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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
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 June 30, 2000
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, SUITE 1740
HOUSTON, 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 10, 2000, there were 42,989,572 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
<TABLE>
<CAPTION>
Page
----
<S> <C> 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
</TABLE>
2
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CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
------ ----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 777,052 $ 1,175,950
Accounts Receivable 1,267,712 906,569
Debt Issuance Costs, net 70,687 138,909
Prepaid Expenses and Other Current Assets 1,183,925 1,223,864
------------ ------------
Total Current Assets 3,299,376 3,445,292
OIL AND GAS PROPERTIES, full cost method
Proved 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 859,906 928,019
------------ ------------
Total Assets $ 35,879,393 $ 34,481,275
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts Payable and Accrued Liabilities $ 2,501,427 $ 1,772,324
Notes Payable 3,639,515 4,963,213
------------ ------------
Total Current Liabilities 6,140,942 6,735,537
STOCKHOLDERS' EQUITY
Common Stock, $.003 par value
Authorized: 60,000,000 shares
Issued and Outstanding: 42,989,572 shares at June 30, 2000
and 40,212,473 shares at December 31, 1999 128,969 120,637
Preferred Stock, $.0001 par value
Authorized: 5,000,000 shares
Issued and Outstanding: none -- --
Additional Paid-in-Capital 35,131,967 33,203,344
Accumulated Deficit (5,522,485) (5,578,243)
------------ ------------
Total Stockholder's Equity 29,738,451 27,745,738
------------ ------------
Total Liabilities and Stockholders' Equity $ 35,879,393 $ 34,481,275
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
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CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ --------------------------
2000 1999 2000 1999
------------ --------- ------------ ----------
<S> <C> <C> <C> <C>
Revenues
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 3,465,177 694,182
------------ --------- ------------- ----------
Income/(Loss) from Operations Before Interest and Income Taxes 353,925 (360,182) 42,839 (694,182)
Interest Income 4,210 5,298 12,919 10,192
------------ --------- ------------- ----------
Income/(Loss) From Operations Before Income Taxes 358,135 (354,884) 55,758 (683,990)
Provision for Income Taxes -- -- -- --
------------ ---------- ------------- ----------
Net Income/(Loss) $ 358,135 $(354,884) $ 55,758 $ (683,990)
============ ========== ============= ==========
Net Income/(Loss) Per Share - Basic $ 0.01 $ (0.02) $ 0.00 $ (0.03)
============ ========== ============= ==========
Net Income/(Loss) Per Share - Fully Diluted $ 0.01 N/A $ 0.00 N/A
============ ========== ============= ==========
Weighted Average Number of Shares Outstanding - Basic 42,938,450 23,464,488 41,904,063 21,503,556
============ ========== ============= ==========
Weighted Average Number of Shares Outstanding - Fully Diluted 54,227,795 N/A 52,735,906 N/A
============ ========== ============= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
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CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------------- Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
----------- ---------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
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 2,812,528 8,437 2,016,583 2,025,020
Repricing of Warrants to Extend Bridge Notes 35,702 35,702
Issuance of Shares in Exchange for Production Payment 584,475 1,753 398,247 400,000
Issuances of Stock 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
=========== ========== ============= ============= ============
</TABLE>
The accompanying notes re an integral part of these financial statements
5
<PAGE>
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 these financial statements
6
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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, 1999. Interim results are not necessarily indicative of results to be
expected for the full fiscal year ended December 31, 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 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 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
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 West 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 has
been 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 with interest
payable at 10% per year. The note was secured by Cheniere's oil and gas
properties. As of June 30, 2000, Cheniere had repaid the entire balance of
the note.
7
<PAGE>
December 1997 - Bridge Financing
In December 1997, Cheniere completed the private placement of a $4,000,000
bridge financing. On March 15, 2000, Cheniere repaid the outstanding balance,
which totaled $755,000.
