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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNEFor the quarterly period ended June 30, 19992000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ________
COMMISSION FILE NO. 0-9092
CHENIERE ENERGY, INC.
(Exact name as specified in its charter)
DELAWARE
(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 or 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 August 13, 1998,10, 2000, there were 27,574,21742,989,572 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
Page
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet......................................... 3
Consolidated Statement of Operations............................... 4
Consolidated Statement of Stockholders' Equity..................... 5
Consolidated Statement of Cash Flows............................... 7
Notes to Consolidated Financial Statements......................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 14
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds....................... 14
Item 6. Exhibits and Reports on Form 8-K................................ 14
SIGNATURES...................................................................
Page
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C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet..................................... 3
Consolidated Statement of Operations........................... 4
Consolidated Statement of Stockholders' Equity................. 5
Consolidated Statement of Cash Flows........................... 6
Notes to Consolidated Financial Statements..................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 15
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds..................... 15
Item 4. Submission of Matters to a Vote of Security Holders........... 15
Item 6. Exhibits and Reports on Form 8-K.............................. 15
SIGNATURES..................................................................... 16
2
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31,
ASSETS 2000 1999
1998
------------ ------------------ ----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 1,393,269777,052 $ 143,8681,175,950
Accounts Receivable 653,705 95,837
Subscriptions Receivable - 500,0001,267,712 906,569
Debt Issuance Costs, net 70,687 138,909
Prepaid Expenses and Other Current Assets 540,968 8,8331,183,925 1,223,864
------------ ------------
Total current assets 2,587,942 748,538Current Assets 3,299,376 3,445,292
OIL AND GAS PROPERTIES, full cost method
Unevaluated 24,777,673 20,000,425Proved Properties, net 8,419,600 9,459,041
Unproved Properties, not subject to amortization 23,300,511 20,648,923
------------ ------------
Total Oil and Gas Properties 31,720,111 30,107,964
FIXED ASSETS, net 90,285 89,511859,906 928,019
------------ ------------
Total Assets $ 27,455,90035,879,393 $ 20,838,47434,481,275
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Liabilities $ 2,625,3072,501,427 $ 523,1441,772,324
Notes Payable 1,974,980 1,974,9803,639,515 4,963,213
------------ ------------
Total current liabilities 4,600,287 2,498,124
------------ ------------
LONG-TERM NOTES PAYABLE
Related Party - 2,000,000
Other - 25,020
------------ ------------
Total long-term liabilities - 2,025,020
------------ ------------Current Liabilities 6,140,942 6,735,537
STOCKHOLDERS' EQUITY
Common Stock, $.003 par value
Authorized: 60,000,000 and 40,000,000 shares respectively
Issued and Outstanding: 27,307,97742,989,572 shares at June 30, 1999;
18,973,7492000
and 40,212,473 shares at December 31, 1998 81,924 56,9221999 128,969 120,637
Preferred Stock, $.0001 par value
Authorized: 5,000,000 shares
Issued and Outstanding: none - --- --
Additional Paid-in-Capital 27,282,199 20,084,92835,131,967 33,203,344
Accumulated Deficit Accumulated During the Development Stage (4,508,510) (3,824,520)(5,522,485) (5,578,243)
------------ ------------
Total Stockholders'Stockholder's Equity 22,855,613 16,317,33029,738,451 27,745,738
------------ ------------
Total Liabilities and Stockholders' Equity $ 27,455,90035,879,393 $ 20,840,47434,481,275
============ ============
The accompanying notes are an integral part of thethese financial statements.statements
3
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months For theEnded Six Months Ended
June 30, Ended June 30,
Cumulative------------------------ --------------------------
-------------------------- from the Date2000 1999 19982000 1999
1998 of Inception------------ --------- ------------ ---------- ---------- ---------- ---------- ------------
RevenueRevenues
Oil and Gas Sales $ -1,731,078 $ --- $ -2,904,683 $ - $ ---
Management Fees 373,333 -- 603,333 --
------------ --------- ------------- ----------
Total Revenues 2,104,411 -- 3,508,016 --
------------ --------- ------------- ----------
---------- ---------- ------------Operating Costs and Expenses
Production Costs 114,008 -- 195,733 --
Depreciation, Depletion and Amortization 1,070,390 10,982 1,996,347 21,326
General and Administrative Expenses 566,088 349,200 1,273,097 672,856
------------ --------- ------------- ----------
Total Operating Costs and Expenses 1,750,486 360,182 436,4353,465,177 694,182
631,829 4,616,958------------ --------- ------------- ----------
---------- ---------- ---------- ------------
