UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2004 |
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OR |
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o |
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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. 001-16383
CHENIERE ENERGY, INC.
(Exact name as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
95-4352386
(I.R.S. Employer Identification No.)
717 Texas Avenue, Suite 3100
Houston, Texas
(Address of principal executive offices)
77002
(Zip Code)
(713) 659-1361
(Registrants telephone number, including area code)
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 ý No o .
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No ý .
As of November 10, 2004, there were 20,201,582 shares of Cheniere Energy, Inc. Common Stock, $.003 par value, issued and outstanding.
CHENIERE ENERGY, INC.
INDEX TO FORM 10-Q
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Part I. Financial Information |
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Item 1. Consolidated Financial Statements |
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report contains certain statements that may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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: statements regarding our business strategy, plans and objectives; statements expressing beliefs and expectations regarding the development of our LNG receiving terminal business; statements expressing beliefs and expectations regarding our ability to successfully raise the additional capital necessary to meet our obligations under our current exploration agreements; statements expressing beliefs and expectations regarding our ability to secure the leases necessary to facilitate anticipated drilling activities; statements expressing beliefs and expectations regarding our ability to attract additional working interest owners to participate in the exploration and development of our exploration areas; and statements about non-historical information. These forward-looking statements are often identified by the use of terms and phrases such as expect, estimate, project, plan, believe, achievable, anticipate 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 quarterly report.
2
CHENIERE ENERGY, INC. AND SUBSIDIARIES
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September 30,
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December 31,
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( Unaudited) |
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ASSETS |
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CURRENT ASSETS |
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Cash and Cash Equivalents |
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$ |
7,126,266 |
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$ |
1,257,693 |
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Restricted Certificate of Deposit |
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1,128,272 |
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Accounts Receivable |
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Affiliates |
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1,000,000 |
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Other |
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798,017 |
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1,828,065 |
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Prepaid Expenses |
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214,306 |
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401,594 |
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Total Current Assets |
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9,266,861 |
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4,487,352 |
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OIL AND GAS PROPERTIES, full cost method |
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Proved Properties, net |
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1,024,793 |
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1,087,152 |
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Unproved Properties, not subject to amortization |
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18,381,681 |
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18,047,802 |
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Total Oil and Gas Properties |
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19,406,474 |
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19,134,954 |
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LNG SITE & OTHER RELATED COSTS |
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534,999 |
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310,500 |
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FIXED ASSETS, net |
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984,809 |
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578,281 |
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INVESTMENT IN UNCONSOLIDATED AFFILIATE |
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INVESTMENT IN LIMITED PARTNERSHIP |
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84,473 |
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DEBT ISSUANCE COSTS |
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509,180 |
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INTANGIBLE LNG ASSETS |
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80,670 |
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79,670 |
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OTHER |
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15,910 |
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Total Assets |
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$ |
30,883,376 |
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$ |
24,590,757 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES |
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Accounts Payable |
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$ |
1,145,790 |
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$ |
1,984,314 |
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Accrued Liabilities |
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1,748,273 |
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1,347,512 |
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Note Payable |
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1,000,000 |
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Total Current Liabilities |
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2,894,063 |
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4,331,826 |
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DEFERRED REVENUE |
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1,000,000 |
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1,000,000 |
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MINORITY INTEREST |
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288,720 |
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120,032 |
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COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS EQUITY |
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Preferred Stock, $.0001 par value
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Common Stock, $.003 par value
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59,284 |
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49,465 |
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Additional Paid-in-Capital |
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72,906,607 |
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48,034,244 |
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Deferred Compensation |
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(2,553,333 |
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Accumulated Deficit |
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(43,711,965 |
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(28,944,810 |
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Total Stockholders Equity |
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26,700,593 |
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19,138,899 |
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Total Liabilities and Stockholders Equity |
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$ |
30,883,376 |
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$ |
24,590,757 |
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The accompanying notes are an integral part of these financial statements.
3
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
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Three Months Ended
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Nine Months Ended
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2004 |
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2003 |
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2004 |
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2003 |
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Revenues |
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Oil and Gas Sales |
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$ |
465,249 |
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$ |
135,245 |
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$ |
1,132,240 |
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$ |
366,665 |
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Total Revenues |
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465,249 |
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135,245 |
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1,132,240 |
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366,665 |
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Operating Costs and Expenses |
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Production Taxes |
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14,956 |
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29,184 |
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Depreciation, Depletion and Amortization |
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265,601 |
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101,003 |
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631,956 |
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251,006 |
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General and Administrative Expenses |
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LNG Terminal Development |
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3,334,982 |
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2,343,534 |
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12,664,635 |
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3,360,643 |
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Non-Cash Compensation |
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438,542 |
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2,699,375 |
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Other |
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1,916,300 |
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615,254 |
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5,157,211 |
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1,728,055 |
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General and Administrative Expenses |
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5,689,824 |
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2,958,788 |
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20,521,221 |
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5,088,698 |
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Total Operating Costs and Expenses |
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5,970,381 |
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3,059,791 |
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21,182,361 |
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5,339,704 |
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Net Loss from Operations |
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(5,505,132 |
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(2,924,546 |
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(20,050,121 |
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(4,973,039 |
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Equity in Net Income (Loss) of Limited Partnership |
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(582,798 |
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(595,688 |
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84,473 |
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(2,655,635 |
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Gain on Sale of LNG Assets |
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4,760,000 |
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Gain on Sale of Limited Partnership Interest |
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423,454 |
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Reimbursement from Limited Partnership Investment |
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2,500,000 |
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Interest and Other Income |
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31,810 |
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1,002 |
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48,283 |
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2,288 |
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Net Loss Before Income Taxes and Minority Interest |
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(6,056,120 |
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(3,519,232 |
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(17,417,365 |
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(2,442,932 |
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Provision for Income Taxes |
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Net Loss Before Minority Interest |
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(6,056,120 |
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(3,519,232 |
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(17,417,365 |
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(2,442,932 |
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Minority Interest |
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416,831 |
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1,132,211 |
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2,650,210 |
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1,552,978 |
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Net Loss |
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$ |
(5,639,289 |
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$ |
(2,387,021 |
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$ |
(14,767,155 |
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$ |
(889,954 |
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Net Loss Per Share Basic & Diluted |
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$ |
(0.29 |
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$ |
(0.16 |
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$ |
(0.79 |
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$ |
(0.06 |
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Weighted Average Number of Shares Outstanding - Basic & Diluted |
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19,273,175 |
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15,180,473 |
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18,768,228 |
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14,306,270 |
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The accompanying notes are an integral part of these financial statements.
4
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(Unaudited)
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Additional |
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Total |
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Common Stock |
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Paid-In |
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Deferred |
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Accumulated |
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Stockholders |
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Shares |
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Amount |
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Capital |
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Compensation |
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Deficit |
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Equity |
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Balance - December 31, 2002 |
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13,297,393 |
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$ |
39,892 |
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$ |
41,414,236 |
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$ |
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$ |
(23,656,793 |
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$ |
17,797,335 |
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Issuances of Stock |
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2,511,701 |
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7,535 |
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3,899,805 |
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3,907,340 |
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Issuances of Warrants |
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945,049 |
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945,049 |
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Expenses Related to Offerings |
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(57,956 |
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(57,956 |
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Net Loss |
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(889,954 |
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(889,954 |
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Balance - September 30, 2003 |
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15,809,094 |
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$ |
47,427 |
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$ |
46,201,134 |
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$ |
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$ |
(24,546,747 |
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$ |
21,701,814 |
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Balance - December 31, 2003 |
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16,488,187 |
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$ |
49,465 |
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$ |
48,034,244 |
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$ |
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$ |
(28,944,810 |
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$ |
19,138,899 |
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Issuances of Stock |
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3,017,634 |
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9,053 |
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22,008,379 |
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22,017,432 |
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Issuances of Restricted Stock |
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255,333 |
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766 |
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3,829,234 |
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(3,830,000 |
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Amortization of Deferred Compensation |
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1,276,667 |
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1,276,667 |
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Expenses Related to Offerings |
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(965,250 |
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(965,250 |
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Net Loss |
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(14,767,155 |
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(14,767,155 |
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Balance - September 30, 2004 |
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19,761,154 |
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$ |
59,284 |
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$ |
72,906,607 |
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$ |
(2,553,333 |
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$ |
(43,711,965 |
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$ |
26,700,593 |
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The accompanying notes are an integral part of these financial statements.
5
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
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Nine Months Ended
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2004 |
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2003 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net Loss |
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$ |
(14,767,155 |
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$ |
(889,954 |
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Adjustments to Reconcile Net Loss to
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Depreciation, Depletion and Amortization |
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631,956 |
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251,006 |
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Non-Cash Compensation |
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2,699,375 |
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Equity in Net (Income) Loss of Limited Partnership |
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(84,473 |
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2,655,635 |
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Gain on Sale of LNG Assets |
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(4,760,000 |
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Gain on Sale of Limited Partnership Interest |
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(423,454 |
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Reimbursement from Limited Partnership Investment |
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(2,500,000 |
) |
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Minority Interest |
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(2,650,210 |
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(1,552,978 |
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Other |
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(21,088 |
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(3,636 |
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Changes in Operating Assets and Liabilities |
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Accounts Receivable - Affiliates |
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1,000,000 |
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Other Accounts Receivable |
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(314,205 |
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377,746 |
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Prepaid Expenses |
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126,468 |
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(248,852 |
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Accounts Payable and Accrued Liabilities |
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(781,941 |
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95,744 |
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NET CASH USED IN OPERATING ACTIVITIES |
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(16,661,273 |
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(4,498,743 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchases of Fixed Assets |
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(880,528 |
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(210,840 |
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Oil and Gas Property Additions |
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(1,123,932 |
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(1,434,161 |
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Sale of Interest in Oil and Gas Prospects |
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1,631,783 |
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391,350 |
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LNG Site and Other Related Costs |
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(204,553 |
) |
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Purchase of Intangible LNG Asset |
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(1,000 |
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Sale of LNG Assets |
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2,250,000 |
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Reimbursement from Limited Partnership Investment |
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2,500,000 |
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Sale of Limited Partnership Interest |
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883,333 |
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400,000 |
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Purchase of Restricted Certificate of Deposit |
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(1,123,094 |
) |
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NET CASH PROVIDED BY INVESTING ACTIVITIES |
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1,682,009 |
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1,396,349 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from Issuances of Notes Payable |
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225,000 |
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Repayment of Note Payable |
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(1,000,000 |
) |
(225,000 |
) |
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Sale of Common Stock |
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20,102,432 |
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2,594,840 |
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Offering Costs |
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(965,250 |
) |
(57,956 |
) |
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Debt Issuance Costs |
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(108,243 |
) |
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Partnership Contributions by Minority Owner |
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2,818,898 |
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1,675,000 |
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NET CASH PROVIDED BY FINANCING ACTIVITIES |
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20,847,837 |
|
4,211,884 |
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NET INCREASE IN CASH AND CASH EQUIVALENTS |
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5,868,573 |
|
1,109,490 |
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CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD |
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1,257,693 |
|
590,039 |
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CASH AND CASH EQUIVALENTS END OF PERIOD |
|
$ |
7,126,266 |
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$ |
1,699,529 |
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The accompanying notes are an integral part of these financial statements.
6
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The unaudited consolidated financial statements of Cheniere Energy, Inc. (Cheniere) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation, have been included.
For further information, refer to the consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2003, as amended. Interim results are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 2004. Certain reclassifications have been made to conform prior period amounts to the current period presentation. These reclassifications have no effect on net income (loss) or stockholders equity.
New Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of Variable Interest Entities , and subsequently revised the Interpretation in December 2003 (FIN 46R). This Interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements , addresses consolidation by business enterprises of variable interest entities, which have certain characteristics. As revised, FIN 46R is now generally effective for financial statements for interim or annual periods ending on or after March 15, 2004. We adopted FIN 46R effective January 1, 2004, with no material effect on our consolidated financial statements.
Other Recent Developments
In July 2003, an issue was brought before the FASB regarding whether or not contract-based oil and gas mineral rights held by lease or contract (mineral rights) should be recorded or disclosed as intangible assets. The issue presents a view that these mineral rights are intangible assets as defined in Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and, therefore, should be classified separately on the balance sheet as intangible assets. SFAS No. 141 and SFAS No. 142, Goodwill and Other Intangible Assets, became effective for transactions subsequent to June 30, 2001, with the disclosure requirements of SFAS No. 142 required as of January 1, 2002. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method and that intangible assets be disaggregated and reported separately from goodwill. SFAS No. 142 established new accounting guidelines for both finite lived intangible assets and indefinite lived intangible assets. Under the statement, intangible assets should be separately reported on the face of the balance sheet and accompanied by disclosure in the notes to financial statements. SFAS No. 142 does not apply to accounting utilized by the oil and gas industry as prescribed by SFAS No. 19, and is silent about whether or not its disclosure provisions apply to oil and gas companies.
In September 2004, the FASB issued final FASB Staff Position (FSP) FAS 142-2, Application of SFAS No. 142 to Oil and Gas Producing Entities. The FSP clarifies that the exception in paragraph 8(b) of SFAS No. 142 includes the balance sheet classification and disclosures for drilling and mineral rights of oil and gas producing entities. Accordingly, the FASB staff believes that the exception extends to the disclosure provisions of SFAS No. 142 for drilling and mineral rights of oil and gas producing entities.
7
Stock-Based Compensation
We account for employee stock-based compensation granted under our long-term incentive plans using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees , and related interpretations. Stock-based compensation expense associated with option grants was not recognized in the net loss for the three and nine month periods ended September 30, 2004 and 2003, as all options granted had exercise prices equal to the market value of the underlying common stock on the dates of grant. The following table illustrates the effect on the net loss and the net loss per share if we had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation:
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|||||||||
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|||||
Net loss, as reported |
|
$ |
(5,639,289 |
) |
$ |
(2,387,021 |
) |
$ |
(14,767,155 |
) |
$ |
(889,954 |
) |
|
|
|
|
|
|
|
|
|
|
|
|||||
Deduct: |
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |
|
(567,833 |
) |
(331,164 |
) |
(1,480,246 |
) |
(696,132 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|||||
Pro forma net loss |
|
$ |
(6,207,122 |
) |
$ |
(2,718,185 |
) |
$ |
(16,247,401 |
) |
$ |
(1,586,086 |
) |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net loss per share: |
|
|
|
|
|
|
|
|
|
|||||
Basic and Diluted - as reported |
|
$ |
(0.29 |
) |
$ |
(0.16 |
) |
$ |
(0.79 |
) |
$ |
(0.06 |
) |
|
Basic and Diluted - pro forma |
|
$ |
(0.32 |
) |
$ |
(0.18 |
) |
$ |
(0.87 |
) |
$ |
(0.11 |
) |
|
In connection with our office lease, we are required to provide a letter of credit. On June 23, 2004, we purchased a certificate of deposit in the amount of $1,123,094 (the same amount as the letter of credit) and entered into a pledge agreement in favor of the commercial bank that issued the letter of credit. Under the terms of the pledge agreement, the commercial bank was assigned a security interest in the certificate of deposit as collateral for the letter of credit. As a result, the certificate of deposit and accrued interest are classified as restricted on our balance sheet at September 30, 2004. The certificate of deposit matures on November 15, 2004 and bears a fixed interest rate of 1.7% per annum. Through September 30, 2004, $5,178 in interest was accrued for the certificate of deposit.
Prior to January 1, 2003, we accounted for our investment in Gryphon Exploration Company (Gryphon) using the equity method of accounting because our participation on the Gryphon board of directors provided us with the ability to exercise significant influence over the operating and financial policies of Gryphon. In December 2002, the extent of such influence was diminished when one of the two Cheniere-appointed representatives on the Gryphon board of directors resigned from his position as an officer of Cheniere. Accordingly, effective January 1, 2003, we began accounting for our investment in Gryphon using the cost method of accounting. As of December 31, 2002, Warburg, Pincus Equity Partners, L.P. (Warburg) had invested $85,000,000 in Gryphon convertible preferred stock. If Warburg
8
had converted its investment to common stock as of such date, our ownership interest would have been 9.3%. This effective percent ownership remains unchanged as of September 30, 2004.
As of December 31, 2002, as a result of Gryphons cumulative losses and preferred dividend arrearages, our investment in Gryphon was reduced to zero, but not below zero, because we have not guaranteed any obligations of Gryphon, and we are not committed to provide additional financial support to Gryphon.
In August 2002, we entered into an agreement with entities controlled by Michael S. Smith (the Smith Entities) to sell a 60% interest in the Freeport LNG receiving terminal site and project. On February 27, 2003, we sold our interest in the site and project to Freeport LNG Development, L.P. (Freeport LNG), in which we held a 40% limited partner interest. One of the Smith Entities holds a 60% limited partner interest in Freeport LNG. We recovered $1,740,426 in costs that we had incurred on the project and received an additional $5,000,000 ($2,500,000 during 2003 and $2,500,000 in January 2004) from Freeport LNG. For the funding of Freeport LNG project development costs, the Smith Entities also committed to contribute up to $9,000,000 and to allocate available proceeds from any sales of options or capacity reservations and/or proceeds from loans related to capacity reservations to these costs. In connection with the closing, we issued warrants to one of the Smith Entities to purchase 700,000 shares of Cheniere common stock at a price of $2.50 per share, exercisable for a period of 10 years.
Effective March 1, 2003, we sold a 10% limited partner interest in Freeport LNG to an affiliate of Contango Oil & Gas Company (Contango) for $2,333,333 payable over time, including the cancellation of our $750,000 short-term note payable. We also issued warrants to Contango to purchase 300,000 shares of Cheniere common stock at a price of $2.50 per share, exercisable for a period of 10 years. As a result of the sale, we now hold a 30% limited partner interest in Freeport LNG.
We accounted for the transfer of the site and planned LNG receiving terminal to Freeport LNG in accordance with Emerging Issues Task Force Issue No. 01-2, Interpretations of APB Opinion No. 29. Accordingly, in February 2003, we recorded a $4,760,000 gain on the sale of LNG assets to the extent of the 60% interest not retained.
We account for our 30% limited partnership investment in Freeport LNG using the equity method of accounting. During 2003, we received installment payments totaling $2,500,000 from Freeport LNG, which amounts were recorded as a reduction to the basis of our investment in the partnership. In addition, we recorded $4,471,529 related to our 30% equity share of the 2003 net loss of Freeport LNG. This non-cash loss reduced the basis of our investment in Freeport LNG to zero, and as a result, we did not record $278,071 of our equity share of the loss of the partnership as of December 31, 2003.
In January 2004, we received the final $2,500,000 payment from Freeport LNG. As our investment basis in Freeport LNG had been reduced to zero as of December 31, 2003, the payment was recorded as a reimbursement from limited partnership investment in our consolidated statement of operations for the nine months ended September 30, 2004. For the three and nine months ended September 30, 2004, our 30% equity share of net income (loss) from the Freeport partnership was $(582,798) and $84,473 (after deducting the $278,071 loss that was not recorded as of December 31, 2003 discussed above), respectively.
9
The financial position of Freeport LNG at September 30, 2004 and December 31, 2003 and the results of Freeport LNGs operations for the three and nine months ended September 30, 2004 and 2003 are summarized as follows (in thousands):
|
|
September 30,
|
|
December 31,
|
|
||
|
|
(Unaudited) |
|
|
|
||
Current assets |
|
$ |
2,493 |
|
$ |
295 |
|
Fixed assets, net, and security deposit |
|
164 |
|
150 |
|
||
Construction-in-progress |
|
4,746 |
|
|
|
||
Other long-term assets |
|
609 |
|
|
|
||
Total assets |
|
$ |
8,012 |
|
$ |
445 |
|
|
|
|
|
|
|
||
Current liabilities |
|
$ |
4,046 |
|
$ |
5,887 |
|
Deferred revenue |
|
3,500 |
|
|
|
||
Note payable |
|
6,970 |
|
|
|
||
Partners capital |
|
(6,504 |
) |
(5,442 |
) |
||
Total liabilities and partners capital |
|
$ |
8,012 |
|
$ |
445 |
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||||||
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
||||
Revenue |
|
$ |
3 |
|
$ |
|
|
$ |
10,007 |
|
$ |
|
|
Income (loss) from continuing operations |
|
(1,943 |
) |
(1,993 |
) |
1,208 |
|
(8,852 |
) |
||||
Net income (loss) |
|
(1,943 |
) |
(1,986 |
) |
1,208 |
|
(8,852 |
) |
||||
Chenieres equity in net income (loss) of limited partnership |
|
(583 |
) |
(596 |
) |
84 |
(1) |
(2,656 |
) |
||||
(1) Represents equity in net income for the nine months ended September 30, 2004, less $278,071 equity in loss not recorded as of December 31, 2003.
Note 5 Debt Issuance Costs
As of September 30, 2004, we had incurred $509,180 of costs directly associated with arranging project debt financing related to the construction of our planned LNG receiving terminals. Such costs are being capitalized and are included in our consolidated balance sheet as of September 30, 2004. These costs are expected to be amortized as interest expense over the term of the loan. If we do not enter into a definitive loan agreement, then these costs will be expensed.
Note 6 - Minority Interest in Limited Partnership
In May 2003, we formed a limited partnership, Corpus Christi LNG, L.P. (Corpus LNG), to develop an LNG receiving terminal near Corpus Christi, Texas. Under the terms of the limited partnership agreement, we contributed our technical expertise and know-how, and all of the work in progress related to the Corpus Christi project, in exchange for a 66.7% interest in Corpus LNG. We also manage the project through the general partner interest held by our wholly-owned subsidiary.
10
Our consolidated financial statements include the accounts of Corpus LNG. Substantially all Corpus LNG expenditures incurred through March 31, 2004 were the obligation of the minority owner, as the minority owner was required to fund 100% of the first $4,500,000 of partnership expenditures. As partnership expenditures had reached $4,500,000 as of March 31, 2004, the minority interest owner began sharing all subsequent expenditures based on its 33.3% limited partner interest.
|
|
September 30,
|
|
December 31,
|
|
||
|
|
(Unaudited) |
|
|
|
||
|
|
|
|
|
|
||
Taxes other than income |
|
$ |
31,628 |
|
$ |
36,986 |
|
LNG terminal development costs |
|
1,202,594 |
|
1,183,191 |
|
||
Other accrued liabilities |
|
514,051 |
|
127,335 |
|
||
|
|
$ |
1,748,273 |
|
$ |
1,347,512 |
|
Note 8Deferred Revenue
On December 23, 2003, Cheniere LNG Services, Inc. (Cheniere LNG Services), a wholly-owned subsidiary of Cheniere, entered into a shareholders agreement whereby it became a minority owner of J&S Cheniere S.A., a Switzerland joint-stock company (J&S Cheniere). We account for this investment using the cost method of accounting. At September 30, 2004, our investment basis was $15,910.
Also on December 23, 2003, Cheniere LNG, Inc. (Cheniere LNG), a wholly-owned subsidiary of Cheniere, and J&S Cheniere entered into an option agreement providing J&S Cheniere an option to purchase liquefied natural gas (LNG) storage tank capacity and regas capacity of up to 200 million cubic feet per day (Mmcf/d) in each of Cheniere LNGs Sabine Pass and Corpus LNG facilities. Following execution of the option agreement, $1,000,000 was paid by J&S Cheniere to Cheniere LNG in January 2004. The option agreement may be terminated by J&S Cheniere and the option fee refunded in the event that Cheniere LNG does not receive approval from the Federal Energy Regulatory Commission (FERC) for at least one of the facilities or if Cheniere LNG decides not to proceed with the development of at least one of the facilities, in either case before December 15, 2005. J&S Cheniere may exercise the option as to each facility by entering into a terminal use agreement no later than 60 days after receipt of written notification by Cheniere LNG that such facility has been approved by FERC and all other approvals and permits have been received which are necessary to begin construction of the facility. Cheniere LNG has recorded the option fee as deferred revenue, and it is anticipated that the option fee will be recognized as revenue over the initial five-year period of the terminal use agreement contemplated by the option agreement.
11
On June 23, 2004, we terminated our line of credit with a commercial bank. This facility was originally established on July 25, 2003 as a $5,000,000 line of credit, with a borrowing base of $2,000,000. During 2003, we borrowed $1,000,000 under the facility to acquire oil and gas leases. The balance was repaid in January 2004.
