USA: Cheniere Reports Fourth Quarter and YE 2010 Results

Cheniere Energy, Inc. reported a net loss of $86.1million, or $1.51 per share (basic and diluted), for the quarter ended December 31, 2010, compared with a net loss of $23.2 million, or $0.44 per share (basic and diluted), for the comparable 2009 period. Excluding a loss on early extinguishment of debt of $49.3 million in the quarter ended December 31, 2010, the net loss for the quarter would have been $36.8 million, or $0.64 per share (basic and diluted).

For the year ended December 31, 2010, Cheniere reported a net loss of $76.2 million, or $1.37 per share (basic and diluted), compared to a net loss of $161.5 million, or $3.13 per share (basic and diluted), during the corresponding period in 2009. Excluding a gain on the sale of equity method investment of $128.3 million and a loss on the early extinguishment of debt of $50.3 million, the net loss for the year ended December 31, 2010 would have been $154.2 million, or $2.77 per share (basic and diluted). Excluding a gain on the early extinguishment of debt of $45.4 million, the net loss for the year ended December 31, 2009, would have been $206.9 million, or $4.01 per share (basic and diluted).

Overview of Significant 2010 Events

* In March 2010, Cheniere Marketing, LLC entered into various agreements with JPMorgan LNG Co., effective April 1, 2010, providing Cheniere Marketing with financial support to source more cargoes of liquefied natural gas (“LNG”) than it could source on a stand-alone basis;

* In June 2010, we sold our thirty percent limited partner interest in Freeport LNG Development, L.P. for $104.3 million and used $102.0 million of the proceeds to prepay a portion of our 2007 term loan;

* In June 2010, Cheniere Marketing assigned its terminal use agreement with Sabine Pass LNG, L.P. to Cheniere Energy Investments, LLC, a wholly owned subsidiary of Cheniere Partners, effective July 1, 2010, and as a result, we were able to use $63.6 million of cash and cash equivalents held in a TUA reserve account to prepay a portion of the principal and interest on the 2008 Convertible Loans (hereafter referred to as the 2008 Loans);

* In connection with the TUA assignment, Cheniere Marketing entered into a Variable Capacity Rights Agreement with Cheniere Investments, effective July 1, 2010, under which Cheniere Marketing was contracted by Investments to monetize the regasification capacity at the Sabine Pass LNG terminal on its behalf;

* In June 2010, Cheniere Partners, through its subsidiary Sabine Liquefaction, LLC, initiated a project to add liquefaction services at the Sabine Pass LNG terminal that would transform the terminal into a bi-directional facility capable of liquefying natural gas and exporting LNG in addition to importing and regasifying foreign-sourced LNG; and

* In December 2010, the 2008 Loans were amended to eliminate the lenders’ put rights, allow for the early prepayment of the 2008 Loans, allow us to sell Cheniere Partners common units held as collateral and prepay the 2008 Loans with the proceeds, and release restrictions on prepayments of other indebtedness at Cheniere as certain conditions are met. The lenders also agreed to terminate their right to nominate or designate board members of Cheniere and Cheniere Partners. Additionally, 96.6% of the lenders agreed to terminate their rights to convert the loans into Series B Preferred Stock of Cheniere, which could have ultimately been converted into approximately 47.8 million shares of Cheniere common stock, and these now non-convertible lenders received 10.125 million shares of Cheniere common stock.

2010 Results

Cheniere reported income from operations of $26.5 million and $104.6 million for the quarter and the year ended December 31, 2010, respectively, compared to income of $42.3 million and $23.5 million for the comparable periods in 2009. LNG terminal revenues increased $3.7 million and $99.5 million for the quarter and the year ended December 31, 2010, respectively, compared to the comparable 2009 periods primarily as the result of the commencement of capacity payments under two third-party TUAs that became effective on April 1, 2009 and July 1, 2009. Marketing and trading revenues decreased $14.0 million for the quarter ended December 31, 2010, compared to the same period in 2009, primarily due to a recapture of a previous lower of cost or market LNG inventory charge of $13.7 million in 2009. Marketing and trading revenues increased $10.9 million for the year ended December 31, 2010, compared to the same period in 2009, primarily due to higher margins from physical gas sales and margins and fees associated with the arrangement entered into with LNGCo during 2010, partially offset by lower derivative gains.

LNG terminal and pipeline development expenses increased $5.1 million and $11.7 million, respectively, for the quarter and year ended December 31, 2010, compared to the corresponding periods in 2009 due to expenditures primarily related to the proposed liquefaction project being developed at the Sabine Pass LNG terminal. LNG terminal and pipeline operating expenses increased $5.6 million for the year ended December 31, 2010 compared to the corresponding period in 2009 due to the terminal achieving full operability. Depreciation, depletion and amortization expense increased $0.3 million and $9.0 million in the quarter and year ended December 31, 2010, respectively, compared to the comparable 2009 periods due to the terminal achieving full operability. Included in general and administrative expenses were non-cash compensation expenses of $3.9 million and $16.1 million for the quarter and year ended December 31, 2010, respectively, compared to $5.5 million and $18.2 million, respectively, for the comparable 2009 periods.

