LNG

Cheniere Energy, Inc. 10-Q Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2004. Cheniere Energy, Inc. is primarily engaged in the development of liquefied natural gas (LNG) receiving terminals along the U.S. Gulf Coast and, to a lesser extent, oil and gas exploration. The company owns interests in three major projects: Sabine Pass LNG (100%), Corpus LNG (66.7%), and Freeport LNG (30%). As of November 10, 2004, there were 20,201,582 shares of common stock outstanding.

Key Financial Metrics

Note: The company reported no income tax provision for the periods presented. Margins are not applicable due to net losses.

Material Changes vs. Prior Period

• Revenue Growth: Oil and gas sales increased 244% in the third quarter and 209% for the nine-month period compared to 2003, driven by a 201% increase in production volumes and higher natural gas prices.
• Increased Losses: Net loss widened significantly due to accelerated LNG terminal development expenses ($3.3M in Q3; $12.7M for nine months) and non-cash stock-based compensation ($2.7M for nine months).
• Liquidity Improvement: Working capital increased from $155,526 at year-end 2003 to $6.37 million at September 30, 2004, primarily due to a private placement of common stock in January 2004 yielding $13.9 million in net proceeds.
• Debt Status: The company terminated its $5 million line of credit in June 2004 after repaying the outstanding balance in January 2004.

Outlook, Guidance, and Risks

Management Commentary and Outlook: The company is in the preliminary development stage for its LNG terminals, which are not yet generating significant cash flows. Management anticipates receiving FERC approval for the Sabine Pass terminal by the end of 2004, with construction starting in Q1 2005. Commercial operations are expected in 2008 for Sabine Pass and 2009 for Corpus Christi. Recent Developments (Subsequent Events):

• Total LNG USA: Received a $10 million advance capacity reservation fee for 1.0 Bcf/d at Sabine Pass. An additional $10 million is contingent on FERC approval and financing confirmation.
• Chevron USA: Entered into an agreement for 700 Mmcf/d capacity at Sabine Pass, with an initial $5 million fee and potential additional fees totaling $20 million. Negotiations are ongoing for a $200 million equity investment by Chevron.
• Project Financing: Agreements signed with HSBC and Societe Generale to arrange $741 million in non-recourse project debt for Sabine Pass.

• Capital Requirements: The three current terminal projects require over $2.1 billion in aggregate construction costs. Success depends on securing project-level debt and equity financing.
• Regulatory Approval: Future cash flows are contingent on FERC approvals for Sabine Pass and Corpus Christi.
• Commodity Prices: The business model assumes sustained U.S. natural gas prices of at least $3.00 per Mcf.
• Stockholder Rights Plan: Adopted in October 2004 to deter coercive takeover tactics.

Investor Verification Checklist

• Financing Closure: Verify the finalization of the $741 million debt financing for Sabine Pass and the $200 million equity investment from Chevron.
• FERC Approvals: Monitor the status of FERC approvals for Sabine Pass (anticipated end of 2004) and Corpus Christi (anticipated Q2 2005).
• Contingent Fees: Track the satisfaction of conditions required to receive the remaining $10 million from Total and up to $15 million from Chevron.
• Cash Burn Rate: Assess the sustainability of the current cash position given the negative operating cash flow of $16.7 million for the nine-month period.
• Stock Dilution: Review the impact of the Stockholder Rights Plan and potential future equity issuances required to fund capital calls.