Note 10 Non-Cash Transactions
On February 2, 2004, under the Cheniere Energy, Inc. 2003 Stock Incentive Plan (the 2003 Stock Incentive Plan), 383,000 shares of common stock were issued to employees and outside directors in the form of bonus and restricted stock awards. We recorded $1,915,000 of non-cash compensation in February 2004 related to the issuance of 127,667 shares (bonus stock awards) valued at $15.00 per share, which shares were fully vested on the date of grant. In addition, we recorded $3,830,000 of deferred compensation as a reduction to stockholders equity related to the issuance of 255,333 shares (restricted stock awards) valued at $15.00 per share on the grant date that vests on each of the first and second anniversaries of the grant date. As of September 30, 2004, $1,276,667 of deferred compensation had been amortized.
In August 2003, we issued 378,308 shares of common stock in exchange for the surrender of warrants to purchase 700,000 shares in a cashless transaction.
In April 2003, pursuant to a contingent contractual obligation related to our 2001 acquisition of an option to lease the Freeport LNG terminal site, we issued 750,000 shares of Cheniere common stock, valued at $1,312,500 on the date of issuance, to satisfy a closing requirement related to our February 2003 sale of a 60% interest in our Freeport LNG project.
In February 2003, in connection with the sale of a 60% interest in our Freeport LNG project, we issued warrants valued at $540,015 to purchase 700,000 shares of Cheniere common stock to one of the Smith Entities. In connection with the closing of the Freeport transaction, we also issued additional warrants valued at $173,576 to purchase 225,000 shares of Cheniere common stock to LNG consultants for services previously performed for us. In March 2003, in connection with the sale of a 10% interest in the limited partnership, we issued warrants valued at $241,893 to purchase 300,000 shares of Cheniere common stock to Contango, and Contango canceled the $750,000 note previously payable by Cheniere to Contango.
During the nine months ended September 30, 2004, 162,700 and 56,461 shares of Cheniere common stock were issued in satisfaction of cashless exercises of stock options and warrants to purchase 195,062 and 62,500 shares, respectively.
Note 11 Net Loss Per Share
Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period. The computation of diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock that are dilutive to net income were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the earnings of the Company.
12
The following table is a reconciliation of the basic and diluted weighted average shares outstanding for the three and nine months ended September 30, 2004 and 2003:
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
||||
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
Basic |
|
19,273,175 |
|
15,180,473 |
|
18,768,228 |
|
14,306,270 |
|
Dilutive common stock options (a) |
|
|
|
|
|
|
|
|
|
Dilutive common stock warrants (b) |
|
|
|
|
|
|
|
|
|
Diluted |
|
19,273,175 |
|
15,180,473 |
|
18,768,228 |
|
14,306,270 |
|
(a) Options to purchase 214,861 shares of common stock were outstanding but not included in the computations of diluted net loss per share for the three months ended September 30, 2003 because the exercise prices of the options were greater than the average market price of the common shares and would be anti-dilutive to the computations. In-the-money options representing 1,572,048 shares and 1,792,500 shares of common stock were not included in the computation of diluted net loss per share for the three months ended September 30, 2004 and 2003, respectively, because they have an anti-dilutive effect to net loss per share. Options to purchase 110,000 and 264,861 shares of common stock were outstanding but not included in the computations of diluted net loss per share for the nine months ended September 30, 2004 and 2003, respectively, because the exercise prices of the options were greater than the average market price of the common shares and would be anti-dilutive to the computations. In-the-money options representing 1,462,048 shares and 1,742,500 shares of common stock were not included in the computation of diluted net loss per share for the nine months ended September 30, 2004 and 2003, respectively, because they have an anti-dilutive effect to net loss per share.
(b) Warrants to purchase 313,750 shares of common stock were outstanding but not included in the computations of diluted net loss per share for the three months ended September 30, 2003 because the exercise prices of the warrants were greater than the average market price of the common shares and would be anti-dilutive to the computations. In-the-money warrants representing 444,167 and 1,502,427 shares of common stock were not included in the computation of diluted net loss per share for the three months ended September 30, 2004 and 2003, respectively, because they have an anti-dilutive effect to net loss per share. Warrants to purchase 492,460 shares of common stock were outstanding but not included in the computations of diluted net loss per share for the nine months ended September 30, 2003 because the exercise prices of the warrants were greater than the average market price of the common shares and would be anti-dilutive to the computations. In-the-money warrants representing 444,167 and 1,323,717 shares of common stock were not included in the computation of diluted net loss per share for the nine months ended September 30, 2004 and 2003, respectively, because they have an anti-dilutive effect to net loss per share.
Note 12 Commitments and Contingencies
We are party to a technical services agreement and a memorandum of understanding with an engineering, procurement and construction contractor which provide, respectively, for the front-end engineering and design work for two LNG receiving terminals and the development of an estimate for a lump sum turnkey contract (Turnkey Contract) with respect to each terminal. Under the terms of the memorandum of understanding, the contractor is to perform certain services, at its cost, in developing
13
Turnkey Contract estimates and proposed scope of work and related schedules that would be required in connection with each Turnkey Contract. If a Turnkey Contract is not signed with this contractor by December 31, 2004, then we will be obligated to reimburse the contractor for its actual costs incurred under the memorandum of understanding, up to a maximum of $500,000.
On May 11, 2004, we amended our office lease agreement in order to expand our existing office space (the Expansion Space). The term for the Expansion Space is five years with an option, subject and subordinate to another tenants renewal option, to renew for a term that would coincide with the term of our existing space that terminates in January 2014. No rent is payable for the first nine months of the five-year term. Total payments for the remainder of the five-year Expansion Space lease term are $200,292 per year.
Note 13 Business Segment Information
Our business activities are conducted within two principal operating segments: LNG receiving terminal development and oil and gas exploration and development. These segments operate independently, and there are no intercompany revenues or expenses between them.
Our LNG receiving terminal segment is in the preliminary stage of developing LNG receiving terminals along the U.S. Gulf Coast, primarily near Corpus Christi, Texas, Cameron Parish (Sabine Pass), Louisiana and Freeport, Texas.
Our oil and gas exploration and development segment explores for oil and natural gas using a regional database of 7,000 square miles of regional 3D seismic data. Exploration efforts are focused on the shallow waters of the Gulf of Mexico offshore of Louisiana and Texas and consist primarily of seismic data interpretation and prospect generation activities. This segment participates in drilling and production operations with industry partners on the prospects that we generate.
14
The following table summarizes our revenues, net income (loss) and total assets for each of our operating segments:
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
||||
LNG Receiving Terminal |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Oil & Gas Exploration and Development |
|
465,249 |
|
135,245 |
|
1,132,240 |
|
366,665 |
|
||||
Total |
|
465,249 |
|
135,245 |
|
1,132,240 |
|
366,665 |
|
||||
Corporate and Other (1) |
|
|
|
|
|
|
|
|
|
||||
Total Consolidated |
|
$ |
465,249 |
|
$ |
135,245 |
|
$ |
1,132,240 |
|
$ |
366,665 |
|
|
|
|
|
|
|
|
|
|
|
||||
Net Income (Loss): |
|
|
|
|
|
|
|
|
|
||||
LNG Receiving Terminal |
|
$ |
(3,674,621 |
) |
$ |
(1,839,411 |
) |
$ |
(8,241,688 |
) |
$ |
638,954 |
|
Oil & Gas Exploration and Development |
|
232,678 |
|
103,313 |
|
636,601 |
|
283,162 |
|
||||
Total |
|
(3,441,943 |
) |
(1,736,098 |
) |
(7,605,087 |
) |
922,116 |
|
||||
Corporate and Other (1) |
|
(2,197,346 |
) |
(650,923 |
) |
(7,162,068 |
) |
(1,812,070 |
) |
||||
Total Consolidated |
|
$ |
(5,639,289 |
) |
$ |
(2,387,021 |
) |
$ |
(14,767,155 |
) |
$ |
(889,954 |
) |
|
|
September 30,
|
|
December 31,
|
|
|
|
|
|
||
Total Assets: |
|
|
|
|
|
|
|
|
|
||
LNG Receiving Terminal |
|
$ |
1,416,147 |
|
$ |
2,952,816 |
|
|
|
|
|
Oil & Gas Exploration and Development |
|
19,939,245 |
|
20,219,541 |
|
|
|
|
|
||
Total |
|
21,355,392 |
|
23,172,357 |
|
|
|
|
|
||
Corporate and Other (1) |
|
9,527,984 |
|
1,418,400 |
|
|
|
|
|
||
Total Consolidated |
|
$ |
30,883,376 |
|
$ |
24,590,757 |
|
|
|
|
|
(1) Includes corporate activities and certain intercompany eliminations.
Note 14 Subsequent Events
On November 12, 2004, FERC issued the Final Environmental Impact Statement (FEIS) for our proposed Sabine Pass LNG receiving terminal. In the FEIS, FERC concluded that the facility, with appropriate mitigating measures as recommended, would have limited adverse environmental impact. We currently anticipate that we will receive FERC approval and complete the permitting process for this terminal by the end of 2004.
On November 9, 2004, our wholly-owned limited partnership, Sabine Pass LNG, L.P. (Sabine Pass LNG), received an advance capacity reservation fee payment of $10,000,000 from Total LNG USA, Inc. (Total), a subsidiary of Total SA, upon Totals exercise of its option to proceed to take 1.0 billion cubic feet per day (Bcf/d) of LNG regasification capacity at the 2.6 Bcf/d LNG receiving terminal being developed by Sabine Pass LNG in Cameron Parish, Louisiana. Total also delivered a guarantee by Total SA for certain obligations of Total. These transactions were contemplated under a terminal use agreement and omnibus agreement previously entered into by Sabine Pass LNG and Total on September 2, 2004.
The terminal use agreement provides for Total to pay a tariff of $0.32 per million British thermal units (Mmbtu), subject in part to adjustment for inflation, for 1.0 Bcf/d of regasification capacity for a 20-year period beginning not later than April 1, 2009. In addition, under the omnibus agreement, if Sabine Pass LNG enters into a new terminal use agreement with a third party, other than Cheniere affiliates, for capacity of 50 Mmcf/d or more, with a term of five years or more, prior to the commercial start date of the
15
LNG receiving terminal, Total will have the option, exercisable within 30 days of the receipt of notice of such transaction, to adopt the pricing terms contained in such new terminal use agreement for the remainder of the term of the Total terminal use agreement.
Because Total has elected to proceed with the transaction, an additional advance capacity reservation fee payment of $10,000,000 will be payable to Sabine Pass LNG upon satisfaction of two conditions: (i) approval by FERC of the pending application to build the Sabine Pass LNG receving terminal; and (ii) confirmation of evidence of the ability to finance construction of the facility. Total has the right to terminate this transaction if these conditions are not satisfied by June 30, 2005.
The capacity reservation fee payments will be amortized over a ten-year period as a reduction of Totals regasification capacity tariff under the terminal use agreement. As a result, we intend to record the $20,000,000 in advance payments as deferred revenue to be amortized to income over the corresponding ten-year period.
On November 8, 2004, Sabine Pass LNG entered into a terminal use agreement to provide Chevron USA, Inc. (Chevron USA), a wholly-owned subsidiary of ChevronTexaco Corporation (ChevronTexaco), with 700 Mmcf/d of LNG regasification capacity also at its receiving terminal under development. Additionally, Sabine Pass LNG entered into an omnibus agreement, under which Chevron USA agreed to make advance capacity reservation fee payments and, in addition, agreed to continue to negotiate for Chevron USA to make a $200 million equity investment to acquire a 20% limited partner interest in Sabine Pass LNG. The terminal use agreement and omnibus agreement remain subject to final corporate approvals, including approval by the ChevronTexaco Board of Directors, by December 20, 2004.
The terminal use agreement provides for Chevron USA to pay a tariff of $0.32 per Mmbtu, subject in part to adjustment for inflation, for 700 Mmcf/d of regasification capacity for a 20-year period beginning not later than July 1, 2009. Under the omnibus agreement, Chevron USA has the option, at the same tariff, either to reduce its reserved capacity at the Sabine Pass LNG receiving terminal to 500 Mmcf/d by July 1, 2005 or to increase its reserved capacity to 1.0 Bcf/d by December 1, 2005. ChevronTexaco will guarantee certain Chevron USA obligations under the terminal use agreement.
The omnibus agreement requires Chevron USA to make advance capacity reservation fee payments to Sabine Pass LNG totaling up to $20,000,000, beginning with an unconditional payment of $5,000,000 by November 23, 2004. Except for this $5,000,000 payment, Chevron USA has the right to terminate the terminal use agreement, the omnibus agreement and the transactions under those agreements if final corporate approvals, including approval of ChevronTexacos board of directors, is not obtained by December 20, 2004. If the agreements and transactions are not terminated, further advance capacity reservation fee payments will be due $7,000,000 after ChevronTexacos board approval; $5,000,000 after December 20, 2004, conditioned upon both FERC approval of the pending application to build the Sabine Pass terminal and confirmation of evidence of the ability to finance construction of the facility; and $3,000,000 if Chevron USA exercises the option to increase its capacity at the Sabine Pass LNG facility to 1.0 Bcf/d. These capacity reservation fee payments will be amortized over a ten-year period as a reduction of Chevron USAs regasification capacity tariff under the terminal use agreement. As a result, we intend to record the advance payments, when received, as deferred revenue to be amortized to income over the corresponding ten-year period.
On November 8, 2004, Sabine Pass LNG signed agreements with HSBC Securities (USA) Inc. and SG Corporate & Investment Banking, an arm of Societe Generale, to arrange the $741 million debt component of the project financing for the construction of the Sabine Pass LNG receiving terminal.
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On October 25, 2004, both our letter of credit and certificate of deposit were amended to decrease the face amounts by $224,619 to $898,475. The letter of credit matures on November 30, 2005. The certificate of deposit currently matures on November 15, 2004. However, it is anticipated that a new certificate of deposit for the same amount will be purchased at that time with a maturity date of November 30, 2005.
On October 13, 2004, our Board of Directors adopted a stockholder rights plan (the Stockholder Rights Plan) in which preferred stock purchase rights (each, a Right) were distributed as a dividend at the rate of one right for each share of common stock of Cheniere held by stockholders of record as of the close of business on November 1, 2004. The Rights will expire on October 14, 2014. While not initially exercisable, each Right will entitle stockholders to buy one unit of a share of preferred stock for $200, subject to adjustment. The Rights generally will be exercisable only if a person or group acquires beneficial ownership of 15% or more of our common stock or commences a tender or exchange offer upon consummation of which the person or group would beneficially own 15% or more of our common stock. After the occurrence of such an event, each Right will entitle its holder (other than such persons or group) to receive, upon exercise, units of a share of preferred stock having a value equal to two times the then-current exercise price.
From October 1 through November 9, 2004, 382,883 shares of Cheniere common stock were issued pursuant to the exercise of stock options, resulting in net cash proceeds of $565,179 . An additional 57,545 shares of Cheniere common stock were issued in cashless exercises of warrants to purchase 62,500 shares.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
General
We are engaged primarily in the development of a liquefied natural gas, or LNG, receiving terminal business and related LNG business opportunities centered on the U.S. Gulf Coast. The LNG receiving terminal business consists of receiving deliveries of LNG from LNG carriers, processing such LNG to return it to a gaseous state and delivering it to pipelines for transportation to purchasers. We own interests in three limited partnerships that are developing LNG receiving terminals:
Sabine Pass LNG, in which we own a 100% interest, is developing an LNG receiving terminal near Sabine Pass in Cameron Parish, Louisiana;
Corpus LNG, in which we own a 66.7% interest, is developing an LNG receiving terminal near Corpus Christi, Texas; and
Freeport LNG, in which we own a 30% interest, is developing an LNG receiving terminal on Quintana, Island, near Freeport, Texas.
Sabine Pass LNG . Our 100%-owned limited partnership entity, Sabine Pass LNG, is developing an LNG receiving terminal with an anticipated regasification capacity of 2.6 Bcf/d. In November 2004, FERC issued the FEIS (Final Environmental Impact Statement) for our proposed Sabine Pass LNG receiving terminal. In the FEIS, FERC concluded that the facility, with appropriate mitigating measures as recommended, would have limited adverse environmental impact. We currently anticipate that we will receive FERC approval and complete the permitting process for this terminal by the end of 2004, with construction beginning in the first quarter of 2005 and commercial operations commencing in 2008.
On September 2, 2004, Sabine Pass LNG entered into a terminal use agreement to provide Total with 1.0 Bcf/d of LNG regasification capacity at the Sabine Pass LNG receiving terminal. In November 2004, Total exercised its option to proceed with the transaction by delivering to Sabine Pass LNG (i) an advance capacity reservation fee payment of $10,000,000, and (ii) a guarantee by Total SA of certain Total obligations under the terminal use agreement. Cheniere, Sabine Pass LNG and Total also entered into an omnibus agreement on September 2, 2004, under which the terminal use agreement remains subject to certain conditions described below.
The terminal use agreement provides for Total to pay a tariff of $0.32 per Mmbtu, subject in part to adjustment for inflation, for 1.0 Bcf/d of regasification capacity for a 20-year period beginning not later than April 1, 2009. In addition, under the omnibus agreement, if Sabine Pass LNG enters into a new terminal use agreement with a third party, other than Cheniere affiliates, for capacity of 50 Mmcf/d or more, with a term of five years or more, prior to the commercial start date of the terminal, Total will have the option, exercisable within 30 days of the receipt of notice of such transaction, to adopt the pricing terms contained in such new terminal use agreement for the remainder of the term of the Total terminal use agreement.
Because Total has elected to proceed with the transaction, an additional advance capacity reservation fee payment of $10,000,000 will be payable to Sabine Pass LNG upon satisfaction of two conditions: (i) approval by FERC of the pending application to build the Sabine Pass LNG receiving terminal; and (ii) confirmation of evidence of the ability to finance construction of the facility. Total has the right to terminate this transaction if these conditions are not satisfied by June 30, 2005.
On November 8, 2004, Sabine Pass LNG entered into a terminal use agreement to provide Chevron USA with 700 Mmcf/d of LNG regasification capacity at the Sabine Pass LNG receiving terminal. Cheniere, Sabine Pass LNG and Chevron USA simultaneously entered into an omnibus
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agreement, under which Chevron USA agreed to make advance capacity reservation fee payments and the companies agreed to continue to negotiate for Chevron USA to make a $200 million equity investment to acquire a 20% limited partner interest in Sabine Pass LNG. The terminal use agreement and omnibus agreement remain subject to final corporate approvals, including approval by the ChevronTexaco Board of Directors, by December 20, 2004.
The terminal use agreement provides for Chevron USA to pay a tariff of $0.32 per Mmbtu, subject in part to adjustment for inflation, for 700 Mmcf/d of regasification capacity for a 20-year period beginning not later than July 1, 2009. Under the omnibus agreement, Chevron USA has the option, at the same tariff, either to reduce its reserved capacity at Sabine Pass to 500 Mmcf/d by July 1, 2005 or to increase its reserved capacity to 1.0 Bcf/d by December 1, 2005. ChevronTexaco will guarantee certain Chevron USA obligations under the terminal use agreement.
The omnibus agreement requires Chevron USA to make advance capacity reservation fee payments to Sabine Pass LNG totaling up to $20,000,000, beginning with an unconditional payment of $5,000,000 made by November 23, 2004. Except for this $5,000,000 payment, Chevron USA has the right to terminate the terminal use agreement, the omnibus agreement and the transactions under those agreements if final corporate approvals, including approval of ChevronTexacos board of directors, is not obtained by December 20, 2004. If the agreements and transactions are not terminated, further advance capacity reservation fee payments will be due as described below.
In November 2004, we entered into agreements with HSBC Securities (USA) Inc., a subsidiary of HSBC Holdings plc, and SG Corporate & Investment Banking, an arm of Societe Generale, to arrange $741 million of non-recourse project debt financing to fund a substantial majority of the Sabine Pass LNG facilitys construction costs.
In December 2003, we entered into an option agreement with J&S Cheniere S.A. (an entity in which we are a minority owner) providing J&S Cheniere with an option to purchase LNG storage tank capacity and regasification capacity of up to 200 Mmcf/d in each of our Sabine Pass and Corpus LNG facilities. We were paid $1,000,000 in connection with the execution of the option agreement by J&S Cheniere in January 2004. The option agreement may be terminated by J&S Cheniere and the option fee refunded in the event that Cheniere LNG does not receive FERC approval for at least one of the facilities or if Cheniere LNG decides not to proceed with the development of at least one of the facilities, in either case, before December 15, 2005. J&S Cheniere may exercise the option as to each facility by entering into a terminal use agreement no later than 60 days after receipt of written notification by us that such facility has been approved by FERC and all other approvals and permits have been received which are necessary to begin construction of the facility.
Corpus LNG . We own a 66.7% interest in Corpus LNG, which is developing an LNG receiving terminal with an anticipated regasification capacity of 2.6 Bcf/d. We currently anticipate that we will receive FERC approval and complete the permitting process for this terminal by the second quarter of 2005, with construction beginning in the third quarter of 2005 and commercial operations commencing in 2009.
Freeport LNG . Freeport LNG is developing an LNG receiving terminal with an anticipated regasification capacity of 1.5 Bcf/d. We developed this project and then sold a 60% limited partner interest to an affiliate of the general partner of Freeport LNG and a 10% limited partner interest to another unaffiliated party. We continue to own a 30% limited partner interest in Freeport LNG. Freeport LNG has received FERC approval for this terminal. We currently anticipate that construction will begin by the first quarter of 2005, with commercial operations to commence in late 2007.
In June 2003, The Dow Chemical Company (Dow) signed an agreement with Freeport LNG for the potential long-term use of the receiving terminal beginning with commercial start-up of the facility in 2007. On March 1, 2004, Freeport LNG and Dow entered into a 20-year terminal use agreement providing
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for a firm commitment by Dow for the use of 250 Mmcf/d of regasification capacity. In August 2004, Dow exercised its option under the agreement and committed to an additional 250 Mmcf/d of regasification capacity for a total of 500 Mmcf/d of regasification capacity.
On December 21, 2003, ConocoPhillips and Freeport LNG signed an agreement under which ConocoPhillips would reserve 1.0 Bcf/d of regasification capacity in the Freeport LNG receiving terminal. ConocoPhillips would also obtain a 50% interest in the general partner of Freeport LNG and provide a substantial majority of the financing to construct the facility. Freeport LNG received a non-refundable capacity reservation fee of $10,000,000 from ConocoPhillips in January 2004. The ConocoPhillips transaction closed in July 2004, at which time ConocoPhillips paid Freeport LNG an additional non-refundable $3,500,000 to secure an option on 500 Mmcf/d of additional capacity in the event the terminal is expanded.
We are pursuing additional potential LNG receiving terminal projects and are also engaged, to a lesser extent, in oil and gas exploration, development and exploitation activities in the Gulf of Mexico.
Because we are in the preliminary stage of developing our LNG receiving terminals, substantially all the costs to-date, related to such activities, have been expensed. These costs primarily include professional fees associated with front-end engineering and design work and obtaining FERC approval and other required permitting for the Sabine Pass LNG and Corpus LNG receiving terminals and their related natural gas pipelines. As a result, we are incurring substantial net losses and negative operating cash flow. We anticipate that our LNG terminal construction projects will be financed with project-level debt or equity securities, capital contributions from Cheniere and other limited partners or a combination thereof. We intend to finance our capital contributions to these projects through the issuance of Cheniere equity or debt securities or other Cheniere borrowings.
Our unaudited consolidated financial statements and notes thereto relate to the three-month and nine-month periods ended September 30, 2004 and 2003. These statements, the notes thereto and the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2003, as amended, contain detailed information that should be referred to in conjunction with the following discussion.
Results of OperationsComparison of the Three-Month Periods Ended September 30, 2004 and 2003
Overview Our financial results for the three months ended September 30, 2004 reflect a net loss of $5,639,289, or $0.29 per share (basic and diluted), compared to a net loss of $2,387,021, or $0.16 per share (basic and diluted), during the corresponding period in 2003. The major factors contributing to our loss during the third quarter of 2004 were: (1) LNG receiving terminal development expenses of $3,334,982 (which were offset by a $416,831 minority interest in the operations of Corpus LNG), (2) other general and administrative expenses of $1,916,300, and (3) our equity share of the net loss in Freeport LNG of $582,798.
LNG Terminal Development Activities LNG terminal development expenses were 42% higher in the third quarter of 2004 ($3,334,982) than in the third quarter of 2003 ($2,343,534) primarily as a result of increased LNG employee-related costs and increased development costs related to our Sabine Pass LNG receiving terminal project.
