3.00 100,000 300 299,700 - 300,000
Expenses Related to Offerings - - - (1,153,441) - (1,153,441)
Net Loss - - - - (1,676,468) (1,676,468)
----------- ------- ----------- ---------- -----------
Balance - August 31, 1997 14,160,866 42,483 14,709,253 (1,798,315) 12,953,421
* Additional shares were issued to the purchasers of shares sold on February 28, 1997 and March 4, 1997 pursuant to the terms of
those sales.
All of the sales of shares indicated above were made pursuant to private placement transactions.2000 42,708,640 $ 128,126 $ 35,202,810 $ (5,880,620) $ 29,450,316
========== ========= ============ ============ ============
The accompanying notes are an integral part of thethese financial statements.
5
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY, CONTINUED
(Unaudited)
Common Stock Additional Total
---------------------- Paid-In Retained Stockholders'
Per Share Shares Amount Capital Deficit Equity
----------- ------------ --------- ----------- ------------ -----------
Balance - August 31, 1997 14,160,866 42,483 14,709,253 (1,798,315) 12,953,421
Sale of Shares on September 15, 1997 3.00 67,000 201 200,799 - 201,000
Sale of Shares on September 16, 1997 3.00 130,000 390 389,610 - 390,000
Expenses Related to Offerings - (74,532) (74,532)
Issuance of Warrants and Shares with
Bridge Notes on December 15, 1997 2.375 100,000 300 338,200 338,500
Net Loss - - - - (388,361) (388,361)
----------- ------ ---------- ---------- ----------
Balance - December 31, 1997 14,457,866 43,374 15,563,330 (2,186,676) 13,420,028
Sale of Shares on April 8, 1998 2.00 530,000 1,590 1,058,410 - 1,060,000
Issuance of Shares in Settlement of
Charges for Previous Legal Services 1.40 70,000 210 97,790 - 98,000
Sale of Shares on May 29, 1998 2.00 22,000 66 43,934 - 44,000
Sale of Shares on June 4, 1998 1.40 890,644 2,672 1,244,230 - 1,246,902
Expenses Related to Offerings - - - (168,000) - (168,000)
Issuance of Shares to Adjust Prices of
Shares Sold on April 8 and May 29** - 236,572 710 (710) - -
Issuance of Warrants with
Bridge Notes on June 4, 1998 - - - 3,661 - 3,661
Issuance of Shares on August 26, 1998
Pursuant to Exercise of Warrants 1.00 100,000 300 99,700 - 100,000
Sale of Shares on August 31, 1998 0.67 750,000 2,250 499,000 - 501,250
Issuance of Warrants and Shares to
Extend Bridge Notes on March 15 and
September 15, 1998 0.67 50,000 150 349,183 - 349,333
Sale of Shares on November 15, 1998 0.67 1,200,000 3,600 796,400 - 800,000
Sale of Shares on December 30, 1998 0.75 666,667 2,000 498,000 - 500,000
Net Loss - - - - (1,637,844) (1,637,844)
----------- ------ ---------- ---------- ----------
Balance - December 31, 1998 18,973,749 56,922 20,084,928 (3,824,520) 16,317,330
Issuance of Shares in Exchange for Notes
on February 2 and March 15, 1999 0.72 2,812,528 8,437 2,016,583 - 2,025,020
Repricing of Warrants to Extend Bridge
Notes on January 15, 1999 - 35,702 35,702
Net Loss - - - - (329,105) (329,105)
----------- ------ ---------- ---------- ----------
Balance - March 31, 1999 21,786,277 65,359 22,137,213 (4,153,625) 18,048,947
=========== ====== ========== ========== ==========
** Additional shares were issued to the purchasers of shares sold on April 8, 1998 and May 29, 1998 at $2.00 per share in order to
adjust the purchase price to the $1.40 per share price offered and received on June 4, 1998.
All of the sales of shares indicated above were made pursuant to private placement transactions.
The accompanying notes are an integral part of the financial statements.
