Weeks before its Louisiana liquefied natural gas (LNG) terminal is due to send out its first cargo, Cheniere Energy Inc. has ousted company co-founder and CEO Charif Souki after he reportedly tangled with activist investor Carl Icahn, the company's largest shareholder.
On Sunday, Cheniere said its board had voted to replace Souki with Neal A. Shear, making him interim president and CEO, while it focuses on bringing the Sabine Pass terminal in Louisiana online and finishing the Corpus Christi Liquefaction project in Texas.
Cheniere will transition from a loss-making project developer to a profitable operating company, it said. A CEO search will be undertaken.
The company also appointed board member G. Andrea Botta as board chairman, effective immediately. And Shear was appointed chairman of the boards of Cheniere Energy Partners GP LLC, the general partner of Cheniere Energy Partners LP; and Cheniere Energy Partners LP Holdings LLC. Souki had been Cheniere chairman and president in addition to CEO.
"The board of directors thanks Charif for his entrepreneurial spirit over the past 19 years. Under his leadership, Cheniere was established as a first-mover in LNG exports and is positioned to become a significant player in the global LNG markets," said lead independent director David B. Kilpatrick.
Analysts at Tudor, Pickering Holt & Co. (TPH) said in a Monday note that Souki's removal was "pretty darn shocking...While we expected Icahn would try to push [Cheniere] in a new direction (likely one of clipping liquefaction coupons), ousting the CEO and founder who kept the company from tumbling into bankruptcy likely surprises most folks. Icahn and team are allegedly seeking to keep Cheniere focused on LNG (no adjacencies -- i.e., E&P, crude oil exports) and to bring in an operationally focused CEO as Sabine Train 1 comes online in ensuing months." TPH suggested that with the change, Cheniere could be "an easier/more attractive takeout target down the road."
Botta said Sabine Pass Liquefaction's first of five LNG trains is nearing completion and overall construction of both Sabine Pass and Corpus Christi is advancing as planned. "Cheniere will transition into an operating company with stable and growing positive cash flow underpinned by long-term offtake agreements with investment grade energy companies worldwide," Botta said. "The changes announced today will serve Cheniere well in creating and sustaining shareholder value, while continuing to explore a limited number of strategic initiatives within the LNG industry."
Icahn built his stake in Cheniere earlier this year and added two of his associates to its board (see Daily GPI, Sept. 29; Sept. 15; Aug.7).
"There is no doubt that Charif Souki has proven that he is a talented entrepreneur, but at this time there is also little doubt that the board wished to move the company in a direction that differed greatly from the path Mr. Souki wanted," Icahn said in a statement posted to his website Monday. "It is also telling that Mr. Souki sold a great deal of his [Cheniere] stock, which made it somewhat easier for him to 'swing for the fences,' making it a win-win for Mr. Souki but not necessarily for the shareholders."
Until his ouster, Souki weathered LNG's rough seas, beginning as an import terminal developer. He is credited with being the first-mover in the race to export liquefied U.S. shale gas.
In 2001, it was announced that Cheniere planned to develop three LNG terminals along the Texas Coast (see Daily GPI, June 13, 2001). In those pre-shale natural gas days, the race was to develop facilities to import LNG. In late 2005, Souki said the company expected to have 11.4 Bcf/d of LNG regasification capacity available along the Gulf Coast, with four deepwater ports, seven unloading docks and 15 storage tanks able to hold 51.7 Bcfe (see Daily GPI, Nov. 16, 2005).
In early 2008, Cheniere's completed Sabine Pass terminal in Louisiana was receiving cooldown cargoes of LNG (see Daily GPI, March 31, 2008). A year later, Cheniere got regulatory approval to modify the Sabine Pass terminal to allow for the re-export of previously imported LNG (see Daily GPI, June 2, 2009). In 2010, Cheniere got the OK to export U.S.-sourced LNG from proposed liquefaction facilities at Sabine Pass (see Daily GPI, Sept. 13, 2010). Exports were to have begun by the end of this year, but that has been pushed back to early 2016.
The LNG market has shifted and the world is now glutted with liquefied gas at least for the near- to medium-term. "We expect the glut to be followed by a famine," analysts at Bernstein said in a recent note (see Daily GPI, Dec. 4). "We estimate a 75 mtpa deficit in LNG supply by 2025, which will require US$250 billion in investment between now and 2020. With no new LNG projects currently being sanctioned, a new LNG investment cycle should start in 2017/2018."
As a first-mover with contracts signed, one terminal about to go online and another shortly behind it, Cheniere is better positioned than many others in the LNG pack.
Shear, a member of Cheniere's board since 2014, is a 30-year industry veteran with experience managing global commodities activities and investments across a variety of asset classes, the company said. He is a partner of Silverpeak Strategic Partners LP, a private investment company, and served as CEO of Higgs Capital Management, a commodity-focused hedge fund, until 2014. Previously he was global head of securities at UBS Investment Bank and was a partner at Apollo Global Management. Shear spent 26 years at Morgan Stanley as a founder of its commodities business, serving in several leadership roles.
Botta has been on Cheniere's board of Directors since 2010 and has served as president of Glenco LLC, a private investment company. Prior to joining Glenco, Botta served as managing director of Morgan Stanley from 1999 to 2006. He served as president of EXOR America Inc. (formerly IFINT-USA Inc.), a holding company of Italy's Agnelli family, from 1993 until 1999; and for more than five years prior as vice president of acquisitions of IFINT-USA. He serves on the board of Graphic Packaging Holding Co.