LossIncome/(Loss) from Operations Before Other IncomeInterest and Income Taxes 353,925 (360,182) (436,435)42,839 (694,182) (631,829) (4,616,958)
Interest Income 4,210 5,298 6,61912,919 10,192
12,513 147,449
Interest Expense - - - - (39,001)------------ --------- ------------- ----------
---------- ---------- ---------- ------------
LossIncome/(Loss) From Operations Before Income Taxes 358,135 (354,884) (429,816)55,758 (683,990) (619,316) (4,508,510)
Provision for Income Taxes - - - - --- -- -- --
------------ ---------- ------------- ----------
---------- ---------- ------------
Net LossIncome/(Loss) $ (354,884)358,135 $(354,884) $ (429,816)55,758 $ (683,990)
$ (619,316) $ (4,508,510)============ ========== ============= ==========
========== ========== ============
Net LossIncome/(Loss) Per Share (basic and diluted)- Basic $ 0.01 $ (0.02) $ (0.03)0.00 $ (0.03)
============ ========== ============= ==========
Net Income/(Loss) Per Share - Fully Diluted $ (0.04)0.01 N/A $ (0.31)0.00 N/A
============ ========== ============= ========== ========== ========== ============
Weighted Average Number of Shares Outstanding - Basic 42,938,450 23,464,488 15,865,08441,904,063 21,503,556
14,891,462 14,533,332============ ========== ============= ==========
Weighted Average Number of Shares Outstanding - Fully Diluted 54,227,795 N/A 52,735,906 N/A
============ ========== ============= ========== ============
The accompanying notes are an integral part of thethese financial statements.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 6,242,422 $ 18,727 $ 56,276 $ - $ 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 - 30,000
Issuance of Shares in Reorganization to
Former Bexy Shareholders - 600,945 1,803 (1,803) - -
Sale 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 - 1,000,000
Expenses Related to Offerings - - - (686,251) - (686,251)
Issuance of Warrants - - - 12,750 - 12,750
Net Loss - - - - (121,847) (121,847)
---------- ------- ----------- ----------- -----------
Balance - August 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
The accompanying notes are an integral part of the financial statements.
5
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock Additional Total
---------------------- Paid-In Retained Stockholders'
Per Share Shares Amount Capital Deficit Equity
--------- ---------- ------- ----------- ----------- -----------
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 March 15, 1999 - 35,702 35,702
Issuance of sharesShares in Exchange for Production Payment on April 8, 1999 0.68 584,475 1,753 398,247 - 400,000
SaleIssuances of Shares on April 12, 1999 1.00 300,000 900 299,100 - 300,000
Sale of Shares on May 12, 1999 1.50 600,000 1,800 898,200 - 900,000
Sale of Shares on May 25, 1999 1.31 41,225 124 53,726 - 53,850
Sale of Shares on June 2, 1999 0.83 1,200,000 3,600 996,400 - 1,000,000
Sale of Shares on June 9, 1999 1.00 500,000 1,500 498,500 - 500,000
Sale of Shares on June 30, 1999 1.00 2,296,000 6,888 2,289,112 - 2,296,000Stock 4,937,225 14,812 5,035,038 5,049,850
Expenses Related to Offerings - - - (288,299) - (288,299)
Net Loss - - - - (683,990) (683,990)
----------- ---------- ------- ----------- ----------- ------------------------ ------------- ------------
Balance - June 30, 1999 27,307,977 81,924 27,282,199 (4,508,510) 22,855,613
=========== ========== ==================== ============= ============
Balance - December 31, 1999 40,212,473 120,637 33,203,344 (5,578,243) 27,745,738
Issuances of Stock 2,777,099 8,332 2,098,168 2,106,500
Expenses Related to Offerings (169,545) (169,545)
Net Income 55,758 55,758
----------- ---------- ------------- ------------- ------------
Balance - June 30, 2000 42,989,572 $ 128,969 $ 35,131,967 $ (5,522,485) $ 29,738,451
=========== ===================== ============= ============= ============
The accompanying notes re an integral part of these financial statements
5
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-----------------------
2000 1999
--------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ 55,758 $ (683,990)
Adjustments to Reconcile Net Loss to
Net Cash Provided by (Used in) Operating Activities
Depreciation, Depletion and Amortization 1,996,347 21,326
Non-Cash Expense (Issuance of Warrants) 100,000 --
----------- ----------
2,152,105 (662,664)
Changes inn Operating Assets and Liabilities
Accounts Receivable (361,143) (555,868)
Subscriptions Receivable -- 500,000
Prepaid Expensed and Other Current Assets (60,061) (532,135)
Accounts Payable and Accrued Liabilities 729,103 2,102,163
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,460,004 851,496
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Fixed Assets (150,161) (22,099)
Oil and Gas Property Additions (3,340,221) (4,741,545)
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (3,490,382) (4,763,644)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Issuance of Notes Payable or Advances 1,705,000 240,000
Repayment of Notes Payable or Advances (3,028,698) (240,000)
Sale of Common Stock 2,056,500 5,449,848
Offering Costs (169,545) (288,299)
Debt Issuance Costs 68,223 --
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 631,480 5,161,549
----------- ----------
NET INCREASE (DECREASE) IN CASH (398,898) 1,249,401
CASH - BEGINNING OF PERIOD 1,175,950 143,868
----------- ----------
CASH - END OF PERIOD $ 777,052 $1,393,269
=========== ==========