6
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
Cumulative
--------------------------------- from the Date--------------------------
2000 1999
1998 of Inception
---------------- --------------- -------------------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Lossloss $ (329,105)(302,377) $ (189,500) $ (4,153,625)(329,105)
Adjustments to Reconcile Net Loss to
Net Cash UsedProvided by (Used in) Operating Activities:
Depreciation, Depletion and Amortization 925,957 10,344
7,772 64,322
Compensation PaidNon-Cash Expense (Issuance of Warrants) 100,000 --
----------- ----------
723,580 (318,761)
Changes in Common Stock - - 654,400
(Increase) Decrease inOperating Assets and Liabilities
Accounts Receivable (584,683) (190,175) 6,891 (288,012)
(Increase) Decrease in
Subscriptions Receivable -- 500,000
- -
Increase inDebt Issuance Costs 23,230 --
Prepaid Expenses and Other Current Assets (72,010) (142,837) (73,372) (151,670)
Increase (Decrease) in
Accounts Payable and Accrued Liabilities 992,250 393,119
(85,014) 1,014,263
Non-Cash Interest Expense (Issuance of Warrants) - - 19,200----------- ---------- ---------- ------------
NET CASH USED INPROVIDED BY OPERATING ACTIVITIES $1,082,367 241,346
(333,223) (2,841,122)----------- ---------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Fixed Assets - (70,279) (143,488)(38,578) --
Proceeds from Sales of Oil and Gas Seismic Data - - 46,000-- --
Oil and Gas Property Additions (1,730,233) (701,482)
(427,903) (20,056,412)----------- ---------- ---------- ------------
NET CASH USED IN INVESTING ACTIVITIES (1,768,811) (701,482)
(498,182) (20,153,900)----------- ---------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Notes with Detachable Warrants - - 4,605,000
Proceeds from Issuance of Notes Payable or Advances - - 1,197,000
Repayment of Notes Payable or Advances - - (1,592,000)(1,819,754) --
Sale of Production Payment 400,000 400,000
Issuance of Common Stock - 720,000 20,550,9802,056,500 400,000
Offering Costs - - (2,082,224)(99,545) --
----------- ---------- ---------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 137,201 400,000
720,000 23,078,756----------- ---------- ---------- ------------
NET INCREASE (DECREASE) IN CASH (549,243) (60,136) (111,405) 83,732
CASH - BEGINNING OF PERIOD 1,175,950 143,868
787,523 ------------ ---------- ---------- ------------
CASH - END OF PERIOD $ 83,732 $ 676,118626,707 $ 83,732
=========== ==========
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Note Payable for Oil and Gas Property $ 605,000 $ --
=========== ==========
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest $ - $ - $ 22,353
========== ========== ============
Cash Paid for Income Taxes $ - $ - $ -
========== ========== ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
The Company issued 105,000 shares of common stock upon the conversion of
$210,000 of notes payable in September 1996.
In conjunction with its December 1997 Bridge Financing, the Company issued
at closing 100,000 shares of common stock (valued at $237,500), and upon
extension of the maturity date 50,000 shares (valued at $33,500), which were
recorded as debt issuance costs. In the same financing, the Company issued
1,333,334 warrants (valued at $101,000) and 1,987,500 warrants (valued at
$315,833) related to extensions of the maturity dates. In conjunction with a
short-term bridge financing in June 1998, the Company issued 83,334 warrants
(valued at $3,661). In conjunction with a 1999 extension of the maturity dates
of the December 1997 notes, the exercise price was reduced by $0.25 per share
for warrants related to the extended notes. This repricing of warrants was
valued at $35,702. The amortization of such warrant costs was included in
interest expense which was capitalized as a cost of oil and gas properties.
In 1998, the Company issued 70,000 shares of common stock (valued at
$98,000) in settlement of invoices for previously rendered legal services.
In 1999, the Company issued 2,812,528 shares of common stock in exchange
for the cancellation of long-term notes payable totaling $2,025,000.
The accompanying notes are an integral part of theThe accompanying notes are an integral part of these financial statements.
7
6
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of Cheniere Energy, Inc.
("Cheniere" or the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation, have been included.