During the third quarter of 2004, we recorded $1,251,745 in terminal development expenses related to the Corpus LNG terminal in which we are the general partner and own a 66.7% limited partner interest. This amount was partially offset by $416,831 related to the minority interest of our 33.3% limited
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partner. We also incurred $1,408,000 in direct terminal development expenses during the third quarter of 2004 related to the Sabine Pass LNG terminal, in which we own 100% of the project. In addition, in the third quarter of 2004, we incurred $677,000 (before overhead recovery of $225,000 from Corpus LNG) in LNG employee-related costs. In connection with the expansion of our LNG terminal development business, our employee costs increased, as we expanded our average LNG staff from 5 employees during the third quarter of 2003 to 16 employees during the third quarter of 2004.
During the third quarter of 2003, we incurred $2,343,534 in LNG receiving terminal development expenses. Of this amount, $1,132,211 related to development costs for the Corpus LNG project. However, these costs were entirely offset by the minority interest of our 33.3% limited partner, which provided 100% of the funding for the first $4,500,000 of partnership expenditures. Because partnership expenditures had reached $4,500,000 as of March 31, 2004, the minority owner began sharing in all subsequent expenditures based on its 33.3% limited partner interest. Also during the third quarter of 2003, we incurred $1,196,000 primarily for development expenses related to the Sabine Pass LNG project.
During the third quarter of 2004, our 30% equity share of the loss from Freeport LNG was $582,798 compared to our equity share of the loss of $595,688 for the third quarter of 2003.
Non-Cash Compensation Non-cash compensation during the third quarter of 2004 is related to restricted stock awards issued in February 2004 to employees and non-employee directors based on Chenieres performance in 2003. The value of these restricted shares was recorded as a reduction to stockholders equity as deferred compensation to be amortized over two years as vesting occurs. The $438,542 of non-cash compensation (net of $40,208 capitalized as oil and gas property costs) recorded in the third quarter of 2004 is entirely related to the amortization of such deferred compensation.
Other General and Administrative Expenses Other general and administrative (G&A) expenses are primarily related to our general corporate and other activities. These expenses increased $1,301,046, or 211%, to $1,916,300 in the third quarter of 2004 compared to $615,254 in the corresponding quarter in 2003. G&A increased primarily because of the expansion of our business (including increases in our average corporate staff from 5 employees during the third quarter of 2003 to 15 employees during the third quarter of 2004) and increased professional and other fees primarily in connection with securities compliance filings and increased securities registrations. We capitalize as oil and gas property costs that portion of G&A expenses directly related to our exploration and development activities. We capitalized $197,005 (in addition to the $40,208 related to non-cash compensation mentioned earlier) in the third quarter of 2004 compared to $248,000 during the comparable period in 2003.
Depreciation, Depletion and Amortization Expenses Depreciation, depletion and amortization (DD&A) expenses increased $164,598, or 163%, to $265,601 in the third quarter of 2004 from $101,003 in the third quarter of 2003. The increase is primarily related to increased oil and gas DD&A as a result of increased production volumes discussed below and higher depreciation related to increased furniture, fixtures and equipment associated with the expansion of our business.
Oil and Gas Activities Oil and gas revenues increased by $330,004, or 244%, to $465,249 in the third quarter of 2004 from $135,245 in the third quarter of 2003 as a result of a 201% increase in production volumes (80,488 thousand cubic feet of natural gas equivalent (Mcfe) in the third quarter of 2004 compared with 26,725 Mcfe in the third quarter of 2003) and a 13% increase in average natural gas prices to $5.73 per thousand cubic feet (Mcf) in the third quarter of 2004 from $5.06 per Mcf in the third quarter of 2003. We produced from an average of 10 wells in the third quarter of 2004 compared to an average of 7 wells in the third quarter of 2003. We incurred little or no production cost in 2003 and 2004 because all of our revenues were generated from non-cost bearing overriding royalty interests. The small
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amount of production taxes in 2004 is attributable to our share of production taxes on a producing well located in Texas state waters.
Results of OperationsComparison of the Nine-Month Periods Ended September 30, 2004 and 2003
Overview Our financial results for the nine months ended September 30, 2004 reflect a net loss of $14,767,155, or $0.79 per share (basic and diluted), compared to a net loss of $889,954, or $0.06 per share (basic and diluted), during the corresponding period in 2003.
The major factors contributing to our net loss during the first nine months of 2004 were: (1) LNG receiving terminal development expenses of $12,664,635 (which were offset by a $2,650,210 minority interest in the operations of Corpus LNG), (2) non-cash compensation of $2,699,375 related to 2004 stock awards to employees and non-employee directors based on Chenieres performance in 2003 and (3) other general and administrative expenses of $5,157,211. These factors were partially offset by a $2,500,000 reimbursement from our limited partnership investment in Freeport LNG.
LNG Terminal Development Activities LNG terminal development expenses were 277% higher in the first nine months of 2004 ($12,664,635) than in the first nine months of 2003 ($3,360,643). These expenses were significantly higher because we accelerated, beginning in the third quarter of 2003, the schedule of terminal development for our Sabine Pass and Corpus Christi LNG receiving terminals.
During the first nine months of 2004, we recorded $5,135,293 in terminal development expenses related to the Corpus LNG terminal. This amount was partially offset by $2,650,210 related to the minority interest of our 33.3% limited partner. Substantially all expenditures incurred through March 31, 2004 were the obligation of the minority owner, as the minority owner was required to fund 100% of the first $4,500,000 of project expenditures. As project expenditures had reached $4,500,000 by March 31, 2004, the minority owner began sharing all subsequent project expenditures based on its 33.3% limited partner interest. Also during the first nine months of 2004, we incurred $5,617,000 in direct terminal development expenses related to our Sabine Pass LNG terminal, in which we own 100% of the project. In addition, during the first nine months of 2004, we incurred $2,064,000 (before overhead recovery of $675,000 from Corpus LNG) in LNG employee-related costs. In connection with the expansion of our LNG business, our employee costs increased, as we expanded our average LNG staff from 4 employees during the first nine months of 2003 to 14 employees during the first nine months of 2004.
During the first nine months of 2003, we incurred $3,360,643 in LNG receiving terminal development expenses. Of this amount, $1,552,978 related to development costs for the Corpus LNG project. However, these costs were entirely offset by the minority interest of our 33.3% limited partner as discussed above. Also during the first nine months of 2003, we incurred $1,624,000 primarily for development expenses related to the Sabine Pass LNG project.
In February 2003, our Freeport LNG terminal project was acquired by Freeport LNG in which we received a 40% limited partnership interest and payments to us totaling $5,000,000 over time. In connection with the sale of LNG assets to Freeport LNG, we reported a gain of $4,760,000. We also sold a 10% interest in Freeport LNG in March 2003 for $2,333,333, resulting in a gain of $423,454. During 2003, we received payments totaling $2,500,000 from Freeport LNG, which were recorded as a reduction to our investment in the partnership. In addition, during 2003 we recorded equity in the 2003 loss incurred by Freeport LNG attributable to our 30% limited partner interest, which reduced our investment basis to zero as of December 31, 2003. In January 2004, we received the final $2,500,000 payment from Freeport LNG. Because our investment basis in Freeport LNG had been reduced to zero, the payment was recorded
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as a reimbursement from limited partnership investment in our consolidated statement of operations for the nine months ended September 30, 2004.
During the first nine months of 2004, our 30% equity share of net income from Freeport LNG was $84,473, after deducting $278,071 of loss that was not recorded as of December 31, 2003. This compares to our equity share of the loss of $2,655,635 for the first nine months of 2003. The significant improvement from a loss to net income between periods for Freeport LNG was a result of Freeport LNGs receipt of a non-refundable capacity reservation fee of $10,000,000 from ConocoPhillips in January 2004, upon the delivery of specific engineering and design studies.
Non-Cash Compensation Non-cash compensation of $2,699,375 (net of $492,292 capitalized as oil and gas property costs) incurred during the first nine months of 2004 resulted from bonus and restricted stock awards issued in February 2004 to employees and non-employee directors based on our performance in 2003. We expensed non-cash compensation in February 2004 related to the issuance of 127,667 shares (bonus stock awards) valued at $15.00 per share, which shares were fully vested on the date of grant. In addition, we have recorded non-cash compensation related to eight months amortization of restricted stock awards previously recorded as deferred compensation and amortizable over two years as vesting occurs.
Other General and Administrative Expenses Other G&A expenses primarily relate to our general corporate and other activities. These expenses increased $3,429,156, or 198%, to $5,157,211 in the first nine months of 2004 compared to $1,728,055 in the first nine months of 2003. The increase in G&A resulted primarily from the expansion of our business (including increases in average corporate staff from 5 employees during the first nine months of 2003 to 14 employees during the first nine months of 2004) and increased professional and other fees incurred in connection with securities compliance filings and securities registrations. We capitalize as oil and gas property costs that portion of G&A expenses directly related to our exploration and development activities. We capitalized $720,908 (in addition to the $492,292 related to non-cash compensation mentioned earlier) in the first nine months of 2004 compared to $728,000 during the comparable period in 2003.
Depreciation, Depletion and Amortization Expenses DD&A expenses increased $380,950, or 152%, to $631,956 in the first nine months of 2004 from $251,006 in the first nine months of 2003. The increase primarily resulted from higher oil and gas DD&A as a result of greater production volumes discussed below and also from more depreciation expense resulting from the acquisition of furniture, fixtures and equipment associated with the expansion of our business.
Oil and Gas Activities Oil and gas revenues increased by $765,575, or 209%, to $1,132,240 in the first nine months of 2004 from $366,665 in the first nine months of 2003 as a result of a 195% increase in production volumes (194,328 Mcfe in the first nine months of 2004 compared with 65,900 Mcfe in the first nine months of 2003) and a 4% increase in average natural gas prices to $5.82 per Mcf in the first nine months of 2004 from $5.57 per Mcf in the first nine months of 2003. We produced from an average of 10 wells in the first nine months of 2004 as compared with an average of 6 wells in the first nine months of 2003. We incurred little or no production cost in 2003 and 2004 because all of our revenues were generated from non-cost bearing overriding royalty interests. The small amount of production taxes in 2004 is attributable to our share of production taxes on a producing well located in Texas state waters.
Liquidity and Capital Resources
LNG Terminal Development
We are primarily engaged in developing LNG receiving and regasification terminals. These LNG terminal development projects will require very significant amounts of capital and, even if successfully completed, will not begin to generate significant cash flows for several years. As a result, our business
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success will depend to a significant extent upon our ability to obtain the funding necessary to construct these LNG terminals, to bring them into operation on a commercially viable basis and to finance the costs of staffing, operating and expanding our company during that process.
We own interests in three announced LNG terminal development projects a 100% interest in Sabine Pass LNG, a 66.7% interest in Corpus LNG and a 30% interest in Freeport LNG. We currently estimate that, in the aggregate, these three terminal projects will require in excess of $2.1 billion to construct and place in service. In addition, we have other potential additional terminal and pipeline projects in different stages of development. These projects, if successfully pursued, will require comparable amounts of capital.
In January 2004, we initiated the marketing of regasification capacity for our proposed Sabine Pass and Corpus Christi LNG receiving terminals. We have been actively engaged in the marketing process since that time, seeking long-term contracts for our planned regasification capacity. Upon execution of each terminal use agreement, we typically receive an advance payment for regasification capacity sold. This provides additional capital to help meet our ongoing liquidity needs. Furthermore, each terminal use agreement will serve as collateral to facilitate project level debt financing that we intend to obtain with respect to the construction of the related LNG receiving terminal.
As of September 30, 2004, we had working capital of $6,372,798. In November 2004, we received an advance payment of $10,000,000 from Total and expect to receive $5,000,000 that Chevron USA is obligated to pay us on or prior to November 23, 2004, for capacity reservations at the Sabine Pass facility under agreements through which we will receive an additional $10,000,000 from Total and an additional $15,000,000 from Chevron USA if specified conditions are satisfied. We must augment these sources of cash with significant additional funds in order to carry out our business plan.
We currently expect that capital requirements for our three current LNG terminal projects will be financed in part through issuances of project-level debt, equity or a combination of the two and in part with net proceeds of debt or equity securities issued by Cheniere or other Cheniere borrowings. Our financing plans and anticipated capital requirements for our three current LNG terminal development projects follow.
Sabine Pass LNG . We currently estimate that the cost of constructing the Sabine Pass LNG receiving terminal facility will be approximately $750 million to $850 million, before financing costs. We entered into agreements with HSBC Securities (USA) Inc. and SG Corporate & Investment Banking to arrange $741 million of non-recourse project debt financing to fund a substantial majority of these construction costs. In addition, we are negotiating with Chevron USA to make a $200 million equity investment in Sabine Pass LNG in exchange for a 20% limited partner interest. There is no assurance that we will reach definitive agreements for the proposed project debt financing or the proposed Sabine Pass LNG limited partner equity investment. If we are unable to complete either of these financing arrangements, we will be required to seek alternative sources of financing, which may not be available on acceptable terms, if at all.
Total has paid Sabine Pass LNG an advance capacity reservation fee of $10,000,000 in connection with the reservation of 1.0 Bcf/d of LNG regasification capacity at the Sabine Pass LNG receiving terminal. An additional advance capacity reservation fee payment of $10,000,000 will be payable to Sabine Pass LNG upon satisfaction of certain conditions described above. The capacity reservation fee payments will be amortized over a ten-year period as a reduction of Totals regasification capacity tariff under the terminal use agreement. As a result, we intend to record the $20,000,000 in advance payments, though non-refundable, as deferred revenue to be amortized to income over the corresponding ten-year period.
Chevron USA is obligated to pay Sabine Pass LNG an unconditional advance capacity reservation fee of $5,000,000 by November 23, 2004. If the agreements and transactions are not terminated, further
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advance capacity reservation fee payments will be due $7,000,000 after ChevronTexacos board approval; $5,000,000 after December 20, 2004, conditioned upon both FERC approval of the pending application to build the Sabine Pass receiving terminal and confirmation of evidence of the ability to finance construction of the facility; and $3,000,000 if Chevron USA exercises the option to increase its capacity at Sabine Pass to 1.0 Bcf/d. These capacity reservation fee payments will be amortized over a ten-year period as a reduction of Chevron USAs regasification capacity tariff under the terminal use agreement. As a result, we intend to record the advance payments, though non-refundable, as deferred revenue to be amortized to income over the corresponding ten-year period.
In January 2004, we were paid $1,000,000 by J&S Cheniere in connection with an option to purchase LNG storage tank capacity and regasification capacity in each of our Sabine Pass and Corpus LNG facilities. We have recorded the option fee as deferred revenue, and it is anticipated the option fee will be recognized as revenue over the initial five-year period of the terminal use agreement contemplated by the option agreement.
Corpus LNG. We currently estimate that the cost of constructing the Corpus Christi facility will be approximately $650 million to $750 million, before financing costs. The minority owner was required to fund 100% of the first $4,500,000 of Corpus LNGs expenditures, which amount was reached as of March 31, 2004. Since that date, we have funded 66.7% of the expenditures of Corpus LNG, with the minority owner funding the balance. We currently expect to finance the construction cost of the Corpus Christi terminal in similar manner as the Sabine Pass facility, with a combination of debt project financing and capital contributions by partners. We plan to finance future capital contributions through equity or debt offerings or borrowings by Cheniere. If these types of financing are not available, we will be required to seek alternative sources of financing, which may not be available on acceptable terms, if at all.
Freeport LNG . We developed the Freeport LNG project and received cash proceeds of approximately $9,073,759 in connection with the disposition of a 60% limited partner interest to an affiliate of the general partner of Freeport LNG and the disposition of a 10% limited partner to another unaffiliated party.
We currently estimate that the cost of constructing this facility will be approximately $650 million to $750 million, before financing costs. ConocoPhillips has agreed to provide a substantial majority of the financing to construct this facility. ConocoPhillips has also paid Freeport LNG an aggregate of $10,000,000 in connection with the reservation of 1.0 Bcf/d of LNG regasification capacity at the terminal and $3,500,000 for options on 500 Mmcf/d of additional capacity in the event the terminal is expanded.
Under the limited partnership agreement of Freeport LNG, development expenses of the Freeport LNG project generally are to be funded out of Freeport LNGs own cash flows and by its 60% limited partner. We have not been called upon to contribute any cash to Freeport LNG for development activities. However, we have been advised by the general partner that it plans to expand the capacity of the Freeport facility. We expect that a portion of the funding for this proposed capacity expansion will be made through calls upon us and the other limited partners in Freeport LNG to contribute additional capital. In the event of each such capital call, we will have the option either to contribute the requested capital or to decline to contribute. If we decline to contribute, the other limited partners could elect to make our contribution and receive back twice the amount contributed on our behalf, without interest, out of future Freeport LNG cash flows otherwise distributable to us. We currently expect to meet these capital calls using cash on hand, revenues from advance capacity reservation fees and funds raised in the future through the issuance of Cheniere equity or debt securities or other Cheniere borrowings.
25
Short-term Liquidity Needs
We anticipate funding our more immediate liquidity requirements, including some expenditures related to the construction of the LNG receiving terminals, through the combination of any or all of the following:
cash balances;
collection of receivables;
issuances of Cheniere debt and equity securities, including issuances of common stock pursuant to exercises by the holders of existing warrants and options;
LNG receiving terminal capacity reservations fees; and
sales of prospects generated by our exploration group.
Historical Cash Flows
Net cash used in operations for the nine months ended September 30, 2004 totaled $16,661,275, compared to net cash used in operations of $4,498,743 for the same period in 2003. The increase in cash used in operations was a direct result of the expansion of our LNG receiving terminal business. In the first quarter of 2003, we phased out our direct involvement in developing the Freeport LNG terminal site, but in subsequent periods, we accelerated the development schedule of our Sabine Pass and Corpus LNG receiving terminals. Net cash provided by investing activities was $1,682,009 for the nine months ended September 30, 2004 as a result of the reimbursement from limited partnership investment, sales of our interests in oil and gas prospects and collection of proceeds from the sale of a limited partnership interest, partially offset by oil and gas property and fixed asset additions, LNG site costs and the purchase of the restricted certificate of deposit. Net cash provided by investing activities was $1,396,349 for the nine months ended September 30, 2003 as a result of the sale of LNG assets, a limited partnership interest and interests in oil and gas prospects, partially offset by oil and gas property and fixed asset additions. Net cash provided by financing activities was $20,847,837 for the nine months ended September 30, 2004 and $4,211,884 for the nine months ended September 30, 2003. Net cash provided by financing activities in these periods consisted primarily of private sales of common stock, exercises of warrants and stock options, and partnership contributions by a minority owner, partially offset by repayments of notes payable.
At September 30, 2004, we had working capital of $6,372,798 compared to $155,526 at December 31, 2003. The increase is primarily attributable to the sale of our common stock through a private placement offering in January 2004 and exercises of warrants and stock options that resulted in aggregate net proceeds of $19,137,182. We also received a $2,500,000 payment from Freeport LNG from the sale of a 60% interest in the Freeport LNG project and $2,818,898 in partnership contributions from our Corpus LNG minority owner. Major uses of working capital included $17,821,846 related to LNG terminal development and other general and administrative expenses during the nine months ended September 30, 2004.
Bank Line of Credit
On June 23, 2004, we terminated our $5,000,000 line of credit with a commercial bank. This facility was originally established on July 25, 2003 with a borrowing base of $2,000,000. During 2003, we borrowed $1,000,000 under the facility to acquire oil and gas leases. The balance was repaid in January 2004.
Restricted Certificate of Deposit and Letter of Credit
Under the terms of our office lease, we are required to post a standby letter of credit to be reduced $224,619 per annum over a five-year period. The initial letter of credit amount of $865,142 which
26
matured on October 24, 2004, was increased to $1,123,094 in April 2004 related to the expansion of our office space. This letter of credit was initially established under the terms of our bank line of credit.
Upon the termination of our bank line of credit on June 23, 2004, we purchased a certificate of deposit in the amount of $1,123,094 and entered into a pledge agreement in favor of the commercial bank that had previously issued the standby letter of credit for $1,123,094. Under the terms of the pledge agreement, the commercial bank was assigned a security interest in the certificate of deposit as collateral for the letter of credit. As a result, the certificate of deposit plus accrued interest is classified as restricted on our balance sheet at September 30, 2004. The certificate of deposit matures on November 15, 2004 and accrues interest at a fixed rate of 1.7% per annum.
On October 25, 2004, both the letter of credit and certificate of deposit were amended to decrease the face amounts by $224,619 to $898,475. The renewed letter of credit matures on November 30, 2005. The certificate of deposit currently matures on November 15, 2004. However, it is anticipated that a new certificate of deposit for the same amount will be purchased at that time with a maturity date of November 30, 2005.
Off-Balance Sheet Arrangements
As of September 30, 2004, we had no off-balance sheet arrangements that may have a current or future material affect on our consolidated financial condition or results of operations.
Lease Obligation
On May 11, 2004, we amended our office lease in order to expand our existing office space. The term for the Expansion Space is for five years with an option, subject and subordinate to another tenants renewal option, to renew for a term that would coincide with the term of our existing space that terminates January 2014. No rent is payable for the first nine months of the five-year term. Total payments for the remainder of the five-year Expansion Space lease term are $200,292 per year.
Other Matters
New Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities , and subsequently revised the Interpretation in December 2003 (FIN 46R). This Interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements , addresses consolidation by business enterprises of variable interest entities, which have certain characteristics. As revised, FIN 46R is now generally effective for financial statements for interim or annual periods ending on or after March 15, 2004. We adopted FIN 46R effective January 1, 2004, with no material effect on our consolidated financial statements.
Other Recent Developments
In July 2003, an issue was brought before the FASB regarding whether or not contract-based oil and gas mineral rights held by lease or contract (mineral rights) should be recorded or disclosed as intangible assets. The issue presents a view that these mineral rights are intangible assets as defined in Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and, therefore, should be classified separately on the balance sheet as intangible assets. SFAS No. 141 and SFAS No. 142, Goodwill and Other Intangible Assets, became effective for transactions subsequent to June 30, 2001, with the disclosure requirements of SFAS No. 142 required as of January 1, 2002. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method and that intangible assets be disaggregated and reported separately from goodwill. SFAS
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No. 142 established new accounting guidelines for both finite lived intangible assets and indefinite lived intangible assets. Under the statement, intangible assets should be separately reported on the face of the balance sheet and accompanied by disclosure in the notes to financial statements. SFAS No. 142 does not apply to accounting utilized by the oil and gas industry as prescribed by SFAS No. 19, and is silent about whether or not its disclosure provisions apply to oil and gas companies.
In September 2004, the FASB issued final FASB Staff Position (FSP) FAS 142-2, Application of SFAS No.142 to Oil and Gas Producing Entities. The FSP clarifies that the exception in paragraph 8(b) of SFAS No. 142 includes the balance sheet classification and disclosures for drilling and mineral rights of oil and gas producing entities. Accordingly, the FASB staff believes that the exception extends to the disclosure provisions of SFAS No. 142 for drilling and mineral rights of oil and gas producing entities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The development of our LNG receiving terminal business is based upon the foundational premise that prices of natural gas in the U.S. will be sustained at levels of $3.00 per Mcf or more. Should the price of natural gas in the U.S. decline to sustained levels below $3.00 per Mcf, our ability to develop and operate LNG receiving terminals could be materially adversely affected.
We produce and sell natural gas, crude oil and condensate. As a result, our financial results can be affected as these commodity prices fluctuate widely in response to changing market forces. We have not entered into any derivative transactions.
Item 4. Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports filed by us under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. As of the end of the period covered by this report, we evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective.
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.
PART II. Other Information
Item 1. Legal Proceedings
The Company has been, and may in the future be involved as, a party to various legal proceedings, which are incidental to the ordinary course of business. Management regularly analyzes current information and, as necessary, provides accruals for probable liabilities on the eventual disposition of these matters. In the opinion of management and legal counsel, as of September 30, 2004, there were no threatened or pending legal matters that would have a material impact on the Companys consolidated results of operations, financial position or cash flows.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuances of Common Stock
In January 2004, we issued 1,100,000 shares of common stock in a private placement to twelve accredited investors for total consideration of $14,850,000, or $13.50 per share. We paid a 6.5% sales commission totaling $965,250, resulting in $13,884,750 of net proceeds received from the offering. The proceeds of the private placement are being used primarily for the development of LNG receiving terminals and for general corporate purposes.