The accompanying notes are an integral part of thethese financial statements.statements
6
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30, Cumulative
-------------------------- from the Date
1998 1997 of Inception
---------- ---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (683,990) $ (619,316) $(4,508,510)
Adjustments to Reconcile Net Loss to
Net Cash Used by Operating Activities:
Depreciation and Amortization 21,326 18,225 75,304
Compensation Paid in Common Stock - - 654,400
Increase in Accounts Receivable (555,868) (23,394) (653,705)
Decrease in Subscriptions Receivable 500,000 - -
Increase in Prepaid Expenses and Other Current Assets (532,135) (79,763) (540,968)
Increase (Decrease) in Accounts Payable and Accrued Liabilities 2,102,163 (74,655) 2,723,307
Non-Cash Interest Expense (Issuance of Warrants) - - 19,200
---------- ---------- -----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $ 851,496 (778,903) (2,230,972)
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Fixed Assets (22,099) (82,320) (165,587)
Proceeds from Sales of Oil and Gas Seismic Data - - 46,000
Oil and Gas Property Additions (4,741,545) (1,390,319) (24,216,065)
---------- ---------- -----------
NET CASH USED IN INVESTING ACTIVITIES (4,763,645) (1,472,639) (24,216,065)
---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Notes with Detachable Warrants - 180,000 4,605,000
Proceeds from Issuance of Notes Payable or Advances 240,000 - 1,437,000
Repayment of Notes Payable or Advances (240,000) - (1,832,000)
Sale of Common Stock 5,449,848 2,448,902 26,000,828
Offering Costs (288,299) (113,000) (2,370,523)
---------- ---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,161,549 2,515,902 27,840,305
---------- ---------- -----------
NET INCREASE (DECREASE) IN CASH 1,249,401 264,360 1,393,269
CASH - BEGINNING OF PERIOD 143,868 787,523 -
---------- ---------- -----------
CASH - END OF PERIOD $1,393,269 $1,051,883 $ 1,393,269
---------- ---------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Interest (net of amounts capitalized) $ - $ - $ 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 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 repriced certain warrants (valued at $35,702) in
connection with an extension of its short-term notes payable and 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 the financial statements.
7
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, 1999.2000.
Note 2 - Notes Payable
April 2000 - Bridge Financing
In April 2000, Cheniere completed the private placement of a $2,000,000
bridge financing facility. The Company is currently a development stage enterprise and reports as suchmaturity date of borrowings under the provisions of Statement of Financial Accounting Standards ("SFAS")
No. 7, "Accounting and Reporting by Development Stage Enterprises." The
Company's future businessfacility
will be 120 days from the date of each borrowing. Interest is payable at
maturity, calculated at a rate of LIBOR plus 2% per year. Financing costs
related to the facility include a 2% placement fee and the issuance of warrants
to purchase up to 1,000,000 shares of common stock at an exercise price of $1.00
per share. If a note issued under the facility remains unpaid at its maturity
date, it is automatically converted into Cheniere common stock at a 35% discount
to the then-current market price per share, with a minimum conversion price of
$0.50 per share. As of June 30, 2000 Cheniere had borrowed $1,100,000 under the
facility. Proceeds from the borrowings were used to fund the reprocessing of
seismic data and for general corporate purposes.
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 costs in the
fieldWest Cameron Block 49 area. Borrowings under the facility are to be repaid from
Cheniere's share of net cash flow from production through the West Cameron Block
49 platform. The note is secured by Cheniere'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 June 30, 2000, the
outstanding balance under the facility was $2,539,515. The Company intendsmaturity date has
been extended from June 30, 2000 to adopt SFAS 133, "Accounting for Derivative
InstrumentsOctober 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 Hedging Activities," issued inconvert trade accounts payable
balances of $1,117,570 into a short-term secured note payable with interest
payable at 10% per year. The note was secured by Cheniere's oil and gas
properties. As of June 1998 effective with its
fiscal year beginning January 1,30, 2000, as required byCheniere had repaid the Statement. Due toentire balance of
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 2note.
7
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 outstanding 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 was extended. 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
$12,000,000 must be directed to repayment of the notes.
In connection with the December 1997 Bridge Financing, Cheniere issued
100,000 shares of common stock and four-year warrants to purchase 1,333,334
shares of common stock at $2-3/8 per share. Additional warrants to purchase
1,600,000 shares of Cheniere common stock were issued on September 15, 1998 in
consideration for the extension to that date. In connection with the extension
to January 15, 1999, the Company offered two alternatives of consideration.