For further information, refer to the financial statements and footnotes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1998.1999. Interim results are not necessarily indicative of results to be
expected for the full fiscal year ended December 31, 1999.
The Company is currently2000.
Note 2 - NOTES PAYABLE
September 1999 - Platform Financing
On September 1, 1999, Cheniere established a $3,100,000 financing facility
to fund a production platform and other exploration and development stage enterprise and reports as suchcosts in the
West Cameron Block 49 area. Borrowings under the provisionsfacility are to be repaid from
Cheniere's share of Statement of Financial Accounting Standards ("SFAS") No.
7, "Accounting and Reportingnet cash flow from production through the West Cameron Block
49 platform. The note is secured by Development Stage Enterprises." The Company's
future business will be in the field ofCheniere's oil and gas explorationproperties.
Financing costs include interest at 10% per annum and exploitation.a 5% net profit interest
in the initial two wells producing through the platform. On February 29, 2000,
Cheniere amended the loan agreement and borrowed an additional $605,000 under
the facility to fund the recompletion of a producing well. At March 31, 2000,
the outstanding balance under the facility was $3,509,526. Subsequent to March
31, 2000, the maturity date was extended from June 30, 2000 to October 31, 2000.
December 1999 - Well Services Financing
In December 1999, Cheniere entered into a financing agreement with a
supplier of well services to consolidate and convert trade accounts payable
balances of $1,117,570 into a short-term secured note payable. Interest is
payable at 10% per annum. The Company intends to adopt SFAS 133, "Accounting for Derivative
Instrumentsnote is secured by Cheniere's oil and Hedging Activities," issued in June 1998 effective with its
fiscal year beginning January 1,gas
properties and matures on July 5, 2000. At March 31, 2000, as required by the Statement. Due to the
Company's current and anticipated limited use of derivative instruments,
management anticipates that adoption of SFAS 133 will not have any significant
impact on the Company's financial position or results of operations.
NOTE 2outstanding
balance, including accrued interest, was $238,933.
December 1997 - NOTES PAYABLEBridge Financing
In December 1997, Cheniere completed the private placement of a $4,000,000
bridge financing (the "December 1997 Bridge Financing"). The notes payable
issued by Cheniere had an initial maturity date offinancing. On March 15, 1998,2000, Cheniere repaid the remaining balance,
which was
extendedtotaled $755,000.
Note 3 - COMMON STOCK AND WARRANTS
In February and March 2000, the Company issued to September 15, 1998 and further extended to January 15, 1999. In
December 1998, Cheniere received commitments from certain noteholders to
exchange notes payable for an aggregate of 2,812,528 shares of Cheniere common
stockthree investors 1,492,000
units at a price of $0.72$0.75 per share. Accordingly, the $2,025,020 face amount of
the exchanged notes was classified as a long-term obligation as of December 31,
1998. For those notes which were not exchanged for common stock, the maturity
date has been extended to July 15, 1999. The notes bear interest at a rate of
LIBOR plus 4%. The securities purchase agreements which govern such bridge
financing specify that, during the term of the notes, capital raised by the
Company in excess of $5,000,000 must be directed to repayment of the notes.
In connection with the December 1997 Bridge Financing, Cheniere issued
100,000 sharesunit, each unit representing one share of common
stock and four-year warrantsone warrant to purchase 1,333,334
sharesa share of common stock at $2-3/8 per share. Additional warrants to purchase
1,600,000 shares of Cheniere common stock werestock. Warrants issued on September 15, 1998 in
consideration for the extension to that date. In
connection with these sales of units are exercisable at a price of $1.00 per
share on or before the extension
to January 15, 1999,second anniversary of the Company offered two alternatives of consideration.
8date the units were sold.
These issuances were made in reliance on the exemption from registration
provided
7
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Holdersby Section 506 of $3,000,000Regulation D. Net proceeds were $1,020,000 after
payment of $99,000 in selling commissions.
