Attached files
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| EX-32.2 - EXHIBIT 32.2 - Sabine Pass LNG, L.P. | exhibit_32-2.htm |
| EX-32.1 - EXHIBIT 32.1 - Sabine Pass LNG, L.P. | exhibit_32-1.htm |
| EX-31.2 - EXHIBIT 31.2 - Sabine Pass LNG, L.P. | exhibit_31-2.htm |
| EX-31.1 - EXHIBIT 31.1 - Sabine Pass LNG, L.P. | exhibit_31-1.htm |
| EX-21.1 - EXHIBIT 21.1 - Sabine Pass LNG, L.P. | exhibit_21-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
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ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31, 2009
OR
¨ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from
to
Commission
File No. 333-138916
Sabine
Pass LNG, L.P.
(Exact
name of registrant as specified in its charter)
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Delaware
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20-0466069
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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700 Milam Street, Suite
800
Houston,
Texas
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77002
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (713) 375-5000
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange
Act. Yes ¨ No x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
Indicate by
check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post
such files). Yes ¨ No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer ¨
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Accelerated filer ¨
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Non-accelerated filer x
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Smaller reporting company ¨
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(Do
not check if a smaller reporting company)
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates: not applicable
Documents
incorporated by reference: None
SABINE
PASS LNG, L.P.
Index to
Form 10-K
i
CAUTIONARY
STATEMENT
REGARDING
FORWARD-LOOKING STATEMENTS
This
annual report contains certain statements that are, or may be deemed to be,
“forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”), and Section 21E
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All
statements, other than statements of historical facts, included herein or
incorporated herein by reference are “forward-looking statements.” Included
among “forward-looking statements” are, among other things:
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statements
regarding future levels of domestic natural gas production, supply or
consumption; future levels of LNG imports into North America; sales of
natural gas in North America; and the transportation, other infrastructure
or prices related to natural gas, LNG or other energy
sources;
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statements
regarding any financing transactions or arrangements, or ability to enter
into such transactions or
arrangements;
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statements
regarding any terminal use agreement (“TUA”) or other agreements to be
entered into or performed substantially in the future, including any cash
distributions and revenues anticipated to be received and the anticipated
timing thereof, and statements regarding the amounts of total LNG
regasification or storage capacity that are, or may become, subject to
TUAs or other contracts;
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statements
regarding counterparties to our TUAs, construction contracts and other
contracts;
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statements
regarding any business strategy, any business plans or any other plans,
forecasts, projections or objectives, any or all of which are subject to
change;
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statements
regarding legislative, governmental, regulatory, administrative or other
public body actions, requirements, permits, investigations, proceedings or
decisions; and
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any
other statements that relate to non-historical or future
information.
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These
forward-looking statements are often identified by the use of terms and phrases
such as “achieve,” “anticipate,” “believe,” “develop,” “estimate,” “expect,”
“forecast,” “plan,” “potential,” “project,” “propose,” “strategy” and similar
terms and phrases. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, they do involve assumptions, risks
and uncertainties, and these expectations may prove to be incorrect. You should
not place undue reliance on these forward-looking statements, which speak only
as of the date of this annual report.
Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of a variety of factors, including those
discussed in “Risk Factors.” All forward-looking statements attributable to us
or persons acting on our behalf are expressly qualified in their entirety by
these risk factors. These forward-looking statements are made as of the date of
this annual report.
ii
DEFINITIONS
In this
annual report, unless the context otherwise requires:
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Bcf means billion cubic
feet;
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Bcf/d means billion
cubic feet per day;
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EPC means engineering,
procurement and construction;
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EPCM means engineering,
procurement, construction and management;
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LNG means liquefied
natural gas; and
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TUA means terminal use
agreement.
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In 2003,
we were formed by Cheniere Energy, Inc. (“Cheniere”) to own, develop and operate
the Sabine Pass LNG receiving terminal. Our LNG receiving terminal has been
constructed with an aggregate designed regasification capacity of approximately
4.0 Bcf/d and five LNG storage tanks with an aggregate designed LNG storage
capacity of approximately 16.9 Bcf along with two unloading docks capable of
handling the largest LNG carriers currently being operated or
built.
In the
second quarter of 2009, we purchased Sabine Pass Tug Services, LLC (“Tug
Services”), a wholly owned subsidiary of Cheniere. As a result, we
acquired a lease for the use of tug boats and marine services at our LNG
receiving terminal. In connection with the acquisition, Tug Services
entered into agreements with our three TUA customers to provide their LNG cargo
vessels with tug boat and marine services at our LNG receiving
terminal.
LNG is
natural gas that, through a refrigeration process, has been reduced to a liquid
state, which represents approximately 1/600th of its gaseous volume. The
liquefaction of natural gas into LNG allows it to be shipped economically from
areas of the world where natural gas is abundant and inexpensive to produce to
other areas where natural gas demand and infrastructure exist to justify
economically the use of LNG. LNG is transported using oceangoing LNG vessels
specifically constructed for this purpose. LNG receiving terminals offload LNG
from LNG vessels, store the LNG prior to processing, heat the LNG to return it
to a gaseous state and deliver the resulting natural gas into pipelines for
transportation to market.
Our
primary business objective is to generate stable cash flows by:
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operating
our LNG receiving terminal safely, efficiently and reliably;
and
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maintain
the effectiveness of our long-term TUAs to generate steady and reliable
revenues and operating cash flows.
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Our
Business
We have
constructed and are now operating our LNG receiving terminal in western Cameron
Parish, Louisiana, on the Sabine Pass Channel. In 2003, Cheniere formed Sabine
Pass LNG to own, develop and operate the Sabine Pass LNG receiving terminal. We
have long-term leases for three tracts of land consisting of 853 acres in
Cameron Parish, Louisiana for the project site. Our LNG receiving terminal was
designed, and permitted by the Federal Energy Regulatory Commission (“FERC”),
with a regasification capacity of approximately 4.0 Bcf/d (with peak capacity of
4.3 Bcf/d) and aggregate LNG storage capacity of 16.9 Bcf. Construction at our
LNG receiving terminal was substantially completed in the third quarter of 2009.
As of December 31, 2009, we had completed construction and attained full
operability of our LNG receiving terminal, and such was accomplished within our
budget.
Customers
The
entire approximately 4.0 Bcf/d of regasification capacity at our LNG receiving
terminal has been contracted under two 20-year, firm commitment TUAs with
unaffiliated third parties, and a third TUA with Cheniere Marketing, LLC
(“Cheniere Marketing”),
1
a
wholly-owned subsidiary of Cheniere. Each of the three customers at our LNG
receiving terminal must make the full contracted amount of capacity reservation
fee payments under its TUA whether or not it uses any of its reserved capacity.
Capacity reservation fee TUA payments will be made by our third-party customers
as follows:
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Total
Gas and Power North America, Inc. (formerly known as Total LNG USA, Inc.)
(“Total”) has reserved approximately 1.0 Bcf/d of regasification capacity
and has agreed to make monthly capacity payments to us aggregating
approximately $125 million per year for 20 years that commenced on
April 1, 2009. Total, S.A. has guaranteed Total’s obligations under
its TUA up to $2.5 billion, subject to certain exceptions;
and
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Chevron
U.S.A., Inc. (“Chevron”) has reserved approximately 1.0 Bcf/d of
regasification capacity and has agreed to make monthly capacity payments
to us aggregating approximately $125 million per year for 20 years that
commenced on July 1, 2009. Chevron Corporation has guaranteed Chevron’s
obligations under its TUA up to 80% of the fees payable by
Chevron.
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In
addition, Cheniere Marketing has reserved the remaining 2.0 Bcf/d of
regasification capacity and is entitled to use any capacity not utilized by
Total and Chevron. Cheniere Marketing began making its TUA capacity reservation
fee payments in the fourth quarter of 2008. Cheniere Marketing is required to
make monthly capacity payments aggregating approximately $250 million per year
for the period from January 1, 2009 through at least September 30, 2028.
Cheniere Marketing has a limited operating history, limited capital and no
credit rating. Cheniere, which has guaranteed the obligations of
Cheniere Marketing under its TUA, has a non-investment grade corporate
rating.
Under
each of these TUAs, we are also entitled to retain 2% of the LNG delivered for
the customer’s account, which we will use primarily as fuel for revaporization
and self-generated power at our LNG receiving terminal.
Each of
Total and Chevron has paid us $20.0 million in nonrefundable advance capacity
reservation fees, which will be amortized over a 10-year period as a reduction
of each customer’s regasification capacity reservation fees payable under its
TUA.
Competition
We
currently do not experience competition for our LNG terminal capacity because
the entire approximately 4.0 Bcf/d of regasification capacity that is available
at our LNG receiving terminal has been fully reserved under three 20-year TUAs,
under which each of the terminal’s customers is generally required to pay
monthly fixed capacity reservation fees whether or not it uses any of its
reserved capacity.
If and
when we have to replace any TUAs, we will compete with North American LNG
receiving terminals and their customers. In addition, to the extent we are
required to obtain LNG for cool down of our LNG receiving terminal, we must
compete in the world LNG market to purchase and transport cargoes of LNG. We may
purchase and transport such cargoes at costs that may result in losses upon
resale of the regasified LNG.
Governmental
Regulation
Our LNG
receiving terminal operations are subject to extensive regulation under federal,
state and local statutes, rules, regulations and laws. These laws require that
we engage in consultations with appropriate federal and state agencies and that
we obtain and maintain applicable permits and other authorizations. This
regulatory burden increases the cost of operating our LNG receiving terminals,
and failure to comply with such laws could result in substantial
penalties. We have been in substantial compliance with all
regulations discussed herein.
FERC
In order
to site and construct our LNG receiving terminal, we received and are required
to maintain authorization from the FERC under Section 3 of the Natural Gas
Act of 1938 (“NGA”). In addition, orders from the FERC authorizing construction
of an LNG receiving terminal are typically subject to specified conditions that
must be satisfied throughout operation of our LNG receiving terminal. Throughout
the life of our LNG receiving terminal, we will be subject to regular reporting
requirements to the FERC and the U.S. Department of Transportation regarding the
operation and maintenance of the facilities.
In 2005,
the Energy Policy Act of 2005 (“EPAct”) was signed into law. The EPAct gave the
FERC exclusive authority to approve or deny an application for the siting,
construction, expansion or operation of an LNG receiving terminal. The EPAct
amended the NGA to prohibit market manipulation. The EPAct increased
civil and criminal penalties for any violations of the NGA, the National Gas
Policy Act of 1978 (“NGPA”) and any rules, regulations or orders of the FERC up
to $1.0 million per day per violation. In accordance with the EPAct, the FERC
issued a final rule making it unlawful for any entity, in connection with the
purchase or sale
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of
natural gas or transportation service subject to the FERC’s jurisdiction, to
defraud, make an untrue statement or omit a material fact or engage in any
practice, act or course of business that operates or would operate as a
fraud.
Other
Federal Governmental Permits, Approvals and Consultations
In
addition to the FERC authorization under Section 3 of the NGA, the
operation of our LNG receiving terminal is also subject to additional federal
permits, approvals and consultations required by other federal agencies,
including: Advisory Counsel on Historic Preservation, U.S. Army Corps of
Engineers, U.S. Department of Commerce, National Marine Fisheries Services, U.S.
Department of the Interior, U.S. Fish and Wildlife Service, U.S. Environmental
Protection Agency (“EPA”) and U.S. Department of Homeland Security.
Our LNG
receiving terminal is subject to U.S. Department of Transportation siting
requirements and regulations of the U.S. Coast Guard relating to facility
security. Moreover, our LNG receiving terminal is subject to local and state
laws, rules, and regulations.
Environmental
Regulation
Our LNG
receiving terminal operations are subject to various federal, state and local
laws and regulations relating to the protection of the environment. These
environmental laws and regulations may impose substantial penalties for
noncompliance and substantial liabilities for pollution. Many of these laws and
regulations restrict or prohibit the types, quantities and concentration of
substances that can be released into the environment and can lead to substantial
liabilities for non-compliance or releases. Failure to comply with these laws
and regulations may also result in substantial civil and criminal fines and
penalties.
Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA)
CERCLA,
also known as the “Superfund” law, imposes liability, without regard to fault,
on certain classes of persons who are considered to be responsible for the spill
or release of a hazardous substance into the environment. Potentially liable
persons include the owner or operator of the site where the release occurred and
persons who disposed or arranged for the disposal of hazardous substances at the
site. Under CERCLA, responsible persons may be subject to joint and several
liability. Although CERCLA currently excludes petroleum, natural gas, natural
gas liquids and LNG from its definition of “hazardous substances,” this
exemption may be limited or modified by the U.S. Congress in the
future.
Clean
Air Act (CAA)
Our LNG
receiving terminal operations are subject to the federal CAA and comparable
state and local laws. We may be required to incur certain capital expenditures
over the next several years for air pollution control equipment in connection
with maintaining or obtaining permits and approvals addressing other air
emission-related issues. We do not believe, however, that operations of our LNG
receiving terminal will be materially adversely affected by any such
requirements.
The U.S.
Supreme Court has ruled that the EPA has authority under existing legislation to
regulate carbon dioxide and other heat-trapping gases in mobile source
emissions. Mandatory reporting requirements were promulgated by the EPA and
finalized on October 30, 2009. This rule requires mandatory reporting
for greenhouse gases from stationary fuel combustion sources. An
additional section would have required reporting for all fugitive emissions
throughout our LNG receiving terminal and would have impacted our reporting
requirements; however, this section was deferred in the final rule. In addition,
Congress has considered proposed legislation directed at reducing “greenhouse
gas emissions.” It is not possible at this time to predict how future
regulations or legislation may address greenhouse gas emissions and impact our
business. However, future regulations and laws could result in increased
compliance costs or additional operating restrictions and could have a material
adverse effect on our business, financial position, results of operations and
cash flows.
3
Clean
Water Act (CWA)
Our LNG
receiving terminal operations are also subject to the federal CWA and analogous
state and local laws. Pursuant to certain requirements of the CWA, the EPA has
adopted regulations concerning discharges of wastewater and storm water runoff.
This program requires covered facilities to obtain individual permits,
participate in a group permit or seek coverage under an EPA general
permit.
Resource
Conservation and Recovery Act (RCRA)
The
federal RCRA and comparable state statutes govern the disposal of “hazardous
wastes.” In the event any hazardous wastes are generated in connection with our
LNG receiving terminal operations, we are subject to regulatory requirements
affecting the handling, transportation, treatment, storage and disposal of such
wastes.
Endangered
Species Act
Our LNG
receiving terminal operations may also be restricted by requirements under the
Endangered Species Act, which seeks to ensure that human activities neither
jeopardize endangered or threatened animal, fish and plant species nor destroy
or modify their critical habitats.
We have
no employees. Cheniere employs all persons necessary for the operation and
maintenance of our LNG receiving terminal and the conduct of our business.
Generally, we reimburse Cheniere for the services of their employees. As of
February 17, 2010, Cheniere had 196 full-time employees. See Note
11—“Related Party Transactions” in our Notes to Consolidated Financial
Statements for a discussion of these arrangements. Cheniere considers
its current employee relations to be favorable.
Our
principal executive offices are located at 700 Milam Street, Suite 800, Houston,
Texas 77002, and our telephone number is (713) 375-5000. We electronically
file our annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to these reports with the Securities and
Exchange Commission (“SEC”). The public may read and copy any materials we file
with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room
1580, Washington, DC 20549. The public may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an internet site (www.sec.gov) that contains reports and other
information regarding issuers, like us, that file electronically with the
SEC.
4
The
following are some of the important factors that could affect our financial
performance or could cause actual results to differ materially from estimates
contained in our forward-looking statements. We may encounter risks in addition
to those described below. Additional risks and uncertainties not currently known
to us, or that we currently deem to be immaterial, may also impair or adversely
affect our business, results of operation, financial condition, liquidity and
prospects.
The risk
factors in this report are grouped into the following categories:
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Risks
Relating to Our Financial Matters;
and
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Risks
Relating to Our Business.
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We
have substantial indebtedness, which we will need to refinance in whole or in
part at or prior to maturity.
As of
December 31, 2009, we had $2.2 billion of indebtedness outstanding,
consisting primarily of our $550.0 million of 7¼% Senior Secured Notes due 2013
(“2013 Notes”) and $1,633.0 million, net of discount, of 7½% Senior Secured
Notes due 2016 (“2016 Notes” and collectively with the 2013 Notes, the “Senior
Notes”). We will have to refinance, extend or otherwise satisfy all or a portion
of our indebtedness. We may not be able to refinance, extend or otherwise
satisfy our indebtedness as needed, on commercially reasonable terms or at
all.
Our
substantial indebtedness could adversely affect our ability to operate our
business and prevent us from satisfying or refinancing our debt
obligations.
Our
substantial indebtedness could have important adverse consequences,
including:
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limiting
our ability to attract customers;
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limiting
our ability to compete with other companies that are not as highly
leveraged;
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limiting
our flexibility in and ability to plan for or react to changing market
conditions in our industry and to economic downturns, and making us more
vulnerable than our less leveraged competitors to an industry or economic
downturn;
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limiting
our ability to use operating cash flow in other areas of our business
because we must dedicate a substantial portion of these funds to service
debt, including indebtedness that we may incur in the
future;
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limiting
our ability to obtain additional financing to fund our capital
expenditures, working capital, acquisitions, debt service requirements or
liquidity needs for general business or other purposes;
and
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resulting
in a material adverse effect on our business, results of operations and
financial condition if we are unable to service or refinance our
indebtedness or obtain additional financing, as
needed.
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Our
substantial indebtedness and the restrictive covenants contained in our debt
agreements may not allow us the flexibility that we need to operate our business
in an effective and efficient manner and may prevent us from taking advantage of
strategic and financial opportunities that would benefit our
business.
If we are
unsuccessful in operating our business due to our substantial indebtedness or
other factors, we may be unable to repay, refinance, or extend our indebtedness
on commercially reasonable terms or at all.
To
service our indebtedness, we will require significant amounts of
cash.
We will
require significant cash flow from operations in order to make annual interest
payments of approximately $164.8 million on the Senior Notes. Our ability to
make payments on and to refinance our indebtedness, including the Senior Notes,
and to fund capital expenditures, will depend on our ability to generate cash in
the future. Our business may not generate sufficient cash flow from operations,
currently anticipated costs may increase or future borrowings may not be
available to us, which could cause us to be unable to pay or refinance our
indebtedness, including the Senior Notes, or to fund our other liquidity
needs.
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Our
ability to generate needed amounts of cash is substantially dependent upon our
TUAs with three customers, and we will be materially and adversely affected if
any customer fails to perform its TUA obligations for any reason.
We are
dependent, for substantially all of our operating revenues and cash flows, on
TUAs with Chevron and Total, each of which has agreed to pay us approximately
$125 million annually, and with Cheniere Marketing, which is required to pay us
approximately $250 million annually. We are dependent on each customer’s
continued willingness and ability to perform its obligations under its TUA. We
are also exposed to the credit risk of the guarantors of these customers’
obligations under their respective TUAs in the event that we must seek recourse
under a guaranty. If any customer fails to perform its obligations under its
TUA, our business, results of operations, financial condition and prospects
could be materially and adversely affected, even if we were ultimately
successful in seeking damages from that customer or its guarantor for a breach
of the TUA.
Cheniere
Marketing continues to develop its business, has limited capital and lacks a
credit rating. In addition, Cheniere, which has guaranteed Cheniere Marketing’s
TUA obligations, has a non-investment grade corporate rating of CCC+ from
Standard and Poor’s. Accordingly, we believe that Cheniere Marketing and
Cheniere have a higher risk of being financially unable to perform their
obligations under the Cheniere Marketing TUA than either Chevron or Total have
with respect to their TUAs. Although each of our TUA counterparties faces a risk
that it will not be able to enter into commercial arrangements for the use of
its capacity at our LNG receiving terminal to support the payment of its
obligations under its TUA, due to negative developments in the LNG industry or
for other reasons, that risk and the potential for that risk to adversely affect
us are greater for Cheniere Marketing than for Total and Chevron. The principal
risks attendant to Cheniere Marketing’s future ability to generate operating
cash flow to support its TUA obligations include the following:
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Cheniere
Marketing does not have unconditional agreements or arrangements for any
supplies of LNG, or for the utilization of capacity that it has contracted
for under its TUA with us and may not be able to obtain such agreements or
arrangements on economical terms, or at
all;
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Cheniere
Marketing does not have unconditional commitments from customers for the
purchase of the natural gas it proposes to sell from our LNG receiving
terminal, and it may not be able to obtain commitments or other
arrangements on economical terms, or at all;
and
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even
if Cheniere Marketing is able to arrange for supplies and transportation
of LNG to our LNG receiving terminal, and for transportation and sales of
natural gas to customers, it may experience negative cash flows and
adverse liquidity effects due to fluctuations in supply, demand and price
for LNG, for transportation of LNG, for natural gas and for storage and
transportation of natural gas.