Holders of $3,000,000 of the notes elected to reduce the exercise price of their
warrants to $1.50
8
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
per share. The holder 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 387,500 shares of common stock and to
receive 50,000 shares of common stock. In January 1999, the maturity date was
extended to March 15, 1999. In March 1999, the maturity date was extended to
April 15, 1999. As consideration for the extension to April 15, 1999, the
Company reduced the exercise price by $0.25 per share for all warrants issued in
connection with the issuance or extensions of the notes. In April 1999, the
maturity date was extended to July 15, 1999, at which time 50% of the
outstanding balance was repaid and the maturity date for the remainder was
extended to October 15, 1999. (See Note 8 - Subsequent Events.)
NOTE 3 - COMMON STOCK ISSUANCES
In April 1999, the Company completed the private placement of 300,000
units,unit, each unit representing one share of Cheniere common
stock and aone warrant to purchase onea share of common stockstock. Warrants issued in
connection with these sales of units are exercisable at a share price equal to the lesser of $1.00 per
share on or an amount calculated as 65% timesbefore the lowest trading price of Cheniere
common stock during the 30-day period ending June 12, 1999. Net proceeds were
$270,000 after payment of $30,000 in selling commissions. In July 1999, Cheniere
issued an additional 150,000 units pursuant to the price adjustment provisionsecond anniversary of the original April 1999 private placement, reducingdate the average price to $0.67
per unit.units were sold. These
issuances were made in reliance on the exemption from registration provided by
Section 506 of Regulation D. AlsoNet proceeds were $1,020,000 after payment of
$99,000 in April 1999,selling commissions.
In March 2000, the Company issued 584,475to nine investors 937,500 shares pursuant
to the exercise of common stock at
$0.68 per share 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 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. These issuances were made in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act of 1933.
In May 1999, Cheniere issued 600,000 shares of common stock in exchange for
$900,000 of prepaid drilling services. In addition, the Company issued 41,225
shares as partial payment of drilling services previously provided at a cost of
$53,850. These issuances were made in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933.
In June 1999, the Company completed three private placements of common
stock. On June 2, 1999, Cheniere issued 1,200,000 shares of common stock at a
price of $0.83 per share for proceeds of $1,000,000. These issuances were made
in reliance on the exemption from registration provided by Section 506 of
Regulation D. On June 9, 1999, Cheniere issued 500,000 shares of common stock to
acquire a license to use 3-D seismic data covering 8,700 square miles in the
shallow waters of the Gulf of Mexico. These issuances were made in reliance on
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933. On June 30, 1999, Cheniere issued 2,296,000 shares of common stock at a
price of $1.00 per share resulting in net proceeds of $2,082,000 after payment
of $214,000 in selling commissions. These issuances were made in reliance on the
exemption from registration provided by Section 506 of Regulation D.
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 covering a total of
218,500 shares of common stock were granted to employees, exercisable at $1.50
per share, which is above the quoted market price of the stock at the time of
the grant. The options vest 25% at each 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
director. This
9
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
On June 1, 1999, the Company granted options to an employee to purchase
300,000 shares of common stock. The options are exercisable at $1.50 per share,
which is above the quoted market price of the stock at the time of the grant.
Options on 150,000 of the shares are fully vested, options on 150,000 of the
shares vest 25% at each of the first four anniversaries of the date of grant and
expire on the fifth anniversary date of the grant.
NOTE 5 - WARRANTS
In April 1999, Cheniere sold 300,000 units to three investors at a price of
$1.00 per share, resulting in net proceeds of $270,000 after payment of $30,000
in selling commissions. Each unit was comprised of one share of common stock and
one warrant to purchase one share of common stock, adding up to 300,000 shares
of common stock and warrants to purchase 300,000 shares of common stock.
Warrants issued in connection with these sales of units are exercisable on or
before the second anniversary date of the date the units were sold at an exercise price of $1.00 per share. These
issuances were made in reliance on the exemption from registration provided by
Section 506 of Regulation D. Net proceeds were $937,500.
Also in March 2000, Cheniere issued 66,667 shares of common stock to one
company in exchange for $50,000 of geophysical consulting services. In June 1999, the CompanyApril
2000, Cheniere issued 1,000,000 warrants200,000 shares to its president and
chief executive officer and 200,000 warrants to another member of its board of
directors, both of whom were instrumental in negotiating the Company's license
of 8,700 square miles of 3-D seismic data in the Gulf of Mexico. Warrants
issueda drilling company in connection with this transaction are exercisable on or beforean
adjustment to the
fifth anniversary of the date the transaction closed at an exercise price of $1.50 per share.shares previously issued for drilling services
rendered. These issuances were made in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933.
