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Cheniere Posts $50M 1Q Loss, Continues Scaling Back

Struggling liquefied natural gas (LNG) terminal developer Cheniere Energy Inc. chalked up a $50 million loss in the first quarter as the company explores options for its business, unwinds contracts and lets go of employees.

Cheniere reported a net loss of $49.9 million, minus $1.06/share, for the first quarter of 2008 compared with a net loss of $34.6 million, minus 63 cents/share, during the corresponding period in 2007.

Results for the quarter were hit by costs associated with the Sabine Pass LNG terminal and Creole Trail pipeline. Loss from operations was $38.4 million for the first quarter of 2008 compared to $29.8 million for the year-ago period. Terminal and pipeline development costs increased from $5.8 million during the first quarter of 2007 to $6.7 million in first three months of 2008, primarily due to the hiring in the second quarter of 2007 of employees needed to operate Sabine Pass.

As of March 31, Cheniere had completed construction of 99% of the Sabine Pass terminal consisting of an initial sendout capacity of 2.6 Bcf/d and storage capacity of 10.1 Bcf. Construction on the remaining 1.4 Bcf/d of sendout capacity and 6.7 Bcf of storage was 67% complete as of March 31, and the company said it expects to achieve full operability of Sabine Pass, with a total send out capacity of 4 Bcf/d and total storage of 16.8 Bcf, during the third quarter of 2009. Total construction costs are still estimated to be $1.4 billion. Payments under terminal use agreements commence no later than April 1, 2009 for Total and July 1, 2009 for Chevron.

Last month Cheniere opened Sabine Pass for business as the first new LNG terminal built in the United States in more than a quarter century (see NGI, April 28; April 21a). The company said it expects to begin commercial operations at Sabine Pass during the second quarter. "The cool-down process has gone extremely well and ahead of schedule," Cheniere said. Sabine Pass is ready to receive cargoes for further performance testing and commercial sales. Cheniere said it will buy more cargoes when terms are favorable to do so.

This month the U.S. Energy Information Administration (EIA) said that through the first four months of 2008 LNG imports were about 115 Bcf, considerably less than the import total of 283 Bcf at the same time last year. Higher prices available to LNG suppliers for deliveries to both the Asia-Pacific region and Europe are shifting cargoes away from the United States, EIA said.

In February Cheniere said it was exploring strategic options, including optimizing the Sabine terminal and the regasification capacity at the facility held under a long-term terminal use agreement by Cheniere Marketing (see NGI, March 3). To date the company has provided confidential information to parties that have executed confidentiality agreements, it said.

On April 15 Cheniere announced the downsizing of its gas marketing activities and said it was negotiating an an outsourcing arrangement with a major North American gas marketer (see NGI, April 21b). The marketing company would manage the throughput of LNG and the downstream gas marketing for LNG cargoes delivered for Cheniere Marketing's account at Sabine Pass. Cheniere said it is drafting documents for the arrangement. "In connection with these events, we are maintaining a staff level that allows us to secure LNG cargoes, monitor the marketing arrangement and manage the logistics of cargo deliveries," it said. Standard and Poor's Ratings Services put its ratings on Cheniere and Sabine Pass LNG on watch last month (see NGI, April 21c).

"We have taken several steps to reduce ongoing operating costs and capital requirements and increase our cash and cash equivalents in order to maintain adequate liquidity as we continue our strategic options process," Cheniere said.

Steps include downsizing marketing operations, cutting staff and overhead and obtaining a secured credit facility. Cheniere said winding down marketing positions would return $35 million to $40 million to its unrestricted cash balances. The company also is looking a scrapping charger arrangements for two LNG vessels and forfeiting the cash that currently secures its obligations under the arrangements.

After cuts, Cheniere said it expects to have about 80 employees associated with the Sabine Pass terminal or Creole Trail pipeline, and in addition, approximately 80 employees associated with corporate and marketing in Houston and London.

Cheniere is developing three LNG terminals and related gas pipelines along the Gulf of Mexico. Cheniere is also the founder and holds a 30% limited partner interest in a fourth LNG terminal.

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