Houston-based Cheniere Energy Inc., which is developing several liquefied natural gas (LNG) terminals along the Gulf Coast of Texas and Louisiana, said Thursday that the Securities and Exchange Commission (SEC) has begun a formal investigation into some agreements the company signed last year with Chevron USA.
The investigation appears to center on the regasification agreements, as well as a stock offering and a withdrawn equity investment transaction last December.
Cheniere said in its SEC 10-K filing in March that it received a letter on Dec. 17, 2004 advising it of a “nonpublic informal inquiry” by the SEC captioned, “In the Matter of Trading in the Securities of Cheniere Energy Inc.”
According to Cheniere, the SEC requested a “chronology, documents and other information, including the names of persons and entities involved in or aware of events” related to Form 8-K filings in November and December 2004. The Form 8-K filings had to with “negotiations and agreements” with Chevron USA and Cheniere’s public offering of five million shares of common stock.
Cheniere said that on Wednesday the SEC informed the company that it had “issued a formal order and commenced a nonpublic factual investigation of actions and communications by the company, its current or former directors, officers and employees and other persons in connection with the company’s agreements and negotiations with Chevron USA, the company’s December 2004 public offering of common stock, and trading in the company’s securities.
“The scope, focus and subject matter of the SEC investigation may change from time to time, and the company may be unaware of matters under consideration by the SEC. The company has cooperated fully with the SEC informal inquiry and intends to continue cooperating fully with the SEC in its investigation.”
On Nov. 8, 2004, Cheniere’s wholly owned partnership, Sabine Pass LNG LP, entered into a Terminal Use Agreement (TUA) to provide Chevron USA with 700 MMcf/d of LNG regasification capacity at the 2.6 Bcf/d LNG receiving terminal being developed in Cameron Parish, LA.
Cheniere, Sabine Pass LNG and Chevron USA simultaneously entered into an Omnibus Agreement, under which Chevron USA agreed to make advance Capacity Reservation Fee payments, and the companies agreed to continue to negotiate for Chevron USA to make a $200 million equity investment to acquire a 20% limited partner interest in Sabine Pass LNG.
The TUA and Omnibus Agreement were subject to corporate approvals, including approval by the ChevronTexaco board of directors (now Chevron Corp.), by Dec. 20, 2004. The TUA provided for Chevron USA to pay a tariff of $0.32/MMBtu, subject in part to adjustment for inflation, for 700 MMcf/d of regasification capacity for a 20-year period beginning no later than July 1, 2009.
Under the Omnibus Agreement, Chevron USA had the option, at the same tariff, either to reduce its reserved capacity at Sabine Pass to 500 MMcf/d by July 1, 2005 or to increase its reserved capacity to 1.0 Bcf/d by Dec. 1, 2005. Chevron in late June elected to retain the capacity agreement for 700 MMcf/d (see Daily GPI, July 1).
The Omnibus Agreement required Chevron USA to make advance Capacity Reservation Fee payments to Sabine Pass LNG totaling up to $20 million, beginning with an unconditional payment of $5 million within 15 days of the Nov. 9, 2004 agreement. Except for this $5 million payment, Chevron USA had the right to terminate the TUA, the Omnibus Agreement and the transactions under those agreements if approval of Chevron’s board was not obtained by Dec. 20, 2004.
If the agreements and transactions were not terminated, further advance Capacity Reservation Fee payments were due — $7 million after ChevronTexaco’s board approval; $5 million after Dec. 20, 2004, conditioned upon both Federal Energy Regulatory Commission approval of the pending application to build the Sabine Pass terminal and confirmation of evidence of the ability to finance construction of the facility; and $3 million if Chevron USA exercised the option to increase its capacity at Sabine Pass to 1 Bcf/d. The payments would be amortized over a 10-year period as a reduction of Chevron USA’s regasification capacity tariff under the TUA.
Also under investigation is an agreement between the two companies last November, in which Chevron apparently considered making a $200 million equity investment in Sabine Pass LNG, in exchange for a 20% limited partner interest. However, in December 2004, Chevron backed out of the deal, the same day that Cheniere closed a public offering of five million shares of common stock at $60/share, which netted about $286 million in cash (see Daily GPI, Dec. 10, 2004). Cheniere said then that it was not notified by Chevron about its withdrawal from the deal until after its share offering had closed.
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