Cheniere Marks Successful Entry into LNG Market in 2009

Cheniere Energy reported a net loss of $23.2 million, or $0.44 per share (basic and diluted), for the fourth quarter 2009 compared with a net loss of $111.1 million, or $2.32 per share (basic and diluted), during the corresponding 2008 period. For the year ended December 31, 2009, Cheniere reported a net loss of $161.5 million, or $3.13 per share (basic and diluted), compared with a net loss of $373.0 million, or $7.87 per share (basic and diluted), during the corresponding 2008 period. Included in the year ended December 31, 2009 results is a gain on the early extinguishment of debt of $45.4 million, or $0.88 per share (basic and diluted). Included in the year ended December 31, 2008 results is a loss on the early extinguishment of debt of $10.7 million, or $0.23 per share (basic and diluted), and restructuring charges of $78.7 million, or $1.66 per share (basic and diluted). Results are reported on a consolidated basis and include our 90.6 percent ownership interest in Cheniere Energy Partners, L.P. ("Cheniere Partners").

Significant events during the year ended December 31, 2009 include the following:

  • the receipt of capacity reservation fee payments at Sabine Pass LNG from Cheniere Marketing, LLC ("Cheniere Marketing"), our wholly owned subsidiary, Total Gas & Power North America, Inc. ("Total") and Chevron U.S.A., Inc. ("Chevron"), which became effective in October 2008, April 2009 and July 2009 from Cheniere Marketing, Total and Chevron, respectively;
  • the completion of construction and achievement of full operability of the Sabine Pass LNG receiving terminal;
  • a reduction of $120.4 million of our convertible debt;
  • the receipt of limited partner distributions from Freeport LNG Development, L.P.; and
  • the purchase of LNG inventory held at the Sabine Pass LNG receiving terminal and sale of natural gas by Cheniere Marketing.

Results

Cheniere reported income from operations of $42.3 million and $23.5 million for the fourth quarter and year ended December 31, 2009, respectively, compared to a loss from operations of $63.2 million and $244.2 million for the corresponding periods in 2008. Included in the year ended December 31, 2008 results were restructuring costs of $78.7 million.

For the fourth quarter and year ended December 31, 2009, total revenues increased $85.0 million and $174.0 million, respectively, as compared to the comparable 2008 periods. LNG receiving terminal revenues increased $66.8 million and $170.1 million for the quarter and year ended December 31, 2009, as compared to the comparable 2008 periods largely as a result of the commencement of capacity payments under two third-party terminal use agreements ("TUAs") that became effective on April 1, 2009 and July 1, 2009. Marketing and trading revenues for the fourth quarter of 2009 increased by $18.3 million compared to fourth quarter of 2008 due to recovery of $14.2 million of inventory write-downs recognized in the second and third quarters of 2009 and gains on derivative instruments and physical natural gas sales. Marketing and trading revenues for the year ended December 31, 2009 increased $5.2 million compared to the same period in 2008 due to $8.6 million in derivative gains and $2.3 million of net revenues from physical natural gas sales that were partially offset by a $3.3 million inventory write-down.

LNG receiving terminal and pipeline operating expenses increased $0.9 million and $22.3 million, respectively, for the quarter and year ended December 31, 2009 as compared to the comparable 2008 periods and depreciation, depletion and amortization expense increased $3.6 million and $29.9 million, respectively, for the fourth quarter and year ended December 31, 2009 from the comparable 2008 periods due to the placement into service of the Sabine Pass LNG receiving terminal and the Creole Trail pipeline during the second half of 2008. General and administrative expenses decreased $25.6 million and $56.8 million for the fourth quarter and year ended December 31, 2009 from the comparable 2008 periods primarily due to the restructuring initiatives implemented during 2008. General and administrative expenses included non-cash compensation expenses of approximately $5.5 million and $18.2 million for the fourth quarter and year ended December 31, 2009, and $28.5 million and $52.2 million in the corresponding 2008 periods.

Interest expense increased $9.6 million in the fourth quarter 2009 compared to the fourth quarter 2008 and increased $96.2 million for the year ended December 31, 2009 compared to the corresponding 2008 period due to less interest subject to capitalization related to decrease in construction for both periods and an increase in the average debt balances outstanding for the year ended December 31, 2009 compared to 2008. Interest income decreased $2.3 million in the fourth quarter 2009 compared to the fourth quarter 2008 and $18.9 million for the year ended December 31, 2009 compared to the corresponding 2008 period due to lower interest rates during 2009 and a decrease in the average cash outstanding year over year.

Unrestricted cash and cash equivalents held by Cheniere at December 31, 2009 were $88.4 million. In addition, working capital used in trading activities by Cheniere Marketing for inventory and hedges was approximately $50 million.

Restricted cash and cash equivalents at December 31, 2009 were $221.2 million of which $213.7 million were held at Cheniere Partners and $7.5 million were held at Cheniere. Restricted cash held by Cheniere Partners included approximately $82.4 million in a permanent debt service reserve and $13.7 million for one month of interest as required by the Sabine Pass senior notes indenture, and $117.6 million for working capital and general purposes at Sabine Pass LNG.

LNG Marketing and Trading

During 2009, Cheniere Marketing began successfully trading in the LNG spot market. It purchased, transported and unloaded LNG at the Sabine Pass receiving terminal and subsequently sold natural gas into the U.S. markets. Cheniere Marketing purchases LNG and enters into derivative contracts to hedge the cash flows from the future sales of the LNG inventory. Due to the nature of the hedging strategy, earnings are recognized in operating results as physical sales occur, derivatives are settled or the fair value of the derivatives change due to changes in natural gas prices. In the interim, the LNG held in the storage tanks at the Sabine Pass LNG receiving terminal is recorded at the lower of cost or market based on the NYMEX natural gas index price for the last day of the period less basis differentials.

Net revenues for the year ended December 31, 2009 were $8.1 million. These results included $11.4 million of net earnings related to physical sales of inventory and roll off of hedges offset by a $3.3 million write-down of inventory due to the lower of cost or market adjustment made at year end December 31, 2009. As of December 31, 2009, Cheniere Marketing and Sabine Pass LNG had approximately 7,778,000 MMBtu of LNG inventory and had entered into a total of approximately 7,465,000 MMBtu of natural gas swaps through January 31, 2011 for which it will receive fixed prices of $4.90 to $7.15 per MMBtu.


 

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