Note 3 - Common Stock and Warrants
In February and March 2000, the Company issued to three investors 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. These
issuances were made in reliance on the exemption from registration provided by
Section 506 of Regulation D. Net proceeds were $1,020,000 after payment of
$99,000 in selling commissions.
In March 2000, the Company issued to nine investors 937,500 shares pursuant
to the exercise of warrants 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 April
2000, Cheniere issued 200,000 shares to a drilling company in connection with an
adjustment to the price of 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.
In 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 - Exploration 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
<PAGE>
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,
placement fees have been paid to Investors Administration Services, Limited
("IAS"), a company in which the brother of the Company's Chairman, Charif Souki,
is a principal. Placement fees totaling $99,000 were paid to IAS related to the
private placement of units described in Note 3.
Note 6 - Commitments and Contingencies
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.
NOTE 7 - SUBSEQUENT EVENTS
Subsequent 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 2000, the Company granted 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 grant date and have a term of five
years.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company's unaudited consolidated financial statements and notes thereto
relate to the three-month and six-month periods ended June 30, 2000 and 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, 1999 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, 2000 AND 1999 - The
Company's operating results for the three months ended June 30, 2000 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, 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 also 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 first half of 2000,
compared to $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 increased to $566,088 in the
three months ended June 30, 2000 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. Investor relations and travel expenses
increased to $88,204 in the 2000 quarter from $30,003 in the 1999 quarter as
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 $180,117 a year earlier due to the increased activity level of the
Company. Cheniere capitalizes as oil and gas property costs that portion of G&A
expenses which relates to its exploration and
10
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development activities. Cheniere capitalized $437,000 of such G&A expenses in
the 2000 quarter and $157,000 in the 1999 quarter.
COMPARISON OF SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999 - The
Company's operating results for the six months ended June 30, 2000 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, 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 increased to $1,273,097 in the
six months ended June 30, 2000 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. Investor 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 are $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 $380,953 a year
earlier as a result of the Company's increased 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 the first half of 2000 and $272,000 in the
comparable period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
General - The Company anticipates that future liquidity requirements,
including repayment of $3,639,515 in short-term notes payable, payments of
$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 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 interests in its 3-D exploration 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 interests in the 3-D
11
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exploration program or in the prospects generated thereunder will be
accomplished.
Funds Raised in 2000 - During the six months ended June 30, 2000, Cheniere
has generated funds from the following sources: $1,886,995 (net of offering
costs of $169,545) through the sale of equity securities and the exercise of
warrants, $2,152,105 in net 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 generated 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 West 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
<PAGE>
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 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 $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 price of shares previously issued for drilling
services rendered. Also in April 2000, Cheniere issued 80,932 units to 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.
Cash Flow from Operations - Cheniere commenced production of oil and gas in
September 1999. Cash flow from operations (before changes in operating assets
and liabilities) for the six months ended June 30, 2000 totaled $2,152,105,
including $603,333 in management fee income related to the exploration agreement
executed in March 2000.
Nasdaq Listing - Cheniere has received a notice from The Nasdaq Stock
Market stating that the Company is not presently in compliance with certain
requirements related to the listing of its shares on the The Nasdaq SmallCap
Market. Specifically, the market price of the Company's common stock has fallen
below $1.00 per share. Cheniere expects to appeal any decision by Nasdaq to
remove it from listing, and there will be no change in Cheniere's listing
pending completion of the appeal process. Cheniere is not able to predict the
timing 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 continued
trading on the OTC Bulletin Board system.
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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 the obligations under 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 its exploration and development 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 prospects.
-- The Company's ability to encounter hydrocarbons in sufficient
quantities to be economically viable, and its ability to overcome the
operating hazards which are inherent in the oil and gas 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 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
Item 2. Changes in Securities and Use of Proceeds
The information contained in Notes 2, 3 and 5 to the Consolidated Financial
Statements is incorporated herein by reference.
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))
10.39 Seismic Data Purchase Agreement dated June 21, 2000 between Seitel
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 10, 2000
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