NOTE 6In April 2000, Cheniere issued 80,932 units to ten existing stockholders
pursuant to price adjustment provisions of their subscription agreements. These
units represented 80,932 shares of common stock and warrants to purchase 40,466
shares of common stock at an exercise price of $1.50 per share on or before
April 13, 2003. These issuances were made in reliance on the exemption from
registration provided by Section 506 of Regulation D.
As a selling commission related to a 1999 private placement of securities,
Cheniere issued to an individual in April 2000 warrants to purchase 100,000
shares of common stock at an exercise price of $1.50 per share on or before
June 30, 2002.
Note 4 - RELATED PARTY TRANSACTIONSExploration Program
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. The
management fee payments of $230,000 per month are allocated between revenues and
oil and gas property costs based upon
8
the percentage of general and administrative expenses that the Company
capitalizes as oil and gas property costs.
Note 5 - Related Party Transactions
In conjunction with certain of the Company's private placements of equity,
securities,
placement fees have been paid to Investors Administration Services, Limited
("IAS"), a company in which the brother of Cheniere'sthe Company's Chairman, Charif Souki,
is a principal. Placement fees totaling $235,000$99,000 were paid to IAS related to Cheniere's 1999the
private placementsplacement of equity securities.
During May 1999, the Company receivedunits described in Note 3.
Note 6 - Commitments and repaid $240,000 in short-term
advances from a major stockholder, BSR Investments, Ltd., whose president is the
mother of Cheniere's Chairman. Interest totaling $584 was paid on the advances
at a rate of LIBOR plus 4%, the same rate then payable on the Company's notes
payable.
NOTE 7 - CONTINGENT LIABILITIES
OnContingencies
In June 9, 1999, Cheniere entered into a master license agreement covering the
license of approximately 8,7008,800 square miles of 3-D seismic data 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 isare delivered. Such deliveries commenced in
the fourth quarter of 1999. If
10
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) reprocessed seismic data are delivered to
Cheniere on the schedule specified in the agreement, Cheniere will beis obligated to
make processing payments of approximately $200,000 per month for the period from December 1999 through December
2001. Accelerating the deliveries of reprocessed data could increase Cheniere's
monthly obligation to as much as $500,000 per month.
In June 2000, Cheniere entered into an agreement whereby Cheniere acquired
a license to 3D seismic data covering 1,900 square miles in the Gulf of Mexico
in exchange for its commitment to fund the reprocessing of the data. Cheniere
has committed to reprocess the data and estimates the cost of this reprocessing
to be approximately $2,000,000, payable as the reprocessing is completed and
delivered to Cheniere. Deliveries are expected to commence in October 2000 and
to continue into the second quarter of 2001. Cheniere has an option to expand
the agreement to cover an additional 3,000 square miles.
NOTE 87 - SUBSEQUENT EVENTS
OnSubsequent to June 30, 2000, Cheniere borrowed $500,000 under its bridge
financing facility. The Company used the proceeds of this borrowing to fund a
deposit into an escrow account for its share of the estimated costs of a well
which will commence drilling in August 2000 and for general corporate purposes.
In July 15, 1999,2000, the Company repaid one halfgranted options to employees to purchase
1,716,000 shares of common stock at an exercise price of $0.6875 per share, the
closing market price on the date of grant. The options vest 25% per year,
beginning on the first anniversary of the then-outstanding
balancegrant date and have a term of its notes payable. For the remaining balance, totaling $987,490,
the maturity date was extended to October 15, 1999 and the interest rate was
increased by 2% to LIBOR plus 6%.
In July 1999, Cheniere issued 50,000 warrants exercisable at $1.50 per
share on or before June 30, 2004 as consideration for the use of a prospect lead
database.
The Company also issued 150,000 additional warrants exercisable at $1.00
per share on or before July 5, 2004 in connection with a pricing adjustment to
the number of units sold in April 1999.
11five
years.
9
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.
The Company's unaudited consolidated financial statements and notes thereto
relate to the three-month and six-month periods ended June 30, 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.
PRODUCTION AND PRODUCT PRICES
For the three months ended June 30, 2000, Cheniere produced 510,942 mcf of
natural gas at an average price of $3.49 per mcf and 1,667 barrels of condensate
at an average price of $29.22 per barrel. For the six months ended June 30,
2000, Cheniere produced 947,175 mcf of natural gas at an average price of $3.14
per mcf and 3,360 barrels of condensate at an average price of $28.93 per
barrel. Cheniere had no production in the six months ended June 30, 1999.
RESULTS OF OPERATIONS
COMPARISON OF THREE-MONTH PERIODS ENDED JUNE 30, 19992000 AND 19981999 - The
Company's operating results for the three months ended June 30, 19992000 reflect net
income of $358,135 or $0.01 per share (basic and fully diluted) compared to a
loss of $354,884, or $0.02 per share, compared to a loss of $429,816 or $0.03
per share a year earlier.
