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 March 31, 2001
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.)
333 CLAY STREET, SUITE 3400
HOUSTON, TEXAS
(Address of principal place of business)
77002-4102
(Zip Code)
(713) 659-1361
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] NO [ ].
As of May 15, 2001, there were 12,797,393 shares of Cheniere Energy, Inc. Common
Stock, $.003 par value, issued and outstanding.
CHENIERE ENERGY, INC.
INDEX TO FORM 10-Q
Page
----
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...................... 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.............................................. 11
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds................ 12
Item 5. Other Information........................................ 12
Item 6. Exhibits and Reports on Form 8-K......................... 13
SIGNATURES................................................................ 13
2
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, December 31,
ASSETS 2001 2000
------------------- -------------------
(Unaudited)
CURRENT ASSETS
Cash $ 652,516 $ 1,888,562
Accounts Receivable 694,194 851,706
Prepaid Expenses 426,601 98,532
----------- -----------
Total Current Assets 1,773,311 2,838,800
OIL AND GAS PROPERTIES, full cost method
Proved Properties, net 6,700,435 6,727,613
Unproved Properties, not subject to amortization 20,861,252 18,253,731
----------- -----------
Total Oil and Gas Properties 27,561,687 24,981,344
FIXED ASSETS, net 495,878 206,204
INVESTMENT IN UNCONSOLIDATED AFFILIATE 6,220,729 6,639,270
----------- -----------
Total Assets $36,051,605 $34,665,618
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 3,087,132 $ 1,472,293
Accrued Liabilities 320,787 132,117
----------- -----------
Total Current Liabilities 3,407,919 1,604,410
STOCKHOLDERS' EQUITY
Common Stock, $.003 par value
Authorized: 120,000,000 shares
Issued and Outstanding: 12,797,393 shares at March 31, 2001
and 12,547,393 shares at December 31, 2000 38,392 37,642
Preferred Stock, $.0001 par value
Authorized: 5,000,000 shares
Issued and Outstanding: none - -
Additional Paid-in-Capital 39,875,368 39,382,789
Accumulated Deficit (7,270,074) (6,359,223)
----------- -----------
Total Stockholders' Equity 32,643,686 33,061,208
----------- -----------
Total Liabilities and Stockholders' Equity $36,051,605 $34,665,618
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
-----------------------------------------
2001 2000
------------------ --------------
Revenues
Oil and Gas Sales $ 971,656 $ 1,173,605
----------- -----------
Total Revenues 971,656 1,173,605
----------- -----------
Operating Costs and Expenses
Production Costs 120,510 81,725
Depreciation, Depletion and Amortization 327,898 925,957
General and Administrative Expenses 1,025,622 477,009
----------- -----------
Total Operating Costs and Expenses 1,474,030 1,484,691
----------- -----------
Loss from Operations Before Interest and Income Taxes
and Equity in Net Loss of Unconsolidated Affiliate (502,374) (311,086)
Interest Income 10,064 8,709
Provision for Income Taxes - -
Equity in Net Loss of Unconsolidated Affiliate (418,541) -
----------- -----------
Net Loss $ (910,851) $ (302,377)
=========== ===========
Net Loss Per Share - Basic and Diluted $(0.07) $(0.03)
=========== ===========
Weighted Average Number of Shares Outstanding - Basic and Diluted 12,645,393 10,217,419
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock Additional Total
--------------------------- Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
----------- ---------- ----------- ------------ --------------
Balance - December 31, 1999 10,053,118 $30,159 $33,293,822 $(5,578,243) $27,745,738
Issuances of Stock 624,042 1,872 2,104,628 - 2,106,500
Expenses Related to Offerings - - (99,545) - (99,545)
Net Loss - - - (302,377) (302,377)
---------- -------- ----------- ----------- -----------
Balance - March 31, 2000 10,677,160 $32,031 $35,298,905 $(5,880,620) $29,450,316
========== ======= =========== =========== ===========
Balance - December 31, 2000 12,547,393 $37,642 $39,382,789 $(6,359,223) $33,061,208
Issuances of Stock 250,000 750 499,250 - 500,000
Expenses Related to Offerings - - (6,671) - (6,671)
Net Loss - - - (910,851) (910,851)
---------- -------- ----------- ----------- -----------
Balance - March 31, 2001 12,797,393 $38,392 $39,875,368 $(7,270,074) $32,643,686
========== ======= =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
5
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
------------------------------------------