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In
pursuing each aspect of its planned business, Cheniere Marketing will encounter
intense competition, including competition from major energy companies and other
competitors with significantly greater resources. Cheniere Marketing will also
compete with our other customers and may compete with Cheniere and its other
subsidiaries that are developing or operating other LNG receiving terminals and
related infrastructure, which may include vessels, pipelines and LNG storage.
Cheniere Marketing’s regasification capacity at our LNG receiving terminal, in
particular, will be marketed in competition with existing capacity and
additional future capacity offered by other LNG receiving terminals that
currently exist or that may be completed or expanded in the future by Cheniere
affiliates or others.
Any or
all of these factors, as well as other risk factors that we or Cheniere
Marketing may not be able to anticipate, control or mitigate, could materially
and adversely affect the business, results of operations, financial condition,
prospects and liquidity of Cheniere Marketing, which in turn could have a
material adverse effect upon us.
The
indenture governing the Senior Notes contains restrictions that limit our
flexibility in operating our business.
The
indenture, dated as of November 9, 2006, governing the Senior Notes (the
“Sabine Pass Indenture”) contains several significant covenants that, among
other things, restrict our ability to:
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incur
additional indebtedness;
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create
liens on our assets; and
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engage
in sale and leaseback transactions and mergers or acquisitions and to make
equity investments.
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Under
some circumstances, these restrictive covenants may not allow us the flexibility
that we need to operate our business in an effective and efficient manner and
may prevent us from taking advantage of strategic and financial opportunities
that would benefit our business.
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If we
fail to comply with the restrictions in the Sabine Pass Indenture or any other
subsequent financing agreements, a default may allow the creditors, if the
agreements so provide, to accelerate the related indebtedness as well as any
other indebtedness to which a cross-acceleration or cross-default provision
applies.
We
could incur more indebtedness in the future, which could exacerbate the risks
associated with our substantial leverage.
The
Sabine Pass Indenture does not prohibit us from incurring additional
indebtedness, including additional senior or secured indebtedness, and other
liabilities, or from pledging assets to secure such indebtedness and
liabilities. The incurrence of additional indebtedness and, in particular, the
granting of a security interest to secure additional indebtedness, could
adversely affect our business, results of operations and financial condition if
we are unable to service our indebtedness.
Each
customer’s TUA for capacity at our LNG receiving terminal is subject to
termination under certain circumstances.
Each of
our long-term TUAs with Total, Chevron and Cheniere Marketing contains various
termination rights. For example, each customer may terminate its TUA if our LNG
receiving terminal experiences a force majeure delay for
longer than 18 months, fails to redeliver a specified amount of natural gas in
accordance with the customer’s redelivery nominations or fails to accept and
unload a specified number of the customer’s proposed LNG cargoes. We may not be
able to replace these TUAs on desirable terms, or at all, if they are
terminated.
Operation
of our LNG receiving terminal involves significant risks.
Our LNG
receiving terminal faces operational risks, including the
following:
|
|
•
|
performing
below expected levels of
efficiency;
|
|
|
•
|
breakdown
or failures of equipment or
systems;
|
|
|
•
|
operational
errors by vessel or tug operators or
others;
|
|
|
•
|
operational
errors by us or any contracted facility operator or
others;
|
|
|
•
|
labor
disputes; and
|
|
|
•
|
weather-related
interruptions of operations.
|
To
maintain the cryogenic readiness of our LNG receiving terminal, we may need to
purchase and process LNG. The cost of such LNG may exceed our estimates, and we
may not be able to acquire it at an affordable price, or at all. Furthermore,
even if we are able to acquire LNG, we may not be able to resell the regasified
LNG for a profit or at all.
LNG
storage tanks and other equipment at our LNG receiving terminal must be
maintained in a state of cryogenic readiness for conducting operations and to
provide services under our TUAs. We may need to acquire LNG to maintain the
cryogenic readiness of our LNG receiving terminal to provide services to our TUA
customers. The actual cost to obtain such LNG could exceed our estimates, and
the cost overrun could be significant.
Risks
associated with acquiring LNG include the following:
|
|
•
|
we
may be unable to enter into contracts for the purchase of the LNG and may
be unable to obtain vessels to deliver such LNG, on terms reasonably
acceptable to us or at all;
|
|
|
•
|
we
may bear the commodity price risk associated with purchasing the LNG,
holding it in inventory for a period of time and selling the regasified
LNG; and
|
|
|
•
|
we
may be unable to obtain financing for the purchase and shipment of the LNG
on terms that are reasonably acceptable to us or at
all.
|
Our
failure to obtain LNG, LNG vessels or both, on economical terms, or our
inability to finance the purchase of LNG for maintenance of cryogenic readiness
to provide services under our TUAs, could provide our TUA customers with the
opportunity to interrupt or terminate their payment under their respective TUAs.
Any of these occurrences could have a material adverse effect on our business,
results of operations, financial condition and prospects.
7
We
may be required to purchase natural gas to provide fuel at our LNG receiving
terminal, which would increase operating costs and could have a material adverse
effect on our results of operations.
Our three
TUAs provide for an in-kind deduction of 2% of the LNG delivered to our LNG
receiving terminal, which we use primarily as fuel for revaporization and
self-generated power and to cover natural gas unavoidably lost at the facility.
There is a risk that this 2% in-kind deduction will be insufficient for these
needs and that we will have to purchase additional natural gas from third
parties. We will bear the cost and risk of changing prices for any such
fuel.
Hurricanes
or other disasters could adversely affect us.
In August
and September of 2005, Hurricanes Katrina and Rita damaged coastal and inland
areas located in Texas, Louisiana, Mississippi and Alabama. Construction at our
LNG receiving terminal site was temporarily suspended in connection with
Hurricane Katrina, as a precautionary measure. Approximately three weeks after
the occurrence of Hurricane Katrina, the terminal site was again secured and
evacuated in anticipation of Hurricane Rita, the eye of which made landfall to
the east of the site. As a result of these 2005 storms and related matters, our
receiving terminal experienced construction delays and increased costs. In
September 2008, Hurricane Ike struck the Texas and Louisiana coast, and we
experienced damage at our LNG receiving terminal. If there are
changes in the global climate, storm frequency and intensity may increase;
should it result in rising seas, our coastal operations would be
impacted.
Future
storms and related storm activity and collateral effects, or other disasters
such as explosions, fires, floods or accidents, could result in damage to, or
interruption of operations at, our LNG receiving terminal or related
infrastructure.
Failure
to obtain and maintain approvals and permits from governmental and regulatory
agencies with respect to the operation of our LNG receiving terminal could
impede operations and could have a material adverse effect on us.
The
operation of our LNG receiving terminal is a highly regulated activity. The
FERC’s approval under Section 3 of the NGA, as well as several other
material governmental and regulatory approvals and permits, are required in
order to operate our LNG receiving terminal. Although we have obtained all of
the necessary authorizations to operate our LNG receiving terminal, such
authorizations are subject to ongoing conditions imposed by regulatory agencies,
and additional approval and permit requirements may be imposed. Failure to
obtain and maintain any of these approvals and permits could have a material
adverse effect on our business, results of operations, financial condition and
prospects.
We
are entirely dependent on Cheniere, including employees of Cheniere and its
subsidiaries, for key personnel, and a loss of key personnel could have a
material adverse effect on our business.
As of
February 15, 2010, Cheniere and its subsidiaries had 196 full-time
employees. We have contracted with subsidiaries of Cheniere to provide the
personnel necessary for the operation, maintenance and management of our LNG
receiving terminal. We face competition for these highly skilled employees in
the immediate vicinity of our LNG receiving terminal and more generally from the
Gulf Coast hydrocarbon processing and construction industries.
Our
general partner’s executive officers are officers and employees of Cheniere and
its affiliates. We do not maintain key person life insurance policies on any
personnel, and our general partner does not have any employment contracts or
other agreements with key personnel binding them to provide services for any
particular term. The loss of the services of any of these individuals could have
a material adverse effect on our business. In addition, our future success will
depend in part on our general partner’s ability to engage, and Cheniere’s
ability to attract and retain, additional qualified personnel.
We
have numerous contractual and commercial relationships, and conflicts of
interest, with Cheniere and its affiliates, including Cheniere
Marketing.
We have
agreements to compensate and to reimburse expenses of affiliates of Cheniere. In
addition, we have entered into a TUA with Cheniere Marketing, under which
Cheniere Marketing will be able to derive substantial economic benefits. All of
these agreements involve conflicts of interest between us, on the one hand, and
Cheniere and its other affiliates, on the other hand.
We are
dependent on Cheniere and its affiliates to provide services to
us. If Cheniere or its affiliates are unable or unwilling to perform
according to the negotiated terms and timetable of their respective agreement
for any reason or terminates their agreement, we would be required to engage a
substitute service provider. This would likely result in a
significant interference with operations and increased costs.
8
We
are subject to significant operating hazards and uninsured risks, one or more of
which may create significant liabilities and losses that could have a material
and adverse effect us.
The
operation of our LNG receiving terminal is subject to the inherent risks
associated with this type of operation, including explosions, pollution, release
of toxic substances, fires, hurricanes and adverse weather conditions, and other
hazards, each of which could result in significant delays in commencement or
interruptions of operations and/or in damage to or destruction of our LNG
receiving terminal or damage to persons and property. In addition, operations at
our LNG receiving terminal and the facilities and vessels of third parties on
which our operations are dependent face possible risks associated with acts of
aggression or terrorism.
We do
not, nor do we intend to, maintain insurance against all of these risks and
losses. We may not be able to maintain desired or required insurance in the
future at rates that we consider reasonable. The occurrence of a significant
event not fully insured or indemnified against could have a material adverse
effect on our business, results of operations, financial condition, liquidity
and prospects.
Existing
and future environmental and similar laws and regulations could result in
increased compliance costs or additional operating costs and
restrictions.
Our
business is and will be subject to extensive federal, state and local laws and
regulations that control, among other things, discharges to air and water; the
handling, storage and disposal of hazardous chemicals, hazardous waste, and
petroleum products; and remediation associated with the release of hazardous
substances. Many of these laws and regulations, such as the CAA, the Oil
Pollution Act, the CWA, and the RCRA, and analogous state laws and regulations,
restrict or prohibit the types, quantities and concentration of substances that
can be released into the environment in connection with the operation of our LNG
receiving terminal and require us to maintain permits and provide governmental
authorities with access to the facility for inspection and reports related to
our compliance. Violation of these laws and regulations could lead to
substantial fines and penalties or to capital expenditures related to pollution
control equipment that could have a material adverse effect on our business,
results of operations, financial condition, liquidity and prospects. CERCLA and
similar state laws impose liability, without regard to fault or the lawfulness
of the original conduct, for the release of certain types or quantities of
hazardous substances into the environment. As the owner and operator of our LNG
receiving terminal, we could be liable for the costs of cleaning up hazardous
substances released into the environment and for damage to natural
resources.
There are
numerous regulatory approaches currently in effect or being considered to
address greenhouse gases, including possible future U.S. treaty commitments, new
federal or state legislation that may impose a carbon emissions tax or establish
a cap-and-trade program, and regulation by the EPA. For example, the adoption of
frequently proposed legislation implementing a carbon tax on energy sources that
emit carbon dioxide into the atmosphere may have a material adverse effect on
the ability of our customers, particularly Cheniere Marketing, (i) to
import LNG, if imposed on them as importers of potential emission sources, or
(ii) to sell regasified LNG, if imposed on them or their customers as
natural gas suppliers or consumers. In addition, as we consume retainage gas at
our LNG receiving terminal, this carbon tax may also be imposed on us
directly.
There
have also been proposals for a mandatory cap and trade program to reduce
greenhouse gas emissions. In June 2009, the U.S. House of Representatives passed
a comprehensive climate change and energy bill, the American Clean Energy and
Security Act, and the U.S. Senate is considering similar legislation that would,
among other things, impose a nationwide cap on greenhouse gas emissions and
require major sources to obtain “allowances” to meet that cap. In September
2009, the EPA promulgated a rule requiring certain emitters of greenhouse gases
to monitor and report their greenhouse gas emissions to the EPA. In addition, in
response to the 2007 U.S. Supreme Court ruling in Massachusetts v. EPA that the
EPA has authority to regulate carbon dioxide emissions under the Clean Air Act,
the EPA has issued and is considering several additional proposals, including
one that would require best available control technology for greenhouse gas
emissions whenever certain stationary sources are built or significantly
modified. In addition, two U.S. federal appeals courts have reinstated lawsuits
permitting individuals, state attorneys general and others to pursue claims
against major utility, coal, oil and chemical companies on the basis that those
companies have created a public nuisance due to their emissions of carbon
dioxide. Climate change initiatives and other efforts to reduce greenhouse gas
emissions like those described above or otherwise may require additional
controls on the operation of our LNG receiving terminal and increased costs to
implement and maintain such controls.
Other
future legislation and regulations, such as those relating to the transportation
and security of LNG imported to our LNG receiving terminal through the Sabine
Pass Channel, could cause additional expenditures, restrictions and delays in
our business, the extent of which cannot be predicted and which may require us
to limit substantially, delay or cease operations in some circumstances.
Revised, reinterpreted or additional laws and regulations that result in
increased compliance costs or additional operating costs and restrictions could
have a material adverse effect on our business, results of operations, financial
condition, liquidity and prospects.
9
Failure
of imported LNG to be a competitive source of energy for North American markets
could adversely affect our customers, particularly Cheniere Marketing, and could
materially and adversely affect our business, results of operations, financial
condition and prospects.
Operations
at our LNG receiving terminal will be dependent upon the ability of our
customers to import LNG supplies into the U.S., which is primarily dependent
upon LNG being a competitive source of energy in North America. In North
America, due mainly to a historically abundant supply of natural gas, imported
LNG has not historically been a major energy source. Our business plan is based,
in part, on the belief that LNG can be produced internationally and delivered to
North America at a lower cost than the cost to produce some domestic supplies of
natural gas, or other alternative energy sources. Through the use of improved
exploration technologies, additional sources of natural gas may be discovered in
North America, which could further increase the available supply of natural gas
and could result in natural gas being available at a lower cost than imported
LNG. In addition to natural gas, LNG also competes in North America with other
sources of energy, including coal, oil, nuclear, hydroelectric, wind and solar
energy.
Other
continents have a longer history of importing LNG and, due to their geographic
proximity to LNG producers and limited pipeline access to natural gas supplies,
may be willing and able to pay more for LNG, thereby reducing or eliminating the
supply of LNG available in North American markets. Current and futures prices
for natural gas in markets that compete with North America have been higher than
prices for natural gas in North America, which has adversely affected the volume
of LNG imports into North America. If LNG deliveries to North America continue
to be constrained due to stronger demand from these competing markets, the
ability of our TUA customers to import LNG into North America on a profitable
basis may be adversely affected.
Political
instability in foreign countries that have supplies of natural gas, or strained
relations between such countries and the U.S., may also impede the willingness
or ability of LNG suppliers and merchants in such countries to export LNG to the
U.S. Furthermore, some foreign suppliers of LNG may have economic or other
reasons to direct their LNG to non-U.S. markets or to competitors’ LNG receiving
terminals in the U.S.
As a
result of these and other factors, LNG may not be a competitive source of energy
in North America. The failure of LNG to be a competitive supply alternative to
domestic natural gas, oil and other alternative energy sources could impede our
customers’ ability to import LNG into North America on a commercial basis. Any
significant impediment to the ability to import LNG into the United States
generally or to our LNG receiving terminal specifically could have a material
adverse effect on our customers, particularly Cheniere Marketing, and on our
business, results of operations, financial condition and prospects.
Cyclical
or other changes in the demand for LNG regasification capacity may adversely
affect the performance of our TUA customers, particularly Cheniere Marketing,
and could reduce our operating revenues and may cause us operating
losses.
The
utilization of our LNG receiving terminal could be subject to cyclical swings,
reflecting alternating periods of under-supply and over-supply of LNG
importation capacity and available natural gas, principally due to the combined
impact of several factors, including:
|
|
•
|
additions
to competitive regasification capacity in North America, Europe, Asia and
other markets, which could divert LNG from our LNG receiving
terminal;
|
|
|
•
|
insufficient
LNG liquefaction capacity
worldwide;
|
|
|
•
|
insufficient
LNG tanker capacity;
|
|
|
•
|
reduced
demand and lower prices for natural
gas;
|
|
|
•
|
increased
natural gas production deliverable by pipelines, which could suppress
demand for LNG;
|
|
|
•
|
cost
improvements that allow competitors to offer LNG regasification services
at reduced prices;
|
|
|
•
|
changes
in supplies of, and prices for, alternative energy sources such as coal,
oil, nuclear, hydroelectric, wind and solar energy, which may reduce the
demand for natural gas;
|
|
|
•
|
changes
in regulatory, tax or other governmental policies regarding imported LNG,
natural gas or alternative energy sources, which may reduce the demand for
imported LNG and/or natural gas;
|
|
|
•
|
adverse
relative demand for LNG in North America compared to other markets, which
may decrease LNG imports into North America;
and
|
|
|
•
|
cyclical
trends in general business and economic conditions that cause changes in
the demand for natural gas.
|
10
These
factors could materially and adversely affect the ability of our customers,
including Cheniere Marketing, to procure supplies of LNG to be imported into
North America and to procure customers for regasified LNG at economical prices,
or at all.
We
face competition from competitors with far greater resources.
Many
competing companies have secured access to, or are pursuing development or
acquisition of, LNG import infrastructure to serve the U.S. natural gas market.
Some industry analysts have predicted substantial excess LNG receiving capacity
in North America for at least several years based on terminals currently in
operation or under construction. Our competitors in the U.S. include major
energy corporations (e.g., BG Group plc, BP plc,
Chevron Corporation, ConocoPhillips and Dow Chemical). In addition, other
competitors have developed or reopened additional LNG receiving terminals in
Europe, Asia and other markets, which also compete with our LNG receiving
terminal. Almost all of these competitors have longer operating histories, more
development experience, greater name recognition, larger staffs and
substantially greater financial, technical and marketing resources and access to
LNG supply than we and our affiliates do. The superior resources that these
competitors have available for deployment could allow them to compete
successfully against us, which could have a material adverse effect on our
business, results of operations, financial condition, liquidity and
prospects.
Insufficient
development of additional LNG liquefaction capacity worldwide could adversely
affect the performance of our TUA customers, particularly Cheniere Marketing,
and could have a material adverse effect on our business, results of operations,
financial condition, liquidity and prospects.
Commercial
development of an LNG liquefaction facility takes a number of years and requires
substantial capital investment. Many factors could negatively affect continued
development of LNG liquefaction facilities, including:
|
|
•
|
increased
construction costs;
|
|
|
•
|
economic
downturns, increases in interest rates or other events that may affect the
availability of sufficient financing for LNG projects on commercially
reasonable terms;
|
|
|
•
|
decreases
in the price of LNG and natural gas, which might decrease the expected
returns relating to investments in LNG
projects;
|
|
|
•
|
the
inability of project owners or operators to obtain governmental approvals
to construct or operate LNG
facilities;
|
|
|
•
|
political
unrest in exporting countries or local community resistance in such
countries to the siting of LNG facilities due to safety, environmental or
security concerns; and
|
|
|
•
|
any
significant explosion, spill or similar incident involving an LNG
liquefaction facility or LNG
carrier.
|
There
may be shortages of LNG vessels worldwide, which could adversely affect the
performance of our TUA customers, particularly Cheniere Marketing, and could
have a material adverse effect on our business, results of operations, financial
condition, liquidity and prospects.
The
construction and delivery of LNG vessels require significant capital and long
construction lead times, and the availability of the vessels could be delayed to
the detriment of our TUA customers because of:
|
|
•
|
an
inadequate number of shipyards constructing LNG vessels and a backlog of
orders at these shipyards;
|
|
|
•
|
political
or economic disturbances in the countries where the vessels are being
constructed;
|
|
|
•
|
changes
in governmental regulations or maritime self-regulatory
organizations;
|
|
|
•
|
work
stoppages or other labor disturbances at the
shipyards;
|
|
|
•
|
bankruptcy
or other financial crisis of
shipbuilders;
|
|
|
•
|
quality
or engineering problems;
|
|
|
•
|
weather
interference or a catastrophic event, such as a major earthquake, tsunami
or fire; and
|
|
|
•
|
shortages
of or delays in the receipt of necessary construction
materials.
|
11
Decreases
in the demand for and price of natural gas could lead to reduced development of
LNG projects worldwide, which could adversely affect the performance of our TUA
customers, particularly Cheniere Marketing, and could have a material adverse
effect on our business, results of operations, financial condition, liquidity
and prospects.