On February 2, 2004, under the 2003 Stock Incentive Plan, 383,000 shares were issued to employees and outside directors in the form of bonus and restricted stock awards related to our overall 2003 performance. We recorded $1,915,000 of non-cash compensation in February 2004 related to the issuance of 127,667 shares (bonus stock awards) valued at $15.00 per share that were fully vested on the date of grant. In addition, we recorded $3,830,000 of deferred compensation as a reduction to stockholders equity related to the issuance of 255,333 shares (restricted stock awards) valued at $15.00 per share on the grant date that vests 50% on each of the first and second anniversaries of the grant date. As of September 30, 2004, $1,276,667 of deferred compensation had been amortized.
During the first nine months of 2004, a total of 777,890 shares of common stock were issued pursuant to the exercise of stock options, resulting in net cash proceeds of $2,059,308. An additional 162,700 shares of common stock were issued in satisfaction of cashless exercises of options to purchase 195,062 shares of common stock. A total of 792,916 shares of common stock were also issued pursuant to the exercise of warrants, resulting in net proceeds of $3,193,124. An additional 56,461 shares of common stock were issued in satisfaction of cashless exercises of warrants to purchase 62,500 shares of common stock.
Stockholder Rights Plan
On October 13, 2004, our Board of Directors adopted the Stockholder Rights Plan in which preferred stock purchase rights will be distributed as a dividend at the rate of one right for each share of common stock of Cheniere held by stockholders of record as of the close of business on November 1, 2004. The Stockholder Rights Plan is designed to deter coercive takeover tactics, including the accumulation of shares in the open market or through private transactions, and to prevent an acquirer from gaining control of Cheniere without offering a fair price to all of our stockholders. The Stockholder Rights Plan was not adopted in response to any specific threat or takeover offer. The rights under the Stockholder Rights Plan will expire on October 14, 2014.
Each Right under the Stockholder Rights Plan will entitle stockholders to buy one unit of a share of preferred stock for $200, the effect of which would be to significantly dilute the holdings of an acquiring person and to substantially increase the cost of acquiring control in a transaction not approved by our board of directors. The rights under the Stockholder Rights Plan generally will be exercisable only if a person or group acquires beneficial ownership of 15% or more of our common stock or commences a tender or exchange offer upon consummation of which the person or group would beneficially own 15% or more of our common stock.
The rights under the Stockholder Rights Plan are intended to enable all stockholders to realize the long-term value of their investment in Cheniere. The rights under the Stockholder Rights Plan will not prevent a takeover attempt, but are intended to encourage anyone seeking to acquire Cheniere to negotiate with the board of directors prior to attempting a takeover.
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Each of the following exhibits is incorporated by reference or filed herewith:
Exhibit No. |
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Description |
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3.1 |
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Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K, filed on October 14, 2004 (SEC File No. 001-16383)) |
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4.1 |
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Rights Agreement by and between Cheniere Energy, Inc. and U.S. Stock Transfer Corp., as Rights Agent, dated as of October 14, 2004 (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K, filed on October 14, 2004 (SEC File No. 001-16383)) |
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10.1. |
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LNG Terminal Use Agreement, dated September 2, 2004, by and between Total LNG USA, Inc. and Sabine Pass LNG, L.P. |
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10.2 |
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Omnibus Agreement, dated September 2, 2004, by and between Total LNG USA, Inc. and Sabine Pass LNG. L.P. |
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10.3 |
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Guaranty, dated as of November 9, 2004, by Total S.A. in favor of Sabine Pass LNG, L.P. |
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10.4 |
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LNG Terminal Use Agreement, dated November 8, 2004, between Chevron U.S.A. Inc. and Sabine Pass LNG, L.P. |
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10.5 |
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Omnibus Agreement, dated November 8, 2004, between Chevron U.S.A., Inc. and Sabine Pass LNG, L.P. |
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31.1 |
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Certification by Chief Executive Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act |
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31.2 |
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Certification by Chief Financial Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act |
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32.1 |
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Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 |
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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 |
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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CHENIERE ENERGY, INC. |
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/s/ Craig K. Townsend |
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Vice
President and Controller (on behalf of the
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Date: November 12, 2004 |
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Exhibit 10.1
LNG TERMINAL USE AGREEMENT
between
TOTAL LNG USA, INC.
and
SABINE PASS LNG, L.P.
dated September 2, 2004
TABLE OF CONTENTS
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iv
LNG TERMINAL USE AGREEMENT
This LNG TERMINAL USE AGREEMENT (the Agreement ), dated as of this 2nd day of September, 2004 (the Effective Date ), is made by and between TOTAL LNG USA, INC. , a company incorporated under the laws of Delaware with its principal office at One Memorial City Plaza, 800 Gessner, Suite 700, Houston, Texas U.S.A. 77024 ( Customer ); and SABINE PASS LNG, L.P. , a Delaware limited partnership with a place of business at 717 Texas Avenue, Suite 3100, Houston, Texas, U.S.A. 77002 ( SABINE ).
RECITALS
WHEREAS, SABINE intends to construct, own and operate an LNG terminal facility in Cameron Parish, Louisiana capable of performing certain LNG terminalling services, including: the berthing of LNG vessels; the unloading, receiving and storing of LNG; the regasification of LNG; and delivery of natural gas to the Delivery Point;
WHEREAS, Customer desires to purchase such LNG terminalling services from SABINE;
WHEREAS, SABINE desires to make such LNG terminalling services available to Customer and to Other Customers in accordance with the terms hereof; and
WHEREAS , as an essential inducement for SABINE entering into this Agreement, Total S.A., a societe anonyme ( Guarantor ), will execute in favor of SABINE the Guarantee;
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Parties hereto and for the mutual covenants contained herein, SABINE and Customer hereby agree as follows:
In addition to any terms or expressions defined elsewhere in this Agreement, the terms or expressions set forth below shall have the following meanings in this Agreement:
1
2
3
4
5
6
7
8
During the Term and subject to the provisions of this Agreement, SABINE shall, acting as a Reasonable and Prudent Operator, make available the following services to Customer (such available services being herein referred to as the Services ) in the manner set forth in Article 3:
From time to time during the Term, the representatives of SABINE and Customer may supplement this Agreement in accordance with Section 24.2 to provide that SABINE will also make available services to Customer in addition to the Services set forth in Section 2.1.
9
10
Customer shall be entitled to use the Services Quantity (and Services in respect of any Make-Up Quantity) in whole or in part by itself, or may assign its rights and obligations as provided in Article 17.
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13
14
15
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17
18
19
20
(g) Nominations and Scheduling .
21
In accordance with the procedure set forth in this Section 6.2, SABINE shall notify Customer of the date on which Services for Customer will commence at the Sabine Pass Facility (the final date so notified being the Commercial Start Date ). The Commercial Start Date shall be a date within the period that (a) commences on the third anniversary of the date of issuance by FERC of the order granting authorization under Section 3(a) of the Natural Gas Act for SABINE to carry out the construction of the Sabine Pass Facility (such approval date being the FERC Approval Date ); and (b)
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ends eighteen (18) months after such anniversary date (such period being the First Window Period ). The First Window Period shall be narrowed pursuant to the following provisions:
23
The Commercial Start Date shall be the date so notified, regardless of whether any unloading of Customers LNG at the Sabine Pass Facility actually occurs on such date.
The Commercial Start Date shall be postponed to the extent that an event of Force Majeure has the effect of delaying Commercial Operations Completion to a date that would otherwise be after the Commercial Start Date.
Beginning on the Effective Date and every month thereafter until the Commercial Start Date, SABINE shall furnish to Customer an interim progress report (collectively the Progress Reports ) specifying the progress since the last report and the expected progress towards completing the construction, testing and operational start-up of the Sabine Pass Facility. Each Progress Report shall include the status and progress of all construction, an update of the construction schedule, and any other information which Customer has reasonably requested in writing in advance to enable Customer to evaluate the status and progress of construction, testing and operational start-up of the Sabine Pass Facility.
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26
27
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15 + x = maximum LNG unloading time (in hours)
where:
x = y/12,000 Cubic Meters; and
y = the LNG cargo containment capacity of the LNG Vessel in excess of 140,000 Cubic Meters.
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30
31
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For the avoidance of doubt, SABINE shall have the right to delay berthing of the LNG Vessel for any of the reasons set forth in (i) to (vii) above.
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LNG Vessel Cargo Capacity |
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Demurrage Rate
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Less than 120,000 Cubic Meters |
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45,000 |
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120,000 Cubic Meters or greater up to, but not including, 160,000 Cubic Meters |
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55,000 |
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160,000 Cubic Meters or greater up to, but not including, 200,000 Cubic Meters |
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65,000 |
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200,000 Cubic Meters or greater |
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83,000 |
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24 + x = allowed berth time (in hours)
where:
x = y/12,000 Cubic Meters; and
y = the LNG cargo containment capacity of the LNG Vessel in excess of 140,000 Cubic Meters.
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Customers LNG shall be measured and tested in accordance with Annex I. Customer shall ensure that all LNG delivered at the Receipt Point for Customers account shall conform to the following specifications :
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40
Gas delivered to Customer at the Delivery Point shall be measured and tested in accordance with Annex II. SABINE shall ensure that all Gas delivered at the Delivery Point for Customers account shall conform to the following specifications :
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If any other moneys are due from one Party to the other hereunder and if provision for the invoicing of that amount due is not made elsewhere in this Article 11, then the Party to whom such moneys are due shall furnish a statement therefor to the other Party, along with pertinent information showing the basis for the calculation thereof.
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Each Party shall pay, or cause to be paid, in United States dollars in immediately available funds, all amounts that become due and payable by such Party pursuant to any statement issued hereunder, to a bank account or accounts designated by and in accordance with instructions issued by the other Party. Each payment of any amount owing hereunder shall be in the full amount due without reduction or offset for any reason (except as expressly allowed under this Agreement), including Taxes, exchange charges, or bank transfer charges. Notwithstanding the preceding sentence, the paying Party shall not be responsible for a designated banks disbursement of amounts remitted to such bank, and a deposit in immediately available funds of the full amount of each statement with such bank shall constitute full discharge and satisfaction of the statement.
The term Cumulative Delinquency Amount shall mean, with respect to a Party, the cumulative amount, expressed in United States dollars, that is owed by that Party to the other Party under this Agreement and is past due. Without prejudice to a Partys right of offset, if a Partys failure to pay when due an amount owing hereunder causes its Cumulative Delinquency Amount to exceed three (3) times the Reservation Fee, then the Party to which such amount is owed shall have the right, upon giving thirty (30) days written notice (such notice hereinafter referred to as the Delinquency Notice ) to the
44
owing Party, to suspend performance of its obligations under this Agreement until such amount, with interest in accordance with Section 11.4(c), has been paid in full; provided, however, that (a) no such suspension of a Partys obligations under this Section 11.6 shall excuse the owing Party from the performance of its obligations hereunder, and (b) in the event that SABINE suspends performance under this Section 11.6, (i) Customer shall continue to be liable for the Fee pursuant to Article 4, and (ii) SABINE may offer Customers unutilized Services Quantity to the Other Customers. If any such Cumulative Delinquency Amount has not been paid within sixty (60) days after the issuance of the Delinquency Notice, then the Party to whom such amount is owed shall have the right, upon not less than thirty (30) days notice to the other Party, to terminate this Agreement without the necessity of any further action, unless within that thirty (30) day period, the Party to which such amount is owed receives payments from or on behalf of the owing Party equal to the Cumulative Delinquency Amount. Any such termination shall be without prejudice to any other rights and remedies of the terminating Party arising hereunder or by law or otherwise, including the right of such Party to receive payment in respect of all obligations and claims that arose or accrued prior to such termination or by reason of such default by the owing Party.
In the event of disagreement concerning any statement, Customer or SABINE (as the case may be) shall make provisional payment of the total amount thereof and shall immediately notify the other Party of the reasons for such disagreement, except that in the case of an obvious error in computation, Customer or SABINE (as the case may be) shall pay the correct amount disregarding such error.
Within sixty (60) days after expiration of the Term, SABINE and Customer shall determine the amount of any final reconciliation payment. After the amount of the final settlement has been determined, SABINE shall send a statement to Customer, or Customer shall send a statement to SABINE, as the case may be, in United States dollars for amounts due under this Section 11.8, and SABINE or Customer, as the case may be, shall pay such final statement no later than twenty (20) days after the date of receipt thereof.
Notwithstanding Section 4.3, Customer shall be responsible for and pay, or cause to be paid, all Taxes that may be imposed or levied on Customers Inventory (including receipt or redelivery thereof) and the LNG Vessels. Customer shall reimburse and hold harmless SABINE for any such Taxes that may be required by law to be remitted by SABINE and shall pay such additional amount (including Taxes and corresponding interest at the Base Rate) as is necessary to ensure receipt by SABINE of the full amounts otherwise due to it under this Agreement. Notwithstanding the foregoing, neither Party shall be responsible for Taxes on the capital revenue or income derived by the other Party.
45
In addition, during construction of the Sabine Pass Facility, SABINE shall cause the contractor under the engineering, procurement and construction contract to carry an appropriate level of insurance, including Construction All-Risk Insurance.
46
47
Customer shall use reasonable efforts to minimize its cost of acquiring cover gas and maximize the net proceeds of any alternate sale of LNG. Notwithstanding Section 4.4(c)(ii), if Customer recovers from SABINE pursuant to this Section 14.2, Customer shall not be entitled to schedule any Make-Up Quantity pursuant to Section 4.4(c) with respect to quantities for which Customer recovers from SABINE pursuant to this Section 14.2.
48
Customers sole recourse and remedy under this Agreement for a breach hereof or a default hereunder shall be against SABINE and its assets. Except as otherwise provided herein and pursuant to the terms of the Guarantee, SABINEs sole recourse and remedy under this Agreement shall be against Customer and its assets for a breach hereof or a default hereunder. In the event of a breach of this Agreement, the non-breaching Party shall exercise commercially reasonable efforts to mitigate its damages resulting therefrom.
Neither Party shall be liable to the other for any delay or failure in performance hereunder if and to the extent such delay or failure is a result of Force Majeure. Subject to the provisions of this Article 15, the term Force Majeure shall mean any act, event, or circumstance, including Adverse Weather Conditions, that is not reasonably within the control of and that prevents or delays a performance by a Party. Nothing in this Article 15 shall be construed to require a Party to observe a higher standard of conduct than that required of a Reasonable and Prudent Operator as a condition to claiming the existence of Force Majeure.
Notwithstanding Section 15.1 of this Agreement, no Force Majeure shall relieve, suspend, or otherwise excuse Customer from performing any obligation to indemnify, reimburse, hold harmless or otherwise pay SABINE under this Agreement, including the obligations set forth in Sections 3.1, 3.4, 8.9, 9.2, 9.5, 10.2, 13.3, and 17.2 and Article 4, Article 11, Article 12 and Article 20.
A Force Majeure event shall take effect at the moment such an event or circumstance occurs. Upon the occurrence of a Force Majeure that prevents, interferes with or delays the performance by SABINE or Customer, in whole or in part, of any of its obligations hereunder, the Party affected shall give notice thereof to the other Party describing such event and stating the obligations the performance of which are affected (either in the original or in supplemental notices) and stating, as applicable:
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Such notices shall thereafter be updated at least monthly during the period of such claimed Force Majeure specifying the actions being taken to remedy the circumstances causing such Force Majeure.
In order to resume normal performance of this Agreement within the shortest time practicable, the Party affected by the Force Majeure shall take all measures to this end which are reasonable under the circumstances, taking into account the consequences resulting from such event of Force Majeure. Prior to resumption of normal performance, the Parties shall continue to perform its obligations under this Agreement to the extent not excused by such event of Force Majeure.
The Term shall not be extended as a result of or by the duration of an event of Force Majeure.
Settlement of strikes, lockouts, or other industrial disturbances shall be entirely within the discretion of the Party experiencing such situations, and nothing herein shall require such Party to settle industrial disputes by yielding to demands made on it when it considers such action inadvisable.
If, as a result of an event of Force Majeure, SABINE is unable to meet its contractual obligations to Customer and any Other Customers under LNG terminal use agreements, SABINE shall allocate the available capability of the Sabine Pass Facility to perform activities similar to the Services in the following order of priority (such allocation herein referred to as the Major Customer Allocation Priority ):
(a) first among Major Customers only, based on the ratio that the Maximum LNG Reception Quantity (in the case of an allocation for Customer) or the similar maximum contractual entitlement of the relevant Major Customer (in the case of an allocation for another Major Customer) bears to the Major Customer Aggregate Contracted Capacity for the remainder of such Contract Year; and
(b) then among Non-Major Customers only, based on the ratio that the maximum LNG reception quantity (or similar maximum contractual entitlement to receive
50
LNG berthing, unloading and receipt services) of each Non-Major Customer bears to the Non-Major Customer Aggregate Contracted Capacity for the remainder of such Contract Year.
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No Partial Assignment shall (a) serve as a novation of this Agreement; or (b) reduce the responsibility of Customer to SABINE in respect of the Services Quantity or increase SABINEs responsibilities to Customer and the assignees under this Agreement. Customer shall indemnify and hold SABINE harmless from any Liabilities incurred by SABINE arising from a failure by Customer and assignees to designate a Scheduling Representative or to exercise all rights of Customer jointly under (ii) above.
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This Agreement is also subject to the termination provisions provided in Section 11.6.
Termination of this Agreement under this Article 18 or any other provision of this Agreement shall be without prejudice to any other rights and remedies of either Party arising hereunder or by law or otherwise which arose or accrued prior to or as a result of such termination or by reason of default of either Party; provided, however, that in no event shall Customer be entitled to recover damages or pursue any other remedy against SABINE in relation to Services which would have been performed by SABINE after the date of termination by Customer.
The substantive laws of the State of New York, United States of America, exclusive of any conflicts of laws principles that could require the application of any other law, shall govern this Agreement for all purposes, including the resolution of all Disputes between or among the Parties.
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Neither this Agreement nor information or documents that come into the possession of a Party by means of the other Party in connection with the performance of this Agreement may be used or communicated to Persons (other than the Parties) without the mutual written agreement of the Parties, except that either Party shall have the right to disclose such information or documents without obtaining the other Partys prior consent in any of the situations described below:
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Notwithstanding the foregoing, Customer acknowledges and agrees that certain providers of finance to SABINE as well as SABINEs shareholders and partners may disclose this Agreement and information or documents disclosed pursuant to this Section 21.1 if required by any court of law or any law, rule, or regulation, or if requested by a Governmental Authority having or asserting jurisdiction over such Persons and having or asserting authority to require such disclosure in accordance with that authority, or pursuant to the rules of any recognized stock exchange or agency established in connection therewith.
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As of the date hereof and until the expiration of this Agreement, Customer represents, undertakes and warrants that:
As of the date hereof and until the expiration of this Agreement, SABINE represents, undertakes and warrants that:
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Except as otherwise specifically provided, all notices authorized or required between the Parties by any of the provisions of this Agreement shall be in writing (in English) and delivered in person or by courier service or by any electronic means of transmitting written communications which provides written confirmation of complete transmission, and addressed to such Party. Oral communication does not constitute notice for purposes of this Agreement, and e-mail addresses and telephone numbers for the Parties are listed below as a matter of convenience only. The foregoing notwithstanding, notices given from LNG Vessels at sea may be given by radio, and notices required under Article 5 may be given by e-mail. A notice given under any provision of this Agreement shall be deemed delivered only when received by the Party to whom such notice is directed, and the time for such Party to deliver any notice in response to such originating notice shall run from the date the originating notice is received. Received for purposes of this Article 23 shall mean actual delivery of the notice, or delivery of the notice to the address of the Party specified hereunder or, in the event notice was given by radio from an LNG Vessel at sea, actual receipt of the communication by radio, or to be thereafter notified in accordance with this Article 23. Each Party shall have the right to change its address at any time and/or designate that copies of all such notices be directed to another Person at another address, by giving written notice thereof to the other Party.
SABINE PASS LNG, L.P. |
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TOTAL LNG USA, INC. |
717 Texas Avenue, Suite 3100 |
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One Memorial City Plaza |
Houston, Texas 77002 |
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800 Gessner, Suite 700 |
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Houston, Texas 77024 |
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Attention: President |
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Attention: Vice President, Legal |
Fax: (713) 659-5459 |
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Fax: (713) 647-4030 |
Telephone: (713) 659-1361 |
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Telephone: (713) 647-4000 |
Customer acknowledges that SABINE intends to obtain project financing for the cost of construction of the Sabine Pass Facility (the Financing ). In addition to Customers obligations under Section 17.2(c), Customer shall cooperate with SABINE in SABINEs efforts to obtain the Financing by supplying the Lenders information concerning Customer (that is in Customers possession and is not of a proprietary nature) reasonably requested by the Lenders.
This Agreement may not be amended, modified, varied or supplemented except by an instrument in writing signed by SABINE and Customer.
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Each Party shall use reasonable endeavors to maintain in force all Approvals necessary for its performance under this Agreement. Customer and SABINE shall cooperate fully with each other wherever necessary for this purpose.
This Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the Parties.
No failure to exercise or delay in exercising any right or remedy arising from this Agreement shall operate or be construed as a waiver of such right or remedy. Performance of any condition or obligation to be performed hereunder shall not be deemed to have been waived or postponed except by an instrument in writing signed by the Party who is claimed to have granted such waiver or postponement. No waiver by either Party shall operate or be construed as a waiver in respect of any failure or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver.
The interpretation of this Agreement shall exclude any rights under legislative provisions conferring rights under a contract to Persons not a party to that contract. Nothing in this Agreement shall otherwise be construed to create any duty to, or standard of care with reference to, or any liability to, any Person other than a Party.
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Any termination or expiration of this Agreement shall be without prejudice to any rights, remedies, obligations and liabilities which may have accrued to a Party pursuant to this Agreement or otherwise under applicable law. All rights or remedies which may have accrued to the benefit of either Party (and any of this Agreements provisions necessary for the exercise of such accrued rights or remedies) prior to the termination or expiration of this Agreement shall survive such termination or expiration. Furthermore, the provisions of Article 11, Article 12, Article 14, Article 19, Article 20, Article 21, Article 23, and Article 24 shall survive the termination or expiration of this Agreement.
Except where this Agreement expressly provides to the contrary, the rights and remedies contained in this Agreement are cumulative and not exclusive of any rights and remedies provided by law.
The rights, duties, obligations and liabilities of the Parties under this Agreement shall be individual, not joint or collective. It is not the intention of the Parties to create, nor shall
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this Agreement be deemed or construed to create, nor shall the Parties report for any purpose any transaction occurring pursuant to this Agreement as, (a) a partnership, joint venture or other association or a trust, nor (b) a lease or sales transaction with respect to any portion of the Sabine Pass Facility. This Agreement shall not be deemed or construed to authorize any Party to act as an agent, servant or employee for the other Party for any purpose whatsoever except as explicitly set forth in this Agreement. In their relations with each other under this Agreement, the Parties shall not be considered fiduciaries.
Any Party that now or hereafter has a right to claim sovereign immunity for itself or any of its assets hereby waives any such immunity to the fullest extent permitted by the laws of any applicable jurisdiction. This waiver includes immunity from (i) any expert determination or arbitration proceeding commenced pursuant to this Agreement; (ii) any judicial, administrative or other proceedings to aid the expert determination or arbitration commenced pursuant to this Agreement; and (iii) any effort to confirm, enforce, or execute any decision, settlement, award, judgment, service of process, execution order or attachment (including pre-judgment attachment) that results from an expert determination, mediation, arbitration or any judicial or administrative proceedings commenced pursuant to this Agreement. Each Party acknowledges that its rights and obligations hereunder are of a commercial and not a governmental nature .
If and for so long as any provision of this Agreement shall be deemed to be judged invalid for any reason whatsoever, such invalidity shall not affect the validity or operation of any other provision of this Agreement except only so far as shall be necessary to give effect to the construction of such invalidity, and any such invalid provision shall be deemed severed from this Agreement without affecting the validity of the balance of this Agreement.
In performance of their respective obligations under this Agreement, each Party agrees to comply with all applicable laws, statutes, rules, regulations, judgments, decrees, injunctions, writs and orders, and all interpretations thereof, of all Governmental Authorities having jurisdiction over such Party.
