Clean Energy Fuels Corp. - Form 8-K Summary
Business Context and Reporting Period
Company: Clean Energy Fuels Corp.
Filing Date: April 28, 2009
Reporting Period: Current report regarding events on April 28, 2009.
Context: The company entered into natural gas futures contracts to hedge exposure related to two pending fixed-price liquefied natural gas (LNG) supply contracts. While the contracts have not been officially awarded, the company believes it submitted the lowest bid and received a staff recommendation for the larger contract.
Key Financial Metrics and Transaction Details
- Initial Margin Deposit: $1,236,000 paid to purchase futures contracts.
- Hedging Volume: Contracts cover an average of approximately 80,000 MMBtus of natural gas per month.
- Hedge Term: July 2009 through August 2012.
- Anticipated Contract Volumes:
- Contract 1: Approximately 12,000,000 LNG gallons annually for three years.
- Contract 2: Approximately 700,000 gallons (Year 1), 500,000 gallons (Year 2), and 300,000 gallons (Year 3).
- Counterparty: Sempra Energy Trading Corp.
Material Changes and Accounting Treatment
The filing discloses a material change in the company's derivative position. As the supply contracts have not yet been awarded, the company does not qualify for hedge accounting under SFAS No. 133 at this time. Consequently, changes in the fair market value of the futures contracts will be recorded directly in the statement of operations.
Sensitivity Analysis: A 10% increase or decrease in the weighted average price of the futures contracts would result in a gain or loss of approximately $1.8 million in fair market value.
Outlook, Risks, and Management Commentary
- Contract Award Status: Pending. Performance is anticipated to begin July 1, 2009, and September 6, 2009, if awarded.
- Future Accounting: If contracts are awarded, the company will attempt to qualify for hedge accounting, though success is not guaranteed.
- Liquidity Risk: The company may be required to make additional margin deposits if it incurs losses on the futures contracts.
- Contingency Plan: If the supply contracts are not awarded, the company intends to sell the related futures contracts in an orderly fashion.
- Forward-Looking Statements: The filing includes numerous forward-looking statements regarding bid success, accounting qualification, and market prices, which are subject to risks and uncertainties.
Investor Verification Checklist
- Confirm whether the two LNG supply contracts have been officially awarded.
- Monitor the company's cash flow for additional margin deposit requirements on the futures contracts.
- Review future financial statements for volatility in earnings due to mark-to-market adjustments on the futures contracts prior to hedge accounting qualification.
- Verify the company's ability to qualify for SFAS No. 133 hedge accounting if contracts are secured.