In the second quarter of 2000, Cheniere recorded revenues of $2,104,411
compared to nil in the comparable period of 1999. Cheniere began producing oil
and gas in September 1999. The Company isalso began receiving a management fee in
March 2000 under the terms of an exploration agreement with an industry partner.
Production costs totaled $114,008 for the 2000 quarter.
Depreciation, depletion and amortization of oil and gas property costs
commenced in September 1999 and totaled $958,541 for the 2000 quarter.
Depreciation of fixed assets increased to $111,849 in the development stage; accordingly,
there continuefirst half of 2000,
compared to be no operating revenues.$10,982 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 $360,182increased to $566,088 in the
three months ended June 30, 1999 were lower than the $436,4352000 compared to $349,200 reported for the
comparable period in 1999. In mid-1999, Cheniere licensed 8,800 additional
square miles of 3-D seismic data and it has increased the number of its
employees and consultants from 9 to 27, adding management and exploration
professionals to exploit the expanded 3-D database. As a result, salaries,
benefits and consulting expenses increased to $648,409 for the 2000 quarter,
compared with $296,080 a year earlier. The decreaseInvestor relations and travel expenses
increased to $88,204 in expenses
results principallythe 2000 quarter from the inclusion$30,003 in 1998 results of legal expenses related
to arbitration proceedings which began in April 1998. Legal expenses for the 1999 quarter were $43,000as
Cheniere engaged outside consultants to assist in broadening investor interest
in the Company. Other G&A expenses increased to $266,475 in the 2000 quarter,
compared to $207,000$180,117 a year earlier. Offsettingearlier due to the decrease in legal expenses is an increase in personnel and office costs
resulting from the Company's increased activity level of activity since commencing
drilling operationsthe
Company. Cheniere capitalizes as oil and gas property costs that portion of G&A
expenses which relates to its exploration and
10
development activities. Cheniere capitalized $437,000 of such G&A expenses in
February 1999.the 2000 quarter and $157,000 in the 1999 quarter.
COMPARISON OF SIX-MONTH PERIODS ENDED JUNE 30, 19992000 AND 19981999 - The
Company's operating results for the six months ended June 30, 19992000 reflect net
income of $55,758 or $0.00 per share (basic and fully diluted) compared to a
loss of $683,990, or $0.03 per share, compared to a loss of $619,316 or $0.04
per share a year earlier. Net cash flow from
operations (before changes in operating assets and liabilities) increased to
$2,152,105 for the first six months of 2000 from a deficit of $662,664 in the
first half of 1999.
In the first six months of 2000, Cheniere recorded revenues of $3,508,016
compared to nil in the comparable period of 1999. Cheniere began producing oil
and gas in September 1999. The Company also began receiving a management fee in
March 2000 under the terms of an exploration agreement with an industry partner.
Production costs totaled $195,733 for the 2000 period.
Depreciation, depletion and amortization of oil and gas property costs
commenced in September 1999 and totaled $1,778,074 for the first half of 2000.
Depreciation of fixed assets increased to $218,273 in the 2000 quarter, compared
to $21,326 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 $694,182increased to $1,273,097 in the
six months ended June 30, 1999 were higher than the $631,8292000 compared to $672,856 reported for the comparable
period in 1999. In mid-1999, Cheniere licensed 8,700 additional square miles of
3-D seismic data and it has increased the number of its employees and
consultants from 9 to 27, adding management and exploration professionals to
exploit the expanded 3-D database. As a result, salaries, benefits and
consulting expenses increased to $1,225,981 for the first half of 2000, compared
with $523,100 a year earlier. The increaseInvestor relations and travel expenses increased
to $286,473 in the 2000 period from $40,803 in the 1999 period as Cheniere
engaged outside consultants to assist in broadening investor interest in the
Company. Included in 2000 investor relations expenses resultsare $100,000 of non-cash
costs related to warrants issued to the Company's outside consultants. Other G&A
expenses increased to $563,643 for the first half of 2000 from the
hiring of additional management and technical personnel and the expansion$380,953 a year
earlier as a result of the Company's officesincreased level of activity. Cheniere
capitalizes as oil and gas property costs that portion of G&A expenses which
relates to its exploration and development activities. Cheniere capitalized
$803,000 of such G&A expenses in 1999. Offsetting these increases is the declinefirst half of 2000 and $272,000 in legal
expenses of approximately $90,000 between periods due to the
arbitration
proceedings which were initiatedcomparable period in April 1998 and concluded in December 1998.1999.
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 acquisition of 3-D seismic data, the processing
of that seismic data, the interpretation of that seismic data to identify
prospects, the leasing of those prospects, and the drilling of those prospects
to prove up oil and gas reserves for production and sale 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 in 1999.
