Cheniere Energy Sees The Triple Whammy (LNG, CQP)

On Monday, Don Turkleson, SVP & CFO of Cheniere Energy inc. (AMEX: LNG) owned 573,163 shares of common stock in the company. As of now, he owns 147,063. He sold 426,100 shares for what looks like an average price in the range of $11.50/share. That’s about $4.9 million worth–and according the SEC filings, the sales were made to meet a broker margin call. The stock closed at $10.86 yesterday, down about $6.00 from Monday’s close, and near the bottom of its 52-week range of $9.99 to $43.50. Ouch.

Cheniere’s share price also dived on Wednesday, from $14 to $11, on the news that Stanley Horton, the company’s President & COO was leaving the company.  Double ouch.  It also disclosed that it was near an agreement with "a major North American natural gas marketing company" to acquire Cheniere’s rights to market 2 Bcf/d of re-gasified LNG from the Sabine Pass LNG plant.

Cheniere’s spin-off master limited partnership, Cheniere Energy Partners, LP (AMEX:CQP) went public in March 2007 at $20.21/share, and closed yesterday at $11.63, a drop of 42%. Triple ouch.

The problem is two-fold. First, Cheniere has bet it’s entire existence on demand for LNG. It will own all or part of three Gulf Coast LNG terminals, the first of which to come online is Sabine Pass, which received its first tanker load from Nigeria on April 11.  Natural gas prices are high enough to support LNG imports, but domestic pipeline expansion projects have managed so far to limit the demand for imported gas. This could change by next year, but that’s potentially another one of Cheniere’s problem.

The company is low on cash and seems to be in a situation where it could have difficulty getting more credit. According to Cheniere’s 2007 annual report, unrestricted cash totaled $296.5 million, and the company admitted that "to execute our current business plan, we will need additional financing in the next 12 months, which we expect to obtain from issuing debt or equity securities, or conducting asset sales or obtaining credit support." The only thing they’ve been able to achieve so far is the marketing deal, but that only curbs the need for more cash, it does nothing to stop the bleeding (although the company did announce on Tuesday that it was cutting 200 staff).

Because Cheniere buys LNG on the spot market, it needs cash. Yet without the marketing piece of the value chain, Cheniere’s major source of income is operating the Sabine Pass plant. That alone is not likely to throw off enough cash to keep the cycle going without an infusion.

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Paul Ausick
April 18, 2008