The
development of domestic LNG receiving terminals and LNG projects generally is
based on assumptions about the future price of natural gas and the availability
of imported LNG. Natural gas prices have been, and are likely to continue to be,
volatile and subject to wide fluctuations in response to one or more of the
following factors:
|
|
•
|
relatively
minor changes in the supply of, and demand for, natural gas in relevant
markets;
|
|
|
•
|
political
conditions in international natural gas producing
regions;
|
|
|
•
|
the
extent of domestic production and importation of natural gas in relevant
markets;
|
|
|
•
|
the
level of demand for LNG and natural gas in relevant markets, including the
effects of economic downturns or
upturns;
|
|
|
•
|
weather
conditions;
|
|
|
•
|
the
competitive position of natural gas as a source of energy compared with
other energy sources; and
|
|
|
•
|
the
effect of government regulation on the production, transportation and sale
of natural gas.
|
Adverse
trends or developments affecting any of these factors could result in decreases
in the price of natural gas, leading to reduced development of LNG projects
worldwide. Such reductions could adversely affect the performance of our TUA
customers, particularly Cheniere Marketing, and could have a material adverse
effect on our business, results of operations, financial condition, liquidity
and prospects.
We
may experience increased labor costs, and the unavailability of skilled workers
or our failure to attract and retain key personnel could adversely affect
us.
We are
dependent upon the available labor pool of skilled employees. We compete with
other energy companies and other employers to attract and retain qualified
personnel with the technical skills and experience required to operate our LNG
receiving terminal and to provide our customers with the highest quality
service. Our affiliates who hire personnel on our behalf are also subject to the
Fair Labor Standards Act, which governs such matters as minimum wage, overtime
and other working conditions. A shortage in the labor pool of skilled workers or
other general inflationary pressures or changes in applicable laws and
regulations could make it more difficult for us to attract and retain personnel
and could require an increase in the wage and benefits packages that we offer,
thereby increasing our operating costs. For example, in the aftermaths of
Hurricanes Katrina and Rita, Bechtel and certain subcontractors temporarily
experienced a shortage of available skilled labor necessary to meet the
requirements of our construction plan. As a result, we agreed to change orders
with Bechtel concerning additional activities and expenditures to mitigate the
hurricanes’ effects on the construction of our LNG receiving terminal. Any
increase in our operating costs could materially and adversely affect our
business, results of operations, financial condition and prospects.
Our
lack of diversification could have an adverse effect on our financial condition
and results of operations.
Substantially
all of our anticipated revenue in 2010 will be dependent upon one asset, our LNG
receiving terminal located in southern Louisiana. Due to our lack of asset and
geographic diversification, an adverse development at our LNG receiving terminal
or in the LNG industry would have a significantly greater impact on our
financial condition and results of operations than if we maintained more diverse
assets and operating areas.
Terrorist
attacks or military campaigns may adversely impact our business.
A
terrorist incident may result in temporary or permanent closure of existing LNG
facilities, including our LNG receiving terminal, which could increase our costs
and decrease our cash flows, depending on the duration of the closure.
Operations at our LNG receiving terminal could also become subject to increased
governmental scrutiny that may result in additional security measures at a
significant incremental cost to us. In addition, the threat of terrorism and the
impact of military campaigns may lead to continued volatility in prices for
natural gas that could adversely affect our customers, particularly Cheniere
Marketing, including their ability to satisfy their obligations to us under
their TUAs.
12
ITEM 1B.
UNRESOLVED STAFF
COMMENTS
None.
We may in
the future be involved as a party to various legal proceedings, which are
incidental to the ordinary course of business. We regularly analyze current
information and, as necessary, provide accruals for probable liabilities on the
eventual disposition of these matters. In the opinion of management, as of
December 31, 2009, there were no threatened or pending legal matters that
would have a material impact on our consolidated results of operations,
financial position or cash flows.
None.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Not
applicable.
13
ITEM 6. SELECTED FINANCIAL
DATA
The
following tables set forth our selected financial data for the periods
indicated. The financial data should be read in conjunction with Management’s
Discussion and Analysis of Financial Condition and Results of Operations and our
Consolidated Financial Statements and Notes thereto included elsewhere in this
report.
|
December
31,
|
|||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||
|
(in
thousands)
|
|||||||||||||||
|
Statement of Operations
Data:
|
|||||||||||||||
|
Revenues
(including affiliates)
|
$
|
416,790
|
$
|
15,000
|
$
|
—
|
$
|
—
|
$
|
—
|
|||||
|
Expenses
(including affiliates)
|
76,579
|
30,391
|
11,615
|
10,265
|
4,711
|
||||||||||
|
Income
(loss) from operations
|
340,211
|
(15,391
|
)
|
(11,615
|
)
|
(10,265
|
)
|
(4,711
|
)
|
||||||
|
Other
income (expense) (1)
|
(141,402
|
)
|
(63,547
|
)
|
(39,731
|
)
|
(50,495
|
)
|
456
|
||||||
|
Net
income (loss)
|
198,809
|
(78,938
|
)
|
(51,346
|
)
|
(60,760
|
)
|
(4,255
|
)
|
||||||
|
Cash
Flow Data:
|
|||||||||||||||
|
Cash
flows provided by (used in) operating activities
|
244,722
|
78,302
|
—
|
(27,901
|
)
|
6,327
|
|||||||||
|
Cash
flows provided by (used in) investing activities
|
(26,431
|
)
|
75,940
|
—
|
(1,544,408
|
)
|
(246,337
|
)
|
|||||||
|
Cash
flows provided by (used in) financing activities
|
(295,707
|
)
|
40,585
|
—
|
1,572,309
|
218,188
|
|||||||||
|
December
31,
|
|||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||
|
(in
thousands)
|
|||||||||||||||
|
Balance
Sheet Data:
|
|||||||||||||||
|
Cash
and cash equivalents
|
$
|
117,411
|
$
|
194,827
|
$
|
—
|
$
|
—
|
$
|
—
|
|||||
|
Restricted
cash and cash equivalents (current)
|
13,732
|
41,158
|
191,179
|
176,324
|
8,871
|
||||||||||
|
Non-current
restricted cash and cash equivalents
|
82,394
|
126,056
|
442,019
|
982,613
|
—
|
||||||||||
|
Property,
plant and equipment, net
|
1,588,557
|
1,517,507
|
1,127,289
|
651,676
|
270,740
|
||||||||||
|
Total
assets
|
1,859,101
|
1,944,345
|
1,826,881
|
1,858,111
|
309,135
|
||||||||||
|
Long-term
debt, net of discount
|
2,110,101
|
2,107,673
|
2,032,000
|
2,032,000
|
37,377
|
||||||||||
|
Long-term
debt—related party, net of discount
|
72,928
|
70,661
|
—
|
—
|
—
|
||||||||||
|
Deferred
revenue—long term
|
33,500
|
37,500
|
40,000
|
40,000
|
40,000
|
||||||||||
|
Deferred
revenue—affiliate (long-term)
|
7,360
|
4,971
|
2,583
|
—
|
—
|
||||||||||
|
(1)
|
The
year ended December 31, 2006 includes a $23.8 million loss related to
the extinguishment of debt issuance costs and a $20.6 million derivative
loss as a result of terminating interest rate swaps, both related to the
termination of the Sabine Pass credit facility in November
2006.
|
14
The
following discussion and analysis presents management’s view of our business,
financial condition and overall performance and should be read in conjunction
with our consolidated financial statements and the accompanying notes. This
information is intended to provide investors with an understanding of our past
performance, current financial condition and outlook for the future. Our
discussion and analysis includes the following subjects:
|
|
•
|
Overview
of Business
|
|
|
•
|
Overview
of Significant 2009 Events
|
|
|
•
|
Liquidity
and Capital Resources
|
|
|
•
|
Contractual
Obligations
|
|
|
•
|
Results
of Operations
|
|
|
•
|
Off-Balance
Sheet Arrangements
|
|
|
•
|
Summary
of Critical Accounting Policies
|
|
|
•
|
Recent
Accounting Standards
|
In 2003,
we were formed by Cheniere to own, develop and operate the Sabine Pass LNG
receiving terminal. We are a Houston-based partnership formed with one general
partner, Sabine Pass LNG-GP, Inc. (“Sabine Pass GP”), an indirect subsidiary of
Cheniere, and one limited partner, Sabine Pass LNG-LP, LLC (“Sabine Pass
LNG-LP”), an indirect subsidiary of Cheniere. Cheniere has a 90.6% ownership
interest in Cheniere Energy Partners, L.P. (“Cheniere Partners”), which is the
100% parent of Sabine Pass GP and Sabine Pass LNG-LP and, indirectly,
us.
Following
the achievement of commercial operability of our LNG receiving terminal in
September 2008, we began receiving capacity reservation fee payments from
Cheniere Marketing, LLC (“Cheniere Marketing”), a wholly-owned subsidiary of
Cheniere, under its TUA. In December 2008, Cheniere Marketing began paying us
its monthly capacity reservation fee payment on a quarterly basis. We
also began receiving capacity reservation fee payments from Total Gas and Power
North America, Inc. (formerly known as Total LNG USA, Inc.) (“Total”) and
Chevron U.S.A., Inc. (“Chevron”) under their TUAs in March 2009 and June 2009,
respectively, when Total and Chevron made their first monthly capacity
reservation fee payments.
Our
Business
Our LNG
receiving terminal has regasification capacity of approximately 4.0 Bcf/d and
five liquefied natural gas (“LNG”) storage tanks with an aggregate LNG storage
capacity of approximately 16.9 Bcf along with two unloading docks capable of
handling the largest LNG carriers currently being operated or built.
Construction of our LNG receiving terminal commenced in March
2005. We achieved full operability with total sendout capacity of
approximately 4.0 Bcf/d and storage capacity of approximately 16.9 Bcf during
the third quarter of 2009.
In the
second quarter of 2009, we purchased Sabine Pass Tug Services, LLC (“Tug
Services”), a wholly-owned subsidiary of Cheniere. As a result, we acquired a
lease (the “Tug Agreement”) for the use of tug boats and marine services at our
LNG receiving terminal. In connection with this acquisition, Tug Services
entered into a Terminal Marine Services Agreement (the “Tug Sharing Agreement”)
with our three TUA customers to provide their LNG cargo vessels with tug boat
and marine services at our LNG receiving terminal.
15
In 2009,
we maintained commercial operability of our LNG receiving terminal and continued
to execute our strategy to complete construction of our LNG receiving terminal
and to generate steady and reliable revenues under our long-term TUAs. The major
events of 2009 include the following:
|
|
•
|
receipt
of capacity reservation fee payments from Cheniere Marketing, Total and
Chevron and successful unloading and processing of LNG for each
customer;
|
|
|
•
|
purchase,
transportation and successful unloading of an additional LNG commissioning
cargo for our LNG receiving terminal;
and
|
|
|
•
|
completed
construction and achieved full operability of our LNG receiving terminal
with approximately 4.0 Bcf/d of total sendout capacity and five LNG
storage tanks with approximately 16.9 Bcf of aggregate storage
capacity.
|
Available
Cash
As of
December 31, 2009, we had $117.4 million in cash and cash equivalents and $96.1
million in restricted cash and cash equivalents, which is restricted to pay
interest on the Senior Notes.
The
foregoing funds are anticipated to be sufficient to fund the remaining accrued
liabilities related to construction, operating expenditures and interest
requirements. Regardless whether we receive revenues from Cheniere Marketing (or
Cheniere, as guarantor), we expect to have sufficient cash flow from payments
made under our Total and Chevron TUAs to meet our future operating expenditures
and our interest payment requirements until maturity of the 2013 Notes. However, we must
satisfy certain restrictions under the Sabine Pass Indenture governing the
Senior Notes before being able to make distributions to our limited partner,
which will require that Cheniere Marketing make a substantial portion of its TUA
payments to us. Cheniere Marketing has a limited operating history,
limited capital and no credit rating. If we are unable to make cash
distributions to our limited partner, then Cheniere Partners will likely be
unable to make its anticipated future quarterly cash distributions to its
unitholders, including affiliates of Cheniere. Under such
circumstances and absent additional external funding, Cheniere Marketing and
Cheniere would likely be unable to meet their ongoing TUA and guarantee
obligations to us.
Construction
Construction
at our LNG receiving terminal was substantially completed in the third quarter
of 2009. As of December 31, 2009, we had completed construction and attained
full operability of our LNG receiving terminal (with approximately 4.0 Bcf/d of
total sendout capacity and five LNG storage tanks with approximately 16.9 Bcf of
aggregate storage capacity), and such was accomplished within our
budget.
TUA
Revenues
The
entire approximately 4.0 Bcf/d of regasification capacity at our LNG receiving
terminal has been fully reserved under two 20-year, firm commitment TUAs with
unaffiliated third parties, and a third TUA with Cheniere
Marketing. Each of the three customers at our LNG receiving terminal
must make the full contracted amount of capacity reservation fee payments under
its TUA whether or not it uses any of its reserved capacity. Capacity
reservation fee TUA payments are made by our third-party customers as
follows:
|
|
•
|
Total
has reserved approximately 1.0 Bcf/d of regasification capacity and has
agreed to make monthly capacity payments to us aggregating approximately
$125 million per year for 20 years that commenced on April 1, 2009.
Total, S.A. has guaranteed Total’s obligations under its TUA up to $2.5
billion, subject to certain exceptions;
and
|
|
|
•
|
Chevron
has reserved approximately 1.0 Bcf/d of regasification capacity and has
agreed to make monthly capacity payments to us aggregating approximately
$125 million per year for 20 years that commenced on July 1, 2009.
Chevron Corporation has guaranteed Chevron’s obligations under its TUA up
to 80% of the fees payable by
Chevron.
|
In
addition, Cheniere Marketing has reserved the remaining 2.0 Bcf/d of
regasification capacity and is entitled to use any capacity not utilized by
Total and Chevron. Cheniere Marketing began making its TUA capacity reservation
fee payments in the fourth quarter of 2008. Cheniere Marketing is
required to make monthly capacity payments aggregating approximately $250
million per year for the period from January 1, 2009 through at least
September 30, 2028. Cheniere Marketing continues to develop its
16
business, has a limited operating
history, limited capital and lacks a credit rating. Cheniere, which has
guaranteed the obligations of Cheniere Marketing under its TUA, has a
non-investment grade corporate rating.
Under
each of these TUAs, we are also entitled to retain 2% of the LNG delivered for
the customer’s account, which we will use primarily as fuel for revaporization
and self-generated power at our receiving terminal.
Each of
Total and Chevron previously paid us $20.0 million in nonrefundable advance
capacity reservation fees, which are being amortized over a 10-year period as a
reduction of each customer’s regasification capacity reservation fees payable
under its respective TUA.
Sources
and Uses of Cash
The
following table summarizes (in thousands) the sources and uses of our cash and
cash equivalents for the years ended December 31, 2009, 2008 and 2007. The
table presents capital expenditures on a cash basis; therefore, these amounts
differ from the amounts of capital expenditures, including accruals, that are
referred to elsewhere in this report. Additional discussion of these items
follows the table.
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
SOURCES
OF CASH AND CASH EQUIVALENTS
|
||||||||||||
|
Use
of restricted cash and cash equivalents
|
$ | 71,088 | $ | 503,093 | $ | 471,613 | ||||||
|
Proceeds
from issuance of debt
|
— | 144,965 | — | |||||||||
|
Operating
cash flow
|
244,722 | 78,302 | — | |||||||||
|
Total
sources of cash and cash equivalents
|
315,810 | 726,360 | 471,613 | |||||||||
|
USES
OF CASH AND CASH EQUIVALENTS
|
||||||||||||
|
LNG
receiving terminal construction-in-process, net
|
(96,918 | ) | (402,955 | ) | (430,405 | ) | ||||||
|
Advances
to affiliate—LNG held for commissioning, net of amounts transferred to LNG
receiving terminal construction-in-process
|
— | (9,923 | ) | — | ||||||||
|
Investment
in restricted cash and cash equivalents
|
— | (99,543 | ) | — | ||||||||
|
Distributions
to owners
|
(295,684 | ) | — | — | ||||||||
|
Debt
issuance costs
|
(23 | ) | (4,837 | ) | (725 | ) | ||||||
|
Advances
under long-term contracts
|
(601 | ) | (14,032 | ) | (39,155 | ) | ||||||
|
Other
|
— | (243 | ) | (1,328 | ) | |||||||
|
Total
uses of cash and cash equivalents
|
(393,226 | ) | (531,533 | ) | (471,613 | ) | ||||||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(77,416 | ) | 194,827 | — | ||||||||
|
CASH
AND CASH EQUIVALENTS—beginning of year
|
194,827 | — | — | |||||||||
|
CASH
AND CASH EQUIVALENTS—end of year
|
$ | 117,411 | $ | 194,827 | $ | — | ||||||
Use
of restricted cash and cash equivalents
In 2009,
2008 and 2007, $71.1 million, $503.1 million and $471.6 million of restricted
cash and cash equivalents, respectively, were primarily used to pay for
scheduled interest payments and construction activities at our LNG receiving
terminal. Under the Sabine Pass Indenture, a portion of the proceeds
from the Senior Notes was initially required to be used for scheduled interest
payments through May 2009 and to fund the cost to complete construction of our
LNG receiving terminal. Due to these restrictions imposed by the indenture, the
proceeds are not presented as cash and cash equivalents, and therefore, when
proceeds from the Senior Notes are used, they are presented as a source of cash
and cash equivalents. The decreased use of restricted cash and cash equivalents
in 2008 and 2009 primarily resulted from completing construction of the initial
sendout capacity of approximately 2.6 Bcf/d and storage capacity of
approximately 10.1 Bcf at our LNG receiving terminal in September 2008, and the
substantial completion of our LNG receiving terminal’s construction activities
during the third quarter 2009.
Proceeds
from issuance of debt
Proceeds
from issuance of debt were $145.0 million in 2008. The $145.0 million borrowings
during 2008 related to the additional issuance of 2016 Notes.
Operating
cash flow
Operating
cash flow increased from $78.3 million in 2008 to $244.7 million in
2009. In 2009, we received capacity reservation fee payments from
Cheniere Marketing of approximately $250 million, and we received capacity
reservation fee payments from Total
17
and
Chevron of approximately $177 million. These operating cash flows
were offset by interest expense, operating and maintenance costs and general and
administrative costs.
In
September 2008, we received $15.0 million from Cheniere Marketing related to
prepaid capacity reservation fee payments for the last three months of
2008. In December 2008, we received $62.7 million from Cheniere
Marketing related to prepaid capacity reservation fee payments for the first
three months of 2009. These operating cash flows were offset by
interest expense, operating and maintenance costs and general and administrative
costs.
LNG
receiving terminal construction-in-process, net
Capital
expenditures for our LNG receiving terminal were $96.9 million, $403.0 million
and $430.4 million in 2009, 2008 and 2007, respectively. Our capital
expenditures decreased in 2009 as a result of the substantial completion of the
construction of our LNG receiving terminal in the third quarter of
2009. Our capital expenditures decreased in 2008 as a result of the
winding down and completion of construction of the initial phases of our LNG
receiving terminal.
Advances
to affiliate—LNG held for commissioning, net of amounts transferred to LNG
receiving terminal construction-in-process
During
2008, we advanced $9.9 million for LNG commissioning cargoes, net of amounts
transferred to LNG receiving terminal construction-in-process.
Investments
in restricted cash and cash equivalents
Investments
in restricted cash and cash equivalents were $99.5 million in 2008. Investment
in restricted cash and cash equivalents are cash and cash equivalents that have
been contractually restricted to be used for a specific purpose. The 2008
investments in restricted cash and cash equivalents were related to borrowings
that were contractually restricted to be used in the construction of our LNG
receiving terminal and for interest payments on the Senior Notes.
Distributions
to owners
In 2009,
we made $295.7 million distributions to our owners after satisfying conditions
in the Sabine Pass Indenture governing our Senior Notes, discussed
below.
Advances
under long-term contracts
We have
entered into certain contracts and purchase agreements related to the
construction of our LNG receiving terminal that require us to make payments to
fund costs that will be incurred or equipment that will be received in the
future. Advances made under long-term contracts on purchase commitments are
carried at face value and transferred to property, plant, and equipment as the
costs are incurred or equipment is received. Advances under long-term
contracts were $0.6 million, $14.0 million and $39.2 million in 2009, 2008 and
2007, respectively. The decrease in 2009 compared to 2008 resulted from the
substantial completion of the construction of our LNG receiving terminal in the
third quarter of 2009. During 2009, our LNG receiving terminal received
equipment that we had previously advanced payment for under long-term
contracts. The decrease in 2008 compared to 2007 was a result of our
nearing the completion of construction on the initial sendout capacity of
approximately 2.6 Bcf/d and storage capacity of approximately 10.1 Bcf at our
LNG receiving terminal. During 2008, we received equipment at our LNG receiving
terminal that we had previously advanced payment for under long-term
contracts.
