SEC Company Response from Cheniere Energy, Inc. (LNG) (CIK 0000003570) (LNG) — Dec 18, 2009
Cheniere Energy, Inc. (LNG) (CIK 0000003570)
Date: Dec. 18, 2009 · CIK: 0000003570 · Accession: 0000003570-09-000026
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-16383
Referenced dates: December 4, 2009
Letter
Securities and Exchange Commission Cheniere Energy, Inc. Form 10-Q for Fiscal Quarter Ended September 30, Filed November 6, 2009 File No. 001-16383
Dear Mr. Shannon:
On behalf of Cheniere Energy, Inc., a Delaware corporation (the “Company”), we enclose the responses of the Company to comments received from the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) by letter dated December 4, 2009, with respect to the Company’s Form 10-Q for fiscal quarter ended September 30, 2009 (File No. 001-16383) (the “10-Q”). For your convenience, the responses are prefaced by the exact text of the Staff’s corresponding comment.
The Company acknowledges the following: (i) the Company is responsible for the adequacy and accuracy of the disclosure in the 10-Q; (ii) Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the 10-Q; and (iii) the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
Please let us know if you have any questions or if we can provide additional information or otherwise be of assistance in expediting the review process.
Sincerely,
Meredith
S. Mouer
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CORRESP
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600
Travis, Suite 4200
Houston,
Texas 77002
713.220.4200
Phone
713.220.4285
Fax
andrewskurth.com
December
18, 2009
Mr. Mark
C. Shannon
Branch
Chief
Securities
and Exchange Commission
100 F
Street N.E., Stop 7010
Washington,
D.C. 20549
Re:
Cheniere Energy,
Inc.
Form
10-Q for Fiscal Quarter Ended September 30,
2009
Filed
November 6, 2009
File
No. 001-16383
Dear Mr.
Shannon:
On behalf
of Cheniere Energy, Inc., a Delaware corporation (the “Company”), we enclose
the responses of the Company to comments received from the staff of the Division
of Corporation Finance (the “Staff”) of the
Securities and Exchange Commission (the “Commission”) by
letter dated December 4, 2009, with respect to the Company’s Form 10-Q for
fiscal quarter ended September 30, 2009 (File No. 001-16383) (the “10-Q”). For
your convenience, the responses are prefaced by the exact text of the Staff’s
corresponding comment.
The
Company acknowledges the following: (i) the Company is responsible
for the adequacy and accuracy of the disclosure in the 10-Q; (ii) Staff comments
or changes to disclosure in response to Staff comments do not foreclose the
Commission from taking any action with respect to the 10-Q; and (iii) the
Company may not assert Staff comments as a defense in any proceeding initiated
by the Commission or any person under the federal securities laws of the United
States.
Please
let us know if you have any questions or if we can provide additional
information or otherwise be of assistance in expediting the review
process.
Sincerely,
Meredith
S. Mouer
cc: Meg
A. Gentle (Cheniere Energy, Inc.)
Austin Beijing Dallas Houston London New
York The
Woodlands Washington,
DC
Cheniere
Energy, Inc.
Form
10-Q (File No. 001-16383)
Company’s
Responses to
SEC
Comment Letter dated December 4, 2009
Form 10-Q for the Fiscal
Quarter Ended September 30, 2009
Financial Information, page
1
Note 15 – Business Segment
Information, page 17
1.
It
remains unclear how the revenue amounts presented on page 18 reconcile to
the revenue line items on your Consolidated Statements of
Operations. For instance, we note per your Consolidated
Statements of Operations, that for the nine months ended September 30,
2009, you recognized marketing and trading revenue of $(10,265), yet there
is no reconciliation within this table for the reader to understand which
components contribute to the overall net sum presented on the face of your
Consolidated Statements of Operations. Please modify your
presentation as appropriate to aid investor understanding of how your
segment revenues disclosure relates to the individual line items presented
in your Consolidated Statements of
Operations.