Drilling operations commenced in February 1999. A completion attempt was
made on
12
the Company's initial well, at the Cobra Prospect, but the well was not deemed
to be productive in commercial quantities. Cheniere then commenced drilling a
test well on its second prospect, Redfish, which has been completed and tested
and where production is expected to commence in September 1999. The Company
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 has drilled a well on its fourth prospect, Stingray, which
has been completed and tested and where production is expected to commence in
September 1999 after the installation of a platform which will be used for both
Redfish and Stingray production. Cheniere is presently preparing the location
for the drilling of its fifth prospect, Heron, on which drilling is expected to
commence in August 1999.
To fund its activities to date, Cheniere has raised $25,855,000 through
private placements of its equity securities and $1,974,980 (net) through the
issuance of bridge notes payable. The 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.General - The Company anticipates that future liquidity requirements,
including repayment of $987,490$3,639,515 in short-term notes payable, maturing on October 15, 1999,
paymentpayments of
$1,603,000 in production platform costs due on September 2, 1999,$2,000,000 and approximately $200,000 per month through December 2001 for future
deliveries of reprocessed 3-D seismic data, exploration and development
activities within its 3-D exploration program, other oil and gas exploration and development 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 Program11
exploration program or in the prospects generated thereunder will be
accomplished.
Funds Raised in 2000 - During 1999,the six months ended June 30, 2000, Cheniere
has raisedgenerated funds from the following sources: $913,000$1,886,995 (net of offering
costs of $169,545) through the sale of interestsequity securities and the exercise of
warrants, $2,152,105 in fivenet cash flow from operations (before changes in
operating assets and liabilities), $605,000 through additional borrowing under
the financing facility which the Company established in September 1999 and
$1,100,000 in borrowings under a bridge financing facility.
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 $275,000generated by Cheniere over
the next eighteen months within a defined area of mutual interest in the Gulf of
Mexico. Cheniere receives 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 pays 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. The management fee payments of $230,000 per month are
allocated between revenues and oil and gas property costs based upon the
percentage of general and administrative expenses that the Company capitalizes
as oil and gas property costs.
Notes Payable Activity - In April 2000, Cheniere completed the private
placement of a $2,000,000 bridge financing facility. The maturity date of
borrowings under the facility will be 120 days from the date of each borrowing.
Interest is payable at maturity, calculated at a rate of LIBOR plus 2% per year.
Financing costs related to the facility include a 2% placement fee and the
issuance of warrants to purchase up to 1,000,000 shares of common stock at $1.00
per share. If a note remains unpaid at the maturity date, it is automatically
converted into Cheniere common stock at a 35% discount to the then current
market price per share, with a minimum conversion price of $0.50 per share. As
of June 30, 2000 Cheniere had drawn $1,100,000 under the facility. Proceeds from
the borrowings were used to fund the reprocessing of seismic data and for
general corporate purposes. Subsequent to June 30, 2000, Cheniere borrowed an
additional $500,000 under the facility.
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 June 30, 2000, the
outstanding balance under the facility was $2,539,515. 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 was
payable at 10% per annum. The note was secured by Cheniere's oil and gas
properties and matured on July 5, 2000. At June 30, 2000, the outstanding
balance, including accrued interest, had been paid in full.
In December 1997, Cheniere completed the private placement of a $4,000,000
bridge
12
financing. On March 15, 2000, Cheniere repaid the remaining balance, which
totaled $755,000.
Seismic Reprocessing Commitments - In June 1999, Cheniere entered into a
master license agreement covering the license of approximately 8,800 square
miles of 3-D seismic data 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 the schedule specified in
the agreement, Cheniere is obligated to make processing payments of
approximately $200,000 per month through December 2001. Accelerating the
deliveries of reprocessed data could increase Cheniere's monthly obligation to
as much as $500,000 per month.
In June 2000, Cheniere entered into an agreement whereby Cheniere acquired
a license to 3D seismic data covering 1,900 square miles in the Gulf of Mexico
in exchange for its commitment to fund the reprocessing of the data. Cheniere
has committed to reprocess the data and estimates the cost of this reprocessing
to be approximately $2,000,000, payable as the reprocessing is completed and
delivered to Cheniere. Deliveries are expected to commence in October 2000 and
to continue into the second quarter of 2001. Cheniere has an option to expand
the agreement to cover an additional 3,000 square miles.
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 three additional prospects, $2,025,020 throughor before the issuancesecond 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 $50,000 of geophysical consulting services. In
April 2000, Cheniere issued 200,000 shares to a drilling company in connection
with an adjustment to the cancellationprice of notes payable, $400,000 through
the saleshares previously issued for drilling
services rendered. Also in April 2000, Cheniere issued 80,932 units to existing
stockholders pursuant to price adjustment provisions of a production payment, $300,000 through the issuance oftheir subscription
agreements. These units comprisedrepresented 80,932 shares of common stock and warrants
$3,296,000 through the issuanceto purchase 40,466 shares of common stock for cashat an exercise price of $1.50 per
share on or before April 13, 2003.