SABINE shall avoid any conflict between its own interests and the interests of Customer in relation to obtaining LNG terminalling services from the Sabine Pass Facility. In this regard, SABINE shall not become one of the Other Customers during the Term hereof unless Customer has first consented in writing (such consent not to be unreasonably withheld or delayed) to such expanded business role by SABINE. For the avoidance of doubt, in no event shall (a) any of SABINEs joint venture partners or affiliated entities of any kind be restricted from becoming one of the Other Customers during the Term hereof; or (b) any partner, shareholder, member, or other equity owner of SABINE be
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restricted from becoming one of the Other Customers during the Term hereof. Except as provided above, the Parties and their Affiliates are free to engage or invest (directly or indirectly) in an unlimited number of activities or businesses, any one or more of which may be related to or in competition with the business activities contemplated under this Agreement, without having or incurring any obligation to offer any interest in such business activities to the other Party.
Each Party shall be responsible for and bear all of its own costs and expenses incurred in connection with the preparation and negotiation of this Agreement.
This Agreement constitutes the entire agreement between the Parties relating to the subject matter hereof and supersedes and replaces any provisions on the same subject contained in any other agreement between the Parties except as provided in the Omnibus Agreement of even date, whether written or oral, prior to the date of the original execution hereof.
This Agreement may be executed in any number of counterparts and each such counterpart shall be deemed an original Agreement for all purposes, provided that no Party shall be bound to this Agreement unless and until both Parties have executed a counterpart. For purposes of assembling all counterparts into one document, Customer is authorized to detach the signature page from one or more counterparts and, after signature thereof by the respective Party, attach each signed signature page to a counterpart.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be duly executed and signed by its duly authorized officer as of the Effective Date.
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SABINE PASS LNG, L.P. |
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Sabine Pass LNG-GP, Inc., its General Partner |
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By: |
/s/ Charif Souki |
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Name: Charif Souki |
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Title: Chairman |
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TOTAL LNG USA, INC. |
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/s/ Sveinung J. Stohle |
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Name: Sveinung J. Stohle |
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Title: President and General Manager |
67
MEASUREMENTS AND TESTS FOR LNG AT RECEIPT POINT
1. Parties to Supply Devices
a) General . Unless otherwise agreed, Customer and SABINE shall supply equipment and conform to procedures that are in accordance with the latest appropriate International Organization for Standards ( ISO ) documents.
b) Customer Devices . Customer or Customers agent shall supply, operate and maintain, or cause to be supplied, operated and maintained, suitable gauging devices for the liquid level in LNG tanks of the LNG Vessels, pressure and temperature measuring devices, and any other measurement or testing devices which are incorporated in the structure of LNG vessels or customarily maintained on board ship.
c) SABINE Devices . SABINE shall supply, operate and maintain, or cause to be supplied, operated and maintained, devices required for collecting samples and for determining quality and composition of the LNG and any other measurement or testing devices which are necessary to perform the measurement and testing required hereunder at the Sabine Pass Facility.
d) Dispute . Any Dispute arising under this Annex I shall be submitted to an Expert under Section 20.2.
2. Selection of Devices
All devices provided for in this Annex I shall be approved by SABINE, acting as a Reasonable and Prudent Operator. The required degree of accuracy (which shall in any case be within the permissible tolerances defined herein and in the applicable standards referenced herein) of such devices selected shall be mutually agreed upon by Customer and SABINE. In advance of the use of any device, the Party providing such device shall cause tests to be carried out to verify that such device has the required degree of accuracy.
3. Verification of Accuracy and Correction for Error
a) Accuracy . Accuracy of devices used shall be tested and verified at the request of either Party, including the request by a Party to verify accuracy of its own devices. Each Party shall have the right to inspect at any time the measurement devices installed by the other Party, provided that the other Party is notified in advance. Testing shall be performed only when both Parties are represented, or have received adequate advance notice thereof, using methods recommended by the manufacturer or any other method agreed to by SABINE and Customer. At the request of any Party hereto, any test shall be witnessed and verified by an independent surveyor mutually agreed upon by Customer and SABINE. Permissible tolerances shall be as defined herein or as defined in the applicable standards referenced herein.
1
b) Inaccuracy . Inaccuracy of a device exceeding the permissible tolerances shall require correction of previous recordings, and computations made on the basis of those recordings, to zero error with respect to any period which is definitely known or agreed upon by the Parties as well as adjustment of the device. All invoices issued during such period shall be amended accordingly to reflect such correction, and an adjustment in payment shall be made between Customer and SABINE. If the period of error is neither known nor agreed upon, and there is no evidence as to the duration of such period of error, corrections shall be made and invoices amended for each receipt of LNG made during the last half of the period since the date of the most recent calibration of the inaccurate device. However, the provisions of this Paragraph 3 shall not be applied to require the modification of any invoice that has become final pursuant to Section 11.7.
c) Costs and Expenses of Test Verification . All costs and expenses for testing and verifying SABINEs measurement devices shall be borne by SABINE, and all costs and expenses for testing and verifying Customers measurement devices shall be borne by Customer. The fees and charges of independent surveyors for measurements and calculations shall be borne directly by Customer.
4. Tank Gauge Tables of LNG Vessels
a) Initial Calibration . Customer shall arrange or caused to be arranged, for each tank of each LNG Vessel, a calibration of volume against tank level. Customer shall provide SABINE or its designee, or cause SABINE or its designee to be provided, with a certified copy of tank gauge tables for each tank of each LNG Vessel verified by a competent impartial authority or authorities mutually agreed upon by the Parties. Such tables shall include correction tables for list, trim, tank contraction and any other items requiring such tables for accuracy of gauging.
Tank gauge tables prepared pursuant to the above shall indicate volumes in cubic metres expressed to the nearest thousandth (1/1000), with LNG tank depths expressed in metres to the nearest hundredth (1/100).
b) Presence of Representatives . SABINE and Customer shall each have the right to have representatives present at the time each LNG tank on each LNG Vessel is volumetrically calibrated.
c) Recalibration . If the LNG tanks of any LNG Vessel suffer distortion of such nature as to create a reasonable doubt regarding the validity of the tank gauge tables described herein (or any subsequent calibration provided for herein), Customer or Customers agent shall recalibrate the damaged tanks, and the vessel shall not be employed as an LNG Vessel hereunder until appropriate corrections are made. If mutually agreed between Customer and SABINE representatives, recalibration of damaged tanks can be deferred until the next time when such damaged tanks are warmed for any reason, and any corrections to the prior tank gauge tables will be made from the time the distortion occurred. If the time of the distortion cannot be ascertained, the Parties shall mutually agree on the time period for retrospective adjustments.
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The Parties shall co-operate in the design, selection and acquisition of devices to be used for measurements and tests in order that all measurements and tests may be conducted in the SI system of units, except for the quantity delivered which is expressed in MMBtu, the Gross Heating Value (Volume Based) which is expressed in Btu/SCF and the pressure which is expressed in millibar and temperature in Celsius. In the event that it becomes necessary to make measurements and tests using a new system of units of measurements, the Parties shall establish agreed upon conversion tables.
6. Accuracy of Measurement
All measuring equipment must be maintained, calibrated and tested in accordance with the manufacturers recommendations. In the absence of a manufacturers recommendation, the minimum frequency of calibration shall be one hundred eighty (180) days, unless otherwise mutually agreed between the Parties. Documentation of all tests and calibrations will be made available by the Party performing the same to the other Party. Acceptable accuracy and performance tolerances shall be:
a) Liquid Level Gauging Devices.
Each LNG tank of the LNG Vessel shall be equipped with primary and secondary liquid level gauging devices as per Paragraph 7(b) of this Annex I.
The measurement accuracy of the primary gauging devices shall be plus or minus seven point five (± 7.5) millimetres and the secondary liquid level gauging devices shall be plus or minus ten (± 10) millimetres.
The liquid level in each LNG tank shall be logged or printed.
b) Temperature Gauging Devices.
The temperature of the LNG and of the vapour space in each LNG tank shall be measured by means of a number of properly located temperature measuring devices sufficient to permit the determination of average temperature.
The measurement accuracy of the temperature gauging devices shall be as follows:
(i) in the temperature range of minus one hundred sixty five to minus one hundred forty degree Celsius (-165C to -140°C), the accuracy shall be plus or minus zero point two degree Celsius (± 0.2 °C);
(ii) in the temperature range of minus one hundred forty to plus forty degree Celsius (-140C to +40 °C), the accuracy shall be plus or minus one point five degree Celsius (± 1.5 °C).
The temperature in each LNG tank shall be logged or printed.
c) Pressure Gauging Devices.
Each LNG tank of the LNG Vessel shall have one (1) absolute pressure gauging device.
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The measurement accuracy of the pressure gauging device shall be plus or minus one percent (± 1%) of the measuring range.
The pressure in each LNG tank shall be logged or printed.
d) List and Trim Gauging Devices.
A list gauging device and a trim gauging device shall be installed. These shall be interfaced with the custody transfer system.
The measurement accuracy of the list and the trim gauging devices shall be better than plus or minus zero point zero five (±0.05) degrees for list and plus or minus zero point zero one (± 0.01) degrees for trim.
7. Gauging and Measuring LNG Volumes Delivered
a) Gauge Tables . Upon SABINEs representative and the independent surveyor, if present, arriving on board the LNG Vessel prior to the commencement of or during unloading, Customer or Customers representative shall make available to them a certified copy of tank gauge tables for each tank of the LNG Vessel.
b) Gauges . Volumes of LNG delivered pursuant to this Agreement shall be determined by gauging the LNG in the tanks of the LNG Vessels before and after unloading. Each LNG Vessels tank shall be equipped with a minimum of two (2) sets of level gauges, each set utilizing a different measurement principle. Comparison of the two (2) systems, designated as Primary and Secondary Measurement Systems, shall be performed from time to time to ensure compliance with the acceptable performance tolerances stated herein.
c) Gauging Process . Gauging the liquid in the tanks of the LNG Vessels and measuring of liquid temperature, vapor temperature and vapor pressure in each LNG tank, trim and list of the LNG Vessels, and atmospheric pressure shall be performed, or caused to be performed, by Customer before and after unloading. SABINEs representative shall have the right to be present while all measurements are performed and shall verify the accuracy and acceptability of all such measurements. The first gauging and measurements shall be made immediately before the commencement of unloading. The second gauging and measurements shall take place immediately after the completion of unloading. The liquid level in the LNG Vessel before and after the unloading shall be determined by at least two (2) separate tank gaugings to be conducted at least fifteen (15) minutes apart.
d) Records . Copies of gauging and measurement records shall be furnished to SABINE immediately upon completion of unloading.
e) Gauging Liquid Level of LNG . The level of the LNG in each LNG tank of the LNG Vessel shall be gauged by means of the primary gauging device installed in the LNG Vessel for that purpose. The level of the LNG in each tank shall be logged or printed.
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Measurement of the liquid level in each LNG tank of the LNG Ship shall be made to the nearest millimeter by using the primary liquid level gauging devices. Should the primary devices fail, the secondary device shall be used.
Five (5) readings shall be made following manufacturers recommendations on reading interval. The arithmetic average of the readings rounded to the nearest millimetre using one (1) decimal place shall be deemed the liquid level.
f) Determination of Temperature . The temperature of the LNG and of the vapor space in each LNG tank shall be measured by means of a sufficient number of properly located temperature measuring devices to permit the determination of average temperature. Temperatures shall be measured at the same time as the liquid level measurements and shall be logged or printed.
In order to determine the temperature of liquid and vapor respectively in the LNG Vessel one (1) reading shall be taken at each temperature gauging device in each LNG tank. An arithmetic average of such readings rounded to the nearest zero point one degree Celsius (0.1 °C) using two (2) decimal places with respect to vapor and liquid in all LNG tanks shall be deemed the final temperature of the vapor and liquid respectively.
Customer shall cause each cargo tank in the LNG Vessel to be provided with a minimum of five (5) temperature measuring devices. One such measuring device shall be located in the vapor space at the top of each cargo tank, one near the bottom of each cargo tank and the remainder distributed at appropriate intervals from the top to the bottom of the cargo tank. These devices shall be used to determine the average temperatures of the liquid cargo and the vapor in the cargo tank.
The average temperature of the vapor in an LNG Vessel shall be determined immediately before unloading by means of the temperature measuring devices specified above at the same time as when the liquid level is measured. The temperature measuring devices shall be fully surrounded by the vapor. This determination shall be made by taking the temperature readings of the temperature measuring devices in question to the nearest zero point zero one degrees Celsius (0.01°C), and if more than one of the devices are fully surrounded by the vapor, by averaging those readings, and rounding to 1 decimal place.
g) Determination of Pressure . The pressure of the vapor in each LNG tank shall be determined by means of pressure measuring devices installed in each LNG tank of the LNG Vessels. The atmospheric pressure shall be determined by readings from the standard barometer installed in the LNG Vessels. Pressures shall be measured at the same time as the liquid level measurements, and shall be logged or printed.
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h) Determination of Density . The LNG density shall be calculated using the method described within ISO 6976-2000, Calculation of calorific values, density, relative density and Wobbe Index from composition. This method shall be updated to conform to any official published revision of that document. Should any improved data, method of calculation or direct measurement device become available which is acceptable to both Customer and SABINE, such improved data, method or device shall then be used. If density is determined by measurements, the results shall be measured at the same time as the liquid level measurements and shall be logged or printed.
8. Samples for Quality Analysis
a) General . Flow proportional representative liquid samples shall be collected from an appropriate point located as close as practical to the unloading line starting two (2) hours after the beginning of transfer and ending two (2) hours before the end of transfer. Samples taken when biphasic or overheated LNG is suspected to be in the main transfer line will be disregarded. These incremental samples will be passed through a vaporizer, and samples of the vaporized liquid will be analyzed. The resulting analyses, which are proportional to time, will be mathematically flow rate weighted to yield an analysis that is representative of the unloaded Cargo. This flow rate weighted analysis shall be used for all appropriate calculations associated with the delivered Cargo. Should the automatic sampling system fail during the unloading, manual samples shall be collected and analyzed for accounting purposes.
b) Manual Samples . Prior to the end of the unloading cycle, two (2) spot samples shall be collected from the vaporizer. Spot samples shall be collected in accordance with Gas Processors Association ( GPA ) Standard 2166 - Methods for Obtaining Gas Samples for Analysis by Gas Chromatography - or by other mutually agreeable methods. The samples shall be properly labeled and then distributed to Customer and SABINE. SABINE shall retain one (1) sample for a period of thirty (30) days, unless the analysis is in dispute. If the analysis is in dispute, the sample will be retained until the dispute is resolved.
Sampling and analysis methods and procedures that differ from the above may be employed with the mutual agreement of the Parties.
9. Quality Analysis
a) Certification and Deviation . Chromatograph calibration gasses shall be provided and their composition certified by an independent third party. From time to time, deviation checks shall be performed to verify the accuracy of the gas composition
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mole percentages and resulting calculated physical properties. Analyses of a sample of test gas of known composition resulting when procedures that are in accordance with the above mentioned standards have been applied will be considered as acceptable if the resulting calculated gross real heating value is within plus or minus zero point three percent (± 0. 3) of the known gross real heating value of the test gas sample. If the deviation exceeds the tolerance stated, the gross real heating value, relative density and compressibility previously calculated will be corrected immediately. Previous analyses will be corrected to the point where the error occurred, if this can be positively identified to the satisfaction of both Parties. Otherwise it shall be assumed that the drift has been linear since the last recalibration and correction shall be based on this assumption.
b) GPA Standard 2261 . All samples shall be analyzed by SABINE to determine the molar fraction of the hydrocarbon and other components in the sample by gas chromatography using a mutually agreed method in accordance with GPA Standard 2261 - Method of Analysis for Gas and Similar Gaseous Mixtures by Gas Chromatography, current as of January 1, 1990 and as periodically updated or as otherwise mutually agreed by the Parties. If better standards for analysis are subsequently adopted by GPA or other recognized competent impartial authority, upon mutual agreement of Customer and SABINE, they shall be substituted for the standard then in use, but such substitution shall not take place retroactively. A calibration of the chromatograph or other analytical instrument used shall be performed by SABINE immediately prior to the analysis of the sample of LNG delivered. SABINE shall give advance notice to Customer of the time SABINE intends to conduct a calibration thereof, and Customer shall have the right to have a representative present at each such calibration; provided, however, SABINE will not be obligated to defer or reschedule any calibration in order to permit the representative of Customer to be present.
c) GPA Standard 2377 and 2265 . SABINE shall determine the presence of Hydrogen Sulfide (H 2 S) by use of GPA Standard 2377 - Test of Hydrogen Sulfide and Carbon Dioxide in Gas Using Length of Stain Tubes. If necessary, the concentration of H 2 S and total sulfur will be determined using one or more of the following methods as is appropriate: gas chromatography, Gas Processors Standard 2265 - Standard for Determination of Hydrogen Sulfide and Mercaptan Sulfur in Gas (Cadmium Sulfate - Iodometric Titration Method) or any other method that is mutually acceptable.
10. Operating Procedures
a) Notice . Prior to conducting operations for measurement, gauging, sampling and analysis provided in this Annex I, the Party responsible for such operations shall notify the appropriate representatives of the other Party, allowing such representatives reasonable opportunity to be present for all operations and computations; provided that the absence of the other Partys representative after notification and opportunity to attend shall not prevent any operations and computations from being performed.
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b) Independent Surveyor . At the request of either Party any measurement, gauging, sampling and analysis shall be witnessed and verified by an independent surveyor mutually agreed upon by Customer and SABINE. The results of such surveyors verifications shall be made available promptly to each Party.
c) Preservation of Records . All records of measurement and the computed results shall be preserved by the Party responsible for taking the same, or causing the same to be taken, and made available to the other Party for a period of not less than three (3) years after such measurement and computation.
11. Quantities Delivered
a) Calculation of MMBTU Quantities . The quantity of MMBTUs delivered shall be calculated by SABINE and verified by Customer. Either Party may, at its own expense, require the measurements and calculations and/or their verification by an independent surveyor, mutually agreed upon by the Parties. Consent to an independent surveyor proposed by a Party shall not be unreasonably withheld by the other Party.
b) Determination of Gross Real Heating Value . All component values shall be in accordance with the latest revision of ISO 6579 and the latest revision of the reference standards therein.
c) Determination of Volume of LNG Unloaded .
The volume of LNG stated in cubic metres to the nearest zero point zero zero one (0.001) cubic metre, shall be determined by using the tank gauge tables and by applying the volume corrections set forth therein.
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12. Calculations
The calculation procedures contained in this Section are generally in accordance wit h the Institute of Petroleum Measurement Manual, Part XII, the Static Measurement of Refrigerated Hydrocarbon Liquids, Section 1, IP 251/76.
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density of LNG unloaded at the prevailing composition and temperature Tl in kg/m3, rounded to two (2) decimal places, calculated according to the method specified in Paragraph 12.1 of this Annex I. |
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Hi |
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gross heating value (mass based) of component i in MJ/kg, in accordance with Paragraph 12.6.1 of this Annex I. |
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gross heating value (mass based) of the LNG unloaded in MJ/kg, calculated in accordance with the method specified in Paragraph 12.3 of this Annex I, rounded to four (4) decimal places. |
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gross heating value (volume based) of the LNG unloaded in Btu/SCF, calculated in accordance with the method specified in Paragraph12.5 of this Annex I. |
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volume correction in m3/kmol, at temperature Tl, obtained by linear interpolation from Paragraph 12.6.3 of this Annex I, rounded to six (6) decimal places. |
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K2 |
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volume correction in m3/kmol, at temperature Tl obtained by linear interpolation from Paragraph 12.6.4 of this Annex I, rounded to six (6) decimal places. |
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Mi |
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molecular mass of component i in kg/kmol, in accordance with Paragraph 12.6.1 of this Annex I. |
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P |
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average absolute pressure of vapor in an LNG Vessel immediately before unloading, in millibars, rounded to a whole millibar. |
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number of MMBtu contained in the LNG delivered, rounded to the nearest ten (10) MMBtu. |
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Tl |
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= |
|
average temperature of the liquid cargo in the LNG Vessel immediately after unloading, in degrees Celsius, rounded to one (1) decimal place. |
|
|
|
|
|
Tv |
|
= |
|
average temperature of the vapor in an LNG Vessel immediately before unloading, in degrees Celsius, rounded to one (1) decimal place. |
|
|
|
|
|
V |
|
= |
|
the volume of the liquid cargo unloaded, in cubic metres, rounded to three (3) decimal places. |
9
Vh |
|
= |
|
the volume of the liquid cargo in an LNG Vessel immediately after unloading, in cubic metres, rounded to three (3) decimal places. |
|
|
|
|
|
Vb |
|
= |
|
the volume of the liquid cargo in an LNG Vessel immediately before unloading, in cubic metres, rounded to three (3) decimal places. |
|
|
|
|
|
Vi |
|
= |
|
molar volume of component i at temperature Tl, in m3/kmol, obtained by linear interpolation from Paragraph 12.6.2 of this Annex I, rounded to six (6) decimal places. |
|
|
|
|
|
Xi |
|
= |
|
molar fraction of component i of the LNG samples taken from the receiving line, rounded to four (4) decimal places, determined by gas chromatographic analysis. |
|
|
|
|
|
Xm |
|
= |
|
the value of Xi for methane. |
|
|
|
|
|
Xn |
|
= |
|
the value of Xi for nitrogen. |
12.1 Density Calculation Formula
The density of the LNG unloaded which is used in the MMBtu calculation in 12.4 of this Annex I shall be calculated from the following formula derived from the revised Klosek-McKinley method:
In the application of the above formula, no intermediate rounding shall be made if the accuracy of d is thereby affected.
12.2 Calculation of Volume Delivered
The volume, in cubic metres, of each LNG cargo unloaded shall be calculated by using the following formula:
12.3 Calculation of Gross Heating Value (Mass Based)
The gross heating value (mass based), in MJ/kg, of each LNG cargo unloaded shall be calculated by using the following formula:
10
12.4 MMBtu Calculation of the Quantity of LNG Unloaded
The number of MMBtu contained in the LNG unloaded shall be calculated using the following formula:
The derivation of the conversion factor 1/1055.12 in the formula in this Paragraph for the conversion of MJ into MMBtu is obtained from GPA-2145:1994 and IP-251:1976 as follows:
(a) q(T,P) means the gross heating value (measured at temperature T and pressure P), contained in a given quantity of gas;
(b) q(60°F, 14.696 psia) in MJ = 1/1.00006 x q(15°C, 1013.25 millibar) in MJ;
(c) 1 MMBtu corresponds to 1055.06 MJ;
(d) q(60°F, 14.696 psia) in MMBtu = 1/1055.06 x q(60°F, 14.696 psia) in MJ; and
(e) Combining (b) and (d) above yields:
q(60°F, 14.696 psia) in MMBtu = 1/1055.12 x q(15°C, 1013.25 millibar) in MJ.
Hence the number of MJ derived shall be divided by 1055.12 to obtain the number of MMBtu for invoicing purposes.
12.5 Calculation of Gross Heating Value (Volume Based)
The calculation of the Gross Heating Value (Volume Based) in Btu/SCF shall be derived from the same compositional analysis as is used for the purposes of calculating the Gross Heating Value (Mass Based) Hm and the following formula shall apply:
The derivation of the conversion factor 1.13285 for the conversion of MJ/kmol into Btu/SCF is obtained as follows:
(a) molar gross heating value = (Xi x Mi x Hi) MJ/kmol;
(b) 1 kmol = 2.20462 lbmol;
11
(c) 1 lbmol = 379.482 SCF;
(d) hence 1 kmol = 836.614 SCF; and
(e) Hv = 1,000,000/ (1055.12 x 836.614) x (Xi x Mi x Hi) Btu/SCF; or
Hv = 1.13285 x (Xi x Mi x Hi) Btu/SCF,
12.6 Data
12.6.1 Values of Hi and Mi
Component |
|
Hi (in MJ/kg) |
|
Mi (in kg/kmol) |
Methane |
|
55.575 |
|
16.043 |
Ethane |
|
51.950 |
|
30.070 |
Propane |
|
50.368 |
|
44.097 |
Iso-Butane |
|
49.388 |
|
58.123 |
N-Butane |
|
49.546 |
|
58.123 |
Iso-Pentane |
|
48.949 |
|
72.150 |
N-Pentane |
|
49.045 |
|
72.150 |
N-Hexane |
|
48.716 |
|
86.177 |
Nitrogen |
|
0 |
|
28.013 |
Carbon Dioxide |
|
0 |
|
44.010 |
Oxygen |
|
0 |
|
31.999 |
Source: GPA Publication 2145 Sl-96: Physical Constants of Paraffin Hydrocarbons and other components of natural gas.