Response:
To aid
investor understanding, in future filings we will disclose intersegment revenue
separately in the business segment summary tables to the consolidated totals and
provide additional explanations to describe the revenues from intersegment
transactions. Below is an example of our future disclosure using the
three and nine months ended September 30, 2009 amounts:
The following table summarizes
revenues, net income (loss) from operations and total assets for each of our
operating segments (in thousands):
Three
Months Ended
September
30
Nine
Months Ended
September
30
2009
2008
2009
2008
(As
adjusted)
(As
adjusted)
Revenues
from external customers:
LNG
receiving terminal
$
65,119
$
—
$
103,320
$
—
Natural
gas pipeline
25
—
100
—
LNG
& natural gas marketing
(9,609
)
2,725
(10,265
)
2,823
Corporate
and other (1)
797
1,375
2,370
3,668
Total
$
56,332
$
4,100
$
95,525
$
6,491
Revenues
from intersegment transactions:
LNG
receiving terminal (2)
$
63,414
$
—
$
191,445
$
—
Natural
gas pipeline (3)
268
565
699
916
LNG
& natural gas marketing (4)
(63,682
)
739
(192,144
)
415
Total
$
—
$
1,304
$
—
$
1,331
Segment
Net income (loss):
LNG
receiving terminal
$
66,975
$
(23,193
)
$
123,432
$
(63,360
)
Natural
gas pipeline
(16,485
)
(16,789
)
(49,740
)
(20,852
)
LNG
& natural gas marketing
(65,921
)
45,149
(197,332
)
(23,016
)
Corporate
and other (1)
(27,066
)
(76.786
)
(14,650
)
(154,657
)
Total
$
(42,497
)
$
(71,619
)
$
(138,290
)
$
(261,885
)
Three
Months Ended
September
30
Nine
Months Ended
September
30
2009
2008
2009
2008
(As
adjusted)
(As
adjusted)
Expenditures
for additions to long-lived assets:
LNG
receiving terminal
$
20,663
$
65,964
$
110,598
$
360,079
Natural
gas pipeline
(5,021
)
5,333
(4,111
)
147,576
LNG
& natural gas marketing
84
(13
)
1,084
(473
)
Corporate
and other (1)
(181
)
(3,489
)
(1,222
)
(6,845
)
Total
$
15,545
$
67,795
$
106,349
$
500,337
September
30,
2009
December
31,
2008
Total
assets:
(As
adjusted)
LNG
receiving terminal
$
2,073,045
$
2,191,671
Natural
gas pipeline
575,185
590,995
LNG
& natural gas marketing
128,637
136,138
Corporate
and other (1)
12,178
1,278
Total
$
2,789,045
$
2,920,082
(1)
Includes
corporate activities and oil and gas exploration, development and
exploitation activities. Our oil and gas exploration, development and
exploitation activities have been included in the corporate and other
column because these activities do not materially impact our financial
statements. Amounts are restated to include oil and gas exploration,
development and exploitation activities within the corporate and other
segment as of December 31, 2008 and for the three and nine month periods
ended September 30, 2008.
(2)
Revenue
from intersegment transactions related to our LNG receiving terminal
operating segment is primarily related to the TUA fee of $62.5 million and
$187.6 million and tug revenue paid by our LNG & natural gas marketing
operating segment to our LNG receiving terminal operating segment for the
three and nine month periods ended September 30, 2009.
(3)
Revenue
from intersegment transactions related to our natural gas pipeline
operating segment primarily relates to transportation fees charged to our
LNG receiving terminal and LNG and natural gas marketing business segments
to transport natural gas being regasified from the Sabine Pass LNG
receiving terminal.
(4)
Revenue
from intersegment transactions primarily relates to the TUA fee of $62.5
million and $187.6 million paid by our LNG & natural gas marketing
operating segment to our LNG receiving terminal operating segment for the
three and nine month periods ended September 30, 2009. The cost
of the LNG & natural gas marketing operating segment TUA fee has been
presented as a net amount in revenue as it is considered a capacity
contract related to our energy trading and risk management activities; and
is therefore eliminated within the revenue from intersegment
transactions. The remaining amount of revenue from intersegment
transactions relates to various transactions with our LNG receiving
terminal and natural gas pipeline operating
segments.
