Rumors were rampant Friday that Cheniere Energy Inc. may be close to announcing a transaction that could involve selling its Gulf Coast-based liquefied natural gas (LNG) receiving terminal at Sabine Pass in Cameron Parish, LA -- or even the entire company.
Cheniere, which has taken a huge hit to share price in the past few weeks, was trading up at midday Friday by almost 10% (45 cents) to around $4.85/share. Cheniere has traded as high $43.50 in the past year, but since April the share price has been in a downward spiral and there has been talk that the company could face bankruptcy by early 2009.
The company began 2008 trading at around $32.28/share. The price remained near $30 until early March, even after it announced in early February that it was considering strategic options for the Sabine Pass LNG facility (see NGI, March 3). By April 1, however, Cheniere's price had tumbled to $19.48; by May 1, the stock was trading for less than $9/share.
More bad news followed for investors. Cheniere reported May 9 that it lost $50 million in 1Q2008 and it said it was reducing staff to cut costs (see NGI, May 12). Last Monday RBC Capital Markets downgraded Cheniere to "underperform" from "outperform" and slashed its target price to $1 from $20. RBC said in a report that Cheniere might be attractive to a buyer, but it said its lender may have incentives to push the company into bankruptcy.
On Wednesday in a Form 8-K filing with the Securities and Exchange Commission (SEC) Cheniere reported that it would terminate the employment, effective July 31, of Jonathan S. Gross, senior vice president of exploration -- the first major executive to be publicly dismissed. The filing also indicated that Cheniere would award several executives, including founder and CEO Charif Souki, stock incentives to encourage them not to resign. Souki was paid $150,000 in cash and given 515,000 shares that are to be vested over the next three years. Souki sold 2.8 million shares of his Cheniere stock in April -- most of his holdings.
A day later Perry Capital, which owned a 7% stake in Cheniere, said in an SEC filing that it had sold 3.4 million shares. The filing by Perry indicated that it had received $14.8 million on the sale and indicted that the shares sold had been worth $66.7 million at the end of March. By close of trading Thursday,Cheniere's stock price had fallen to $4.41.
CreditSights energy analyst Andy DeVries said in a note that Cheniere's options going forward "are just painful." Cheniere can wait it out to see if LNG cargoes become competitive in the United States or sell. In any case, he said it was important for the company to deal with its marketing unit's obligations to pay for the Sabine Pass LNG capacity, for which it now has no contracts.
However, something triggered a rebound on Friday. Optimism may have followed the news late Thursday that Russian-based OAO Gazprom subsidiary Gazprom Marketing & Trading USA Inc. has signed a letter of intent to become an equity partner in the Rabaska LNG terminal in Quebec (see related story). Rabaska, on a site in the Quebec City industrial satellite town of Levis, includes a 500 MMcf/d LNG terminal and a 42-kilometer (26-mile) pipeline connection to the TransQuebec & Maritimes system.
"Considering the strategic location of their assets, the Gazprom news is encouraging," an investor told NGI. Despite the bearish call for U.S. LNG imports this year, she said that some company with a solid balance sheet "has to believe that this company is worth more than $5" a share.
"One good hurricane" would send Cheniere's price up, wrote one of Cheniere's shareholders Friday on the company's Yahoo! message board. The writer added that if he were a "large integrated" oil and gas producer, "I'd be doing due diligence right now."
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