Cash Flow from Operations - Cheniere commenced production of oil and $1,128,000 through the issuance of common stockgas in
exchange for drilling servicesSeptember 1999. Cash flow from operations (before changes in operating assets
and well equipment.
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 digitsliabilities) for the year ofsix months ended June 30, 2000 totaled $2,152,105,
including $603,333 in management fee income related to the transaction, rather than the full four digits,
making such systems unable to distinguish January 1, 2000exploration agreement
executed in March 2000.
Nasdaq Listing - Cheniere has received a notice 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
considered necessary,Nasdaq Stock
Market stating that the Company is 13
assessingnot presently in compliance with certain
requirements related to the readinesslisting of any key business partners (financial institutions,
customers, vendors, oil and gas operators, etc.).
It has been 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
conversions in an effort to be Year 2000 compliant nor does the Company expect
its Year 2000 compliance related costs to be material to its operations.
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 effectshares on the Company as a
result of a Year 2000 related issue. The Company's business partners may presentNasdaq SmallCap
Market. Specifically, the area of greatest risk to the Company, in part becausemarket price of the Company's limited abilitycommon stock has fallen
below $1.00 per share. Cheniere expects to influence actions of third parties,appeal any decision by Nasdaq to
remove it from listing, and there will be no change in part becauseCheniere's listing
pending completion of the Company's inabilityappeal process. Cheniere is not able to estimatepredict the
leveltiming of the appeal process, which could take from late August through the end
of the year. If the common stock is removed from listing on The Nasdaq SmallCap
Market, Cheniere believes it will be eligible for inclusion and impact of noncompliance of
third parties. Additionally, there are many variables and uncertainties
associated with judgments regarding any contingency plans developed bycontinued
trading on the Company.
FORWARD-LOOKING STATEMENTSOTC Bulletin Board system.
13
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 working interest
owners to participate in theits exploration and development within the Survey AMI; and
statements about non-historical Year 2000 information.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 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.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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
PART II. OTHER INFORMATION
ITEMItem 2. CHANGES IN SECURITIES AND USE OF PROCEEDSChanges in Securities and Use of Proceeds
The information contained in Notes 2, 3 4 and 5 to the Consolidated Financial
Statements is incorporated herein by reference.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held an annual meeting of its stockholders on July 12, 2000.
The following individuals, were elected to the Board of Directors: Emanuel
Batler, Nuno Brandolini, Michael L. Harvey, Kenneth R. Peak, Charles M. Reimer,
Charif Souki and Walter L. Williams. In addition to the election of Directors,
the following matters were submitted to a vote and approved by stockholders: the
amendment of the Company's 1997 Stock Option Plan to increase the number of
shares subject to the plan from 1,950,000 to 6,000,000; the Amendment to the
Company's Amended and Restated Certificate of Incorporation to increase the
number of authorized shares of common stock, par value of $.003 per share, to
120,000,000 shares; and the ratification and approval of the appointment of
PricewaterhouseCoopers LLP as independent accountants for the year ended
December 31, 2000. There were 42,989,572 shares of common stock outstanding and
eligible to vote as of the record date of May 26, 2000. The results of voting on
these matters is summarized in the following table:
Votes Abstentions or
Description Votes For Against Broker Non-Votes
- ----------- --------- ------- -----------------
Emanuel Batler 31,579,866 - 0 - 198,655
Nuno Brandolini 31,579,866 - 0 - 198,655
Michael L. Harvey 31,579,866 - 0 - 198,655
Kenneth R. Peak 31,579,866 - 0 - 198,655
Charles M. Reimer 31,579,866 - 0 - 198,655
Charif Souki 31,579,866 - 0 - 198,655
Walter L. Williams 31,579,866 - 0 - 198,655
Amend Stock Option Plan 20,787,857 856,279 10,134,388
Increase Authorized Shares 30,985,587 15,689 101,450
Independent Accountants 31,696,392 51,850 30,279
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Each of the following exhibits is incorporated by reference or filed
herewith:
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Exhibit No. Description
----------- -----------
3.1 Amended and Restated Certificate of Incorporation of Cheniere
Energy, Inc. ("Cheniere") (incorporated by reference to Exhibit 3.1
of the Company's Quarterly Report on Form 10-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 Form 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))
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10.28 Master License10.39 Seismic Data Purchase Agreement dated June 9, 199921, 2000 between Fairfield
Industries Incorporated and Cheniere. Certain information in
this exhibit has been omitted and filed separately with the
Commission. Confidential treatment has been requested with
respect to the omitted portions.
10.29 Supplement Agreement No. 1 to Master License Agreement dated
June 9, 1999 between Fairfield Industries IncorporatedSeitel
Data and Cheniere. Certain information in this exhibit has been
omitted and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted portions.
27.1 Financial Data Schedule
(b) Current Reports on Form 8-K: None.
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: August 13, 199910, 2000
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