Debt
Agreements
Senior
Notes
We have
issued an aggregate principal amount of $2,215.5 million of Senior Notes
consisting of $550.0 million of 7¼% Senior Secured Notes due 2013 and $1,665.5
million of 7½% Senior Secured Notes due 2016. Interest on the Senior Notes is
payable semi-annually in arrears on May 30 and November 30 of each
year. The Senior Notes are secured on a first-priority basis by a security
interest in all of our equity interests and substantially all of our operating
assets. Under the Sabine Pass Indenture governing the Senior Notes, except for
permitted tax distributions, we may not make distributions until certain
conditions are satisfied: there must be on deposit in an interest payment
account an amount equal to one-sixth of the semi-annual interest payment
multiplied by the number of elapsed months since the last semi-annual interest
payment, and there must be on deposit in a permanent debt service reserve fund
an amount equal to one semi-annual interest payment of approximately $82.4
million. Distributions are permitted only after satisfying the foregoing funding
requirements, a fixed charge coverage ratio test of 2:1 and other conditions
specified in the Sabine Pass Indenture. During the year ended December 31, 2009,
we made distributions of $295.7 million to our owners after satisfying all the
applicable conditions in the Sabine Pass Indenture.
18
Services
Agreements
In
February 2005, we entered into a 20-year operation and maintenance agreement
with a wholly-owned subsidiary of Cheniere pursuant to which we receive all
necessary services required to construct, operate and maintain our LNG receiving
terminal. Prior to substantial completion of our LNG receiving terminal, as
defined in our engineering, procurement and construction (“EPC”) contract with
Bechtel Corporation (“Bechtel”), we were required to pay a fixed monthly fee of
$95,000 (indexed for inflation) under the agreement. The fixed monthly fee
increased to $130,000 (indexed for inflation) upon the achievement of
substantial completion of our LNG receiving terminal in March 2009, and the
counterparty is entitled to a bonus equal to 50% of the salary component of
labor costs in certain circumstances to be agreed upon between us and the
counterparty at the beginning of each operating year. In addition, we are
required to reimburse the counterparty for its operating expenses, which consist
primarily of labor expenses.
In
February 2005, we entered into a 20-year management services agreement with our
general partner, which is a wholly-owned subsidiary of Cheniere Partners,
pursuant to which our general partner was appointed to manage the construction
and operation of our LNG receiving terminal, excluding those matters provided
for under the operation and maintenance agreement described in the paragraph
above. In August 2008, our general partner assigned all of its rights and
obligations under the management services agreement to Cheniere LNG Terminals,
Inc. (“Cheniere Terminals”), a wholly-owned subsidiary of Cheniere. Prior to
substantial completion of our LNG receiving terminal, as defined in our EPC
contract with Bechtel, we were required to pay Cheniere Terminals a monthly
fixed fee of $340,000 (indexed for inflation). With the achievement of
substantial completion of our LNG receiving terminal in March 2009, the monthly
fixed fee increased to $520,000 (indexed for inflation).
During
2009, 2008 and 2007, we paid an aggregate of $8.0 million, $5.2 million and $5.2
million, respectively, under the foregoing service agreements.
State
Tax Sharing Agreement
In
November 2006, we entered into a state tax sharing agreement with Cheniere
effective for tax returns first due on or after January 1, 2008. Under this
agreement, Cheniere has agreed to prepare and file all Texas franchise tax
returns which it and we are required to file on a combined basis and to timely
pay the combined tax liability. If Cheniere, in its sole discretion, demands
payment, we will pay to Cheniere an amount equal to the Texas franchise tax that
we would be required to pay if our Texas franchise tax liability were computed
on a separate company basis. This agreement contains similar provisions for
other state and local taxes that we and Cheniere are required to file on a
combined, consolidated or unitary basis.
19
We are
committed to make cash payments in the future pursuant to certain of our
contracts. The following table (in thousands) summarizes certain contractual
obligations in place as of December 31, 2009.
|
Payments
Due for Years Ended December 31,
|
||||||||||||||||||||
|
Total
|
2010
|
2011- 2012 | 2013- 2014 |
Thereafter
|
||||||||||||||||
|
Operating
lease obligations (1) (2)
|
$ | 274,533 | $ | 8,905 | $ | 17,810 | $ | 17,810 | $ | 230,008 | ||||||||||
|
Long-term
debt (excluding interest) (3)
|
2,215,500 | — | — | 550,000 | 1,665,500 | |||||||||||||||
|
Service
contracts—
|
||||||||||||||||||||
|
Affiliate
O&M agreement (4)
|
23,660 | 1,560 | 3,120 | 3,120 | 15,860 | |||||||||||||||
|
Affiliate
Sabine Pass LNG MSA (4)
|
94,640 | 6,240 | 12,480 | 12,480 | 63,440 | |||||||||||||||
|
Construction
and purchase obligations (4)
|
7,408 | 7,408 | — | — | — | |||||||||||||||
|
Cooperative
endeavor agreements (4)
|
17,171 | 2,453 | 4,906 | 4,906 | 4,906 | |||||||||||||||
|
Other
Obligation (5)
|
3,018 | 979 | 2,039 | — | — | |||||||||||||||
|
Total
|
$ | 2,635,930 | $ | 27,545 | $ | 40,355 | $ | 588,316 | $ | 1,979,714 | ||||||||||
|
(1)
|
A
discussion of these obligations can be found in Note 12—“Leases” to our
Consolidated Financial Statements.
|
|
(2)
|
Minimum
lease payments have not been reduced by a minimum sublease rental of
$129.6 million due in the future under noncancelable tug boat
subleases.
|
|
(3)
|
Based
on the total debt balance, scheduled maturities and interest rates in
effect at December 31, 2009, our cash payments for interest would be
$164.8 million in 2010, $164.8 million in 2011, $164.8 million in 2012,
$161.5 million in 2013, $124.9 million in 2014 and $239.3 million for the
remaining years for a total of $1,020.1 million. See Note
10—“Long-Term Debt (including related party”) of our Consolidated
Financial Statements.
|
|
(4)
|
A
discussion of these obligations can be found in Note 11—“Related Party
Transactions” to our Consolidated Financial
Statements.
|
|
(5)
|
Other
obligation consists of LNG receiving terminal security
services.
|
Overall
Operations
2009
vs. 2008
Our
consolidated net income increased $277.7 million, from a $78.9 million net loss
in 2008 to a $198.8 million net income in 2009. This $277.7 million increase in
net income in 2009 resulted from the commencement of revenues under the Cheniere
Marketing TUA beginning October 1, 2008, the Total TUA on April 1, 2009 and
the Chevron TUA on July 1, 2009.
2008
vs. 2007
Our
consolidated net loss increased $27.6 million, from a $51.3 million net loss in
2007 to $78.9 million net loss in 2008. The $27.6 million increase in net loss
in 2008 was primarily due to decreased interest income, increased depreciation
expense, increased operating and maintenance expense and increased operating and
maintenance expense-affiliate, which were partially offset by decreased interest
expense and derivative gain.
LNG
TUA Revenue
2009
vs. 2008
Our LNG
TUA revenue increased $163.9 million, from zero in 2008 to $163.9 million in
2009. This $163.9 million increase is primarily resulted from the
commencement of revenues under the Total TUA beginning on April 1, 2009 and the
Chevron TUA beginning on July 1, 2009.
20
LNG
TUA Revenue from Affiliate
2009
vs. 2008
Our LNG
TUA revenue from affiliate increased $237.9 million, from $15.0 million in 2008
to $252.9 million in 2009. Cheniere Marketing is required to make capacity
reservation fee payments aggregating approximately $250 million per year for the
period from January 1, 2009, through at least September 30, 2028. Following the
achievement of commercial operability of our LNG receiving terminal in
September 2008, Cheniere Marketing made a capacity payment of $15.0 million
for October, November and December of 2008.
2008
vs. 2007
Our LNG
TUA revenue from affiliate increased from zero in 2007 to $15.0 million in 2008.
Following the achievement of commercial operability of our LNG receiving
terminal in September 2008, Cheniere Marketing made a capacity payment of
$15.0 million for October, November and December of 2008. We did not have TUA
revenue in 2007, as our LNG receiving terminal was not yet
completed.
Operating
and Maintenance Expense (including Affiliate Expense)
2009
vs. 2008
Operating
and maintenance expense (including affiliate expense) increased $21.0 million,
from $11.5 million in 2008 to $32.5 million in 2009. This $21.0 million increase
resulted from the achievement of commercial operability of the initial 2.6 Bcf/d
of sendout capacity and 10.1 Bcf of storage capacity of our LNG receiving
terminal in the third quarter of 2008 and the substantial completion of
construction and achievement of full operability of our LNG receiving terminal
with approximately 4.0 Bcf/d of total sendout capacity and five LNG storage
tanks with approximately 16.9 Bcf of aggregate storage capacity in the third
quarter of 2009.
2008
vs. 2007
Operating
and maintenance expense (including affiliate expense) increased $11.5 million,
from zero in 2007 to $11.5 million in 2008. This $11.5 million increase resulted
from the achievement of commercial operability of the initial 2.6 Bcf/d of
regassification capacity and the 10.1 Bcf of storage capacity achieving
commercial operability in September 2008 and also included costs to repair
damage caused by Hurricane Ike.
Depreciation
Expense
2009
vs. 2008
Depreciation
expense increased $24.7 million, from $8.0 million in 2008 to $32.7 million in
2009. This $24.7 million increase in depreciation expense was primarily related
to beginning deprecation on the costs associated with the initial 2.6 Bcf/d of
sendout capacity and 10.1 Bcf of storage capacity of our LNG receiving terminal
that was placed into service in the third quarter of 2008. In addition,
depreciation expense increased in 2009 as a result of the substantial completion
of construction and achievement of full operability of our LNG receiving
terminal with approximately 4.0 Bcf/d of total sendout capacity and five LNG
storage tanks with approximately 16.9 Bcf of aggregate storage capacity in the
third quarter of 2009.
2008
vs. 2007
Depreciation
expense increased $8.0 million, from zero in 2007 to $8.0 million in 2008. This
$8.0 million increase resulted from our having begun depreciating our LNG
receiving terminal’s initial 2.6 Bcf/d of regassification capacity and 10.1 Bcf
of storage capacity commencing in the third quarter of 2008 when it achieved
commercial operability.
General
and Administrative Expense (including Affiliate Expense)
2009
vs. 2008
General
and administrative expense (including affiliate expense) increased $2.7 million,
from $8.6 million in 2008 to $11.3 million in 2009. This increase primarily
related to an increase in the amount of service agreement charges due to the
achievement of substantial completion of our LNG receiving terminal in March
2009.
21
Interest
Income
2009
vs. 2008
Interest
income decreased $11.1 million, from $11.6 million in 2008 to $0.5 million in
2009. This decrease resulted from less restricted cash and cash equivalents
invested and lower interest rates during 2009 compared to 2008.
2008
vs. 2007
Interest
income decreased $37.3 million, from $48.9 million in 2007 to $11.6 million in
2008. This decrease resulted from less restricted cash and cash equivalents
invested and lower interest rates during 2008 compared to 2007.
Interest
Expense, net
2009
vs. 2008
Interest
expense, net of amounts capitalized, increased $67.4 million, from $79.8 million
in 2008 to $147.2 million in 2009. This $67.4 million increase in interest
expense, net of amount capitalized, primarily resulted from the additional
$183.5 million, before discount, of 2016 Notes issued in September 2008, and a
decrease in interest expense subject to capitalization in 2009 compared to 2008
due to the costs associated with placing the initial 2.6 Bcf/d of sendout
capacity and 10.1 Bcf of storage capacity of the Sabine Pass LNG receiving
terminal into service in September 2008 and achievement of full operability of
the Sabine Pass LNG receiving terminal with approximately 4.0 Bcf/d of total
sendout capacity and five LNG storage tanks with approximately 16.9 Bcf of
aggregate storage capacity in the third quarter of 2009.
2008
vs. 2007
Interest
expense, net of amounts capitalized, decreased $8.8 million, from $88.6 million
in 2007 to $79.8 million in 2008. This decrease in interest expense, net of
amount capitalized, primarily resulted from an increase in construction costs
and consequently an increase in capitalized interest in 2008 compared to
2007.
Derivative
Gain
2008
vs. 2007
Derivative
gain increased $4.7 million, from zero in 2007 to $4.7 million in
2008. On our behalf, Cheniere Marketing entered into natural gas
swaps to hedge the exposure to variability in expected future cash flows from
sales of excess LNG purchased for commissioning and performance testing during
2008.
As of
December 31, 2009, we had no “off-balance sheet arrangements” that may have a
current or future material affect on our consolidated financial position or
results of operations.
The
selection and application of accounting policies is an important process that
has developed as our business activities have evolved and as the accounting
rules have developed. Accounting rules generally do not involve a selection
among alternatives but involve an implementation and interpretation of existing
rules, and the use of judgment, to apply the accounting rules to the specific
set of circumstances existing in our business. In preparing our consolidated
financial statements in conformity with U.S. generally accepted accounting
principles (“GAAP”), we endeavor to comply properly with all applicable rules on
or before their adoption, and we believe that the proper implementation and
consistent application of the accounting rules are critical. However, not all
situations are specifically addressed in the accounting literature. In these
cases, we must use our best judgment to adopt a policy for accounting for these
situations. We accomplish this by analogizing to similar situations and the
accounting guidance governing them.
22
Accounting
for LNG Activities
Generally,
expenditures for direct construction activities, major renewals and betterments
are capitalized, while expenditures for maintenance and repairs and general and
administrative activities are charged to expense as incurred.
We
capitalized interest and other related debt costs during the construction period
of our LNG receiving terminal. Upon commencement of operations, capitalized
interest, as a component of the total cost, has been amortized over the
estimated useful life of the asset.
Revenue
Recognition
LNG
regasification capacity reservation fees are recognized as revenue over the term
of the respective TUAs. Advance capacity reservation fees are initially deferred
and recognized into revenue, which are being amortized over a 10-year period as
a reduction of a customer’s regasification capacity reservation fees payable
under its TUA. The retained 2% of LNG delivered for each customer’s
account at our LNG receiving terminal is recognized as revenues as we perform
the services set forth in each customer’s TUA.
Cash
Flow Hedges
We have
used, and may in the future use, derivative instruments to limit our exposure to
variability in expected future cash flows. Cash flow hedge transactions hedge
the exposure to variability in expected future cash flows. In the case of cash
flow hedges, the hedged item (the underlying risk) is generally unrecognized
(i.e., not recorded on the consolidated balance sheet prior to settlement), and
any changes in the fair value, therefore, will not be recorded within earnings.
Conceptually, if a cash flow hedge is effective, this means that a variable,
such as a movement in interest rates, has been effectively fixed so that any
fluctuations will have no net result on either cash flows or earnings.
Therefore, if the changes in fair value of the hedged item are not recorded in
earnings, then the changes in fair value of the hedging instrument (the
derivative) must also be excluded from the income statement or else a one-sided
net impact on earnings will be reported, despite the fact that the establishment
of the effective hedge results in no net economic impact. To prevent such a
scenario from occurring, U.S. GAAP requires that the fair value of a derivative
instrument designated as a cash flow hedge be recorded as an asset or liability
on the balance sheet, but with the offset reported as part of other
comprehensive income, to the extent that the hedge is effective. We assess, both
at the inception of each hedge and on an on-going basis, whether the derivatives
that are used in our hedging transactions are highly effective in offsetting
changes in cash flows of the hedged items. On an on-going basis, we monitor the
actual dollar offset of the hedges’ market values compared to hypothetical cash
flow hedges. Any ineffective portion of the cash flow hedges will be reflected
in earnings. Ineffectiveness is the amount of gains or losses from derivative
instruments that are not offset by corresponding and opposite gains or losses on
the expected future transaction.
In April
2009, the Financial Accounting Standards Board (“FASB”) issued a staff position
providing additional guidance on factors to consider in estimating fair value
when there has been a significant decrease in market activity for a financial
asset. The guidance was effective for interim and annual periods ending after
June 15, 2009. The implementation of this standard did not have a material
impact on our financial position, results of operations or cash
flow.
In April
2009, the FASB issued a staff position requiring fair value disclosures in both
interim as well as annual financial statements in order to provide more timely
information about the effects of current market conditions on financial
instruments. The guidance is effective for interim and annual periods ending
after June 15, 2009. The implementation of this standard did not have a material
impact on our financial position, results of operations or cash
flow.
In May
2009, the FASB issued new requirements for reporting subsequent events. These
requirements set forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. Disclosure of the date through which an
entity has evaluated subsequent events and the basis for that date is also
required. This disclosure should alert all users of financial statements that an
entity has not evaluated subsequent events after the date set forth in the
financial statements being presented. The Company started adhering to these
requirements in the second quarter of 2009.
In June
2009, the FASB issued SFAS No. 168, FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles. SFAS No. 168 establishes the FASB Accounting Standards
Codification (the “Codification”) as the single source of authoritative GAAP
recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. SFAS No.
23
168
and the Codification are effective for financial statements issued for interim
and annual periods ending after September 15, 2009. As of July 1, 2009, the
Codification supersedes all existing non-SEC accounting and reporting standards.
We adopted this statement for the period ended September 30, 2009. The adoption
of this statement did not have an impact on our financial position, results of
operations or cash flow.
Cash
Investments
We have
cash investments that we manage based on internal investment guidelines that
emphasize liquidity and preservation of capital. Such cash investments are
stated at historical cost, which approximates fair market value on our
consolidated balance sheet.
Marketing
and Trading Commodity Price Risk
On our
behalf, Cheniere Marketing has entered into exchange cleared NYMEX natural gas
swaps entered into to hedge the exposure to variability in expected future cash
flows related to commissioning cargoes purchased by Cheniere Marketing that were
or are expected to be sold as part of the testing phase of the commissioning
process and operations. We use value at risk (“VaR”) and other
methodologies for market risk measurement and control purposes. The
VaR is calculated using the Monte Carlo simulation method. At December 31, 2009
and 2008, the one-day VaR with a 95% confidence interval on our derivative
positions was less than $0.1 million.
As of
December 31, 2009, Cheniere Marketing, on our behalf, had entered into a total
of 360,851 MMBtu of NYMEX natural gas swaps through February 2010, for which we
will receive fixed prices of $4.903 to $6.158 per MMBtu. At December
31, 2009, the value of the derivatives was an asset of $0.1
million.
24
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
SABINE
PASS LNG, L.P.
25
Management’s
Report on Internal Control Over Financial Reporting
As
management, we are responsible for establishing and maintaining adequate
internal control over financial reporting for Sabine Pass LNG, L.P. and its
subsidiaries (“Sabine Pass LNG”). In order to evaluate the
effectiveness of internal control over financial reporting, as required by
Section 404 of the Sarbanes-Oxley Act of 2002, we have conducted an assessment,
including testing using the criteria in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Sabine Pass LNG’s system of internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatement
and, even when determined to be effective, can only provide reasonable assurance
with respect to financial statement preparation and presentation
misstatement.
Based on
our assessment, we have concluded that Sabine Pass LNG maintained effective
internal control over financial reporting as of December 31, 2009, based on
criteria in Internal Control—Integrated Framework issued by the
COSO.
This
annual report does not include an attestation report of Sabine Pass LNG’s
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by
Sabine Pass LNG’s registered public accounting firm pursuant to temporary rules
of the Security Exchange Commission that permit the company to provide only
management’s report in this annual report.
Management’s
Certifications
The
certifications of Sabine Pass LNG’s Chief Executive Officer and Chief Financial
Officer required by the Sarbanes-Oxley Act of 2002 have been included as
Exhibits 31 and 32 in Sabine Pass LNG’s Form 10-K.
| Sabine Pass LNG, L.P. | |
|
|
|
|
By:
|
Sabine
Pass LNG-GP, Inc
|
|
Its
general partner
|
|
|
By:
|
/s/
Charif
Souki
|
By:
|
/s/
Meg A.
Gentle
|
|
|
Charif
Souki
|
Meg
A. Gentle
|
|||
|
Chief
Executive Officer
and
President
|
Senior
Vice President
and
Chief Financial Officer
|
26
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors of Sabine Pass LNG-GP, Inc., and
Partners
of Sabine Pass LNG, L.P.
We have
audited the accompanying consolidated balance sheets of Sabine Pass LNG, L.P.
and subsidiaries as of December 31, 2009 and 2008, and the related
consolidated statements of operations, partners’ capital (deficit), and cash
flows for each of the three years in the period ended December 31, 2009.