In March 2000, the notes electedCompany issued to reducenine investors 937,500 shares pursuant
to the exercise of warrants at an exercise price of their
warrants to $1.50$1.00 per share. The holderThese
issuances were made in reliance on the exemption from registration provided by
Section 506 of $1,000,000 of the notes elected to
reduce the exercise price of its warrants to $2.00 per share, to extend the term
of such warrants to five years from the latter of September 15, 1998 or the date
of issue, to receive additional warrants to purchase 387,500Regulation D. Net proceeds were $937,500.
Also in March 2000, Cheniere issued 66,667 shares of common stock and to receive 50,000 sharesone
company in exchange for $50,000 of common stock. In January 1999,geophysical consulting services. This
issuance was made in reliance on the maturity date was extended toexemption from registration provided by
Section 4(2) of the Securities Act of 1933.
Note 4 - EXPLORATION PROGRAM
On March 15, 1999. In March 1999, the maturity date
was extended to April 15, 1999. As consideration for the extension to April 15,
1999,10, 2000, the Company reduced the exercise price by $0.25 per share for all warrants
issued in connectionentered into an exploration agreement with
the issuance or extensions of the notes. In April
1999, the maturity date was extended to July 15, 1999.
NOTE 3 - PRODUCTION PAYMENT
In March 1999, the Company sold a production payment and stock option for
$400,000.an industry partner. Under the terms of the production payment and stockagreement, Cheniere's exploration
partner acquired an option agreement,to participate at a 50% working interest level in any
drilling prospects generated by Cheniere over the production payment could be exchanged for common stock atnext eighteen months within a
defined area of mutual interest in the electionGulf of Mexico. Cheniere will receive a
management fee of $4,140,000 payable in equal monthly installments over the
eighteen-month term of the holder.agreement. In April 1999, the production payment was exchanged for 584,475
shares of common stock.
NOTE 4 - STOCK OPTIONS
On March 18, 1999, the Company granted options to certain employees under
the Cheniere Energy, Inc. 1997 Stock Option Plan. Options coveringaddition, Cheniere's partner will pay
a total of
218,500 shares of common stock were granted to employees, exercisable at $1.50
perdisproportionate share which is above the quoted market price of the stock at the timecost of leasing and of the grant. The options vest 25% atinitial test well on
each prospect. Cheniere will be the operator of the first four anniversaries of the
date of grant and expire on the fifth anniversary date of the grants.
Also on March 18, 1999, the Company's Board of Directors elected a new
outside director. This director was granted options to purchase 35,000 shares of
the Company's common stock at an exercise price of $3.00 per share, which is
above the quoted market price at the time of the grant. These options vest on
22,500 shares on March 18, 2000, and on 12,500 shares on March 18, 2001, and
will expire on March 17, 2004.
NOTEdrilling program.
Note 5 - RELATED PARTY TRANSACTIONS
In conjunction with certain of the Company's private placements of equity,
placement fees have been paid to Investors Administration Services, Limited
("IAS"), a company in which the brother of the Company's Co-Chairman,Chairman, Charif Souki,
is a principal. Placement fees totaling $30,000$99,000 were paid to IAS related to the
April 1999 private placement of units described in Note 6.
NOTE 6 - SUBSEQUENT EVENTS
In April 1999, the Company completed the private placement of 300,000
units, each unit representing one share of Cheniere common stock and a warrant
to purchase one share of common stock at a share price equal to the lesser of
$1.00 or an amount calculated as 65% times the lowest trading price of Cheniere
common stock during the 30-day period ending June 12, 1999.
Also in April 1999, the Company issued 584,475 shares of common stock in
exchange for the cancellation of a production payment which it had sold in March
1999. The terms of the production payment and stock option agreement provided
for the per share price of the exchange
93.
8
CHENIERE ENERGY, INC.ITEM 2. MANAGEMENT'S DISCUSSION AND SUBSIDIARIES
NOTES TO CONSOLIDATEDANALYSIS OF FINANCIAL STATEMENTS
(Unaudited)
to be an amount equal to 75% times the average closing bid price for the five-
day period preceding notice of the exchange. The balance of the production
payment at the time of the exchange was $400,000.