2
Cheniere
Energy, Inc.
Form
10-Q (File No. 001-16383)
Company’s
Responses to
SEC
Comment Letter dated December 4, 2009
Management’s
Discussion and Analysis of Financial Condition and Results of Operations, page
21
Summary
of Critical Accounting Policy and Estimates, page 33
LNG
and Natural Gas Marketing, page 33
2.
We note from your disclosure under this caption
that “Operating results from marketing and trading activities are
presented on a net basis on [y]our Consolidated Statement of Operations;”
and that your “marketing and trading revenues also include pretax
derivative gains/losses and inventory lower-of-cost-or-market adjustments,
if any.” In light of this new disclosure, please provide us with an
analysis to support your conclusion that the LNG and natural gas marketing
business should be presented in your Consolidated Statement of Operations
on a net versus gross basis. Refer to authoritative accounting literature
as appropriate.
Response:
Our LNG
and natural gas marketing business segment is seeking to monetize its 2 Bcf/d
regasification capacity at the Sabine Pass LNG receiving terminal by developing
a portfolio of long-term, short-term, and spot LNG purchase agreements, and
selling long-term terminal use agreements (“TUA”). During the nine
months ended September 30, 2009, our LNG and natural gas marketing business
segment purchased, transported, and unloaded LNG at the Sabine Pass LNG
receiving terminal on a spot basis and entered into derivative contracts to
hedge the cash flows from future sales of this LNG inventory.
In
determining the accounting treatment of our LNG and natural gas marketing
activities, we concluded that all of its business activities are energy trading
and risk management activities for trading purposes as defined in the guidance
found in Emerging Issues Task Force (“EITF”) Issue No. 02-3, Issues Involved in Accounting for
Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy
Trading and Risk Management Activities, which rescinded and replaced EITF
No. 98-10, Accounting for
Contracts Involved in Energy Trading and Risk Management
Activities. We used a number of indicators to develop the
conclusion that our LNG and natural gas marketing business activities are
considered energy trading and risk management activities including,
but not limited to, the following:
·
our
LNG and natural gas marketing business does not own capital assets for
generating a product to deliver to end users, such as
electricity;
·
our
LNG and natural gas marketing business does not consume LNG or natural gas
to develop a product to resale;
·
our
LNG and natural gas marketing business’ primary operating
assets/liabilities are derived from contracts to purchase foreign LNG and
sell the resultant regasified natural gas to domestic
marketers;
·
our
LNG and natural gas marketing business has no available sources by which
it can obtain the LNG without resorting to market purchases;
and
·
our
LNG and natural gas marketing business assessment of net market portfolio
value of purchased LNG and associated derivative contracts is done on a
daily basis.
One of
the issues addressed in EITF No. 02-3, is whether gains and losses on energy
trading contracts should be reported gross or net in the income
statement. This EITF reached a consensus that all gains and losses
(realized and unrealized) on energy trading contracts should be shown net in the
income statement whether or not settled physically. As such, we have
presented net all gains and losses related to our LNG and natural gas marketing
contracts (including physical sales, cost of purchased LNG, transportation
costs, inventory lower-of-cost-or-market adjustment (if any), pre-tax derivative
gains and losses, and capacity contracts) in LNG and natural gas
revenue.
Based on
the indicators listed above and guidance provided in EITF No. 02-3, we have
determined that our LNG and natural gas marketing business activities are energy
trading and risk management activities for trading purposes and we have
therefore elected to present these activities on a net basis. We
believe this presentation provides the users of our financial statements the
ability to understand our LNG and natural gas marketing business and is
consistent with many of our peer companies in the energy trading
industry.
3
Cheniere
Energy, Inc.
Form
10-Q (File No. 001-16383)
Company’s
Responses to
SEC
Comment Letter dated December 4, 2009
3.
In
addition, please explain to us why you believe