2001 2000
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (910,851) $ (302,377)
Adjustments to Reconcile Net Loss to
Net Cash Provided by (Used in) Operating Activities:
Depreciation, Depletion and Amortization 327,898 925,957
Non-Cash Expense (Issuance of Warrants) - 100,000
Equity in Net Loss of Unconsolidated Affiliate 418,541 -
----------- -----------
(164,412) 723,580
Changes in Operating Assets and Liabilities
Accounts Receivable 157,512 (584,683)
Prepaid Expenses (328,069) (72,010)
Accounts Payable and Accrued Liabilities 1,803,509 992,250
----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,468,540 1,059,137
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Fixed Assets (336,919) (38,578)
Oil and Gas Property Additions (2,860,996) (1,730,233)
----------- ------------
NET CASH USED IN INVESTING ACTIVITIES (3,197,915) (1,768,811)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Notes Payable or Advances - (1,819,754)
Sale of Common Stock 500,000 2,056,500
Offering Costs (6,671) (99,545)
Debt Issuance Costs - 23,230
----------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 493,329 160,431
----------- ------------
NET DECREASE IN CASH (1,236,046) (549,243)
CASH - BEGINNING OF PERIOD 1,888,562 1,175,950
----------- ------------
CASH - END OF PERIOD $ 652,516 $ 626,707
=========== ============
The accompanying notes are an integral part of these financial statements.
6
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements of Cheniere Energy, Inc.
("Cheniere" or the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation, have been included.
For further information, refer to the financial statements and footnotes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2000. Interim results are not necessarily indicative of results to be
expected for the full fiscal year ended December 31, 2001.
NOTE 2 - COMMON STOCK AND WARRANTS
In February 2001, the Company issued to one investor 250,000 units at a
price of $2.00 per unit, each unit representing one share of common stock and
one-sixth warrant to purchase a share of common stock. Warrants issued in
connection with this sale of units are exercisable at a price of $3.00 per share
on or before December 31, 2003. This issuance was made in reliance on the
exemption from registration provided by Section 506 of Regulation D. Net
proceeds were $493,329.
NOTE 3 - INVESTMENT IN UNCONSOLIDATED AFFILIATE
Cheniere accounts for its investment in Gryphon Exploration Company
("Gryphon") using the equity method of accounting. Cheniere does not
participate in the day-to-day management of Gryphon, does not exercise control
over Gryphon and cannot effect a change in the management of Gryphon.
Cheniere's equity share of Gryphon's earnings (losses) for the three months
ended March 31, 2001 was $418,541, calculated by applying Cheniere's 100% common
stock ownership interest to Gryphon's net income of $90,250 and reducing such
result for Gryphon's preferred dividends earned but undeclared for the quarter
($508,791). At such time as Gryphon's preferred shares are converted to common
shares, Cheniere's equity share of Gryphon's earnings (losses) will be
calculated at 36.8%. Gryphon was formed on October 11, 2000. Results of
Gryphon's operations for the three months ended March 31, 2001 are summarized as
follows:
Net sales $211,389
Gross profit 195,846
Net income 90,250
NOTE 4 - SUBSEQUENT EVENTS
In April 2001, the Company sold an interest in a prospect to Gryphon.
Gryphon paid Cheniere $225,563 for a 50% interest in the related leases and will
pay a disproportionate share of the drilling costs on terms representative of
what a third party would pay for participation in the prospect generated by
Cheniere.
On April 5, 2001, the Company received a cash call from Gryphon in the
amount of $10,000,000 ($3,680,000 net to Cheniere). Cheniere declined to
participate. In the event
7
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Warburg, Pincus Equity Partners, L.P. ("Warburg") contributes the full
$10,000,000 to Gryphon on or before May 15, 2001, as it is entitled to do,
Cheniere's fully diluted effective interest in Gryphon will be reduced from
36.8% to 29.4%.
In May 2001, the Company agreed in principle to sell Gryphon a license
to seismic data covering 6,800 square miles, subject to final documentation.
Proceeds from the sale are expected to be $2,000,000 in cash payable at closing
and an additional $5,000,000 in payments by Gryphon toward the cost of
reprocessing the subject data as such reprocessing occurs. Closing is expected
to occur in May 2001.