10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General - Cheniere Energy, Inc. is currently a development stage company,
which has not yet begun generating revenues, and reports as such under the
provisions of SFAS No. 7.CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company's unaudited consolidated financial statements and notes thereto
relate to the three-month periods ended March 31, 19992000 and 1998.1999. These
statements, the notes thereto and the consolidated financial statements included
in the Company's Annual Report on Form 10-K for the year ended December 31, 19981999
contain detailed information that should be referred to in conjunction with the
following discussion.
Results of Operations
Comparison of Three-Month Periods EndedPRODUCTION AND PRODUCT PRICES
During the three months ended March 31, 19992000, Cheniere produced 436,233 mcf
of natural gas and 19981,693 barrels of condensate. The average prices Cheniere
received for the quarter were $2.74 per mcf of natural gas and $28.63 per barrel
of condensate. Cheniere had no production in the three months ended March 31,
1999.
RESULTS OF OPERATIONS
COMPARISON OF THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999 - The
Company's operating results for the three months ended March 31, 19992000 reflect a
loss of $302,377, or $0.01 per share, compared to a loss of $329,105 or $0.02
per share a year earlier. Net cash flow from operations (before changes in
operating assets and liabilities) increased to $723,580 for the three months
ended March 31, 2000 compared to a lossnet cash flow deficit of $189,500 or $0.01
per share$318,761 a year
earlier.
In the first quarter of 2000, Cheniere recorded revenues of $1,403,605
compared to nil in the comparable period of 1999. Cheniere began producing oil
and gas in September 1999. The Company has not yet begunalso began receiving a management fee in
March 2000 under the terms of an exploration agreement with an industry partner.
Production costs totaled $81,725 for the 2000 quarter.
Depreciation, depletion and amortization of oil and gas property costs
commenced in September 1999 and totaled $819,533 for the 2000 quarter.
Depreciation of fixed assets increased to generate operating
revenues.$106,424 in the 2000 quarter, compared
to $10,344 a year earlier, as a result of Cheniere's mid-1999 expansion of its
technological staff and the acquisition of workstations, related computer
equipment and software to execute the Company's exploration program.
General and administrative ("G&A") expenses of $334,043increased to $707,009 in the
three months ended March 31, 1999 were higher than the $195,3942000 compared to $323,699 reported for the
comparable period a year earlier. The 1999 quarter included an increased level of activity
related to the commencement of the Company's drilling operations. This activity
includedin 1999. In mid-1999, Cheniere licensed 8,700 additional
personnel and office costs as well as legal expenses related
to oil and gas contract matters. Expenses in the first quarter of 1999 also
included legal and professional fees related to year-end financial reporting for
the fiscal year ended December 31, 1998. The comparable three months of 1998
did not include such expenses. At that time, the Company's fiscal year ended on
August 31 rather than December 31.
Liquidity and Capital Resources
Since Cheniere's inception in February 1996, the business plan of the
Company has included a lengthy start-up period before revenues would begin.
Some of the prerequisite activities to be accomplished before the commencement
of operating revenues were: the acquisitionsquare miles of 3-D seismic data and it has increased the processingnumber of that seismic data,its
employees from 9 to 20, adding management and exploration professionals to
exploit the interpretationexpanded 3-D database. As a result, salaries, benefits and
consulting expenses increased to $647,520 for the 2000 quarter, compared with
$277,879 a year earlier. Investor relations and travel expenses increased to
$198,269 in the 2000 quarter from $10,800 in the 1999 quarter as Cheniere
engaged outside consultants to assist in broadening investor interest in the
Company. Included in 2000 expenses are $100,000 of that seismic datanon-cash costs related to
identify
prospects,warrants issued to the leasing of those prospects, and the drilling of those prospects
to prove upCompany's outside consultants. Cheniere capitalizes as
oil and gas reserves for production and saleproperty costs that portion of G&A expenses which relates to generate operating
revenues. Cheniere has completed the acquisition of proprietary data over a
230-square-mile 3-D seismic survey in Cameron Parish, Louisiana, and the
adjacent offshore area. It has processed and is interpreting the seismic data.