These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Sabine Pass LNG, L.P.
and subsidiaries at December 31, 2009 and 2008, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2009, in conformity with U.S. generally
accepted accounting principles.
|
/s/ ERNST
& YOUNG LLP
|
|
ERNST &
YOUNG LLP
|
Houston,
Texas
February
25, 2010
27
CONSOLIDATED
BALANCE SHEETS
(in
thousands)
| December 31, | ||||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS
|
||||||||
|
Cash
and cash equivalents
|
$
|
117,411
|
$
|
194,827
|
||||
|
Restricted
cash and cash equivalents
|
13,732
|
41,158
|
||||||
|
Accounts
and interest receivable
|
5,037
|
361
|
||||||
|
Accounts
receivable—affiliate
|
3,586
|
419
|
||||||
|
Advances
to affiliate
|
5,358
|
2,198
|
||||||
|
Advances
to affiliate—LNG inventory
|
1,319
|
—
|
||||||
|
LNG
inventory
|
1,521
|
—
|
||||||
|
Prepaid
expenses and other
|
4,594
|
5,407
|
||||||
|
Total
current assets
|
152,558
|
244,370
|
||||||
|
NON-CURRENT
RESTRICTED CASH AND CASH EQUIVALENTS
|
82,394
|
126,056
|
||||||
|
PROPERTY,
PLANT AND EQUIPMENT, NET
|
1,588,557
|
1,517,507
|
||||||
|
DEBT
ISSUANCE COSTS, NET
|
26,953
|
30,748
|
||||||
|
ADVANCES
UNDER LONG-TERM CONTRACTS
|
1,021
|
10,705
|
||||||
|
ADVANCES
TO AFFILIATE—LNG HELD FOR COMMISSIONING
|
—
|
9,923
|
||||||
|
OTHER
|
7,618
|
5,036
|
||||||
|
Total
assets
|
$
|
1,859,101
|
$
|
1,944,345
|
||||
|
LIABILITIES
AND PARTNERS’ DEFICIT
|
||||||||
|
CURRENT
LIABILITIES
|
||||||||
|
Accounts
payable
|
$
|
39
|
$
|
117
|
||||
|
Accounts
payable—affiliate
|
287
|
514
|
||||||
|
Accrued
liabilities
|
22,002
|
40,769
|
||||||
|
Accrued
liabilities—affiliate
|
3,095
|
184
|
||||||
|
Deferred
revenue
|
26,456
|
2,500
|
||||||
|
Deferred
revenue—affiliate
|
63,507
|
62,742
|
||||||
|
Total
current liabilities
|
115,386
|
106,826
|
||||||
|
LONG-TERM
DEBT, NET OF DISCOUNT
|
2,110,101
|
2,107,673
|
||||||
|
LONG-TERM
DEBT, NET OF DISCOUNT—related party
|
72,928
|
70,661
|
||||||
|
DEFERRED
REVENUE
|
33,500
|
37,500
|
||||||
|
DEFERRED
REVENUE—AFFILIATE
|
7,360
|
4,971
|
||||||
|
OTHER
NON-CURRENT LIABILITIES
|
327
|
340
|
||||||
|
COMMITMENTS
AND CONTINGENCIES
|
—
|
—
|
||||||
|
PARTNERS’
DEFICIT
|
(480,501
|
)
|
(383,626
|
)
|
||||
|
Total
liabilities and partners’ deficit
|
$
|
1,859,101
|
$
|
1,944,345
|
||||
See
accompanying notes to consolidated financial statements.
28
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands)
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
REVENUES
|
||||||||||||
|
Revenues
|
$ | 164,862 | $ | — | $ | — | ||||||
|
Revenues—affiliates
|
252,928 | 15,000 | — | |||||||||
|
TOTAL
REVENUES
|
416,790 | 15,000 | — | |||||||||
|
EXPENSES
|
— | |||||||||||
|
Operating
and maintenance expense
|
20,683 | 6,345 | — | |||||||||
|
Operating
and maintenance expense—affiliate
|
11,833 | 5,125 | — | |||||||||
|
Depreciation
expense
|
32,742 | 7,994 | 35 | |||||||||
|
Development
expense
|
— | 1,184 | 1,540 | |||||||||
|
Development
expense—affiliate
|
— | 1,158 | 3,943 | |||||||||
|
General
and administrative expense
|
1,863 | 3,093 | 1,817 | |||||||||
|
General
and administrative expense—affiliate
|
9,458 | 5,492 | 4,280 | |||||||||
|
TOTAL
EXPENSES
|
76,579 | 30,391 | 11,615 | |||||||||
|
INCOME
(LOSS) FROM OPERATIONS
|
340,211 | (15,391 | ) | (11,615 | ) | |||||||
|
OTHER
INCOME (EXPENSE)
|
||||||||||||
|
Interest
income
|
524 | 11,553 | 48,917 | |||||||||
|
Interest
expense, net
|
(147,201 | ) | (79,773 | ) | (88,648 | ) | ||||||
|
Derivative
gain (loss), net
|
5,277 | 4,653 | — | |||||||||
|
Other
|
(2 | ) | 20 | — | ||||||||
|
TOTAL
OTHER EXPENSE
|
(141,402 | ) | (63,547 | ) | (39,731 | ) | ||||||
|
NET
INCOME (LOSS)
|
$ | 198,809 | $ | (78,938 | ) | $ | (51,346 | ) | ||||
See
accompanying notes to consolidated financial statements.
29
CONSOLIDATED
STATEMENTS OF PARTNERS’ CAPITAL (DEFICIT)
(in
thousands)
|
General
Partner Sabine Pass
LNG-GP,
Inc.
|
Limited
Partner Sabine Pass
LNG-LP,
LLC
|
Accumulated
Other Comprehensive Income
|
Total
Partners’
Deficit
|
|||||||||||||
|
Balance
at December 31, 2006
|
$ | — | $ | (253,342 | ) | $ | — | $ | (253,342 | ) | ||||||
|
Net
loss
|
— | (51,346 | ) | — | (51,346 | ) | ||||||||||
|
Balance
at December 31, 2007
|
— | (304,688 | ) | — | (304,688 | ) | ||||||||||
|
Net
loss
|
— | (78,938 | ) | — | (78,938 | ) | ||||||||||
|
Balance
at December 31, 2008
|
— | (383,626 | ) | — | (383,626 | ) | ||||||||||
|
Distribution
to limited partner
|
— | (295,684 | ) | — | (295,684 | ) | ||||||||||
|
Net
income
|
— | 198,809 | — | 198,809 | ||||||||||||
|
Balance
at December 31, 2009
|
$ | — | $ | (480,501 | ) | $ | — | $ | (480,501 | ) | ||||||
See
accompanying notes to consolidated financial statements.
30
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
Year
ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
|
Net
income (loss)
|
$ | 198,809 | $ | (78,938 | ) | $ | (51,346 | ) | ||||
|
Adjustments
to reconcile net income (loss) to net cash used in operating
activities:
|
||||||||||||
|
Depreciation
|
32,742 | 7,994 | 35 | |||||||||
|
Amortization
of debt discount
|
4,695 | 1,369 | — | |||||||||
|
Amortization
of debt issuance costs
|
3,818 | 3,984 | 3,793 | |||||||||
|
Non-cash
derivative (gain) loss
|
1,106 | (1,230 | ) | — | ||||||||
|
Interest
income on restricted cash and cash equivalents
|
— | (13,375 | ) | (46,330 | ) | |||||||
|
Use
of restricted cash and cash equivalents
|
— | 75,809 | 103,043 | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Deferred
revenue—affiliate
|
765 | 65,130 | 2,583 | |||||||||
|
Deferred
revenue
|
19,955 | — | — | |||||||||
|
Accounts
payable and accrued liabilities
|
(11,519 | ) | 22,057 | (12,137 | ) | |||||||
|
Advances
to affiliate
|
(3,160 | ) | (491 | ) | — | |||||||
|
Accounts
payable and accrued liabilities—affiliate
|
2,685 | (350 | ) | 395 | ||||||||
|
Accounts
receivable—affiliate
|
(3,167 | ) | (419 | ) | — | |||||||
|
Interest
receivable
|
167 | 2,468 | — | |||||||||
|
Other
|
(2,174 | ) | (5,706 | ) | (36 | ) | ||||||
|
NET
CASH PROVIDED BY OPERATING ACTIVITIES
|
244,722 | 78,302 | — | |||||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||
|
Use
of (investment in) restricted cash and cash equivalents
|
71,088 | 503,093 | 470,888 | |||||||||
|
LNG
receiving terminal construction-in-process, net
|
(96,918 | ) | (402,955 | ) | (430,405 | ) | ||||||
|
Advances
under long-term contracts
|
(601 | ) | (14,032 | ) | (39,155 | ) | ||||||
|
Advances
to affiliate—LNG held for commissioning, net of amounts transferred to LNG
receiving terminal construction-in-process
|
— | (9,923 | ) | — | ||||||||
|
Other
|
— | (243 | ) | (1,328 | ) | |||||||
|
NET
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
(26,431 | ) | 75,940 | — | ||||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||
|
Distribution
to limited partner
|
(295,684 | ) | — | — | ||||||||
|
Debt
issuance costs
|
(23 | ) | (4,837 | ) | (725 | ) | ||||||
|
Proceeds
from issuance of the Senior Notes
|
— | 144,965 | — | |||||||||
|
Use
of (investment in) restricted cash and cash equivalents
|
— | (99,543 | ) | 725 | ||||||||
|
NET
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
(295,707 | ) | 40,585 | — | ||||||||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(77,416 | ) | 194,827 | — | ||||||||
|
CASH
AND CASH EQUIVALENTS—beginning of year
|
194,827 | — | — | |||||||||
|
CASH
AND CASH EQUIVALENTS—end of year
|
$ | 117,411 | $ | 194,827 | $ | — | ||||||
See
accompanying notes to consolidated financial statements.
31
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1—NATURE OF OPERATIONS
Sabine
Pass LNG, L.P., a Delaware limited partnership, is a Houston-based partnership
formed with one general partner, Sabine Pass LNG-GP, Inc. (“Sabine Pass GP”), an
indirect subsidiary of Cheniere Energy, Inc. (“Cheniere”), and one limited
partner, Sabine Pass LNG-LP, LLC (“Sabine Pass LNG-LP”), an indirect subsidiary
of Cheniere. Cheniere has a 90.6% ownership interest in Cheniere Energy
Partners, L.P., which is the indirect parent of Sabine Pass GP, Sabine Pass
LNG-LP and us. As used in these Notes to Consolidated Financial Statements, the
terms “we”, “us” and “our” refer to Sabine Pass LNG, L.P. The purpose of this
limited partnership is to own, develop and operate a liquefied natural gas
(“LNG”) receiving and regasification terminal in western Cameron Parish,
Louisiana on the Sabine Pass Channel (the “LNG receiving
terminal”).
In the
second quarter of 2009, we purchased Sabine Pass Tug Services, LLC (“Tug
Services”), a wholly owned subsidiary of Cheniere. As a result, we
acquired a lease (the “Tug Agreement”) for the use of tug boats and marine
services at our LNG receiving terminal (see Note 12—“Leases”). In
connection with the acquisition, Tug Services entered into a Terminal Marine
Services Agreement (the “Tug Sharing Agreement”) with our three terminal use
agreement (“TUA”) customers to provide their LNG cargo vessels with tug boat and
marine services at our LNG receiving terminal (see Note
12—“Leases”).
We have
evaluated subsequent events through February 25, 2010.
NOTE
2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
Our
Consolidated Financial Statements were prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”). Certain
items in the 2007 financial statements have been reclassified to conform to
the current presentation.
Cash
and Cash Equivalents
We
consider all highly liquid investments with an original maturity of three months
or less to be cash equivalents.
Accounting
for LNG Activities
Generally,
expenditures for direct construction activities, major renewals and betterments
are capitalized, while expenditures for maintenance and repairs and general and
administrative activities are charged to expense as incurred.
We
capitalized interest and other related debt costs during the construction period
of the Sabine Pass LNG receiving terminal. Upon commencement of operations,
capitalized interest, as a component of the total cost, has been amortized over
the estimated useful life of the asset.
Advances
to Affiliate-LNG Held for Commissioning
In
connection with the construction of our LNG receiving terminal, we required LNG
to perform certain commissioning activities. LNG purchased on our
behalf by Cheniere Marketing has been funded by us and is recorded at historical
cost and classified as a non-current asset on our Consolidated Balance Sheets as
advances to affiliate—LNG held for commissioning (See Note 11—“Related Party
Transactions”); for this LNG, Cheniere Marketing holds title to the LNG at all
times, sells all regasified LNG and remits the net proceeds from such sales back
to us. The LNG used in the commissioning process is capitalized net of amounts
received from the sale of natural gas.
Revenue
Recognition
LNG
regasification capacity reservation fees are recognized as revenue over the term
of the respective TUAs. Advance capacity reservation fees are initially deferred
and recognized into revenue, which are being amortized over a 10-year period as
a reduction of a customer’s regasification capacity reservation fees payable
under its TUA. For a discussion of potential revenue from related parties,
please read Note 11—“Related Party Transactions”. The retained 2% of
LNG delivered for each customer’s account at our LNG receiving terminal is
recognized as revenues as we perform the services set forth in each customer’s
TUA.
32
SABINE
PASS LNG, L.P. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS—Continued
Debt
Issuance Costs
Debt
issuance costs consist primarily of fees incurred that are directly related to
the issuance of the Senior Notes (See Note 6—“Debt Issuance Costs” and Note
10—“Long-Term Debt (including related party)”). These costs are capitalized and
are being amortized to interest expense over the terms of the Senior
Notes.
Income
Taxes
We are
not subject to either federal or state income taxes, as the partners are taxed
individually on their proportionate share of our earnings. Accordingly, no
provision or liability for federal or state income taxes is included in the
accompanying Consolidated Financial Statements. At December 31, 2009, the
tax basis of our assets and liabilities was $125.1 million greater than the
reported amounts of our assets and liabilities.
Pursuant
to the indenture, dated as of November 9, 2006 (the “Sabine Pass
Indenture”), entered into in connection with the issuance of the Senior Notes
(as defined in Note 3—“Restricted Cash and Cash Equivalents”), we are permitted
to make distributions (“Tax Distributions”) for any fiscal year or portion
thereof in which we are a limited partnership, disregarded entity or other
substantially similar pass-through entity for federal and state income tax
purposes. The permitted Tax Distributions are equal to the tax that we would owe
if we were a corporation subject to federal and state income tax that filed
separate federal and state income tax returns, excluding the amounts covered by
the State Tax Sharing Agreement discussed immediately below. The Tax
Distributions are limited to the amount of federal and/or state income taxes
paid by Cheniere to the appropriate taxing authorities and are payable by us
within 30 days of the date that Cheniere is required to make federal or state
income tax payments to the appropriate taxing authorities.
In
November 2006, we entered into a state franchise tax sharing agreement (the
“State Tax Sharing Agreement”) with Cheniere pursuant to which Cheniere has
agreed to prepare and file all Texas franchise tax returns which we and Cheniere
are required to file on a combined basis and to timely pay the combined tax
liability. If Cheniere, in its sole discretion, demands payment, then we will
pay to Cheniere an amount equal to the Texas franchise tax that we would be
required to pay if our Texas franchise tax liability were computed on a separate
company basis. The State Tax Sharing Agreement contains similar provisions for
other state and local taxes required to be filed by Cheniere and us on a
combined, consolidated or unitary basis. The State Tax Sharing Agreement is
effective for tax returns first due on or after January 1,
2008.
Concentration
of Credit Risk
Financial
instruments that potentially subject us to a concentration of credit risk
consist principally of cash and cash equivalents and restricted cash. We
maintain cash balances at financial institutions which may at times be in excess
of federally insured levels. We have not incurred losses related to these
balances to date.
We have
entered into certain long-term TUAs with unaffiliated third parties for
regasification capacity at our LNG receiving terminal. We are dependent on the
respective counterparties’ creditworthiness and their willingness to perform
under their respective TUAs. We have mitigated this credit risk by securing TUAs
for a significant portion of our regasification capacity with creditworthy
third-party customers with a minimum Standard & Poor’s rating of
AA.
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost. Expenditures for construction
activities, major renewals and betterments are capitalized, while expenditures
for maintenance and repairs and general and administrative activities are
charged to expense as incurred. Interest costs incurred on debt obtained for the
construction of property, plant and equipment are capitalized as
construction-in-process over the construction period or related debt term,
whichever is shorter. We began depreciating equipment and facilities associated
with the initial 2.6 Bcf/d of sendout capacity and 10.1 Bcf of storage capacity
of the Sabine Pass LNG receiving terminal when they were ready for use in the
third quarter of 2008. We began depreciating equipment and facilities associated
with the remaining 1.4 Bcf/d of sendout capacity and 6.8 Bcf of storage capacity
of the Sabine Pass LNG receiving terminal when they were ready for use in the
third quarter of 2009. The Sabine Pass LNG receiving terminal is depreciated
using the straight-line depreciation method applied to groups of LNG receiving
terminal assets with varying useful lives. The identifiable components of the
Sabine Pass LNG receiving terminal with similar estimated useful lives have a
depreciable range between 15 and 50 years. Depreciation of computer and office
equipment, computer software, leasehold improvements and vehicles is computed
using the straight-line method over the estimated useful lives of the assets,
which range from two to ten years. Upon retirement or other disposition of
property, plant and equipment, the cost and related accumulated depreciation are
removed from the account, and the resulting gains or losses are recorded in
operations.
33
SABINE
PASS LNG, L.P. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS—Continued
Management reviews
property, plant and equipment for impairment periodically and whenever events or
changes in circumstances have indicated that the carrying amount of property,
plant and equipment might not be recoverable. No such impairment was recorded
for December 31, 2009, 2008 or 2007.
Asset
Retirement Costs
We
recognize asset retirement obligations (“AROs”) for legal obligations associated
with the retirement of long-lived assets that result from the acquisition,
construction, development and/or normal use of the asset and for conditional
AROs in which the timing or method of settlement are conditional on a future
event that may or may not be within our control. The fair value of a liability
for an ARO is recognized in the period in which it is incurred, if a reasonable
estimate of fair value can be made. The fair value of the liability is added to
the carrying amount of the associated asset. This additional carrying amount is
depreciated over the estimated useful life of the asset.
Based on
the real property lease agreement at our LNG receiving terminal, at the
expiration of the term of the lease we are required to surrender the LNG
receiving terminal in good working order and repair, with normal wear and tear
and casualty expected. Our property lease agreement at our LNG receiving
terminal has a term of up to 90 years including renewal options. Due to the
language in the real property lease agreement, we have determined that the cost
to surrender our LNG receiving terminal in the required condition will be
minimal, and therefore have not recorded an ARO associated with our LNG
receiving terminal.
Cash
Flow Hedges
We have
used, and may in the future use, derivative instruments to limit our exposure to
variability in expected future cash flows. Cash flow hedge transactions hedge
the exposure to variability in expected future cash flows. In the case of cash
flow hedges, the hedged item (the underlying risk) is generally unrecognized
(i.e., not recorded on the balance sheet prior to settlement), and any changes
in the fair value, therefore, will not be recorded within earnings.
Conceptually, if a cash flow hedge is effective, this means that a variable,
such as a movement in interest rates, has been effectively fixed so that any
fluctuations will have no net result on either cash flows or earnings.
Therefore, if the changes in fair value of the hedged item are not recorded in
earnings, then the changes in fair value of the hedging instrument (the
derivative) must also be excluded from the income statement or else a one-sided
net impact on earnings will be reported, despite the fact that the establishment
of the effective hedge results in no net economic impact. To prevent such a
scenario from occurring, U.S. GAAP requires that the fair value of a derivative
instrument designated as a cash flow hedge be recorded as an asset or liability
on the balance sheet, but with the offset reported as part of other
comprehensive income, to the extent that the hedge is effective. We assess, both
at the inception of each hedge and on an on-going basis, whether the derivatives
that are used in our hedging transactions are highly effective in offsetting
changes in cash flows of the hedged items. On an on-going basis, we monitor the
actual dollar offset of the hedges’ market values compared to hypothetical cash
flow hedges. Any ineffective portion of the cash flow hedges will be reflected
in earnings. Ineffectiveness is the amount of gains or losses from derivative
instruments that are not offset by corresponding and opposite gains or losses on
the expected future transaction.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make certain estimates and assumptions that affect the amounts
reported in the consolidated financial statements and the accompanying notes.
Actual results could differ from the estimates and assumptions
used.
Items
subject to estimates and assumptions include, but are not limited to, the
carrying amount of property, plant and equipment. Actual results could differ
significantly from those estimates.