8
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 periods ended March 31, 2001 and 2000. 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, 2000
contain detailed information that should be referred to in conjunction with the
following discussion.
PRODUCTION AND PRODUCT PRICES
Information concerning the Company's production and average prices received
for the three-month periods ended March 31, 2001 and 2000 is presented in the
following table.
Three Months Ended March 31,
----------------------------
2001 2000
-------- --------
Production
Oil (Bbls) 601 1,693
Gas (Mcf) 133,968 436,233
Gas equivalents (Mcfe) 137,575 446,393
Average sales prices:
Oil (per Bbl) $ 33.07 $ 28.63
Gas (per Mcf) $ 7.49 $ 2.74
RESULTS OF OPERATIONS
COMPARISON OF THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000 - The
Company's operating results for the three months ended March 31, 2001 reflect a
loss of $910,851, or $0.07 per share, compared to a loss of $302,377, or $0.03
per share a year earlier.
In the first quarter of 2001, Cheniere recorded oil and gas revenues of
$971,656 compared to $1,173,605 a year earlier. The $201,949 decrease in
revenues results from a decline in the production rates ($2,181,084 negative
variance) offset partially by an increase in product prices ($1,979,135 positive
variance). The decrease in production represents depletion of the zones
currently producing in the Company's two wells. Other proven zones behind pipe
will be accessed when production from the current zones ceases to be economic.
The Company anticipates that it will recomplete one of the wells by the end of
the year 2001.
Depreciation, depletion and amortization of oil and gas property costs
decreased to $280,653 for the 2001 quarter compared to $819,533 for the 2000
quarter, principally due to lower levels of production in 2001. Depreciation of
fixed assets decreased to $47,245 in the 2001 quarter, compared to $106,424 a
year earlier, as a result of Cheniere's transfer of assets to Gryphon in October
2000.
General and administrative ("G&A") expenses, net of recoveries and amounts
capitalized, were $1,025,622 and $477,009 in the first quarters of 2001 and
2000, respectively. Total G&A expenses increased by $159,613 to $1,232,622 in
the first quarter of 2001 from the total of $1,073,009 of a year earlier. Legal
and professional fees increased by $247,614 principally related to business
development projects being explored by the Company in 2001. Salaries and
benefits decreased by $132,921 in 2001 because Cheniere now has fewer employees
than it had before it
9
formed Gryphon in October 2000. Additionally, G&A expenses in the 2001 quarter
included $49,000 in fees related to the Company's March 2001 listing on The
American Stock Exchange. Offsetting total G&A expenses were management fees and
amounts capitalized to the Company's oil and gas properties. In the first
quarter of 2000, management fees totaled $230,000; in 2001, there were no
management fees as the agreement under which they were earned was contributed to
Gryphon in October 2000. Cheniere capitalizes as oil and gas property costs that
portion of G&A expenses directly related to its exploration and development
activities. Cheniere capitalized $207,000 in the first quarter of 2001 compared
to $366,000 a year earlier, the change being a direct result of the reduced
number of Cheniere's exploration staff following the formation of Gryphon in
October 2000.
Cheniere accounts for its investment in Gryphon using the equity method of
accounting. Cheniere does not participate in the day-to-day management of
Gryphon, does not exercise control over Gryphon and cannot effect a change in
the management of Gryphon. Cheniere's equity share of Gryphon's earnings for
the three-months ended March 31, 2001 was $418,541, calculated by applying
Cheniere's 100% common stock ownership interest to Gryphon's net income of
$90,250 and reducing such result for Gryphon's preferred dividends earned but
undeclared for the quarter ($508,791). At such time as Warburg converts its
preferred shares to common shares, Cheniere's equity share of Gryphon's earnings
will be calculated at 36.8%. Gryphon commenced operations on October 11, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects that future liquidity requirements will be met by cash
balances, cash flows from operating activities, borrowings from financial
institutions, debt offerings, additional offerings of the Company's equity
securities, sales of portions of its working interest in the prospects within
its exploration program, sale to an industry partner of a participation in the
Company's exploration program, including sale of a license to the approximate
6,800 square miles of seismic data in the Offshore Texas Project Area, and/or
sale of all or a portion of the Company's producing oil and gas properties.