It has identified 15 prospects to date and has acquired leases over the majority
of those prospects. Cheniere has just begun the drilling phase of its
exploration project.
Drilling operations commencedand development activities. Cheniere capitalized $366,000 of such
G&A expenses in February 1999. A completion attempt was
made on the Company's initial well (at2000 quarter and $115,000 in the Cobra Prospect) but the well was not
productive in commercial quantities. Cheniere then commenced drilling a test
well on its second prospect, Redfish, where completion operations and testing
are presently underway. The Company has drilled a well on its third prospect,
Shark, and determined that the indicated reserves found present were not
adequate to justify a completion in an offshore environment. Cheniere is
presently making plans for the drilling of its fourth and fifth prospects.
To fund its activities to date, Cheniere has raised $22,125,000 through
private placements of its equity securities and $1,974,980 (net) through the
issuance of bridge notes payable. The
111999 quarter.
9
Company has raised these funds through a series of private placements of
moderate amounts of its securities. The Company has consistently issued its
common stock in amounts necessary to meet financial needs when required. It has
not been the strategy of the Company to raise a significant amount of capital in
excess of its current needs, but rather, to sell stock as funds are required.LIQUIDITY AND CAPITAL RESOURCES
General - The Company anticipates that future liquidity requirements,
including repayment of $1,974,980$3,748,459 in short-term notes payable, maturing on July 15, 1999,payments of
approximately $200,000 per month for future deliveries of reprocessed 3-D
seismic data, exploration and development activities within theits 3-D Exploration Program,exploration
program, other oil and gas activities and general corporate requirements will be
met by a combination of: cash balances, cash flow from operations, the sale of
equity, further borrowings, and/or the sale of portions ofinterests in its interest in the 3-D Exploration Programexploration
program or in the prospects generated thereunder. At this time, no assurance
can be given that such further sales of equity, future borrowings, or sales of
portions of its
interestinterests in the 3-D Exploration Programexploration program or in the prospects generated
thereunder will be accomplished.
Subsequent to DecemberFunds Raised in 2000 - During the three months ended March 31, 1998, however,2000,
Cheniere has raisedgenerated funds from the following sources: $658,000$2,006,595 (net of
offering costs of $99,545) through the sale of interestsequity securities and the
exercise of warrants, $723,580 in three wells,
$275,000net cash flow from operations, $605,000
through additional borrowing under the financing facility which the Company
established in September 1999.
Exploration Agreement - On March 10, 2000, the Company entered into an
exploration agreement with an industry partner. Under the terms of the
agreement, Cheniere's exploration partner acquired an option to participate at a
50% working interest level in any drilling prospects generated by Cheniere over
the next eighteen months within a defined area of mutual interest in the Gulf of
Mexico. Cheniere will receive a management fee of $4,140,000 payable in equal
monthly installments over the eighteen-month term of the agreement. In
addition, Cheniere's partner will pay a disproportionate share of the cost of
leasing and of the initial test well on each prospect. Cheniere will be the
operator of the drilling program.
Notes Payable Activity - On September 1, 1999, Cheniere established a
$3,100,000 financing facility to fund a production platform and other
exploration and development costs in the West Cameron Block 49 area. Borrowings
under the facility are to be repaid from Cheniere's share of net cash flow from
production through the saleWest Cameron Block 49 platform. The note is secured by
Cheniere's oil and gas properties. Financing costs include interest at 10% per
annum and a 5% net profit interest in the initial two wells producing through
the platform. On February 29, 2000, Cheniere amended the loan agreement and
borrowed an additional $605,000 under the facility to fund the recompletion of a
producing well. At March 31, 2000, the outstanding balance under the facility
was $3,509,526. Subsequent to March 31, 2000, the maturity date was extended
from June 30, 2000 to October 31, 2000.
In December 1999, Cheniere entered into a financing agreement with a
supplier of well services to consolidate and convert trade accounts payable
balances of $1,117,570 into a short-term secured note payable. Interest is
payable at 10% per annum. The note is secured by Cheniere's oil and gas
properties and matures on July 5, 2000. During the three months ended March 31,
2000, Cheniere repaid $900,000. At March 31, 2000, the outstanding balance,
including accrued interest, was $238,933.