NOTE
3—RESTRICTED CASH AND CASH EQUIVALENTS
Restricted
cash and cash equivalents and U.S. Treasury securities are comprised of cash
that has been contractually restricted as to usage or withdrawal, as
follows:
Sabine
Pass LNG Receiving Terminal Construction Reserve
In
November 2006, we issued an aggregate principal amount of $2,032.0 million of
Senior Secured Notes consisting of $550.0 million of 7¼% Senior Secured Notes
due 2013 (the “2013 Notes”) and $1,482.0 million of 7½% Senior Secured Notes due
2016 (the “2016 Notes” and collectively with the 2013 Notes, the “Senior
Notes”). In September 2008, we issued an additional $183.5 million,
34
SABINE
PASS LNG, L.P. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS—Continued
before
discount, of 2016 Notes whose terms were identical to the previously outstanding
2016 Notes. The additional issuance and the previously outstanding 2016 Notes
are treated as a single series of notes under the indenture governing the Senior
Notes (“Sabine Pass Indenture”) (See Note 10—“Long-term Debt (including related
party)”). Under the terms and conditions of the Senior Notes, we were required
to fund a cash reserve account for approximately $987 million to pay the
remaining costs to complete construction of our LNG receiving terminal. The cash
accounts are controlled by a collateral trustee, and therefore, are shown as
restricted cash and cash equivalents on our Consolidated Balance Sheets. As of
December 31, 2009, the Sabine Pass LNG receiving terminal construction reserve
account balance was zero. As of December 31, 2008, the Sabine Pass LNG
receiving terminal construction reserve account balance was $71.1 million, of
which $27.4 million of the construction reserve account related to accrued
construction costs that had been classified as part of current restricted cash
and cash equivalents, and $43.7 million of the construction reserve account
related to remaining construction costs had been classified as a non-current
asset on our Consolidated Balance Sheets.
Sabine
Pass LNG Notes Debt Service Reserve
As
described above, we consummated private offerings of an aggregate principal
amount of $2,215.5 million of Senior Notes (See Note 10—“Long-term Debt
(including related party)”). Under the Sabine Pass Indenture governing the
Senior Notes, except for permitted tax distributions, we may not make
distributions until certain conditions are satisfied: there must be on deposit
in an interest payment account an amount equal to one-sixth of the semi-annual
interest payment multiplied by the number of elapsed months since the last
semi-annual interest payment, and there must be on deposit in a permanent debt
service reserve fund an amount equal to one semi-annual interest payment of
approximately $82.4 million. Distributions are permitted only after satisfying
the foregoing funding requirements, a fixed charge coverage ratio test of 2:1
and other conditions specified in the Sabine Pass Indenture. As of
December 31, 2009 and 2008, we classified $13.7 million as current
restricted cash and cash equivalents for the payment of interest due within
twelve months. As of December 31, 2009 and 2008, we classified the
permanent debt service reserve fund of $82.4 million as non-current restricted
cash and cash equivalents. These cash accounts are controlled by a collateral
trustee, and therefore, are shown as restricted cash and cash equivalents on our
Consolidated Balance Sheets.
NOTE
4—ADVANCES UNDER LONG-TERM CONTRACTS
We
entered into certain engineering, procurement and construction (“EPC”) contracts
and purchase agreements related to the construction of our LNG receiving
terminal that require us to make payments to fund costs that will be incurred or
equipment that will be received in the future. Advances made under long-term
contracts on purchase commitments are carried at face value and transferred to
property, plant, and equipment as the costs are incurred or equipment is
received. As of December 31, 2009 and 2008, our advances under long
term contracts were $1.0 million and $10.7 million, respectively.
NOTE
5—PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consists of LNG terminal costs, LNG site and related costs
and fixed assets, as follows (in thousands):
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
LNG
TERMINAL COSTS
|
||||||||
|
LNG
receiving terminal
|
$ | 1,627,564 | $ | 919,776 | ||||
|
LNG
receiving terminal construction-in-process
|
— | 604,398 | ||||||
|
LNG
site and related costs, net
|
176 | 183 | ||||||
|
Accumulated
depreciation
|
(39,975 | ) | (7,752 | ) | ||||
|
Total
LNG receiving terminal costs
|
1,587,765 | 1,516,605 | ||||||
|
FIXED
ASSETS
|
||||||||
|
Computer
and office equipment
|
259 | 200 | ||||||
|
Vehicles
|
421 | 421 | ||||||
|
Machinery
and equipment
|
931 | 751 | ||||||
|
Other
|
419 | 254 | ||||||
|
Accumulated
depreciation
|
(1,238 | ) | (724 | ) | ||||
|
Total
fixed assets, net
|
792 | 902 | ||||||
|
PROPERTY,
PLANT AND EQUIPMENT, NET
|
$ | 1,588,557 | $ | 1,517,507 | ||||
As of
December 31, 2009, our LNG receiving terminal had been placed into service, and
all costs associated with the construction of our LNG receiving terminal are
presented in the table as LNG receiving terminal. For 2009, 2008 and 2007, we
35
SABINE
PASS LNG, L.P. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS—Continued
capitalized
$26.1 million, $80.7 million and $66.2 million, respectively, of interest
expense related to the construction of our LNG receiving terminal,
respectively.
We began
depreciating equipment and facilities associated with the initial 2.6 Bcf/d of
sendout capacity and 10.1 Bcf of storage capacity of our LNG receiving terminal
when they were ready for use in the third quarter of 2008. We began depreciating
equipment and facilities associated with the remaining 1.4 Bcf/d of sendout
capacity and 6.8 Bcf of storage capacity of our LNG receiving terminal when they
were ready for use in the third quarter of 2009. Our LNG receiving terminal is
depreciated using the straight-line depreciation method applied to groups of LNG
receiving terminal assets with varying useful lives. The identifiable components
of our LNG receiving terminal with similar estimated useful lives have a
depreciable range between 15 and 50 years, as follows:
|
Components
|
Useful
life (yrs)
|
|||
|
LNG
storage tanks
|
50 | |||
|
Marine
berth, electrical, facility and roads
|
35 | |||
|
Regassification
processing equipment (recondensers, vaporization and
vents)
|
30 | |||
|
Sendout
pumps
|
20 | |||
|
Others
|
15-30 | |||
Our ARO
assessment is based on the real property lease agreements for our LNG receiving
terminal site. At the expiration of the term of the leases, we are
required to surrender our LNG receiving terminal in good working order and
repair, with normal wear and tear and casualty expected. Our property lease
agreements have a term of up to 90 years including renewal options. Due to the
language in the real property lease agreements, we have determined that the cost
to surrender our LNG receiving terminal in the required condition will be
minimal, and therefore have not recorded an ARO associated with our LNG
receiving terminal.
NOTE
6—DEBT ISSUANCE COSTS
Debt
issuance costs directly associated with the Senior Notes were capitalized and
are being amortized over periods of seven and ten years, which are the terms of
the Senior Notes. The amortization of the debt issuance cost was recorded as
interest expense and subsequently capitalized as construction-in-process during
the construction period of our LNG receiving terminal. As of December 31,
2009 and 2008, we had capitalized $27.0 million and $30.7 million (net of
accumulated amortization of $12.5 million and $8.6 million), respectively, of
costs directly associated with the Senior Notes, as follows (in
thousands):
As of
December 31, 2009,
|
Long-Term
Debt
|
Debt
Issuance Costs
|
Amortization
Period
|
Accumulated
Amortization
|
Net
Costs
|
|||||||||
|
2013
Notes
|
$ | 9,353 |
7
years
|
$ | (3,993 | ) | $ | 5,360 | |||||
|
2016
Notes
|
30,057 |
10
years
|
(8,464 | ) | 21,593 | ||||||||
| $ | 39,410 | $ | (12,457 | ) | $ | 26,953 | |||||||
Scheduled
amortization of these debt issuance costs related to the Senior Notes for the
next five years is estimated to be $23.4 million.
NOTE
7—FINANCIAL INSTRUMENTS
Derivative
Instruments
On our
behalf, Cheniere Marketing has entered into financial derivatives to hedge the
exposure to variability in expected future cash flows attributable to the future
sale of natural gas from our LNG commissioning cargoes (“LNG commissioning cargo
derivatives”). Prior to September 30, 2009, the net cost (LNG commissioning
cargo purchase price less natural gas sales proceeds) of our LNG commissioning
cargoes was capitalized on our Consolidated Balance Sheets as it was directly
related to the LNG receiving terminal construction and was incurred to place the
LNG receiving terminal in usable condition. However, changes in the fair value
of our LNG commissioning cargo derivatives are reported in earnings because they
do not meet the criteria to be designated as a hedging instrument that is
required to qualify for cash flow hedge accounting.
Effective
January 1, 2008, we adopted accounting standards that established a
framework for measuring fair value, expanded disclosures about fair value
measurements and permitted entities to choose to measure many financial
instruments and certain other items at fair value. We elected not to
measure any additional financial assets or liabilities at fair value, other than
those which were
36
SABINE
PASS LNG, L.P. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS—Continued
recorded
at fair value prior to adoption.
The
estimated fair value of financial instruments is the amount at which the
instrument could be exchanged currently between willing parties. The fair value
of our commodity futures contracts are based on inputs that are quoted prices in
active markets for identical assets or liabilities, resulting in Level 1
categorization of such measurements. The following table (in thousands) sets
forth, by level within the fair value hierarchy, the fair value of our financial
assets and liabilities at December 31, 2009:
|
Quoted
Prices in Active Markets for Identical Instruments
(Level
1)
|
Significant
Other Observable Inputs (Level 2)
|
Significant
Other Observable Inputs (Level 3)
|
Total
Carrying Value at December 31, 2009
|
|||||||||
|
Derivative
asset
|
$
|
124
|
$
|
—
|
$
|
—
|
$
|
124
|
||||
Derivatives
asset reflect LNG commissioning cargo derivative positions held by Cheniere
Marketing on our behalf related to natural gas swaps entered into to mitigate
the price risk from sales of excess LNG purchased for commissioning and
performance testing.
Other
Financial Instruments
The
estimated fair value of financial instruments, including those financial
instruments for which the fair value option was not elected are set forth in the
table below. The carrying amounts reported on our Consolidated
Balance Sheets for restricted cash and cash equivalents, accounts receivable,
interest receivables and accounts payable approximate fair value due to their
short-term nature.
Financial
Instruments (in thousands):
|
December
31, 2009
|
December
31, 2008
|
|||||||||||||||
|
Carrying
Amount
|
Estimated
Fair
Value
|
Carrying
Amount
|
Estimated
Fair
Value
|
|||||||||||||
|
2013
Notes (1)
|
$ | 550,000 | $ | 503,250 | $ | 550,000 | $ | 412,500 | ||||||||
|
2016
Notes, net of discount (1)
|
1,633,029 | 1,371,744 | 1,628,334 | 1,204,967 | ||||||||||||
|
(1)
|
The
fair value of the Senior Notes, net of discount, is based on quotations
obtained from broker-dealers who made markets in these and similar
instruments as of December 31, 2009 and December 31, 2008, as
applicable.
|
NOTE
8—ACCRUED LIABILITIES
As of
December 31, 2009 and 2008, accrued liabilities consisted of the following
(in thousands):
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Interest
and related debt fees
|
$ | 14,152 | $ | 14,152 | ||||
|
LNG
terminal construction costs
|
7,850 | 26,617 | ||||||
|
Affiliate
|
3,095 | 184 | ||||||
| $ | 25,097 | $ | 40,953 | |||||
NOTE
9—DEFERRED REVENUES
In
November 2004, Total Gas and Power North America, Inc. (formerly known as Total
LNG USA, Inc.) (“Total”) paid us a nonrefundable advance capacity reservation
fee of $10.0 million in connection with the reservation of approximately 1.0
Bcf/d of LNG regasification capacity at our LNG receiving terminal. An
additional advance capacity reservation fee payment of $10.0 million was paid by
Total to us in April 2005. The advance capacity reservation fee payments are
being amortized as a reduction of Total’s regasification capacity reservation
fee under its TUA over a 10-year period beginning with the commencement of its
TUA on April 1, 2009. As a result, we recorded the advance capacity reservation
fee payments that we received, although non-refundable, as deferred revenue to
be amortized to income over the corresponding 10-year period.
In
November 2004, we also entered into a TUA to provide Chevron U.S.A., Inc.
(“Chevron”) with approximately 0.7 Bcf/d of LNG regasification capacity at our
LNG receiving terminal. In December 2005, Chevron exercised its option to
increase its reserved capacity by approximately 0.3 Bcf/d to approximately 1.0
Bcf/d, making advance capacity reservation fee payments to us totaling $20.0
million. The advance capacity reservation fee payments are being amortized as a
reduction of Chevron’s regasification capacity reservation fee under its TUA
over a 10-year period beginning with the commencement of its TUA on July 1,
2009. As a result, we recorded the advance capacity
37
SABINE
PASS LNG, L.P. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS—Continued
reservation
fee payments that we received, although non-refundable, as deferred revenue to
be amortized to income over the corresponding 10-year period.
As of
December 31, 2009 and 2008, we had recorded $26.5 million and $2.5 million
as current deferred revenue, respectively, and $33.5 million and $37.5 million
as non-current deferred revenue related to Total and Chevron advance capacity
reservation fee payments.
Following
the achievement of commercial operability of our LNG receiving terminal in
September 2008, we began receiving capacity reservation fee payments from
Cheniere Marketing under its TUA. As of December 31, 2009 and 2008, we had
recorded $63.5 million and $62.7 million as current deferred revenue,
respectively, primarily related to Cheniere Marketing’s advance capacity
reservation fee payments.
In July
2007, we executed Cooperative Endeavor Agreements (“CEAs”) with various Cameron
Parish, Louisiana taxing authorities that allow them to accelerate certain of
our property tax payments scheduled to begin in 2019. This ten-year initiative
represents an aggregate $25.0 million commitment, and will make resources
available to the Cameron Parish taxing authorities on an accelerated basis in
order to aid in their reconstruction efforts following Hurricane Rita. In
exchange for our advance payments of ad valorem taxes, Cameron Parish will grant
us a dollar for dollar credit against future ad valorem taxes to be levied
against our LNG receiving terminal starting in 2019. In September 2007, we
entered into an agreement with Cheniere Marketing, pursuant to which Cheniere
Marketing will advance us any and all amounts payable under the CEAs in exchange
for a similar amount of credits against future ad valorem reimbursements it
would owe us under its TUA starting in 2019. These advance ad valorem tax
payments were recorded to other assets, and payments from Cheniere Marketing
that we utilized to make the early payment of taxes were recorded as deferred
revenue. As of December 31, 2009 and 2008, we had $7.4 million and $5.0
million, respectively, of other assets and deferred revenue resulting from
accelerated ad valorem tax payments.
NOTE
10—LONG-TERM DEBT (including related party)
As of
December 31, 2009 and 2008, our long-term debt consisted of the following
(in thousands):
|
December
31,
|
||||||||
| 2009 | 2008 | |||||||
|
Senior
Notes, net of discount
|
$ | 2,110,101 | $ | 2,107,673 | ||||
|
Senior
Notes, net of discount—related party
|
72,928 | 70,661 | ||||||
|
Total
long-term debt
|
2,183,029 | 2,178,334 | ||||||
In
November 2006, we issued an aggregate principal amount of $2,032.0 million of
Senior Notes, consisting of $550.0 million of the 2013 Notes and $1,482.0
million of the 2016 Notes. In September 2008, we issued an additional $183.5
million, before discount, of 2016 Notes whose terms were identical to the
previously outstanding 2016 Notes. The net proceeds received from the additional
issuance of 2016 Notes were $145.0 million. The additional issuance
and the previously outstanding 2016 Notes are treated as a single series of
notes under the Sabine Pass Indenture. We placed $100.0 million of the $145.0
million of net proceeds from the additional issuance of the 2016 Notes into a
construction account to pay construction expenses of cost overruns related to
the construction, cool down, commissioning and completion of our LNG receiving
terminal. In addition, we placed $40.8 million of the remaining net proceeds
into an account in accordance with the cash waterfall requirements of the
security deposit agreement we entered into in connection with the Senior Notes,
which are used by us for working capital and other general business
purposes.
Interest
on the Senior Notes is payable semi-annually in arrears on May 30 and
November 30 of each year. The Senior Notes are secured on a first-priority
basis by a security interest in all of our equity interests and substantially
all of our operating assets. Under the Sabine Pass Indenture, except for
permitted tax distributions, we may not make distributions until certain
conditions are satisfied: there must be on deposit in an interest payment
account an amount equal to one-sixth of the semi-annual interest payment
multiplied by the number of elapsed months since the last semi-annual interest
payment, and there must be on deposit in a permanent debt service reserve fund
an amount equal to one semi-annual interest payment of approximately $82.4
million. Distributions are permitted only after satisfying the foregoing funding
requirements, a fixed charge coverage ratio test of 2:1 and other conditions
specified in the Sabine Pass Indenture. During the years ended December 31, 2009
and 2008, we made distributions of $295.7 million and zero, respectively, to our
owners after satisfying all the applicable conditions in the Sabine Pass
Indenture.
38
SABINE
PASS LNG, L.P. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS—Continued
NOTE
11—RELATED PARTY TRANSACTIONS
As of
December 31, 2009 and 2008, we had $5.4 million and $2.2 million of
advances to affiliates, respectively. In addition, we have entered into the
following related party transactions:
TUA
Agreement
Cheniere
Marketing has reserved approximately 2.0 Bcf/d of regasification capacity under
a firm commitment TUA, and is required to make capacity reservation fee payments
aggregating approximately $250 million per year for the period from
January 1, 2009, through at least the third quarter of 2028. Cheniere has
guaranteed Cheniere Marketing’s obligations under its TUA.
LNG
Lease Agreement
In
September 2008, we entered into an agreement in the form of a lease with
Cheniere Marketing that enabled us to hedge the exposure to variability in
expected future cash flows of our commissioning cargoes. The agreement permitted
Cheniere Marketing to deliver LNG to our LNG receiving terminal and to receive
regasified LNG for redelivery as natural gas in exchange for the use of the
properties of the LNG to cool down our LNG receiving terminal. Under the terms
of the agreement, we paid Cheniere Marketing a fixed fee based on the delivered
quantity of LNG in each LNG cargo. We assumed full price risk of the purchase
and sale of the LNG and also financed all activities relating to the LNG.
Cheniere Marketing held title to the LNG at all times and sold all redelivered
LNG and remitted the net proceeds from such sales back to us.
LNG
purchased on our behalf by Cheniere Marketing that was funded by us was recorded
at historical cost and classified as a non-current asset on our Consolidated
Balance Sheets as Advances to Affiliate—LNG Held for Commissioning. LNG that was
lost, used as fuel or sold resulted in the reduction of Advances to
Affiliate—LNG Held for Commissioning on our Consolidated Balance Sheets at
historical cost. During the second quarter of 2008 and the first quarter of
2009, we advanced Cheniere Marketing funds to purchase LNG. As of September 30,
2009, commissioning activities and construction of our LNG receiving terminal
were substantially complete; therefore we no longer needed the remaining LNG for
commissioning. We had 1,115,000 MMBtu of LNG Held for Commissioning remaining at
September 30, 2009 which was reclassified to current assets as $3.5 million of
Advances to Affiliate—LNG inventory, representing the market value of LNG
inventory that we have retained for operations. LNG inventory is recorded at
cost and is subject to lower of cost or market adjustments at the end of each
period. Inventory cost is determined using the average cost method.
Recoveries of losses resulting from interim period LCM adjustments are made due
to market price recoveries on the same inventory in the same fiscal year and are
recognized as gains in later interim periods with such gains not exceeding
previously recognized losses. At December 31, 2009, we had $1.3 million Advances
to Affiliate—LNG inventory and zero Advances to Affiliate—LNG Held for
Commissioning on our Consolidated Balance Sheets. At December 31, 2008, we
had $9.9 million recorded as Advances to Affiliate—LNG Held for Commissioning on
our Consolidated Balance Sheets.
During
the years ended December 31, 2009 and 2008, Sabine Pass LNG incurred fixed fees
from Cheniere Marketing of $0.3 million and $0.6 million, respectively, which we
capitalized as property, plant and equipment on our Consolidated Balance
Sheets.
Service
Agreements
In
February 2005, we entered into a 20-year operation and maintenance agreement
with a wholly-owned subsidiary of Cheniere pursuant to which we receive all
necessary services required to construct, operate and maintain our LNG receiving
terminal. Prior to substantial completion of our LNG receiving terminal, as
defined in our engineering, procurement and construction (“EPC”) contract with
Bechtel Corporation (“Bechtel”), we were required to pay a fixed monthly fee of
$95,000 (indexed for inflation) under the agreement. The fixed monthly fee
increased to $130,000 (indexed for inflation) upon the achievement of
substantial completion of our LNG receiving terminal in March 2009, and the
counterparty is entitled to a bonus equal to 50% of the salary component of
labor costs in certain circumstances to be agreed upon between us and the
counterparty at the beginning of each operating year. In addition, we are
required to reimburse the counterparty for its operating expenses, which consist
primarily of labor expenses.
In
February 2005, we entered into a 20-year management services agreement with our
general partner, which is a wholly-owned subsidiary of Cheniere Energy Partners,
L.P. (“Cheniere Partners”), pursuant to which our general partner was appointed
to manage the construction and operation of our LNG receiving terminal,
excluding those matters provided for under the operation and maintenance
agreement described in the paragraph above. In August 2008, our general partner
assigned all of its rights and obligations under the management services
agreement to Cheniere LNG Terminals, Inc. (“Cheniere Terminals”), a wholly-owned
subsidiary of Cheniere. Prior to substantial completion of our LNG receiving
terminal, as defined in our EPC contract with Bechtel, we were required to pay
Cheniere Terminals a monthly fixed fee of $340,000 (indexed for inflation). With
the achievement of substantial completion of our LNG receiving terminal in March
2009, the monthly fixed fee increased to $520,000 (indexed for
inflation).