12.6.2 Values of Vi (cubic metre/kmol)
Temperature |
|
-150°C |
|
-154°C |
|
-158°C |
|
-160°C |
|
-162°C |
|
-166°C |
|
-170°C |
Methane |
|
0.039579 |
|
0.038983 |
|
0.038419 |
|
0.038148 |
|
0.037884 |
|
0.037375 |
|
0.036890 |
Ethane |
|
0.048805 |
|
0.048455 |
|
0.048111 |
|
0.047942 |
|
0.047774 |
|
0.047442 |
|
0.047116 |
Propane |
|
0.063417 |
|
0.063045 |
|
0.062678 |
|
0.062497 |
|
0.062316 |
|
0.061957 |
|
0.061602 |
Iso-Butane |
|
0.079374 |
|
0.078962 |
|
0.078554 |
|
0.078352 |
|
0.078151 |
|
0.077751 |
|
0.077356 |
N-Butane |
|
0.077847 |
|
0.077456 |
|
0.077068 |
|
0.076876 |
|
0.076684 |
|
0.076303 |
|
0.075926 |
Iso-Pentane |
|
0.092817 |
|
0.092377 |
|
0.091939 |
|
0.091721 |
|
0.091504 |
|
0.091071 |
|
0.090641 |
N-Pentane |
|
0.092643 |
|
0.092217 |
|
0.091794 |
|
0.091583 |
|
0.091373 |
|
0.090953 |
|
0.090535 |
N-Hexane |
|
0.106020 |
|
0.105570 |
|
0.105122 |
|
0.104899 |
|
0.104677 |
|
0.104236 |
|
0.103800 |
Nitrogen |
|
0.055877 |
|
0.051921 |
|
0.048488 |
|
0.046995 |
|
0.045702 |
|
0.043543 |
|
0.041779 |
Carbon Diox |
|
0.027950 |
|
0.027650 |
|
0.027300 |
|
0.027200 |
|
0.027000 |
|
0.026700 |
|
0.026400 |
Oxygen |
|
0.03367 |
|
0.03275 |
|
0.03191 |
|
0.03151 |
|
0.03115 |
|
0.03045 |
|
0.02980 |
Source: National Bureau of Standards Interagency Report 77-867, Institute of Petroleum IP251/76 for Oxygen.
Note: For intermediate values of temperature and molecular mass a linear interpolation shall be applied.
12
12.6.3 Values of Volume Correction Factor, K1 (cubic metre/kmol)
Molecular
|
|
-150°C |
|
-154°C |
|
-158°C |
|
-160°C |
|
-162°C |
|
-166°C |
|
-170°C |
16.0 |
|
-0.000012 |
|
-0.000010 |
|
-0.000009 |
|
-0.000009 |
|
-0.000008 |
|
-0.000007 |
|
-0.000007 |
16.5 |
|
0.000135 |
|
0.000118 |
|
0.000106 |
|
0.000100 |
|
0.000094 |
|
0.000086 |
|
0.000078 |
17.0 |
|
0.000282 |
|
0.000245 |
|
0.000221 |
|
0.000209 |
|
0.000197 |
|
0.000179 |
|
0.000163 |
17.2 |
|
0.000337 |
|
0.000293 |
|
0.000261 |
|
0.000248 |
|
0.000235 |
|
0.000214 |
|
0.000195 |
17.4 |
|
0.000392 |
|
0.000342 |
|
0.000301 |
|
0.000287 |
|
0.000274 |
|
0.000250 |
|
0.000228 |
17.6 |
|
0.000447 |
|
0.000390 |
|
0.000342 |
|
0.000327 |
|
0.000312 |
|
0.000286 |
|
0.000260 |
17.8 |
|
0.000502 |
|
0.000438 |
|
0.000382 |
|
0.000366 |
|
0.000351 |
|
0.000321 |
|
0.000293 |
18.0 |
|
0.000557 |
|
0.000486 |
|
0.000422 |
|
0.000405 |
|
0.000389 |
|
0.000357 |
|
0.000325 |
18.2 |
|
0.000597 |
|
0.000526 |
|
0.000460 |
|
0.000441 |
|
0.000423 |
|
0.000385 |
|
0.000349 |
18.4 |
|
0.000637 |
|
0.000566 |
|
0.000499 |
|
0.000477 |
|
0.000456 |
|
0.000412 |
|
0.000373 |
18.6 |
|
0.000677 |
|
0.000605 |
|
0.000537 |
|
0.000513 |
|
0.000489 |
|
0.000440 |
|
0.000397 |
18.8 |
|
0.000717 |
|
0.000645 |
|
0.000575 |
|
0.000548 |
|
0.000523 |
|
0.000467 |
|
0.000421 |
19.0 |
|
0.000757 |
|
0.000685 |
|
0.000613 |
|
0.000584 |
|
0.000556 |
|
0.000494 |
|
0.000445 |
19.2 |
|
0.000800 |
|
0.000724 |
|
0.000649 |
|
0.000619 |
|
0.000589 |
|
0.000526 |
|
0.000474 |
19.4 |
|
0.000844 |
|
0.000763 |
|
0.000685 |
|
0.000653 |
|
0.000622 |
|
0.000558 |
|
0.000503 |
19.6 |
|
0.000888 |
|
0.000803 |
|
0.000721 |
|
0.000688 |
|
0.000655 |
|
0.000590 |
|
0.000532 |
19.8 |
|
0.000932 |
|
0.000842 |
|
0.000757 |
|
0.000722 |
|
0.000688 |
|
0.000622 |
|
0.000561 |
20.0 |
|
0.000976 |
|
0.000881 |
|
0.000793 |
|
0.000757 |
|
0.000721 |
|
0.000654 |
|
0.000590 |
25.0 |
|
0.001782 |
|
0.001619 |
|
0.001475 |
|
0.001407 |
|
0.001339 |
|
0.001220 |
|
0.001116 |
30.0 |
|
0.002238 |
|
0.002043 |
|
0.001867 |
|
0.001790 |
|
0.001714 |
|
0.001567 |
|
0.001435 |
Source: National Bureau of Standards Interagency Report 77-867.
Note 1: Molecular mass of mixture equals ( Xi x Mi ).
Note 2: For intermediate values of temperature and molecular mass a linear interpolation shall be applied.
12.6.4 Values of Volume Correction Factor, K2 (cubic metre/kmol)
Molecular
|
|
-150°C |
|
-154°C |
|
-158°C |
|
-160°C |
|
-162°C |
|
-166°C |
|
-170°C |
16.0 |
|
-0.000039 |
|
-0.000031 |
|
-0.000024 |
|
-0.000021 |
|
-0.000017 |
|
-0.000012 |
|
-0.000009 |
16.5 |
|
0.000315 |
|
0.000269 |
|
0.000196 |
|
0.000178 |
|
0.000162 |
|
0.000131 |
|
0.000101 |
17.0 |
|
0.000669 |
|
0.000568 |
|
0.000416 |
|
0.000377 |
|
0.000341 |
|
0.000274 |
|
0.000210 |
17.2 |
|
0.000745 |
|
0.000630 |
|
0.000478 |
|
0.000436 |
|
0.000397 |
|
0.000318 |
|
0.000246 |
17.4 |
|
0.000821 |
|
0.000692 |
|
0.000540 |
|
0.000495 |
|
0.000452 |
|
0.000362 |
|
0.000282 |
17.6 |
|
0.000897 |
|
0.000754 |
|
0.000602 |
|
0.000554 |
|
0.000508 |
|
0.000406 |
|
0.000318 |
17.8 |
|
0.000973 |
|
0.000816 |
|
0.000664 |
|
0.000613 |
|
0.000564 |
|
0.000449 |
|
0.000354 |
18.0 |
|
0.001049 |
|
0.000878 |
|
0.000726 |
|
0.000672 |
|
0.000620 |
|
0.000493 |
|
0.000390 |
18.2 |
|
0.001116 |
|
0.000939 |
|
0.000772 |
|
0.000714 |
|
0.000658 |
|
0.000530 |
|
0.000425 |
18.4 |
|
0.001184 |
|
0.001000 |
|
0.000819 |
|
0.000756 |
|
0.000696 |
|
0.000567 |
|
0.000460 |
18.6 |
|
0.001252 |
|
0.001061 |
|
0.000865 |
|
0.000799 |
|
0.000735 |
|
0.000605 |
|
0.000496 |
18.8 |
|
0.001320 |
|
0.001121 |
|
0.000912 |
|
0.000841 |
|
0.000773 |
|
0.000642 |
|
0.000531 |
19.0 |
|
0.001388 |
|
0.001182 |
|
0.000958 |
|
0.000883 |
|
0.000811 |
|
0.000679 |
|
0.000566 |
19.2 |
|
0.001434 |
|
0.001222 |
|
0.000998 |
|
0.000920 |
|
0.000844 |
|
0.000708 |
|
0.000594 |
19.4 |
|
0.001480 |
|
0.001262 |
|
0.001038 |
|
0.000956 |
|
0.000876 |
|
0.000737 |
|
0.000623 |
19.6 |
|
0.001526 |
|
0.001302 |
|
0.001078 |
|
0.000992 |
|
0.000908 |
|
0.000765 |
|
0.000652 |
19.8 |
|
0.001573 |
|
0.001342 |
|
0.001118 |
|
0.001029 |
|
0.000941 |
|
0.000794 |
|
0.000681 |
20.0 |
|
0.001619 |
|
0.001382 |
|
0.001158 |
|
0.001065 |
|
0.000973 |
|
0.000823 |
|
0.000709 |
25.0 |
|
0.002734 |
|
0.002374 |
|
0.002014 |
|
0.001893 |
|
0.001777 |
|
0.001562 |
|
0.001383 |
30.0 |
|
0.003723 |
|
0.003230 |
|
0.002806 |
|
0.002631 |
|
0.002459 |
|
0.002172 |
|
0.001934 |
13
Source: National Bureau of Standards Interagency Report 77-867.
Note 1: Molecular mass of mixture equals ( Xi x Mi ).
Note 2: For intermediate values of temperature and molecular mass a linear interpolation shall be applied.
14
MEASUREMENTS AND TESTS FOR GAS AT DELIVERY POINT
1. Applicability . The measurement procedures in this Annex II shall apply to the measurement of quantities (volume, energy) Gas delivered by SABINE for Customers Account at the Delivery Point.
2. Unit of Measurement . All Gas delivered at the Delivery Point shall be measured in MMBTUs.
3. Metering .
(a) Metering Equipment . SABINE shall supply, operate and maintain (or cause to be supplied, operated and maintained at or near the Delivery Point) the following:
i) meters with redundancy and other equipment as is necessary to accurately measure the volume of Gas delivered at the Delivery Point hereunder;
ii) devices for collecting samples and for determining the quality and composition of Gas delivered at the Delivery Point hereunder; and
iii) and any other measurement or testing devices which are necessary to perform the measurement and testing required hereunder at the Delivery Point.
(collectively, the Downstream Metering Equipment ). The Downstream Metering Equipment shall be designed and installed in accordance with the current recommendations of the American Gas Association, Report No. 3 and 9 for Ultrasonic Metering.
(b) Check Measurement Equipment and Access . Customer may, at Customers expense, install and operate, at or near the Downstream Metering Equipment, independent check measuring equipment similar to the Downstream Metering Equipment to monitor the accuracy of the measurements made by the Downstream Metering Equipment. Such check metering equipment will be installed and operated by Customer so that it does not unreasonably interfere with the operation of the Downstream Metering Equipment.
(c) General . A pressure transmitter shall be installed on each meter tube to measure the static pressure at the plane of the upstream differential pressure tapping. The temperature of the flowing Gas shall be measured on each meter tube by a platinum resistance thermometer installed in a thermowell so that the probe tip is in the center one-third of the pipe. Each meter run shall be provided with a dedicated microprocessor-based flow computer system powered by an appropriate back-up power supply.
(d) Measuring and Density Standards . Gas shall be measured by ultrasonic meters. Ultrasonic meters shall be constructed and operated, Gas shall be measured, and properties shall be determined in accordance with American Gas Association, Report No. 9 and any subsequent modification and amendment thereof. The compressibility and density shall be calculated in accordance with the latest
1
revision of the American Gas Association, Report No. 9. Metering equipment shall include the use of flow conditioners, straightening vanes, and pulsation dampening devices where necessary. Meter tubes shall be of a design incorporating suitable access for periodic internal inspection, including access for internal inspection of the upstream side of the flow conditioner. Electronic gas measurement with a continuous readout of pressure, temperature, and Gas flow rate shall be used. All computations shall be made as prescribed in the above cited standard.
(e) Ultrasonic Metering Standard . All ultrasonic metering shall comply with the American Gas Association, Report No. 9 and any subsequent modification and amendment thereof.
4. Determination of Gross Heating Value .
(a) GPA 2261 and 2145 . The heating value of the Gas delivered by SABINE at the Delivery Point shall be determined by gas chromatograph. The composition of the Gas shall be continuously measured by on-line chromatographs. The Gross Heating Value of the Gas shall be calculated using results from the on-line chromatograph. The chromatographs will analyze all hydrocarbon components, up to and including at least the Nonanes+ group, and inerts having a concentration of greater than 0.002 mol percent. The determination of Gas composition shall be in accordance with the GPA Standard 2261 Analysis for Natural Gas and Similar Gaseous Mixtures by Gas Chromatography. All physical properties used in quality and quantity calculations shall be based on these compositional analyses and the component values published in GPA 2145, or the latest revision thereof. Water vapor content shall be included in the component analyses. The sample analysis cycle time shall be less than six (6) minutes. The maximum response time from sample probe to analyzer shall be four (4) minutes. In the event of failure of the on-line Gas chromatograph, chromatograph analysis of samples collected proportional to the flow through the meters shall be used. Auto-calibration of the Gas chromatograph shall be conducted on a weekly basis or as otherwise mutually agreed by the Parties.
(b) GPA 2145 . Back-up composite samples of the flowing Gas shall be obtained weekly to be used for relative density (specific gravity), Gross Heating Value, and compressibility factors in case of electronic failure. Composite sampling of the flowing stream shall be by use of a mutually agreeable continuous sampler, designed and installed to sample proportionally to the flow rate. The end point of each composite sample chromatographic analysis shall be the Nonane+ fraction, and values for this fraction shall be based on the C9 value in the latest revision of GPA Standard 2145 Table of Physical Constants of Paraffin Hydrocarbons and Other Components of Natural Gas. All component values shall be in accordance with such standard.
(c) Quarterly Deviation Checks . Monthly gas chromatograph deviation checks shall be made on Gas composition mole percentages and resulting Gross Heating Value. Analyses of a sample of test Gas of known composition resulting when procedures that are in accordance with the above mentioned standards have been
A-2
applied will be considered as acceptable if the resulting calculated Gross Heating Value is within plus or minus five (5) BTU per Standard Cubic Foot of the known Gross Heating Value. If the deviation exceeds the tolerance stated, Gross Heating Value, relative density, and compressibility previously calculated will be corrected immediately. Previous analyses will be corrected to the point where the error occurred. If the point that the error occurred cannot be determined, previous analyses will be corrected for one-half the period since the last verification test, not to exceed a correction period of six months.
(d) Corrections for Water Content . The heating value on a dry basis for Gas containing water shall be corrected in accordance with standards followed by the American Gas Association. Moisture content of flowing Gas shall be determined as often as found necessary in real practice by use of a mutually acceptable calculation or test instrument, which could include a Meco Moisture Analyzer.
5. Operating Procedures
(a) Notice . Prior to conducting operations for measurement, calibration, sampling and analysis provided in Annex II, the Party responsible for such operations shall notify the appropriate representatives of the other Party, allowing such representatives reasonable opportunity to be present for all operations and computations; provided that the absence of the other Partys representative after notification and opportunity to attend shall not prevent any operations and computations from being performed.
(b) Independent Surveyor . At the request of either Party any measurement, calibration, sampling and analysis shall be witnessed and verified by an independent surveyor mutually agreed upon by Customer and SABINE. The results of such surveyors verifications shall be made available promptly to each Party.
(c) Preservation of Records . All records of measurement and the computed results shall be preserved by the Party responsible for taking the same, or causing the same to be taken, and made available to the other Party for a period of not less than three (3) years after such measurement and computation.
6. Verification . At least once each month, and in addition, from time to time upon at least two (2) weeks prior written notice by either Party to the other, SABINE shall verify or cause to be verified the accuracy of the Downstream Metering Equipment. When as a result of such test any of the Downstream Metering Equipment is found to be out of calibration within the accuracy provided by the manufacturer in the specification for such equipment , no adjustment shall be made to the Fee. If the testing of the Downstream Metering Equipment demonstrates that any meter is out of calibration by more than the accuracy provided by the manufacturer in the specifications for such equipment, the applicable Downstream Metering Equipment reading for the actual period during which out of calibration measurements were made shall be estimated as follows, in descending order of priority:
(a) by using the registration of any check meter or meters if installed and accurately registering;
A-3
(b) by correcting the error if the percentage of error is ascertainable by calibration, test, or mathematical calculation; or
(c) by estimating the quantity of delivery by measuring deliveries during prior periods under similar conditions when any meter was registering accurately.
If the actual period that such equipment has been out of calibration cannot be determined to the mutual satisfaction of SABINE and Customer, the adjustment shall be for a period equal to one-half of the time elapsed since the most recent test. The previous payments made by Customer to SABINE for this period shall be subtracted from the amount of payments that are calculated to have been owed under this Agreement. The difference (which may be a positive or negative amount) shall be added to the next monthly statement pursuant to Section 12.2.
7. Costs . The cost of the monthly testing and calibration of the Downstream Metering Equipment shall be borne by SABINE. The cost of any testing and calibration of the Downstream Metering Equipment beyond the monthly test permitted above shall also be paid by SABINE, unless the request to test any of the Downstream Metering Equipment is made by Customer and the results of such test requested by Customer demonstrate that the Downstream Metering Equipment is less than one percent (1%) out of calibration or outside of the accuracy given by the manufacturer, in which case the cost of such testing and calibration shall be for Customers account. Each Party shall comply with any reasonable request of the other Party concerning the sealing of the Downstream Metering Equipment, the presence of a representative of Customer when the seals are broken and tests are conducted, and other matters affecting the accuracy, testing and calibration of the Downstream Metering Equipment.
8. Disputes . Any Dispute arising under this Annex II shall be submitted to an Expert under Section 20.2.
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FORM OF PARENT GUARANTEE
Guarantee, dated as of , 2004, by TOTAL S.A., a corporation organized under the laws of France (the Guarantor ), in favor of SABINE PASS LNG, L.P., a limited partnership organized under the laws of the state of Delaware, U.S.A. ( Guaranteed Party ).
1. Guarantee . To induce the Guaranteed Party to enter into the LNG Terminal Use Agreement dated as of September 2, 2004 (the Agreement ) with TOTAL LNG USA, INC. (the Company ), the Guarantor absolutely, unconditionally and irrevocably guarantees to the Guaranteed Party and its successors and permitted assigns the prompt payment of all amounts that become due and payable (subject to any applicable grace period) by the Company to the Guaranteed Party under the Agreement from and after the Commercial Start Date as such term is defined in the Agreement, including payment obligations in respect of any breach of the Agreement by the Company after the Commercial Start Date (collectively, the Obligations ); provided , however , the Guarantors total liability in respect of the Obligations shall be a cumulative maximum amount of Two Billion Five Hundred Million U.S dollars ($2,500,000,000) (the Maximum Guaranteed Amount ). All amounts paid by or on behalf of the Company pursuant to the Agreement in respect of the Obligations shall be included in determining whether the Maximum Guaranteed Amount has been reached and shall count towards the satisfaction thereof for all purposes of this Guarantee. Notwithstanding anything to the contrary, the following are excluded from the definition of Obligations and the Guarantor shall have no liability in respect thereof: obligations to pay the Guaranteed Party or third parties for claims or by way of indemnity or contribution for claims arising in tort or strict liability, or claims for damages to property of the Guaranteed Party or any third party or personal injury to the Guaranteed Partys or any third partys employees, agents or contractors under the laws of any jurisdiction. For the avoidance of doubt, in no event shall Guarantor have any obligation under the Guarantee unless and until the Commercial Start Date occurs.
2. Nature of Guarantee . This Guarantee is a primary and original obligation of Guarantor and is an absolute, unconditional, irrevocable guaranty and, to the extent permitted by applicable law, shall remain in full force and effect without regard to any invalidity with respect to the execution and delivery of the Agreement by the Company or the execution and delivery by the Company of any other agreement between the Company and the Guaranteed Party. The Guarantors obligations hereunder shall not be affected by the existence, validity, enforceability, perfection or extent of any collateral therefor or by any other circumstance relating to the Obligations that might otherwise constitute a legal or equitable discharge of or defense to the Guarantor not available to the Company. The Guarantor agrees that the Guaranteed Party may resort to the Guarantor for payment of any of the Obligations whether or not the Guaranteed Party shall have resorted to any collateral therefor or shall have proceeded against the Company or any other obligor principally or secondarily obligated with respect to any of the Obligations. The Guaranteed Party shall not be obligated to file any claim relating to the Obligations in the event that the Company becomes subject to a bankruptcy, reorganization or similar proceeding, and the failure of the Guaranteed Party to so file shall not affect the Guarantors obligations hereunder. In the event that any payment to the Guaranteed Party in respect of any Obligations
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is rescinded or must otherwise be returned for any reason whatsoever, the Guarantor shall remain liable hereunder with respect to such Obligations as if such payment had not been made. The Guarantor reserves the right to (a) set-off against any payment that has become due and payable hereunder any amount that has become due and payable by the Guaranteed Party to the Company under the Agreement and (b) assert defenses which the Company may have under or with respect to the Agreement to payment of any Obligations other than defenses arising from the bankruptcy or insolvency of the Company or the Companys failure to have the authority to (x) execute or deliver the Agreement or (y) perform its obligations under the Agreement. Any arbitral decision (whether in a contested arbitration, by default or otherwise) under the Agreement shall conclusively determine the liability of the parties hereto with respect to the subject matter of such arbitral decision.
3. Changes in Obligations, Collateral therefor and Agreements Relating thereto; Waiver of Certain Notices . The Guarantor agrees that the Guaranteed Party may at any time and from time to time, either before or after the maturity thereof, without notice to or further consent of the Guarantor, extend the time of payment of, or exchange or surrender any collateral for, any of the Obligations, and may also make any agreement with the Company or with any other party to or person liable on any of the Obligations or interested therein, for the extension, payment, compromise, discharge or release thereof, in whole or in part, or for any modification or any amendment of the terms of the Agreement (other than any Restricted Amendment) or of any agreement between the Guaranteed Party and the Company or any such other party or person without in any way impairing or affecting this Guarantee. Restricted Amendment means any modification or amendment of the Agreement which (i) extends the term of the Agreement or (ii) increases the amount to be paid by the Company under the Agreement. Notwithstanding the foregoing, Guarantor agrees that (x) if a Restricted Amendment is executed without its written consent that extends the term of the Agreement, this Guarantee shall remain in full force and effect for the term specified in the Agreement prior to such Restricted Amendment and (y) if a Restricted Amendment is executed without its written consent that increases the amount to be paid by the Company under the Agreement, the Guarantor shall remain liable for such of the Obligations as would have been owed had such Restricted Amendment not been executed. The Guarantor waives:
(a) notice of the acceptance of this Guarantee;
(b) notice of the creation, existence or acquisition of all or any part of the Obligations;
(c) notice or consent respecting any modification of the Obligations or the Agreement (other than any Restricted Amendment);
(d) notice of adverse change in the Companys financial condition or of any other fact which might increase the Guaranteed Partys risk;
(e) notice of presentment, demand for payment, notice of dishonor and protest with respect to any instrument; and
(f) notice of Companys default.
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4. Expenses . The Guarantor agrees to pay on demand all fees and out of pocket expenses (including the reasonable fees and expenses of the Guaranteed Partys counsel) in any way relating to the enforcement or protection of the rights of the Guaranteed Party hereunder; provided , that the Guarantor shall not be liable for any expenses of the Guaranteed Party if no payment under this Guarantee is otherwise due.
5. Subrogation . Upon payment of the Obligations, the Guarantor shall be subrogated to the rights of the Guaranteed Party against the Company with respect to such Obligations, provided that such right of subrogation shall not be exercised until the earlier of (a) the satisfaction in full of all indebtedness of the Guaranteed Party secured by the Sabine Pass Facility (as defined in the Agreement) or (b) the satisfaction in full of all Obligations.