In December 1997, Cheniere completed the private placement of a $4,000,000
bridge financing. On March 15, 2000, Cheniere repaid the remaining balance,
which totaled $755,000.
Seismic Reprocessing Commitment - In June 1999, Cheniere entered into a
master license agreement covering the license of approximately 8,700 square
miles of 3-D seismic optiondata in the Gulf of Mexico. In connection with the license
agreement, the Company has made a commitment to reprocess certain of the seismic
data and to pay a fee for such reprocessing as the reprocessed data are
delivered. Such deliveries commenced in the fourth quarter of 1999. If
reprocessed seismic data are delivered to Cheniere on three additional prospects,
$2,025,020the schedule specified in
the agreement,
10
Cheniere is obligated to make processing payments of approximately $200,000 per
month through December 2001. Accelerating the issuancedeliveries of reprocessed data
could increase Cheniere's monthly obligation to as much as $500,000 per month.
Sales of Equity Securities - In February and March 2000, the Company issued
1,492,000 units at a price of $0.75 per unit, each unit representing one share
of common stock and one warrant to purchase a share of common stock. Warrants
issued in connection with these sales of units are exercisable at a price of
$1.00 per share on or before the second anniversary of the date the units were
sold. Net proceeds were $1,020,000 after payment of $99,000 in selling
commissions. In March 2000, the Company issued 937,500 shares pursuant to the
exercise of warrants at an exercise price of $1.00 per share, generating net
proceeds of $937,500. Also in March 2000, Cheniere issued 66,667 shares of
common stock in exchange for the cancellation$50,000 of notes payable, $400,000 through the salegeophysical consulting services.
Cash Flow from Operations - Cheniere commenced production of a production payment and $300,000
through the issuance of units comprised of common stock and warrants.
Year 2000
The Year 2000 presents significant issues for many computer systems. Much
of the software in use today may not be able to accurately process data beyond
the year 1999. The vast majority of computer systems process transactions using
two digits for the year of the transaction, rather than the full four digits,
making such systems unable to distinguish January 1, 2000 from January 1, 1900.
Such systems may encounter significant processing inaccuracies or become
inoperable when Year 2000 transactions are processed. Such matters could impact
not only the Company in its day-to-day operations but also the Company's
financial institutions, customers and vendors as well as state, provincial and
federal governments with jurisdictions where the Company maintains operations.
The Company is currently addressing Year 2000 issues and is presently
focussing on its internal business systems and processes. To the extent
necessary, the Company will assess the readiness of any key business partners
(financial institutions, customers, vendors, oil and gas operators, etc.).
It has beenin
September 1999. Cash flow from operations (before changes in operating assets
and liabilities) for the Company's strategy to use, wherever possible, industry
prevalent products and processes with minimal customization. As a result, the
Company does not expect any extensive in-house hardware, software or process
conversionsthree months ended March 31, 2000 totaled $723,580,
including $230,000 in an effort to be Year 2000 compliant nor does the Company expect
its Year 2000 compliancemanagement fee income related costs to be material to its operations.
The Company's goal is to be Year 2000 compliant by June 30, 1999 wherever
possible and to have contingency plans in place where compliance is not possible
in a timely manner. While it is the Company's goal to be Year 2000 compliant,
there can be no assurance that there will not be a material adverse effect on
the Company as a result of a Year 2000 related issue. The Company's business
partners may present the area of greatest risk to the Company,exploration agreement
executed in part because
of the Company's limited ability to influence actions of third parties, and in
part because of the Company's inability to estimate the level and impact of
noncompliance of third parties. Additionally, there are many variables and
uncertainties associated with judgments regarding any contingency plans
developed by the Company.
12
ItemMarch 2000.
ITEM 3. Quantitative and Qualitative Disclosures About Market RiskQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
PART II. Other Information
ItemOTHER INFORMATION
ITEM 2. Changes in Securities and Use of ProceedsCHANGES IN SECURITIES AND USE OF PROCEEDS
The information contained in Notes 2 3 and 43 to the Consolidated Financial
Statements is incorporated herein by reference.