39
SABINE
PASS LNG, L.P. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS—Continued
During the
years ended December 31, 2009, 2008 and 2007, we paid an aggregate of $8.0
million, $5.2 million and $5.2 million, respectively, under the foregoing
service agreements.
Agreement
to Fund Our Cooperative Endeavor Agreements
In July
2007, we executed Cooperative Endeavor Agreements (“CEAs”) with various Cameron
Parish, Louisiana taxing authorities that allow them to collect certain annual
property tax payments from us in 2007 through 2016. This ten-year initiative
represents an aggregate $25.0 million commitment and will make resources
available to the Cameron Parish taxing authorities on an accelerated basis in
order to aid in their reconstruction efforts following Hurricane Rita. In
exchange for our payments of annual ad valorem taxes, Cameron Parish will grant
us a dollar for dollar credit against future ad valorem taxes to be levied
against our LNG receiving terminal starting in 2019. In September 2007, we
modified our TUA with Cheniere Marketing, pursuant to which Cheniere Marketing
will pay us additional TUA revenues equal to any and all amounts payable under
the CEAs in exchange for a similar amount of credits against future TUA payments
it would owe us under its TUA starting in 2019. These TUA payments were recorded
to other assets, and payments from Cheniere Marketing that we utilized to make
the ad valorem tax payments were recorded as deferred revenue. As of
December 31, 2009 and 2008, we had $7.4 million and $5.0 million of other
assets and deferred revenue resulting from our ad valorem tax payments and the
advance TUA payments received from Cheniere Marketing,
respectively.
Contracts
for Sale and Purchase of Natural Gas
In 2007,
we entered into a number of related party agreements for the purchase and sale
of natural gas with Cheniere Marketing. During the years ended December 31, 2009
and 2008, we did not sell or purchase any natural gas under our purchase and
sale agreements with Cheniere Marketing.
Contract
for Commissioning Activities
We have
entered into a number of related party agreements for commissioning activities
with Cheniere Marketing. During the years ended December 31, 2009 and 2008, we
paid an aggregate of zero and $34.6 million, respectively, under these
commissioning activities agreements with Cheniere Marketing.
NOTE
12—LEASES
The
following is a schedule by years of future minimum rental payments, excluding
inflationary adjustments, required as of December 31, 2009 under our land
leases and the tug boat lease as described below (in thousands):
|
Year
ending December 31,
|
Lease
Payments (2)
|
|||
|
2010
|
$
|
8,905
|
||
|
2011
|
8,905
|
|||
|
2012
|
8,905
|
|||
|
2013
|
8,905
|
|||
|
2014
|
8,905
|
|||
|
Later
years (1)
|
230,009
|
|||
|
Total
minimum payments required
|
$
|
274,534
|
|
(1)
|
The
later years include the remaining initial term and six 10-year extensions
of our land leases and the remaining initial term and two 5-year
extensions of our tug boat lease, as the lease option renewals were
reasonably assured.
|
|
(2)
|
Lease
payments for our tug boat lease represent our lease payment obligation and
do not take into account the $129.6 million of future sublease payments we
will receive from our three TUA customers that effectively offset our
lease payment obligation, as discussed
below.
|
40
SABINE
PASS LNG, L.P. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS—Continued
Land
Leases
In
January 2005, we exercised our options and entered into three land leases for
the site of our LNG receiving terminal. The leases have an initial term of 30
years, with options to renew for six 10-year extensions with similar terms as
the initial term. In February 2005, two of the three leases were amended,
increasing the total acreage under lease to 853 acres and increasing the annual
lease payments to $1.5 million. The annual lease payment is adjusted for
inflation every five years based on a consumer price index, as defined in the
lease agreements.
Tug
Boat Lease
As
described in Note 1—“Nature of Operations,” in the second quarter of 2009 we
acquired a lease for the use of tug boats and marine services at our LNG
receiving terminal as a result of our purchase of Tug Services. The
term of the Tug Agreement commenced in January 2008 for a period of 10 years,
with an option to renew two additional, consecutive terms of five years
each. We have determined that the Tug Agreement contains a lease for
the tugs specified in the Tug Agreement. In addition, we have
concluded that the tug lease contained in the Tug Agreement is an operating
lease, and as such, the
equipment component of the Tug Agreement will be charged to expense over the
term of the Tug Agreement as it becomes payable.
In
connection with this acquisition, Tug Services entered into a Tug Sharing
Agreement with our three TUA customers to provide their LNG cargo vessels with
tug boat and marine services at our LNG receiving terminal and effectively
offset the cost of our lease. The Tug Sharing Agreement provides for each of our
customers to pay Tug Services an annual service fee.
NOTE
13—COMMITMENTS AND CONTINGENCIES
Construction
Agreements
In July
2006, we entered into various construction agreements to expand our LNG
receiving terminal to approximately 4.0 Bcf/d with storage capacity of
approximately 16.9 Bcf, some of which include the following:
We
entered into an engineering, procurement, construction and management (“EPCM”)
agreement with Bechtel Corporation (“Bechtel”) pursuant to which Bechtel
provided design and engineering services for our LNG receiving terminal
expansion project, except for such portions to be designed by other contractors
and suppliers of equipment, materials and services that we contract with
directly; construction management services to manage the construction of our LNG
receiving terminal; and a portion of the construction services. Under the
initial terms of the EPCM agreement, Bechtel was paid on a cost reimbursable
basis, plus a fixed fee in the initial amount of $18.5 million. A discretionary
bonus was paid to Bechtel at our sole discretion upon completion. As of
December 31, 2009, we were committed to make cash payments of approximately
$2.6 million in the future pursuant to this contract.
We
entered into an EPC LNG tank contract with Zachry Construction Corporation
(“Zachry”) and Diamond LNG LLC (“Diamond”), pursuant to which Zachry and Diamond
furnished all plant, labor, materials, tools, supplies, equipment,
transportation, supervision, technical, professional and other services, and
performed all operations necessary and required to satisfactorily engineer,
procure materials for and construct two additional storage tanks. The EPC LNG
tank contract provided that Zachry and Diamond would receive a lump-sum, total
fixed price payment for the two storage tanks of approximately $140.9 million,
which was subject to adjustment based on fluctuations in the cost of labor and
certain materials, including the steel used in the additional storage tanks, and
change orders. As of December 31, 2009, we were committed to make cash
payments of approximately $3.6 million in the future pursuant to this
contract.
LNG
Commitments
We have
entered into TUAs with Total, Chevron and Cheniere Marketing to provide berthing
for LNG vessels and for the unloading, storage and regasification of LNG at our
LNG receiving terminal.
Services
Agreements
We have
entered into certain services agreements with affiliates. See Note 11—“Related
Party Transactions” for information regarding such agreements.
41
SABINE
PASS LNG, L.P. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS—Continued
Crest
Royalty
Under a
settlement agreement dated as of June 14, 2001, Cheniere agreed to pay a
royalty, which we refer to as the Crest Royalty. This Crest Royalty is
calculated based on the volume of natural gas processed through covered LNG
facilities. The Freeport LNG Development, L.P. (“Freeport LNG”) and Sabine Pass
LNG receiving terminals are covered facilities. Freeport LNG has assumed the
obligation to pay the Crest Royalty for natural gas processed at Freeport LNG’s
receiving terminal. Cheniere has agreed to indemnify us against any Crest
Royalty obligation and to pay any Crest Royalty amounts that may be due and not
paid by Freeport LNG. The Crest Royalty is subject to a maximum of approximately
$11.0 million per production year at throughput of approximately 1.0 Bcf/d and a
minimum of $2.0 million. The first production year began in April
2009.
Other
Commitments
State
Tax Sharing Agreement
In
November 2006, we entered into a state tax sharing agreement with Cheniere.
Under this agreement, Cheniere has agreed to prepare and file all Texas
franchise tax returns which we and Cheniere are required to file on a combined
basis and to timely pay the combined Texas franchise tax liability. If Cheniere,
in its sole discretion, demands payment, we will pay to Cheniere an amount equal
to the Texas franchise tax that we would be required to pay if our Texas
franchise tax liability were computed on a separate company basis. This
agreement contains similar provisions for other state and local taxes required
to be filed by Cheniere and us on a combined, consolidated or unitary basis. The
agreement is effective for tax returns first due on or after January 1,
2008. As of December 31, 2009, we had made no payments to Cheniere under
this agreement.
Cooperative
Endeavor Agreements
See
description of CEAs in Note 11—“Related Party Transactions.”
Legal
Proceedings
We may in
the future be involved as a party to various legal proceedings, which are
incidental to the ordinary course of business. We regularly analyze current
information and, as necessary, provide accruals for probable liabilities on the
eventual disposition of these matters. In the opinion of management, as of
December 31, 2009, there were no threatened or pending legal matters that
would have a material impact on our consolidated results of operations,
financial position or cash flows.
NOTE
14—SUPPLEMENTAL CASH FLOW INFORMATION AND DISCLOSURES OF NON-CASH
TRANSACTIONS
The
following table provides supplemental disclosure of cash flow information (in
thousands):
|
Year
Ended December 31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Cash
paid for interest, net of amounts capitalized
|
$ | 138,659 | $ | 77,243 | $ | 93,642 | ||||||
|
Construction-in-process
and debt issuance additions funded with accrued
liabilities
|
(66 | ) | 9,893 | 60,555 | ||||||||
42
SUMMARIZED
QUARTERLY FINANCIAL DATA
(unaudited)
Quarterly
Financial Data—(in thousands, except per unit amounts)
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||
|
Year
ended December 31, 2009:
|
||||||||||||||||
|
Revenues
|
$ | 62,549 | $ | 95,695 | $ | 128,533 | $ | 130,013 | ||||||||
|
Income
from operations
|
46,622 | 77,325 | 109,357 | 106,905 | ||||||||||||
|
Net
income
|
16,564 | 44,862 | 72,488 | 64,892 | ||||||||||||
|
Year
ended December 31, 2008:
|
||||||||||||||||
|
Revenues
|
$ | — | $ | — | $ | — | $ | 15,000 | ||||||||
|
Income
(loss) from operations
|
(3,651 | ) | (2,568 | ) | (9,391 | ) | 219 | |||||||||
|
Net
loss
|
(14,847 | ) | (24,952 | ) | (10,703 | ) | (28,436 | ) | ||||||||
|
|
ITEM 9(T).
CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
Evaluation
of Disclosure Controls and Procedures
Based on
their evaluation as of the end of the fiscal year ended December 31, 2009, our
general partner’s principal executive officer and principal financial officer
have concluded that our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) are effective to ensure that
information required to be disclosed in reports that we file or submit under the
Exchange Act are (i) accumulated and communicated to our management, including
our principal executive officer and principal financial officer, as appropriate,
to allow timely decisions regarding required disclosure and (ii) recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms.
During the
most recent fiscal quarter, there have been no changes in our internal control
over financial reporting that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
Management
Report on Internal Control Over Financial Reporting
Our
Management Report on Internal Control Over Financial Reporting is included in
the Consolidated Combined Financial Statements on page 26 and is incorporated
herein by reference.
None.
43
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS
OF OUR GENERAL PARTNER AND CORPORATE GOVERNANCE
Management
of Sabine Pass LNG, L.P.
We have
no employees, directors or officers. We are managed by our general partner,
Sabine Pass LNG-GP, Inc. Except for Mr. Duva, the individuals who serve on
the board of directors and as executive officers of our general partner also
serve as executive officers and/or directors of other affiliated entities,
including Cheniere and direct or indirect subsidiaries of Cheniere. Each of our
general partner’s directors and executive officers spent less than a majority of
his or her time on our business in 2009.
Our
general partner is not a public company and it is not listed on any stock
exchange and as a result it is not required to, and does not have, any
independent standing committees of its board of directors. Our general partner’s
only committee is an audit committee comprised of Mr. Souki who serves as
an executive officer and/or director of other affiliated entities, including
Cheniere and direct or indirect subsidiaries of Cheniere. There is not an audit
committee financial expert on the audit committee because our financial
statements are combined with those of Cheniere and Cheniere Energy Partners,
each of which has an audit committee with an audit committee financial
expert.
Directors
and Executive Officers of Our General Partner
The
following sets forth information, as of February 15, 2010, regarding the
individuals who currently serve on the board of directors and as executive
officers of our general partner.
|
Name
|
Age
|
Position
with Our General Partner
|
|
Charif
Souki
|
57
|
Director
and Chief Executive Officer
|
|
Victor
Duva
|
51
|
Director
|
|
R.
Keith Teague
|
45
|
President
|
|
Meg
A. Gentle
|
35
|
Chief
Financial Officer
|
Charif
Souki is a director and Chief Executive Officer of our general partner
and has held that officer position since April 2008. Mr. Souki, a
co-founder of Cheniere, is Chairman of Cheniere’s board of directors and Chief
Executive Officer and President of Cheniere. Since December 2002, Mr. Souki
has been the Chief Executive Officer of Cheniere, and he was also President of
Cheniere from that time until April 2005. He was re-elected as President of
Cheniere in April 2008. From June 1999 to December 2002, he was Chairman of the
board of directors of Cheniere and an independent investment banker. From
September 1997 until June 1999, Mr. Souki was co-chairman of the board of
directors of Cheniere, and he served as Secretary of Cheniere from July 1996
until September 1997. Mr. Souki has over 20 years of independent
investment banking experience in the oil and gas industry and has specialized in
providing financing for small capitalization companies with an emphasis on the
oil and gas industry. Mr. Souki received a B.A. from Colgate University and
an M.B.A. from Columbia University. He has served as a director since the
formation of our general partner in 2003. Mr. Souki is also a director,
Chairman of the Board and Chief Executive Officer of the general partner of
Cheniere Energy Partners. It was determined that Mr. Souki should
serve as a director of our general partner because he is the Chief Executive
Officer of Cheniere, our general partner and the general partner of Cheniere
Energy Partners and is responsible for developing the companies’ overall
strategy and vision and implementing the business plans. In addition,
with twenty years of experience as an investment banker specializing in the oil
and gas industry, Mr. Souki brings an unique perspective to the board of
directors of the general partner. Mr. Souki has not held any other
directorship positions in the past five years.
Victor
Duva serves as an independent director of our general partner.
Mr. Duva joined C T Corporate Staffing, Inc. in 1981, serving as the
President since 2003. Mr. Duva has held various positions with
C T Corporate Staffing, Inc., including Account Representative,
Assistant Vice President/Office Manager of two offices and Business Process
Analyst. He received his B.A. at St. Thomas of Villanova University.
Mr. Duva was elected as a director in 2007. As long as any of the Senior
Notes (described in Note 10 of our Notes to Consolidated Financial Statements in
Part II, Item 8, of this annual report on Form 10-K remain outstanding, our
general partner must have at least one independent director serving on its board
of directors. For a discussion of director independence, see “Director Independence” in
Item 13 of this annual report on Form 10-K. It was determined that
Mr. Duva should serve as a director of our general partner because of his many
years of experience serving as an independent director for private
companies. Mr. Duva has not held any other public company
directorship positions in the past five years.
R. Keith
Teague is President of our general partner and has held that position
since April 2008. He has served as Senior Vice President—Asset Group of Cheniere
since April 2008. Prior to that time, he served as Vice President—Pipeline
Operations of Cheniere beginning in May 2006. He has also served as President of
Cheniere Pipeline Company, a wholly-owned subsidiary of Cheniere, since January
2005. Mr. Teague began his career with Cheniere in February 2004 as
Director of Facility Planning. Prior to
44
joining
Cheniere, Mr. Teague served as the Director of Strategic Planning for the
CMS Panhandle Companies from December 2001 until September 2003. Mr. Teague
is currently a director, President and Chief Operating Officer of the general
partner of Cheniere Energy Partners. He is responsible for the development,
construction and operation of Cheniere’s LNG receiving terminal and pipeline
assets. Mr. Teague received a B.S. in civil engineering from Louisiana Tech
University and an M.B.A. from Louisiana State University.
Meg A.
Gentle is Chief Financial Officer of our general partner and has held
that position since March 2009. She has served as Senior Vice
President and Chief Financial Officer of Cheniere since March 2009. She served
as Senior Vice President – Strategic Planning and Finance from February 2008 to
March 2009. Prior to that time, she served as Vice President of
Strategic Planning since September 2005 and Manager of Strategic Planning since
June 2004. Prior to joining Cheniere, Ms. Gentle spent eight years in
energy market development, economic evaluation and long-range planning. She
conducted international business development and strategic planning for Anadarko
Petroleum Corporation, an oil and gas exploration and production company, for
six years and energy market analysis for Pace Global Energy Services, an energy
management and consulting firm, for two years. Ms. Gentle is currently a
director, Senior Vice President and Chief Financial Officer of the general
partner of Cheniere Energy Partners. Ms. Gentle received her
B.A. in economics and international affairs from James Madison University and an
M.B.A. from Rice University.
Code
of Ethics
The
Cheniere Code of Business Conduct and Ethics covers a wide range of business
practices and procedures and furthers our fundamental principles of honesty,
loyalty, fairness and forthrightness. The officers and directors of our general
partner are subject to the Cheniere Code of Business Conduct and Ethics, which
is posted on the Cheniere website at www.cheniere.com.
Section 16(a)
Beneficial Ownership Reporting Compliance
We are
not subject to Section 16 of the Exchange Act because we do not have a
registered class of equity securities.
Compensation
Discussion and Analysis
We have
no employees, directors or officers. We are managed by our general partner. Our
general partner has paid no compensation to its executive officers since
inception and has no plans to do so in the future. All of the executive officers
of our general partner are also employees of Cheniere. In addition to providing
services to us, each of our general partner’s officers and directors, other than
Mr. Duva, devotes a significant portion of his time to work for Cheniere
and its affiliates.
Cheniere
compensates our general partner’s employees for the performance of their duties
as employees of Cheniere, which includes managing our partnership. Cheniere does
not allocate this compensation between services for us and services for Cheniere
and its affiliates. Officers and employees, if any, of the general partner may
participate in employee benefit plans and arrangements sponsored by Cheniere and
its affiliates, including plans that may be established by Cheniere and its
affiliates in the future. The board of directors of our general partner does not
review any of the compensation decisions made by Cheniere with regard to
compensation of our general partner’s executive officers.
Compensation
Committee Report
As
discussed above, the board of directors of our general partner does not have a
compensation committee. The board of directors would take action on any
compensation issue, if needed. In fulfilling its responsibilities, the board of
directors of our general partner, in lieu of a compensation committee, has
reviewed and discussed the Compensation Discussion and Analysis with management.
Based on this review and discussion, the board of directors of our general
partner recommended that the Compensation Discussion and Analysis be included in
this annual report on Form 10-K.
By the
members of the board of directors of our general partner:
Charif
Souki
Victor
Duva
Compensation
Committee Interlocks and Insider Participation
As
discussed above, the board of directors of our general partner does not have a
compensation committee. The board of directors would perform the functions of
the compensation committee in the event such committee is needed.
45
None of the directors
of our general partner or executive officers of our general partner served as a
member of a compensation committee of another entity that has or has had an
executive officer who served as a member of the board of directors of our
general partner during 2009.
Director
Compensation
Our
general partner has paid no compensation to its directors that are Cheniere
employees since inception and has no plans to do so in the future. Mr. Duva
is compensated $2,300 per year for his services as an independent director as
described below.
Director
Compensation
|
Name
|
Fees
Earned or Paid in Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Nonqualified
Deferred Compensation Earnings
($)
|
All
Other Compensation
($)
|
Total
($)
|
|
Charif
Souki (1)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
Victor
Duva
|
$2,300
|
—
|
—
|
—
|
—
|
—
|
$2,300
|
|
(1)
|
Charif
Souki is an executive officer of our general partner and is also an
executive officer of Cheniere. Cheniere compensates Mr. Souki for the
performance of his duties as an executive officer of Cheniere, which
includes managing our partnership. He does not receive additional
compensation for services as a director of our general
partner.
|
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED UNITHOLDER
MATTERS
The
limited partner interest in our partnership is divided into units. The following
table sets forth the beneficial ownership of our units owned of record and
beneficially as of February 15, 2010:
|
|
•
|
each
person who beneficially owns more than 5% of the
units;
|
|
|
•
|
each
of the directors of our general
partner;
|
|
|
•
|
each
of the executive officers of our general partner;
and
|
|
|
•
|
all
directors and executive officers of our general partner as a
group.
|
The
amounts and percentage of units beneficially owned are reported on the basis of
regulations of the SEC governing the determination of beneficial ownership of
securities. Under the rules of the SEC, a person is deemed to be a “beneficial
owner” of a security if that person has or shares “voting power,” which includes
the power to vote or to direct the voting of such security, or “investment
power,” which includes the power to dispose of or to direct the disposition of
such security. A person is also deemed to be a beneficial owner of any
securities of which that person has a right to acquire beneficial ownership
within 60 days. Under these rules, more than one person may be deemed a
beneficial owner of the same securities and a person may be deemed a beneficial
owner of securities as to which he has no economic interest.