Management expects to meet all of its liquidity requirements through December
31, 2001 through such sources.
Cash Flow from Operating Activities
Due to declines in the production rates of its wells and expenses related
to a business development project, the Company reported a $164,412 net use of
cash in its operations (before changes in operating assets and liabilities) for
the three months ended March 31, 2001. At March 31, 2001, the Company had a
working capital deficit of $1,634,608.
Private Placements of Equity
In February 2001, the Company issued to one investor 250,000 units at a
price of $2.00 per unit, each unit representing one share of common stock and
one-sixth warrant to purchase a share of common stock. Warrants issued in
connection with this sale of units are exercisable at a price of $3.00 per share
on or before December 31, 2003. These issuances were made in reliance on the
exemption from registration provided by Section 506 of Regulation D. Net
proceeds were $493,329.
10
Exploration Funding
On October 11, 2000, Cheniere completed a transaction with Warburg to fund
its exploration program on approximately 8,800 square miles of seismic data in
the Gulf of Mexico through a newly formed affiliated company, Gryphon. Cheniere
contributed selected assets and liabilities in exchange for 100% of the common
stock of Gryphon (36.8% effective interest after conversion of preferred stock)
and $2,000,000 in cash. Warburg contributed $25,000,000 and received preferred
stock, with an 8% cumulative dividend, convertible into 63.2% of Gryphon's
common stock. Cheniere and Warburg also agreed, under certain circumstances, to
contribute an additional $75,000,000 to Gryphon, proportionate to their
respective ownership interests.
On April 5, 2001, the Company received a cash call from Gryphon in the
amount of $10,000,000 ($3,680,000 net to Cheniere). Cheniere declined to
participate. In the event Warburg contributes the full $10,000,000 to Gryphon
on May 15, 2001, as it is entitled to do, Cheniere's fully diluted effective
interest in Gryphon will be reduced from 36.8% to 29.4%.
Seismic Reprocessing
Between June 2000 and October 2000, Cheniere acquired licenses to
approximately 6,800 miles of seismic data primarily in the shallow waters
offshore Texas and also in the West Cameron area in the Gulf of Mexico (the
"Offshore Texas Project Area") in separate transactions with Seitel Data Ltd., a
division of Seitel Inc., and JEBCO Seismic, L.P. Cheniere has committed to
reprocess all of the data from the Offshore Texas Project Area at a cost of
approximately $8,500,000, payable in installments beginning in October 2000 and
continuing through the final delivery of reprocessed data, which is expected to
occur by December 2001. Deliveries of reprocessed data are expected to begin in
May 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
11
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The information contained in Note 2 to the Consolidated Financial Statements is
incorporated herein by reference.
ITEM 5. OTHER INFORMATION
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
safe harbor for forward-looking statements made by or on behalf of the Company.
The Company and its representatives may from time to time make written or verbal
forward-looking statements, including statements contained in this report and
other filings with the Securities and Exchange Commission and in reports to its
stockholders.
All statements, other than statements of historical facts so included in
this report that address activities, events or developments that the Company
intends, expects, projects, believes, or anticipates will or may occur in the
future are forward-looking statements within the meaning of the Act, including,
without limitation: statements regarding the Company's business strategy, plans
and objectives; statements expressing beliefs and expectations regarding the
ability of the Company to successfully raise the additional capital necessary to
meet the obligations under its 3D 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.
12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Each of the following exhibits is incorporated by reference or filed
herewith:
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Certificate of Incorporation of Cheniere
Energy, Inc. ("Cheniere") (incorporated 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))
(b) Cheniere made two filings on Form 8-K during the three months ended March
31, 2001:
a. Current Report on Form 8-K dated January 10, 2001 describing the
Company's private placement of 1,550,000 units, each unit consisting
of one share of Cheniere common stock and one-sixth warrant to
purchase one share of Cheniere common stock, total net proceeds
being $2,900,000.
b. Current Report on Form 8-K dated March 2, 2001 announcing the
Company's listing of its common stock on The American Stock
Exchange.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHENIERE ENERGY, INC.
/s/ Don A. Turkleson
-------------------------------------------
Don A. Turkleson
Chief Financial Officer (on behalf of the
registrant and as principal accounting
officer)
Date: May 15, 2001
13