ItemITEM 5. Other Information
Forward-Looking StatementsOTHER INFORMATION
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
safe harbor for forward-looking statements made by or on behalf of the Company.
The Company and its representatives may from time to time make written or verbal
forward-looking statements, including statements contained in this report and
other filings with the Securities and Exchange Commission and in reports to its
stockholders.
All statements, other than statements of historical facts so included in
this report that address activities, events or developments that the Company
intends, expects, projects, believes, or anticipates will or may occur in the
future are forward-looking statements within the meaning of the Act, including,
without limitation: statements regarding the Company's business strategy, plans
and objectives; statements expressing beliefs and expectations regarding the
ability of the Company to successfully raise the additional capital necessary to
meet itsthe obligations under the Exploration
Agreement,its 3-D seismic master license agreement, the ability
of the Company to secure the leases necessary to facilitate anticipated drilling
activities and the ability of the Company to attract additional
11
working interest owners to participate in theits exploration and development
within the Survey AMI; and statements about non-historical Year 2000
information, are forward-looking statements within the meaning of the Act.activities. These forward-looking statements are, and will be, based on
management's then current views and assumptions regarding future events.
Factors That May Impact Forward-Looking Statements or Financial PerformanceFACTORS THAT MAY IMPACT FORWARD-LOOKING STATEMENTS OR FINANCIAL PERFORMANCE
The following are some of the important factors that could affect the
Company's financial performance or could cause actual results to differ
materially from estimates contained in the Company's forward-looking statements.
-- The Company's ability to generate sufficient cash flows to support
capital expansion plans, obligations to repay debt and general
operating activities.
-- The Company's ability to obtain additional financing from lenders,
through debt or equity offerings, or through sales of a portion of its
interest in the 3-D Exploration Program.
13
prospects.
-- The Company's ability to discoverencounter hydrocarbons in sufficient
quantities to be economically viable, and its ability to overcome the
operating hazards thatwhich are inherent in the oil and gas industry.industry and
which are intensified by the Company's concentration of its producing
oil and gas assets in few properties.
-- Changes in laws and regulations, including changes in accounting
standards, taxation requirements (including tax rate changes, new tax
laws and revised tax law interpretations) and environmental laws in
domestic or foreign jurisdictions.
-- The uncertainties of litigation as well as other risks and
uncertainties detailed from time to time in the Company's Securities
and Exchange Commission filings.
-- The Company's ability to replace, modify or upgrade computer programs
in ways that adequately address the Year 2000 issue.
The foregoing list of important factors is not exclusive.
ItemITEM 6. Exhibits and Reports on FormEXHIBITS AND REPORTS ON FORM 8-K
(a) Each of the following exhibits is incorporated by reference or filed
herewith:
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Certificate of Incorporation of Cheniere
Energy, Inc. ("Cheniere") (Incorporated(incorporated by reference to Exhibit 3.1
of the Company's Registration StatementQuarterly Report on Form S-1 filed10-Q for the three months
ended June 30, 1999)
3.2 Certificate of Amendment to the Amended and Restated Certificate of
Incorporation of Cheniere Energy, Inc. (incorporated by reference to
Exhibit 3.2 of the Company's Quarterly Report on August 27, 1996 (File No. 333-10905))
3.2Form 10-Q for the
three months ended June 30, 1999)
3.3 By-laws of Cheniere as amended through April 7, 1997 (Incorporated
by reference to Exhibit 3.1 of the Company's Annual Report on Form
10-K filed on March 29, 1999 (File No. 0-9092))
27.1 Financial Data Schedule
(b) None.
14Cheniere made no filings on Form 8-K during the three months ended March
31, 2000.
12
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHENIERE ENERGY, INC.
/s/ Don A. Turkleson
-----------------------------------------
Don A. Turkleson
Chief Financial Officer (on behalf of the
registrant and as principal accounting
officer)
Date: May 14, 1999
1512, 2000
13