Cheniere,
as the indirect parent of Sabine Pass LNG-LP, LLC, has sole voting and
investment power with respect to all of the units. The address for the
beneficial owner listed below is 700 Milam Street, Suite 800, Houston, Texas
77002.
|
Name
of Beneficial Owner
|
Units
Beneficially Owned
|
Percentage
of Total Units Beneficially Owned
|
|
Sabine
Pass LNG-LP, LLC (1)
|
100
|
100%
|
|
Sabine
Pass LNG-GP, Inc. (1)(2)
|
—
|
—
|
|
Charif
Souki
|
—
|
—
|
|
R.
Keith Teague
|
—
|
—
|
|
Meg
A. Gentle
|
—
|
—
|
|
Victor
Duva
|
—
|
—
|
|
Don
A. Turkleson (3)
|
—
|
—
|
|
All
executive officers and directors as a group
(4 persons)
|
—
|
—
|
|
(1)
|
All
of our general partner and limited partner units are pledged as collateral
to The Bank of New York Mellon as trustee under the Senior Notes as
described in Note 10 of the Notes to Consolidated Financial Statements in
Item 8.
|
46
|
(2)
|
Sabine
Pass LNG-GP, Inc. is our sole general partner. It holds all of our general
partner interest and controls us. It has no economic interest in us. It
has sole voting and investment power with respect to its general partner
interest in us.
|
|
(3)
|
Mr. Turkleson
served as Chief Financial Officer of our general partner until March
2009.
|
Securities
Authorized for issuance Under Equity Compensation Plans
No equity
compensation plans have been adopted by the general partner for our directors or
officers.
ITEM 13.
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
We are
significantly dependent on Cheniere and its affiliates and our general partner
and have numerous contractual and commercial relationships and conflicts of
interests with them. The following related-party transactions are in addition to
those related-party transactions described in Note 11 of our Notes to
Consolidated Financial Statements in Part II, Item 8, of this annual report
on Form 10-K. Except as described below, such related-party
transactions were approved by the board of directors of our general
partner:
ISDA
Master Agreement
In
September 2007, we entered into an International Swaps and Derivatives
Association (“ISDA”) Master Agreement with Cheniere Marketing that provides us
the ability to hedge our future price risk from time to time. The ISDA Master
Agreement was entered into in the event we choose to hedge some of our LNG
purchases or gas sales and elect to implement such hedges through Cheniere
Marketing, which already has ISDA agreements in place with third parties and
accounts with futures brokers. There are no current transactions under this
agreement. No amounts were paid to Cheniere Marketing under this agreement
during 2009 and 2008.
Operational
Balancing Agreement
In
December 2007, we entered into an Operational Balancing Agreement with Cheniere
Creole Trail Pipeline, L.P. that provides for the resolution of any operational
imbalances (i) during the term of the agreement on an in-kind basis and
(ii) upon termination of the agreement by cash-out at a rate equivalent to
the average of the midpoint prices for Henry Hub, Louisiana pricing published in
“Gas Daily’s-Daily Price Survey” for each day of the month following
termination. This agreement became effective following the achievement of
commercial operability of our LNG receiving terminal in September 2008. Cheniere
Creole Trail Pipeline, L.P. owed natural gas volumes valued at $197,628 and
$53,862 to us related to operational imbalances under this agreement at December
31, 2009 and 2008, respectively.
LNG
Terminal Export Agreement
In
January 2010, Sabine Pass LNG and Cheniere Marketing entered into an LNG
Terminal Export Agreement that provides Cheniere Marketing the ability to export
LNG from the Sabine Pass LNG receiving terminal. No amounts we paid
to Sabine Pass LNG under this agreement during the fiscal years ended December
31, 2009 and 2008.
The
following related-party transaction was not approved by the board of directors
of our general partner:
Letter
Agreement regarding the Cooperative Endeavor Agreement and Payment in Lieu of
Taxes Agreement
In July
2007, we entered into Cooperative Endeavor Agreements with various Cameron
Parish, Louisiana taxing authorities and a related agreement with Cheniere
Marketing, each as described in Note 11 of our Notes to Consolidated Financial
Statements in Part II, Item 8, of this annual report on Form 10-K. During
the years ended December 31, 2009 and 2008, Cheniere Marketing paid us $2.4
million and $5.0 million, respectively, under the related
agreement.
Director
Independence
As long
as any of the Senior Notes as described in Note 10 of the Notes to Consolidated
Financial Statements in Part II, Item 8. of this annual report on Form 10-K
remain outstanding, our general partner must have at least one director who is
not, and for at least five years preceding such appointment has not been, a
stockholder, director, manager, officer, trustee, employee, partner, member,
attorney, counsel, creditor, customer or supplier of us, our general partner or
any of our respective affiliates and who does not and has not had specified
financial relationships with us, our general partner or any of our respective
affiliates. We refer to this person as an independent director, and any such
person may not control, be under common control with or be a member of the
immediate family of any person excluded from serving as an independent director.
Mr. Duva has been elected as this independent director.
47
Ernst &
Young LLP served as our independent auditor for the fiscal years ended
December 31, 2009 and 2008. The following table sets forth the fees paid to
Ernst & Young LLP for professional services rendered for 2009 and
2008:
| Ernst & Young LLP | ||||||||
| Fiscal 2009 | Fiscal 2008 | |||||||
|
Audit
Fees
|
$ | 589,000 | $ | 550,001 | ||||
|
Audit-Related
Fees
|
— | 77,661 | ||||||
|
Total
|
$ | 589,000 | $ | 627,662 | ||||
Audit Fees—Audit fees for
2009 and 2008 include attestation services and review of documents filed with
the SEC in addition to audit, review and all other services performed to comply
with generally accepted auditing standards.
Audit-Related
Fees—Audit-related fees for 2008 were for services rendered in connection
with the offering of securities in a private placement.
There
were no tax or other fees in 2009 or 2008.
Auditor
Engagement Pre-Approval Policy
Our
general partner is not a public company and it is not listed on any stock
exchange. As a result, it is not required to, and does not, have an independent
audit committee, a financial expert or a majority of independent directors. The
board of directors of our general partner has approved all audit and non-audit
services to be provided by the independent accountants and the fees for such
services during 2009 and 2008.
|
(a)
|
Financial
Statements and Exhibits
|
|
(1)
|
Financial
Statements—Sabine Pass LNG, L.P.:
|
|
(2)
|
Financial
Statement Schedules:
|
All
financial statement schedules have been omitted because they are not required,
are not applicable, or the required information has been included elsewhere
within this Form 10-K.
48
3) Exhibits
|
Exhibit
No.
|
Description
|
|
2.1*
|
Contribution
and Conveyance Agreement. (Incorporated by reference to Exhibit 10.4 to
Cheniere Energy Partners, L.P.’s Current Report on Form 8-K (SEC File No.
001-33366), filed on March 26, 2007)
|
|
3.1*
|
Certificate
of Limited Partnership of Sabine Pass LNG, L.P. (Incorporated by reference
to Exhibit 3.1 to Sabine Pass LNG L.P.’s Registration Statement on Form
S-4 (SEC File No. 333-138916), filed on November 22,
2006)
|
|
3.2*
|
Fifth
Amended and Restated Agreement of Limited Partnership of Sabine Pass LNG,
L.P. (Incorporated by reference to Exhibit 3.1 to Sabine Pass LNG L.P.’s
Registration Statement on Form S-4 (SEC File No. 333-138916), filed
on November 22, 2006)
|
|
4.1*
|
Form
of general partner interest certificate. (Incorporated by reference to
Exhibit 4.5 to Sabine Pass LNG L.P.’s Registration Statement on Form S-4
(SEC File No. 333-138916), filed on November 22, 2006)
|
|
4.2*
|
Form
of limited partner interest certificate. (Incorporated by reference to
Exhibit 4.6 to Sabine Pass LNG L.P.’s Registration Statement on Form S-4
(SEC File No. 333-138916), filed on November 22, 2006)
|
|
4.3*
|
Indenture,
dated as of November 9, 2006, between Sabine Pass LNG, L.P., as issuer,
and The Bank of New York, as trustee. (Incorporated by reference to
Exhibit 4.1 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC
File No. 001-16383), filed on November 16, 2006)
|
|
4.4*
|
Form
of 7.25% Senior Secured Note due 2013. (Included as Exhibit A1 to Exhibit
4.3 above)
|
|
4.5*
|
Form
of 7.50% Senior Secured Note due 2016. (Included as Exhibit A1 to Exhibit
4.3 above)
|
|
4.6*
|
Form
of 7 1/2% Senior Secured Note due
2016. (Incorporated by reference to Exhibit 4.1 to the Company’s Current
Report on Form 8-K (SEC File No. 333-139572), filed on September 15,
2008)
|
|
10.1*
|
LNG
Terminal Use Agreement, dated September 2, 2004, by and between Total LNG
USA, Inc. and Sabine Pass LNG, L.P. (Incorporated by reference to Exhibit
10.1 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File
No. 001-16383), filed on November 15, 2004)
|
|
10.2*
|
Amendment
of LNG Terminal Use Agreement, dated January 24, 2005, by and between
Total LNG USA, Inc. and Sabine Pass LNG, L.P. (Incorporated by reference
to Exhibit 10.40 to Cheniere Energy, Inc.’s Annual Report on Form 10-K
(SEC File No. 001-16383), filed on March 10, 2005)
|
|
10.3*
|
Omnibus
Agreement, dated September 2, 2004, by and between Total LNG USA, Inc. and
Sabine Pass LNG, L.P. (Incorporated by reference to Exhibit 10.2 to
Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No.
001-16383), filed on November 15, 2004)
|
|
10.4*
|
Guaranty,
dated as of November 9, 2004, by Total S.A. in favor of Sabine Pass LNG,
L.P. (Incorporated by reference to Exhibit 10.3 to Cheniere Energy, Inc.’s
Quarterly Report on Form 10-Q (SEC File No. 001 16383), filed on November
15, 2004)
|
|
10.5*
|
LNG
Terminal Use Agreement, dated November 8, 2004, between Chevron U.S.A.
Inc. and Sabine Pass LNG, L.P. (Incorporated by reference to Exhibit 10.4
to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No.
001-16383), filed on November 15, 2004)
|
|
10.6*
|
Amendment
to LNG Terminal Use Agreement, dated December 1, 2005, by and between
Chevron U.S.A., Inc. and Sabine Pass LNG, L.P. (Incorporated by reference
to Exhibit 10.28 to Sabine Pass LNG, L.P.’s Registration Statement on Form
S-4 (SEC File No. 333-138916), filed on November 22,
2006)
|
|
10.7*
|
Omnibus
Agreement, dated November 8, 2004, between Chevron U.S.A., Inc. and Sabine
Pass LNG, L.P. (Incorporated by reference to Exhibit 10.5 to Cheniere
Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No.
001-16383), filed on November 15, 2004)
|
|
10.8*
|
Guaranty
Agreement, dated as of December 15, 2004, from ChevronTexaco Corporation
to Sabine Pass LNG, L.P. (Incorporated by reference to Exhibit 10.12 to
Sabine Pass LNG, L.P.’s Registration Statement on Form S-4 (SEC File No.
333-138916), filed on November 22,
2006)
|
49
|
Exhibit
No.
|
Description
|
|
10.9*
|
Amended
and Restated Terminal Use Agreement, dated November 9, 2006, by and
between Cheniere Marketing, Inc. and Sabine Pass LNG, L.P. (Incorporated
by reference to Exhibit 10.6 to Cheniere Energy, Inc.’s Current Report on
Form 8-K (SEC File No. 001-16383), filed on November 16,
2006)
|
|
10.10*
|
Amendment
of LNG Terminal Use Agreement, dated June 25, 2007, by and between
Cheniere Marketing, Inc. and Sabine Pass LNG, L.P. (Incorporated by
reference to Exhibit 10.1 to Cheniere Energy, Inc.’s Current Report on
Form 8-K (SEC File No. 001-16383), filed on June 26,
2007)
|
|
10.11*
|
Cooperative
Endeavor Agreement & Payment in Lieu of Tax Agreement, dated
October 23, 2007 (amending the Amended and Restated Terminal Use
Agreement, dated November 9, 2006, by and between Cheniere Marketing,
Inc. and Sabine Pass LNG, L.P.). (Incorporated by reference to
Exhibit 10.7 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q
(SEC File No. 001-16383), filed on November 6,
2007)
|
|
10.12*
|
LNG
Lease Agreement, dated June 24, 2008, between Cheniere Marketing, Inc. and
Sabine Pass LNG, L.P. (Incorporated by reference to Exhibit 10.7 to
Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No.
001-16383), filed on August 11, 2008)
|
|
10.13*
|
Guarantee
Agreement, dated as of November 9, 2006, by Cheniere Energy, Inc.
(Incorporated by reference to Exhibit 10.7 to Cheniere Energy, Inc.’s
Current Report on Form 8-K (SEC File No. 001-16383), filed on
November 16, 2006)
|
|
10.14*
|
Collateral
Trust Agreement, dated November 9, 2006, by and among Sabine Pass LNG,
L.P., The Bank of New York, as collateral trustee, Sabine Pass LNG-GP,
Inc. and Sabine Pass LNG-LP, LLC. (Incorporated by reference to Exhibit
10.1 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No.
001-16383), filed on November 16,
2006)
|
|
10.15*
|
Additional
Secured Debt Designation, dated September 15, 2008, executed by Sabine
Pass LNG, L.P. and acknowledged by The Bank of New York Mellon, as
collateral trustee. (Incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K (SEC File No. 333-139572), filed on
September 15, 2008)
|
|
10.16*
|
Amended
and Restated Parity Lien Security Agreement, dated November 9, 2006, by
and between Sabine Pass LNG, L.P. and The Bank of New York, as collateral
trustee. (Incorporated by reference to Exhibit 10.2 to Cheniere Energy,
Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on
November 16, 2006)
|
|
10.17*
|
Third
Amended and Restated Multiple Indebtedness Mortgage, Assignment of Rents
and Leases and Security Agreement, dated November 9, 2006, between the
Sabine Pass LNG, L.P. and The Bank of New York, as collateral trustee.
(Incorporated by reference to Exhibit 10.3 to Cheniere Energy, Inc.’s
Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16,
2006)
|
|
10.18*
|
Amended
and Restated Parity Lien Pledge Agreement, dated November 9, 2006, by and
among Sabine Pass LNG, L.P., Sabine Pass LNG-GP, Inc., Sabine Pass LNG-LP,
LLC and The Bank of New York, as collateral trustee. (Incorporated by
reference to Exhibit 10.4 to Cheniere Energy, Inc.’s Current Report on
Form 8-K (SEC File No. 001-16383), filed on November 16,
2006)
|
|
10.19*
|
Security
Deposit Agreement, dated November 9, 2006, by and among Sabine Pass LNG,
L.P., The Bank of New York, as collateral trustee, and The Bank of New
York, as depositary agent. (Incorporated by reference to Exhibit 10.5 to
Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File
No. 001-16383), filed on November 16, 2006)
|
|
10.20*
|
Letter
Agreement, dated May 8, 2007, between Cheniere Marketing, Inc. and Sabine
Pass LNG, L.P. (Incorporated by reference to Exhibit 10.8 to Cheniere
Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383),
filed on May 8, 2007), and Form of LNG Terminal Use Agreement between
J&S Cheniere S.A. and Sabine Pass LNG, L.P. (Incorporated by reference
to Exhibit B of Exhibit 8.2(a) of Exhibit 10.8 to Cheniere Energy, Inc.’s
Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on May 8,
2007)
|
|
10.21*
|
Purchase
Agreement, dated September 10, 2008, by and among Sabine Pass LNG, L.P.
and Citigroup Global Markets Inc. (Incorporated by reference to Exhibit
4.2 to the Company’s Current Report on Form 8-K (SEC File No.
333-139572), filed on September 15,
2008)
|
50
|
Exhibit
No.
|
Description
|
|
10.22*
|
Assignment,
Assumption, Consent and Release Agreement, dated March 26, 2007, among
Cheniere LNG O&M Services, L.P., Cheniere Energy Partners GP, LLC and
Sabine Pass LNG, L.P. (Incorporated by reference to Exhibit 10.53 to
Cheniere Energy Partners, L.P.’s Annual Report on Form 10-K (SEC File
No. 001-33363), filed on February 27, 2009)
|
|
10.23*
|
Sabine
Consent and Agreement (Operation and Maintenance Agreement), dated August
15, 2008, among Cheniere Energy Partners GP, LLC, Sabine Pass LNG, L.P.
and The Bank of New York Mellon. (Incorporated by reference to Exhibit
10.4 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File
No. 001-16383), filed on November 7, 2008)
|
|
10.24*
|
Management
Services Agreement, dated February 25, 2005, between Sabine Pass LNG-GP,
Inc. and Sabine Pass LNG, L.P. (Incorporated by reference to Exhibit 10.6
to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No.
001-16383), filed on March 2, 2005)
|
|
10.25*
|
Letter
Agreement (Management Services Agreement), dated September 1, 2006,
between Sabine Pass LNG-GP, Inc. and Cheniere LNG Terminals, Inc.
(Incorporated by reference to Exhibit 10.29 to Cheniere Energy Partners,
L.P.’s Registration Statement on Form S-1 (SEC File No. 333-139572), filed
on February 14, 2007)
|
|
10.26*
|
Assignment,
Assumption, Consent and Release Agreement (Management Services Agreement),
dated August 15, 2008, between Sabine Pass LNG-GP, Inc., Cheniere LNG
Terminals, Inc. and Sabine Pass LNG, L.P. (Incorporated by reference to
Exhibit 10.1 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC
File No. 001-16383), filed on November 7, 2008)
|
|
10.27*
|
Sabine
Consent and Agreement (Management Services Agreement), dated
August 15, 2008, among Cheniere LNG Terminals, Inc., Sabine Pass LNG,
L.P. and The Bank of New York Mellon. (Incorporated by reference to
Exhibit 10.5 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC
File No. 001-16383), filed on November 7, 2008)
|
|
10.28*
|
Settlement
and Purchase Agreement dated as of June 14, 2001, by and among Cheniere
Energy, Inc., CXY Corporation, Crest Energy, L.L.C., Crest Investment
Company and Freeport LNG Terminal, LLC, and two related letter agreements,
each dated February 27, 2003. (Incorporated by reference to
Exhibit 10.36 to Cheniere Energy Partners, L.P.’s Registration
Statement on Form S-1 (SEC File No. 333-139572), filed on January 25,
2007)
|
|
10.29*
|
Letter
regarding Assumption and Adoption of Obligations under Settlement and
Purchase Agreement, dated May 9, 2005, and Indemnification Agreement,
dated May 9, 2005, by Cheniere Energy, Inc. (Incorporated by reference to
Exhibit 10.29 to Sabine Pass LNG, L.P.’s Registration Statement on
Form S-4/A (SEC File No. 333-138916), filed on January 10,
2007)
|
|
21.1
|
Subsidiaries
of Sabine Pass LNG, L.P.
|
|
31.1
|
Certification
by Chief Executive Officer required by Rule 13a-14(a) and 15d-14(a) under
the Exchange Act
|
|
31.2
|
Certification
by Chief Financial Officer required by Rule 13a-14(a) and 15d-14(a) under
the Exchange Act
|
|
32.1
|
Certification
by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
*
|
Incorporated
by reference
|
|
†
|
Management
contract or compensatory plan or
arrangement
|
51
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
SABINE PASS LNG,
L.P.
|
|
|
By:
|
Sabine
Pass LNG-GP, Inc.,
|
|
Its
general partner
|
|
|
By:
|
/s/ Charif Souki
|
|
Charif
Souki
Chief
Executive Officer
|
|
|
|
Date:
February 25, 2010
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the general partner of the
registrant and in the capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
|
/s/ CHARIF SOUKI
|
Chief
Executive Officer and Director
(Principal
Executive Officer)
|
February 25,
2010
|
|
Charif
Souki
|
||
|
/s/ R.
KEITH TEAGUE
|
President
(Principal
Operating Officer)
|
February 25,
2010
|
|
R.
Keith Teague
|
||
|
/s/ Meg A. Gentle
|
Chief
Financial Officer
(Principal Financial Officer)
|
February 25,
2010
|
|
Meg
A. Gentle
|
||
|
/s/ JERRY D. SMITH
|
Chief
Accounting Officer
(Principal Accounting Officer)
|
February 25,
2010
|
|
Jerry
D. Smith
|
||
|
/s/ VICTOR DUVA
|
Director
|
February 25,
2010
|
|
Victor
Duva
|
||
52