6. No Waiver; Cumulative Rights . No failure on the part of the Guaranteed Party to exercise, and no delay in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Guaranteed Party of any right, remedy or power hereunder preclude any other or future exercise of any right, remedy or power. Each and every right, remedy and power hereby granted to the Guaranteed Party or allowed it by law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by the Guaranteed Party at any time or from time to time.
7. Representations and Warranties . The Guarantor hereby represents and warrants that:
(a) the Guarantor is duly organized, validly existing and in good standing under the laws of France and has full corporate power to execute, deliver and perform this Guarantee;
(b) the execution, delivery and performance of this Guarantee have been duly authorized by all necessary corporate action and do not contravene any provision of the Guarantors certificate of incorporation or by-laws or any law, regulation, rule, decree, order, judgment or contractual restriction binding on the Guarantor or its assets;
(c) all consents, licenses, clearances, authorizations and approvals of, and registrations and declarations with, any governmental authority or regulatory body necessary for the due execution, delivery and performance of this Guarantee have been obtained and all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with, any governmental authority or regulatory body is required in connection with the execution, delivery or performance of this Guarantee; and
(d) this Guarantee constitutes a legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general applicability relating to or affecting creditors rights and to general equity principles.
8. Assignment . Except as otherwise expressly provided in this Guarantee, neither the Guarantor nor the Guaranteed Party may assign its rights, interests or obligations hereunder to any other person or entity without the prior written consent of the Guarantor or the Guaranteed Party, as the case may be. The Guaranteed Party shall be entitled to assign, mortgage or pledge
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all or any of its rights, interests, and benefits hereunder to secure payment of any indebtedness incurred or to be incurred in connection with the financing of the development of the Sabine Pass Facility (as such term is defined in the Agreement). Guarantor shall execute and deliver to the lenders to whom such indebtedness is owed a consent to such assignment in reasonable form and substance acceptable to the Guarantor and such lenders.
9. Notices . All notices or demands on the Guarantor shall be deemed effective when received, shall be in writing and shall be delivered by hand or by registered mail, or by facsimile transmission promptly confirmed by registered mail, addressed to the Guarantor at:
TOTAL S.A.
2 place de la Coupole
92078 Paris La Défense Cedex
France
Attention: Legal Director, Gas & Power
Facsimile: 331.4744.3807
or to such other address or facsimile number as the Guarantor shall have notified the Guaranteed Party in a written notice delivered to the Guaranteed Party.
10. Termination .
(a) This Guarantee shall remain in full force and effect and shall be binding on the Guarantor, its successors and assigns until the first to occur of any of the following events (a Termination Event ): (i) all obligations of the Guarantor hereunder having been satisfied (including, without limitation, as a result of the Guaranteed Party (and/or its designee) having received an amount, in the aggregate, equal to the Maximum Guaranteed Amount pursuant to the Agreement and/or this Guarantee), (ii) such time that the Company or its assignee or successor in interest under the Agreement would have satisfied the Credit Test if the Company or such assignee or successor in interest had been a replacement guarantor as referred to in Section 10(b) below, (iii) termination as provided in Section 10(b) below, (iv) termination as provided in Section 10(c) below, or (v) the 20 th anniversary of the Commercial Start Date. For the avoidance of doubt and without limiting the terms of this Section 10(a), this Guarantee shall terminate in its entirety upon the termination of the Agreement and the satisfaction of all Obligations.
(b) Guarantor shall have the right to cause to be provided a replacement guaranty that is in full substitution for and in lieu of this Guarantee where the proposed replacement guarantor satisfies the Credit Test and the proposed form of replacement guaranty is, in all material respects, no less favorable to the Guaranteed Company than this Guarantee. Upon the execution and delivery of such a replacement guarantee by a replacement guarantor who satisfies the Credit Test, this Guarantee automatically shall terminate and be null and void for all purposes. Credit Test means that after giving effect to the execution and delivery of such a replacement guaranty by the proposed replacement guarantor, it shall be established to the Guaranteed Partys reasonable satisfaction that the proposed replacement guarantor has a credit rating with respect to its senior long-term unsecured debt of A3 (or higher) by Moodys Investor Service
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(Moodys) or A- (or higher) by Standard and Poors (S&P) (provided that in the event either such rating agency ceases to publish such ratings, an equivalent rating by a comparable rating agency shall be used).
(c) Guarantor shall have the right to cause to be provided to the Guaranteed Party an Acceptable Letter of Credit in an aggregate amount equal to the then current LC Amount that is in full substitution for and in lieu of this Guarantee. Upon the execution and delivery of such Acceptable Letter of Credit by an Acceptable LC Issuer and the execution and delivery of the Escrow Agreement by the Guarantor and the Guaranteed Party, this Guarantee automatically shall terminate and be null and void for all purposes. Acceptable Letter of Credit shall mean an irrevocable standby letter of credit in form and substance reasonably satisfactory to the Guaranteed Party issued to and for the benefit of the Guaranteed Party on which the Guaranteed Party may: (i) draw upon demand for any amounts that have become due and payable by the Company under the Agreement or (ii) draw the entire remaining amount under the Acceptable Letter of Credit if the Acceptable Letter of Credit is not renewed or replaced to the full value of the LC Amount not later than thirty (30) days prior to the scheduled date of its expiry. In order to be an Acceptable Letter of Credit, a letter of credit must be issued by an Acceptable LC Issuer and must by its terms have an initial expiration date at least twelve months beyond its date of issuance and require the issuer to provide a written notice of non-renewal at least thirty days prior to its current expiration date. Any amount drawn by the Guaranteed Party because the Acceptable Letter of Credit is not renewed or replaced (the Escrow Amount ) that has not yet been applied to amounts then due and payable by the Company under the Agreement shall be held in a special account (established pursuant to an escrow agreement mutually acceptable to the Guarantor and the Guaranteed Party (the Escrow Agreement ), which Escrow Agreement shall provide that (x) all interest earned on the Escrow Amount shall be released monthly to the Guarantor or its designee and (y) for every dollar of Obligations paid by the Company pursuant to the Agreement, one dollar of the Escrow Amount shall be released to the Guarantor or its designee) for the Guaranteed Partys benefit to secure the performance of the Company of the Obligations (which account will be pledged to the Guaranteed Partys lenders). The remaining balance of the Escrow Amount shall be returned promptly to the Company should the Acceptable Letter of Credit be replaced or renewed or the Agreement be terminated (subject to withholding for any claim that the Guaranteed Party may have against the Company), with any interest accrued on the Escrow Amount to be added to, and treated similarly to, the principal amount. Acceptable LC Issuer shall mean a United States bank or trust company (or other bank or trust company that is reputable) that has both a short-term and long-term Dollar deposit rating of at least Prime-1 and A2 by Moodys or of at least A-1 and A by S&P, provided in either case, in the event Moodys or S&P ceases to publish deposit ratings, an equivalent deposit rating by a comparable rating agency shall be used. The Acceptable Letter of Credit shall be governed by the laws of the State of New York. LC Amount shall mean the Maximum Guaranteed Amount reduced in accordance with Section 1 to reflect all amounts paid by or on behalf of the Company pursuant to the Agreement in respect of the Obligations.
(d) This Guarantee shall be returned by Guaranteed Party to Guarantor immediately after the occurrence of a Termination Event.
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11. Governing Law . This Guarantee shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws.
12. Dispute Resolution .
(a) Arbitration . Any Dispute shall be exclusively and definitively resolved through final and binding arbitration, it being the intention of the Parties that this is a broad form arbitration agreement designed to encompass all possible disputes. Dispute means any dispute, controversy or claim (of any and every kind or type, whether based on contract, tort, statute, regulation, or otherwise) arising out of, relating to, or connected with this Guarantee or the Agreement, including any dispute as to the construction, validity, interpretation, termination, enforceability or breach of this Guarantee or the Agreement, as well as any dispute over arbitrability or jurisdiction.
(b) Rules . The arbitration shall be conducted in accordance with the International Arbitration Rules (the Rules ) of the American Arbitration Association ( AAA ) (as then in effect).
(c) Number of Arbitrators . The arbitral tribunal ( Tribunal ) shall consist of three (3) arbitrators, who shall endeavor to complete the final hearing in the arbitration within six months after the appointment of the last arbitrator.
(d) Method of Appointment of the Arbitrators . Guaranteed Party and Guarantor (the Parties ) shall each appoint one (1) arbitrator within thirty (30) days of the commencement of the arbitration, and the two arbitrators so appointed shall select the presiding arbitrator within thirty (30) days after the latter of the two arbitrators has been appointed by the Parties. If a Party fails to appoint its Party-appointed arbitrator or if the two Party-appointed arbitrators cannot reach an agreement on the presiding arbitrator within the applicable time period, then the AAA shall serve as the appointing authority and shall appoint the remainder of the three arbitrators not yet appointed. If the party-appointed arbitrators cannot reach an agreement on the presiding arbitrator within the applicable time period, then the AAA as the appointing authority shall make the prescribed appointment.
(e) Consolidation . If the Parties (and/or the Company) initiate multiple arbitration proceedings under this Guarantee and/or under the Agreement, the subject matters of which are related by common questions of law or fact and which could result in conflicting awards or obligations, then either Party may request prior to the appointment of the arbitrators for such multiple or subsequent disputes that all such proceedings be consolidated into a single arbitral proceeding. Such request shall be directed to the AAA, which shall consolidate appropriate proceedings into a single proceeding unless consolidation would result in undue delay for the arbitration of the Disputes.
(f) Place of Arbitration . Unless otherwise agreed by all Parties to the Dispute, the place of arbitration shall be Houston, Texas.
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(g) Language . The arbitration proceedings shall be conducted in the English language, and the arbitrators shall be fluent in the English language.
(h) Entry of Judgment . The award of the arbitral tribunal shall be final and binding. Judgment on the award of the arbitral tribunal may be entered and enforced by any court of competent jurisdiction.
(i) Qualifications and Conduct of the Arbitrators . All arbitrators shall be and remain at all times wholly impartial, and, once appointed, no arbitrator shall have any ex parte communications with any of the Parties concerning the arbitration or the underlying Dispute other than communications directly concerning the selection of the presiding arbitrator, where applicable.
(j) Costs and Attorneys Fees . The arbitral tribunal is authorized to award costs of the arbitration in its award, including (i) the fees and expenses of the arbitrators; (ii) the costs of assistance required by the tribunal, including its experts; (iii) the fees and expenses of the administrator; (iv) the reasonable costs for legal representation of a successful party; and (v) any such costs incurred in connection with an application for interim or emergency relief and to allocate those costs between the parties to the Dispute. The costs of the arbitration proceedings, including attorneys fees, shall be borne in the manner determined by the arbitral tribunal.
(k) Waiver of Challenge to Decision or Award . To the extent permitted by law, the Parties hereby waive any right to appeal from or challenge any arbitral decision or award, or to oppose enforcement of any such decision or award before a court or any governmental authority, except with respect to the limited grounds for modification or non-enforcement provided by any applicable arbitration statute or treaty.
IN WITNESS WHEREOF, this Guarantee has been duly executed and delivered by the Guarantor to the Guaranteed Party as of the date first above written.
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SABINE PASS SERVICES MANUAL
The Sabine Pass Services Manual referred to in Section 3.6 shall address the following matters and other matters of a similar nature:
1. Details associated with the implementation of Section 5.1 among SABINE, Customer and Other Customers
2. Details associated with the Gas delivery procedures in Section 5.2 among SABINE, Customer and Other Customers
3. Details associated with the content and format of the Sabine Pass Website
4. Details associated with the invoicing process under Article 11, including:
a. Format of invoices (electronic and original)
b. Numbering systems/codes for all invoice-related documents
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PORT LIABILITY AGREEMENT PORT OF SABINE PASS, LOUISIANA
THIS PORT LIABILITY AGREEMENT (this Agreement) is effective as of , 20 , and is made by and between SABINE PASS LNG L.P., a Delaware limited partnership, represented herein by SABINE PASS LNG-GP, Inc., its General Partner (SABINE ), and [INSERT NAME(S) OF VESSEL OWNER(S), a [TYPE OF ENTITY AND JURISDICTION OF ORGANIZATION] ([collectively] Vessel Owner).
RECITALS
WHEREAS, Vessel Owner, using the LNG vessel set forth below under its name and signature (Vessel), proposes to deliver certain quantities of liquefied natural gas to SABINE at its marine terminal and receiving, storage and regasification facilities located in the Sabine Pass, Louisiana area (as more fully defined below, the Marine Terminal); and
WHEREAS, Vessel Owner and SABINE (collectively, the Parties and individually a Party) have agreed to allocate the risk of and responsibility for loss and damage resulting from an Incident (as defined below) at the Marine Terminal in the following manner;
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:
1. The following terms shall have the following meanings when used herein:
Affiliate means, with respect to any Person, any other Person which, directly or indirectly, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, control (including, with correlative meanings, the terms controlled by and under common control with) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or otherwise.
Incident means any occurrence or series of occurrences having the same origin arising out of or relating to the Vessels use of the Marine Terminal in which there is any one or more of the following: (i) loss of or damage to the Marine Terminal or the Vessel; (ii) injury to the employees and agents comprising Terminal Interests or Vessel Interests; (iii) loss or damage, other than to the Marine Terminal or the Vessel, caused or contributed to by the Vessel, including but not limited to, injury to third parties or damage to the property of third parties; or (iv) an obstruction or danger affecting or interfering with the normal operation of the Marine Terminal or the Port.
Terminal Interests means (i) SABINE, (ii) all Affiliates of SABINE, (iii) all Persons (other than the Vessel Interests and Persons providing fire boats, tugs and escort vessels to Vessel at the Port) employed or providing services at the Marine Terminal in connection with the unloading, storage, or regasification of LNG at the Marine Terminal, and (iv) the employees and agents of all Persons referred to in this paragraph.
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Marine Terminal means SABINEs marine terminal and LNG receiving, storage and regasification facilities located at the Port, including all berths, buoys, gear, craft, equipment, plant, facilities and property of any kind (whether afloat or ashore) located thereat or adjacent thereto and in the ownership, possession or control of the Terminal Interests.
Person means any individual, firm, corporation, trust, partnership, association, joint venture (incorporated or unincorporated), or other business entity.
Port means the port at or near Sabine Pass, Louisiana, including its anchorage, turning basin and approaches into the Marine Terminal associated therewith.
Vessel Interests means (i) Vessel Owner, (ii) all Affiliates of Vessel Owner, (iii) all Persons (other than the Terminal Interests) participating, employed, or providing services in connection with the ownership or operation (including all operations related to navigation and berthing/unberthing) of the Vessel, and (iv) the employees and agents of all Persons referred to in this paragraph.
2. In all circumstances, the Master of the Vessel shall remain solely responsible on behalf of the Vessel Interests for the proper navigation and safety of the Vessel and her cargo.
3. Any liability arising from an Incident shall, as between the Vessel Interests and the Terminal Interests, be borne (i) by the Vessel Interests alone, if the Vessel Interests are wholly or partially at fault and the Terminal Interests are not at fault, (ii) by the Terminal Interests alone, if the Terminal Interests are wholly or partially at fault and the Vessel Interests are not at fault, (iii) by the Vessel Interests and the Terminal Interests, in proportion to the degree of their respective fault, if both are at fault and the degree of such fault can be established or (iv) by the Vessel Interests and the Terminal Interests equally if neither of them appears to be at fault or it is not possible to establish the degree of their respective fault. In this regard, any acts or omissions of Persons providing fire boats, tugs and escort vessels to Vessel at the Port shall be deemed to be the responsibility of the Vessel Interests.
4.
(i) SABINE shall be solely responsible for claims brought by any employee and/or member of the family or dependent of any employee of SABINE arising out of or consequent upon the personal injury, loss or damage to property of, or death of such employee, family member or dependent, and SABINE shall indemnify and hold any Vessel Owner harmless in the event any such employee, or any family member or dependent thereof, or the executor, administrator, or personal representative of any of the foregoing, shall bring such a claim against any Vessel Owner.
(ii) The Vessel Owners shall be solely responsible for claims brought by any employee and/or member of the family or dependent of any employee of any Vessel Owner arising out of or consequent upon the personal injury, loss or damage to property of, or death of such employee, family member or dependent,
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and each Vessel Owner shall indemnify and hold SABINE harmless in the event any such employee, or any family member or dependent thereof, or the executor, administrator or personal representative of any of the foregoing, shall bring such claim against SABINE.
(iii) SABINE and the Vessel Owners shall consult together to the extent practicable before either makes any payment which would fall due to be indemnified by the other under the terms of Sections 4(i) or 4(ii). The indemnities contained in Sections 4(i) and 4(ii) are separate and distinct from, and independent of, the obligations undertaken and the responsibilities and exceptions from and the limitations of liability provided in Sections 2, 3, 5 and 6 of this Agreement.
(iv) The cross indemnities provided in this Section 4 are intended to be binding regardless of fault or negligence on the part of the party in whose favor they are being given.
5.
(i) Subject to Section 5(ii) below, the total aggregate liability of the Vessel Interests to the Terminal Interests, however arising, in respect of any one Incident, shall not exceed one hundred fifty million dollars (US$150,000,000). Payment of an aggregate sum of one hundred fifty million dollars (US$150,000,000) to any one or more of the Terminal Interests in respect of any one Incident shall be a complete defense to any claim, suit or demand relating to such Incident made by the Terminal Interests against the Vessel Interests. The liability of the Vessel Interests hereunder shall be joint and several.
(ii) Vessel Interests shall provide to the Terminal Interests at all times sufficient written evidence that the Vessels Protection and Indemnity Association has agreed to (a) cover the Vessel Interests as a member of the Association against the liabilities and responsibilities provided for in this Agreement in accordance with its Rules; (b) give the Terminal Interests prior notice of cancellation of the Vessels entry in such Protection and Indemnity Association; and (c) waive in favor of the Terminal Interests all rights of subrogation of claims by the Protection and Indemnity Association against the Terminal Interests to the extent such claims have been waived in this Agreement by the Vessel Interests.
6. As to matters subject to this Agreement and regardless of fault or negligence on the part of any Party, with respect to an Incident:
(i) except to the extent expressly preserved in this Agreement, Terminal Interests hereby expressly, voluntarily and intentionally waive any right or claims they might otherwise have against the Vessel Interests under applicable laws or under any port liability agreement or similar port conditions of use previously signed by the Master for the Port; and
(ii) except to the extent expressly preserved in this Agreement, Vessel Interests hereby expressly, voluntarily and intentionally waive any rights to limit their
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liability under the United States Limitation of Vessel Owners Liability Act or any other similar law or convention, as applicable. Such waiver shall include any right to petition a court, arbitral tribunal or other entity for limitation of liability, any right to claim limitation of liability as a defense in an action, and any other similar right under relevant law. The foregoing waivers shall apply to all Persons claiming through the Terminal Interests or through the Vessel Interests.
7. The substantive law of New York, without regard to any conflicts of law principles that could require the application of any other law, shall govern the interpretation of this Agreement and any dispute, controversy, or claim arising out of, relating to, or in any way connected with this Agreement, including, without limitation, the existence, validity, performance, or breach hereof.
IN WITNESS WHEREOF , the Parties have caused this Agreement to be executed by their duly authorized representatives effective as of the date first set forth above.
SABINE PASS LNG L.P. |
[INSERT SIGNATURES OF EACH OF VESSEL INTERESTS] |
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Exhibit 10.2
OMNIBUS AGREEMENT
This OMNIBUS AGREEMENT (this Agreement ), dated as of this 2nd day of September, 2004 (the Effective Date ), is made by and between TOTAL LNG USA, INC. , a company incorporated under the laws of the state of Delaware, with a place of business at One Memorial City Plaza, 800 Gessner, Suite 700, Houston, Texas U.S.A. 77024 ( Customer ) and SABINE PASS LNG, L.P. , a Delaware limited partnership with a place of business at 717 Texas Avenue, Suite 3100, Houston, Texas, U.S.A. 77002 ( SABINE ). Customer and SABINE are each sometimes referred to herein as a Party and are together sometimes referred to herein as the Parties .
RECITALS
WHEREAS, SABINE intends to construct, own and operate an LNG terminal facility in Cameron Parish, Louisiana capable of performing certain LNG terminalling services, including: the ability to berth LNG Vessels; the receiving and storing of LNG which has been unloaded from LNG Vessels; the regasification of LNG; and the delivery of natural gas to a pipeline interconnection point at the terminal facility;
WHEREAS , the Parties are executing simultaneously herewith an LNG Terminal Use Agreement ( TUA ) under which SABINE will, subject to Customer exercising its option hereunder, provide LNG terminalling services to Customer at the Sabine Pass Facility, and the Parties agree to condition the effectiveness of the TUA on the fulfillment of certain conditions precedent;
WHEREAS , the Parties desire to address the possibility of certain changes to their contractual relationship under certain circumstances; and
WHEREAS , the Parties wish to memorialize other understandings supplementing the TUA, including Customers obligation to pay certain capacity reservation fees and additional Customer rights with respect to the expansion of the Sabine Pass Facility.
NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Parties, SABINE and Customer agree as follows:
Capitalized terms used in this Agreement and not otherwise defined herein have the meanings given to them in the TUA; provided that the terms defined below shall have the following meanings:
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The Parties acknowledge and agree that the provisions of this Agreement are effective and binding as of the Effective Date. Any provision of the TUA notwithstanding, the Parties acknowledge and agree that only the provisions of Article 1, Article 17, Article 18, Article 19, Article 20, Article 21, Article 23, and Article 24 of the TUA are effective and binding as of the Effective Date; provided, however, that Customers obligations under Section 17.2(c) of the TUA shall not be effective or binding on Customer unless and until the date on which Customer exercises its option under Clause 2.1. Any provision of the TUA notwithstanding, the Parties also acknowledge and agree that all other provisions contained in the TUA shall not become effective and binding unless and until both of the following conditions ( Conditions Precedent ) have been satisfied by no later than the Condition Fulfillment Date:
(i) SABINE has entered into (and provided Customer with a copy of) a definitive loan agreement with creditworthy lenders experienced in making energy project loans under the terms of which the lenders agree to lend to SABINE an amount which when aggregated with the equity contributed to SABINE is sufficient to fund the engineering, procurement and construction of the Sabine Pass Facility, such loan agreement being subject to no conditions precedent other than customary and routine conditions (including FERC Approval) that are reasonably expected to be satisfied; and
(ii) SABINE has entered into (and provided Customer with a copy of) an EPC contract, acceptable to the lenders, with a contractor that is an internationally recognized, reputable, creditworthy and experienced engineering, procurement and construction company, such EPC contract remains in full force and effect, there is no default thereunder, SABINE has issued a written notice to proceed to the EPC contractor under such EPC Contract, and the EPC contractor has accepted in writing SABINEs notice to proceed.
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If at any time within the period ending two (2) years after the Effective Date, SABINE determines that it desires to expand the regasification capacity of the Sabine Pass Facility, it shall provide written notice to Customer. No later than a period of two (2) years after the Effective Date, Customer may provide written notice to SABINE of its desire for the LNG storage and regasification capacity at the Sabine Pass Facility to be expanded. In this respect, the Parties shall exclusively negotiate the proposed terms and conditions of such expansion in good faith for a period of ninety (90) days from the date such written notice is received by the other Party; provided that SABINE shall be obliged to enter into such negotiations only if Customer desires to increase its Maximum LNG Reception Quantity (as determined by Customer in its sole discretion) by an amount equal to between 195,457,500 MMBTUs per Contract Year and 390,915,000 MMBTUs per Contract Year upon the date commercial operations commence with respect to the expansion. The reservation fee for the expansion quantity shall equal $0.24 per MMBTU multiplied by the expansion quantity, assuming the storage to regasification ratio to be 3 to 1.
Additionally, notwithstanding the foregoing obligation of the Parties to negotiate the proposed terms and conditions of the expansion in good faith, Customer acknowledges and agrees that the timing of the development and construction of the expansion shall be at SABINEs sole and absolute discretion.
The Parties acknowledge that three (3) 5,000-horsepower, 70 ton bollard pull tug boats with fire-fighting capability and two (2) line handling boats to assist with the safe berthing of LNG Vessels will be dedicated to the Sabine Pass Facility. Such tug and line handling boats will be available to Customer and all Other Customers of the Sabine Pass Facility on a non-discriminatory basis. The Parties agree to cooperate in seeking competitive bids to fulfill the requirements for these tugs. Customer shall have the right to nominate potential vendors to bid on these services. The Parties, along with Other Customers, shall exercise commercially reasonable efforts in the selection of a third-party supplier which has the most competitive bid taking into account multiple factors including price, contractual terms and conditions, specifications of the bid, the reputation, financial condition and technical capability of the bidders and responsiveness of service.