Interest expense, net increased $18.8 million for the year ended December 31, 2010, compared to the same period in 2009 primarily due to less interest subject to capitalization, partially offset by lower interest expense due to debt principal repayments made during the second quarter of 2010.

As of December 31, 2010, we had unrestricted cash and cash equivalents, accounts receivable and other working capital from LNG and natural gas marketing activities of $85 million that will be available to Cheniere, which excludes cash and cash equivalents available to Cheniere Partners. In addition, we had restricted cash and cash equivalents of approximately $156.0 million, including $5.9 million for Sabine Pass LNG working capital, $47.4 million for Cheniere Partners working capital, $96.1 million for interest payments related to the Sabine Pass LNG senior notes and $6.6 million for other restricted purposes.

Strategic Outlook

Our strategic focus is to safely operate our assets and serve our customers, monetize the 2.0 Bcf/d of regasification capacity reserved at the Sabine Pass LNG receiving terminal and the transportation capacity of the Creole Trail pipeline and to develop other LNG terminal and pipeline related projects. Additionally, we continue to focus on restructuring our finances and optimizing our capital structure.

Our strategy to monetize the 2.0 Bcf/d of regasification capacity reserved under the Investments’ TUA and Creole Trail pipeline capacity includes:

* entering into long-term commercial agreements for regasification or bi-directional service;

* expanding operations to include bi-directional service capabilities;

* developing a portfolio of long-term, short-term and spot LNG purchase agreements; and

* entering into business relationships for the marketing of natural gas that is processed at the Sabine Pass LNG terminal.

The liquefaction project discussed below, as currently contemplated, would achieve our objectives of monetizing the 2.0 Bcf/d of regasification capacity and monetizing the 2.0 Bcf/d of transportation capacity on the Creole Trail pipeline as the project would provide customers with both import and export services and provide transportation access between the Sabine Pass LNG terminal and the U.S. natural gas pipeline network through interconnects on the Creole Trail pipeline. In the context of the liquefaction project, we also expect to be able to optimize our capital structure as we expect operating cash flows from the project would generate cash available to increase distributions for our general partner, subordinated and common unitholders of Cheniere Partners.

Liquefaction Project Update

In June 2010, Sabine Liquefaction initiated a project to add liquefaction services at the Sabine Pass LNG terminal that would transform the terminal into a bi-directional facility capable of liquefying natural gas and exporting LNG in addition to importing and regasifying foreign-sourced LNG. As currently contemplated, the project is being designed and permitted for up to four LNG trains, each with a nominal production capacity of approximately 4.0 million tonnes per annum. Sabine Liquefaction intends to enter into long-term, fixed-fee contracts for at least 3.5 mtpa per train, before reaching a final investment decision regarding the development of each train.

Recent developments of the liquefaction project include:

* In August 2010, Sabine Liquefaction received approval from the Federal Energy Regulatory Commission to begin the pre-filing process required to seek authorization to commence construction of the liquefaction project. In January 2011, the pre-filing period was completed and Sabine Liquefaction submitted an application requesting authorization to site, construct and operate liquefaction facilities at the Sabine Pass LNG terminal. The FERC process is expected to be complete by early 2012.

* In September 2010, the Department of Energy (“DOE”) granted Sabine Liquefaction an order authorizing Sabine Liquefaction to export up to 16 mtpa of domestically produced LNG from the Sabine Pass LNG terminal to Free Trade Agreement countries for a 30-year period beginning on the earlier of the date of first export or September 7, 2020. Sabine Liquefaction filed a second application requesting expansion of the order to export to include countries with which the U.S. does not have an FTA. The public comment period for this authorization ended December 13, 2010, and the order is pending.

* Sabine Liquefaction has engaged Bechtel to complete front-end engineering and design work and to negotiate a lump-sum turnkey contract for the project. Construction costs are estimated to be consistent with other recent liquefaction expansion projects constructed by Bechtel, or approximately $400 per ton, before financing costs. Additional work needs to be completed with Bechtel in order for Sabine Liquefaction to be able to make an estimate specific to the project.

* Sabine Liquefaction has engaged SG Americas Securities, LLC for general financial strategy and planning in connection with the development and financing of the project.

* To date, Sabine Liquefaction has signed eight non-binding memoranda of understanding with potential customers for up to approximately 9.8 mtpa of bi-directional processing capacity. Sabine Liquefaction has initiated negotiations to convert these non-binding MOUs into definitive agreements.

Sabine Liquefaction will contemplate making a final investment decision to commence construction upon, among other things, entering into acceptable commercial arrangements, receiving regulatory authorization to construct and operate the liquefaction assets and obtaining adequate financing. Based on company estimates, we expect construction to commence in 2012 and operations to commence in 2015.

Our strategy to continue to restructure our finances and optimize our capital structure may include entering into long-term agreements, refinancing our existing indebtedness, issuing equity or other securities, selling assets, or a combination of the foregoing. The next maturity on our indebtedness is in May 2012.

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Source: Cheniere Energy, March 3, 2011;