From and after the date on which the Capacity Reservation Fee Second Installment is paid, or earlier if the Parties so agree, and throughout the effectiveness of the TUA, Customer shall have the right, in its sole discretion, to second employees to SABINE, not exceeding four (4) in number at any one time, to occupy technical positions within SABINE with
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responsibilities relating to such matters as engineering, design, construction supervision, and operations, but not commercial matters. The employees so seconded shall report to SABINE, shall comply with all personnel policies of SABINE, shall be competent to safely perform the duties of the position which they fill, shall be paid in accordance with the SABINE pay scale, and shall be terminable at the discretion of SABINE. For the purpose of this Clause 5.2, SABINE shall mean SABINE, an operating company created by Cheniere Energy, Inc. or its Affiliate to operate the Sabine Pass Facility or a third party contractor selected to operate the Sabine Pass Facility.
6.1 Notwithstanding compliance by Customer and SABINE with their respective obligations under Sections 9.4 and 10.3 of the TUA, the Parties acknowledge that the Gas redelivered or to be redelivered by SABINE to Customer pursuant to the TUA may not conform to the quality specifications of one or more of Customers Downstream Pipelines. The Parties also acknowledge that Gas redelivered or to be redelivered by SABINE to Other Customers also may not conform to the quality specifications of one or more of their Downstream Pipelines. Either or both of these potential occurrences are defined as Downstream Pipelines Nonconformance .
6.2 The Parties further acknowledge that the U.S. natural gas industry is addressing and attempting to resolve, on an industry-wide basis, existing and potential quality nonconformance problems such as Downstream Pipelines Nonconformance.
6.3 Customer Nonconformance means any Downstream Pipelines Nonconformance with respect to any of Customers Downstream Pipelines that exists or is reasonably likely to exist because the Gas to be redelivered to Customer under the TUA ( Redelivered Gas ) will not meet the specifications of any of Customers applicable Downstream Pipelines solely as a result of the Customers LNG to be delivered under the TUA ( Delivered LNG ) not meeting such Downstream Pipelines specifications.
6.4 SABINE Nonconformance means any Downstream Pipelines Nonconformance with respect to any of Customers Downstream Pipelines that exists or is reasonably likely to exist on any of Customers Downstream Pipelines for any reason other than a Customer Nonconformance.
6.5 On or before June 30, 2006, either Party may provide written notice to the other Party that any Downstream Pipelines Nonconformance may reasonably be expected to exist on or after the Commercial Start Date (the Nonconformance Notice ).
6.6 Upon delivery and receipt of the Nonconformance Notice, the Parties shall expeditiously negotiate in good faith a commercially reasonable and mutually satisfactory resolution of such Downstream Pipelines Nonconformance such that Customers Redelivered Gas satisfies the specifications of Customers Downstream Pipelines. Such agreement shall be referred to as the Compliance Agreement .
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6.7 If (i) any Downstream Pipelines Nonconformance identified in the Nonconformance Notice is a SABINE Nonconformance or (ii) on or prior to June 30, 2006, Customer notifies SABINE in writing of the specifications with respect to any of Customers Downstream Pipelines and or thereafter there is a SABINE Nonconformance involving any such Downstream Pipelines due to such specifications and the Parties have been unable within ninety (90) days of the Nonconformance Notice to agree upon a Compliance Agreement, SABINE shall either cure the SABINE Nonconformance or reimburse, through a reduction in the Fee payable under the TUA, Customers reasonably incurred cost of treating to the extent necessary to eliminate the SABINE Nonconformance.
6.8 If the Nonconformance Notice identifies any Customer Nonconformance, and the Parties have been unable to reach a Compliance Agreement, then Customer shall bear the costs of its own treating.
6.9 If at any time after June 30, 2005, SABINE notifies Customer that it has received a bona fide offer to purchase terminalling services at the Sabine Pass Facility having an annual reception quantity of at least one hundred eighty three billion Standard Cubic Feet (183 bcf) and a term of at least fifteen (15) years from an Other Customer whose LNG is reasonably expected to cause a Sabine Nonconformance, Customer shall have thirty (30) days within which to elect either (a) to reduce the LNG specification under the TUA to the greater of 1065 BTU per Standard Cubic Foot or the level that would be necessary, in the absence of any other LNG, to prevent a Downstream Pipelines Nonconformance or (b) terminate Customers right to reimbursement under Clause 6.7 above.
The substantive laws of the State of New York, United States of America, exclusive of any conflicts of laws principles that could require the application of any other law, shall govern this Agreement for all purposes.
Each Party acknowledges and agrees that it shall be bound by the rights, duties and obligations set forth in Article 21 of the TUA with respect to the disclosure of information or documents that come
7
into such Partys possession and the issuance of public announcements in connection with this Agreement. Each Party reserves its rights under Section 21.2 of the TUA to issue and make public announcements, press releases and statements regarding this Agreement.
All notices authorized or required between the Parties shall be provided in the manner set forth in Article 23 of the TUA.
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9
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IN WITNESS WHEREOF, each Party has caused this Agreement to be duly executed and signed by its duly authorized officer as of the Effective Date.
SABINE PASS LNG, L.P. |
TOTAL LNG USA, INC. |
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By: Sabine Pass LNG-GP, Inc., |
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its General Partner |
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By: |
/s/ Charif Souki |
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By: |
/s/ Sveinung J. Stohle |
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Name: Charif Souki |
Name: Sveinung J. Stohle |
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Title: Chairman |
Title: President and General Manager |
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11
Additional Signatories of the Omnibus Agreement for Limited Purposes
Cheniere Energy, Inc. ( Cheniere ), which directly or indirectly owns all of the voting rights of SABINE, hereby joins in the execution of this Agreement solely to evidence the following:
(1) Cheniere expressly agrees that this (a) Agreement and the TUA supersede and cause the expiration of the term of that certain Confidentiality Agreement dated January 5, 2004, between Cheniere and TOTAL GAS & POWER NORTH AMERICA, INC. and (b) it will comply with the last sentence of Article 9 of this Agreement.
(2) Cheniere shall use all reasonable efforts to cause SABINE to satisfy the Conditions Precedent by the Condition fulfillment Date and, if the Conditions Precedent are not satisfied by such date, then Cheniere shall continue to use all reasonable efforts to cause SABINE to satisfy the Conditions Precedent as soon as thereafter as is reasonably possible.
Cheniere Energy, Inc.
By: |
/s/ Charif Souki |
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Name: Charif Souki |
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Title: Chairman |
TOTAL GAS & POWER NORTH AMERICA, INC. , an Affiliate of Customer, hereby joins in the execution of this Agreement solely to expressly agree that this Agreement and the TUA supersede and cause the expiration of the term of that certain Confidentiality Agreement dated January 5, 2004, between Cheniere and TOTAL GAS & POWER NORTH AMERICA, INC.
TOTAL GAS & POWER NORTH AMERICA, INC.
By: |
/s/ J. Mark Ingram |
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Name: J. Mark Ingram |
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Title: President and General Manager |
12
Exhibit 10.3
PARENT GUARANTEE
Guarantee, dated as of 5 November, 2004, by TOTAL S.A., a corporation organized under the laws of France (the Guarantor ), in favor of SABINE PASS LNG, L.P., a limited partnership organized under the laws of the state of Delaware, U.S.A. ( Guaranteed Party ).
1. Guarantee . To induce the Guaranteed Party to enter into the LNG Terminal Use Agreement dated as of September 2, 2004 (the Agreement ) with TOTAL LNG USA, INC. (the Company ), the Guarantor absolutely, unconditionally and irrevocably guarantees to the Guaranteed Party and its successors and permitted assigns the prompt payment of all amounts that become due and payable (subject to any applicable grace period) by the Company to the Guaranteed Party under the Agreement from and after the Commercial Start Date as such term is defined in the Agreement, including payment obligations in respect of any breach of the Agreement by the Company after the Commercial Start Date (collectively, the Obligations ); provided , however , the Guarantors total liability in respect of the Obligations shall be a cumulative maximum amount of Two Billion Five Hundred Million U.S dollars ($2,500,000,000) (the Maximum Guaranteed Amount ). All amounts paid by or on behalf of the Company pursuant to the Agreement in respect of the Obligations shall be included in determining whether the Maximum Guaranteed Amount has been reached and shall count towards the satisfaction thereof for all purposes of this Guarantee. Notwithstanding anything to the contrary, the following are excluded from the definition of Obligations and the Guarantor shall have no liability in respect thereof: obligations to pay the Guaranteed Party or third parties for claims or by way of indemnity or contribution for claims arising in tort or strict liability, or claims for damages to property of the Guaranteed Party or any third party or personal injury to the Guaranteed Partys or any third partys employees, agents or contractors under the laws of any jurisdiction. For the avoidance of doubt, in no event shall Guarantor have any obligation under the Guarantee unless and until the Commercial Start Date occurs.
2. Nature of Guarantee . This Guarantee is a primary and original obligation of Guarantor and is an absolute, unconditional, irrevocable guaranty and, to the extent permitted by applicable law, shall remain in full force and effect without regard to any invalidity with respect to the execution and delivery of the Agreement by the Company or the execution and delivery by the Company of any other agreement between the Company and the Guaranteed Party. The Guarantors obligations hereunder shall not be affected by the existence, validity, enforceability, perfection or extent of any collateral therefor or by any other circumstance relating to the Obligations that might otherwise constitute a legal or equitable discharge of or defense to the Guarantor not available to the Company. The Guarantor agrees that the Guaranteed Party may resort to the Guarantor for payment of any of the Obligations whether or not the Guaranteed Party shall have resorted to any collateral therefor or shall have proceeded against the Company or any other obligor principally or secondarily obligated with respect to any of the Obligations. The Guaranteed Party shall not be obligated to file any claim relating to the Obligations in the event that the Company becomes subject to a bankruptcy, reorganization or similar proceeding, and the failure of the Guaranteed Party to so file shall not affect the Guarantors obligations hereunder. In the event that any payment to the Guaranteed Party in respect of any Obligations is rescinded or must otherwise be returned for any reason whatsoever, the Guarantor shall remain liable hereunder with respect to such Obligations as if such payment had not been made. The Guarantor reserves the right to (a) set-off against any payment that has become due and payable
1
hereunder any amount that has become due and payable by the Guaranteed Party to the Company under the Agreement and (b) assert defenses which the Company may have under or with respect to the Agreement to payment of any Obligations other than defenses arising from the bankruptcy or insolvency of the Company or the Companys failure to have the authority to (x) execute or deliver the Agreement or (y) perform its obligations under the Agreement. Any arbitral decision (whether in a contested arbitration, by default or otherwise) under the Agreement shall conclusively determine the liability of the parties hereto with respect to the subject matter of such arbitral decision.
3. Changes in Obligations, Collateral therefor and Agreements Relating thereto; Waiver of Certain Notices . The Guarantor agrees that the Guaranteed Party may at any time and from time to time, either before or after the maturity thereof, without notice to or further consent of the Guarantor, extend the time of payment of, or exchange or surrender any collateral for, any of the Obligations, and may also make any agreement with the Company or with any other party to or person liable on any of the Obligations or interested therein, for the extension, payment, compromise, discharge or release thereof, in whole or in part, or for any modification or any amendment of the terms of the Agreement (other than any Restricted Amendment) or of any agreement between the Guaranteed Party and the Company or any such other party or person without in any way impairing or affecting this Guarantee. Restricted Amendment means any modification or amendment of the Agreement which (i) extends the term of the Agreement or (ii) increases the amount to be paid by the Company under the Agreement. Notwithstanding the foregoing, Guarantor agrees that (x) if a Restricted Amendment is executed without its written consent that extends the term of the Agreement, this Guarantee shall remain in full force and effect for the term specified in the Agreement prior to such Restricted Amendment and (y) if a Restricted Amendment is executed without its written consent that increases the amount to be paid by the Company under the Agreement, the Guarantor shall remain liable for such of the Obligations as would have been owed had such Restricted Amendment not been executed. The Guarantor waives:
(a) notice of the acceptance of this Guarantee;
(b) notice of the creation, existence or acquisition of all or any part of the Obligations;
(c) notice or consent respecting any modification of the Obligations or the Agreement (other than any Restricted Amendment);
(d) notice of adverse change in the Companys financial condition or of any other fact which might increase the Guaranteed Partys risk;
(e) notice of presentment, demand for payment, notice of dishonor and protest with respect to any instrument; and
(f) notice of Companys default.
4. Expenses . The Guarantor agrees to pay on demand all fees and out of pocket expenses (including the reasonable fees and expenses of the Guaranteed Partys counsel) in any way relating to the enforcement or protection of the rights of the Guaranteed Party hereunder;
2
provided , that the Guarantor shall not be liable for any expenses of the Guaranteed Party if no payment under this Guarantee is otherwise due.
5. Subrogation . Upon payment of the Obligations, the Guarantor shall be subrogated to the rights of the Guaranteed Party against the Company with respect to such Obligations, provided that such right of subrogation shall not be exercised until the earlier of (a) the satisfaction in full of all indebtedness of the Guaranteed Party secured by the Sabine Pass Facility (as defined in the Agreement) or (b) the satisfaction in full of all Obligations.
6. No Waiver; Cumulative Rights . No failure on the part of the Guaranteed Party to exercise, and no delay in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Guaranteed Party of any right, remedy or power hereunder preclude any other or future exercise of any right, remedy or power. Each and every right, remedy and power hereby granted to the Guaranteed Party or allowed it by law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by the Guaranteed Party at any time or from time to time.
7. Representations and Warranties . The Guarantor hereby represents and warrants that:
(a) the Guarantor is duly organized, validly existing and in good standing under the laws of France and has full corporate power to execute, deliver and perform this Guarantee;
(b) the execution, delivery and performance of this Guarantee have been duly authorized by all necessary corporate action and do not contravene any provision of the Guarantors certificate of incorporation or by-laws or any law, regulation, rule, decree, order, judgment or contractual restriction binding on the Guarantor or its assets;
(c) all consents, licenses, clearances, authorizations and approvals of, and registrations and declarations with, any governmental authority or regulatory body necessary for the due execution, delivery and performance of this Guarantee have been obtained and all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with, any governmental authority or regulatory body is required in connection with the execution, delivery or performance of this Guarantee; and
(d) this Guarantee constitutes a legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general applicability relating to or affecting creditors rights and to general equity principles.
8. Assignment . Except as otherwise expressly provided in this Guarantee, neither the Guarantor nor the Guaranteed Party may assign its rights, interests or obligations hereunder to any other person or entity without the prior written consent of the Guarantor or the Guaranteed Party, as the case may be. The Guaranteed Party shall be entitled to assign, mortgage or pledge all or any of its rights, interests, and benefits hereunder to secure payment of any indebtedness incurred or to be incurred in connection with the financing of the development of the Sabine Pass Facility (as such term is defined in the Agreement). Guarantor shall execute and deliver to
3
the lenders to whom such indebtedness is owed a consent to such assignment in reasonable form and substance acceptable to the Guarantor and such lenders.
9. Notices . All notices or demands on the Guarantor shall be deemed effective when received, shall be in writing and shall be delivered by hand or by registered mail, or by facsimile transmission promptly confirmed by registered mail, addressed to the Guarantor at:
TOTAL S.A.
2 place de la Coupole
92078 Paris La Défense Cedex
France
Attention: Legal Director, Gas & Power
Facsimile: 331.4744.3807
or to such other address or facsimile number as the Guarantor shall have notified the Guaranteed Party in a written notice delivered to the Guaranteed Party.
10. Termination .
(a) This Guarantee shall remain in full force and effect and shall be binding on the Guarantor, its successors and assigns until the first to occur of any of the following events (a Termination Event ): (i) all obligations of the Guarantor hereunder having been satisfied (including, without limitation, as a result of the Guaranteed Party (and/or its designee) having received an amount, in the aggregate, equal to the Maximum Guaranteed Amount pursuant to the Agreement and/or this Guarantee), (ii) such time that the Company or its assignee or successor in interest under the Agreement would have satisfied the Credit Test if the Company or such assignee or successor in interest had been a replacement guarantor as referred to in Section 10(b) below, (iii) termination as provided in Section 10(b) below, (iv) termination as provided in Section 10(c) below, or (v) the 20 th anniversary of the Commercial Start Date. For the avoidance of doubt and without limiting the terms of this Section 10(a), this Guarantee shall terminate in its entirety upon the termination of the Agreement and the satisfaction of all Obligations.
(b) Guarantor shall have the right to cause to be provided a replacement guaranty that is in full substitution for and in lieu of this Guarantee where the proposed replacement guarantor satisfies the Credit Test and the proposed form of replacement guaranty is, in all material respects, no less favorable to the Guaranteed Company than this Guarantee. Upon the execution and delivery of such a replacement guarantee by a replacement guarantor who satisfies the Credit Test, this Guarantee automatically shall terminate and be null and void for all purposes. Credit Test means that after giving effect to the execution and delivery of such a replacement guaranty by the proposed replacement guarantor, it shall be established to the Guaranteed Partys reasonable satisfaction that the proposed replacement guarantor has a credit rating with respect to its senior long-term unsecured debt of A3 (or higher) by Moodys Investor Service (Moodys) or A- (or higher) by Standard and Poors (S&P) (provided that in the event either such rating agency ceases to publish such ratings, an equivalent rating by a comparable rating agency shall be used).
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(c) Guarantor shall have the right to cause to be provided to the Guaranteed Party an Acceptable Letter of Credit in an aggregate amount equal to the then current LC Amount that is in full substitution for and in lieu of this Guarantee. Upon the execution and delivery of such Acceptable Letter of Credit by an Acceptable LC Issuer and the execution and delivery of the Escrow Agreement by the Guarantor and the Guaranteed Party, this Guarantee automatically shall terminate and be null and void for all purposes. Acceptable Letter of Credit shall mean an irrevocable standby letter of credit in form and substance reasonably satisfactory to the Guaranteed Party issued to and for the benefit of the Guaranteed Party on which the Guaranteed Party may: (i) draw upon demand for any amounts that have become due and payable by the Company under the Agreement or (ii) draw the entire remaining amount under the Acceptable Letter of Credit if the Acceptable Letter of Credit is not renewed or replaced to the full value of the LC Amount not later than thirty (30) days prior to the scheduled date of its expiry. In order to be an Acceptable Letter of Credit, a letter of credit must be issued by an Acceptable LC Issuer and must by its terms have an initial expiration date at least twelve months beyond its date of issuance and require the issuer to provide a written notice of non-renewal at least thirty days prior to its current expiration date. Any amount drawn by the Guaranteed Party because the Acceptable Letter of Credit is not renewed or replaced (the Escrow Amount ) that has not yet been applied to amounts then due and payable by the Company under the Agreement shall be held in a special account (established pursuant to an escrow agreement mutually acceptable to the Guarantor and the Guaranteed Party (the Escrow Agreement ), which Escrow Agreement shall provide that (x) all interest earned on the Escrow Amount shall be released monthly to the Guarantor or its designee and (y) for every dollar of Obligations paid by the Company pursuant to the Agreement, one dollar of the Escrow Amount shall be released to the Guarantor or its designee) for the Guaranteed Partys benefit to secure the performance of the Company of the Obligations (which account will be pledged to the Guaranteed Partys lenders). The remaining balance of the Escrow Amount shall be returned promptly to the Company should the Acceptable Letter of Credit be replaced or renewed or the Agreement be terminated (subject to withholding for any claim that the Guaranteed Party may have against the Company), with any interest accrued on the Escrow Amount to be added to, and treated similarly to, the principal amount. Acceptable LC Issuer shall mean a United States bank or trust company (or other bank or trust company that is reputable) that has both a short-term and long-term Dollar deposit rating of at least Prime-1 and A2 by Moodys or of at least A-1 and A by S&P, provided in either case, in the event Moodys or S&P ceases to publish deposit ratings, an equivalent deposit rating by a comparable rating agency shall be used. The Acceptable Letter of Credit shall be governed by the laws of the State of New York. LC Amount shall mean the Maximum Guaranteed Amount reduced in accordance with Section 1 to reflect all amounts paid by or on behalf of the Company pursuant to the Agreement in respect of the Obligations.
(d) This Guarantee shall be returned by Guaranteed Party to Guarantor immediately after the occurrence of a Termination Event.
11. Governing Law . This Guarantee shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws.
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12. Dispute Resolution .
(a) Arbitration . Any Dispute shall be exclusively and definitively resolved through final and binding arbitration, it being the intention of the Parties that this is a broad form arbitration agreement designed to encompass all possible disputes. Dispute means any dispute, controversy or claim (of any and every kind or type, whether based on contract, tort, statute, regulation, or otherwise) arising out of, relating to, or connected with this Guarantee or the Agreement, including any dispute as to the construction, validity, interpretation, termination, enforceability or breach of this Guarantee or the Agreement, as well as any dispute over arbitrability or jurisdiction.
(b) Rules . The arbitration shall be conducted in accordance with the International Arbitration Rules (the Rules ) of the American Arbitration Association ( AAA ) (as then in effect).
(c) Number of Arbitrators . The arbitral tribunal ( Tribunal ) shall consist of three (3) arbitrators, who shall endeavor to complete the final hearing in the arbitration within six months after the appointment of the last arbitrator.
(d) Method of Appointment of the Arbitrators . Guaranteed Party and Guarantor (the Parties ) shall each appoint one (1) arbitrator within thirty (30) days of the commencement of the arbitration, and the two arbitrators so appointed shall select the presiding arbitrator within thirty (30) days after the latter of the two arbitrators has been appointed by the Parties. If a Party fails to appoint its Party-appointed arbitrator or if the two Party-appointed arbitrators cannot reach an agreement on the presiding arbitrator within the applicable time period, then the AAA shall serve as the appointing authority and shall appoint the remainder of the three arbitrators not yet appointed. If the party-appointed arbitrators cannot reach an agreement on the presiding arbitrator within the applicable time period, then the AAA as the appointing authority shall make the prescribed appointment.
(e) Consolidation . If the Parties (and/or the Company) initiate multiple arbitration proceedings under this Guarantee and/or under the Agreement, the subject matters of which are related by common questions of law or fact and which could result in conflicting awards or obligations, then either Party may request prior to the appointment of the arbitrators for such multiple or subsequent disputes that all such proceedings be consolidated into a single arbitral proceeding. Such request shall be directed to the AAA, which shall consolidate appropriate proceedings into a single proceeding unless consolidation would result in undue delay for the arbitration of the Disputes.
(f) Place of Arbitration . Unless otherwise agreed by all Parties to the Dispute, the place of arbitration shall be Houston, Texas.
(g) Language . The arbitration proceedings shall be conducted in the English language, and the arbitrators shall be fluent in the English language.
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(h) Entry of Judgment . The award of the arbitral tribunal shall be final and binding. Judgment on the award of the arbitral tribunal may be entered and enforced by any court of competent jurisdiction.
(i) Qualifications and Conduct of the Arbitrators . All arbitrators shall be and remain at all times wholly impartial, and, once appointed, no arbitrator shall have any ex parte communications with any of the Parties concerning the arbitration or the underlying Dispute other than communications directly concerning the selection of the presiding arbitrator, where applicable.
(j) Costs and Attorneys Fees . The arbitral tribunal is authorized to award costs of the arbitration in its award, including (i) the fees and expenses of the arbitrators; (ii) the costs of assistance required by the tribunal, including its experts; (iii) the fees and expenses of the administrator; (iv) the reasonable costs for legal representation of a successful party; and (v) any such costs incurred in connection with an application for interim or emergency relief and to allocate those costs between the parties to the Dispute. The costs of the arbitration proceedings, including attorneys fees, shall be borne in the manner determined by the arbitral tribunal.
(k) Waiver of Challenge to Decision or Award . To the extent permitted by law, the Parties hereby waive any right to appeal from or challenge any arbitral decision or award, or to oppose enforcement of any such decision or award before a court or any governmental authority, except with respect to the limited grounds for modification or non-enforcement provided by any applicable arbitration statute or treaty.
IN WITNESS WHEREOF, this Guarantee has been duly executed and delivered by the Guarantor to the Guaranteed Party as of the date first above written.
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GUARANTOR : |
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TOTAL S.A. |
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By: |
/s/ Robert Castaigne |
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Name: Robert Castaigne |
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Title: Chief Financial Officer |
7
Exhibit 10.4
LNG TERMINAL USE AGREEMENT
between
CHEVRON U.S.A. INC.
and
SABINE PASS LNG, L.P.
dated November 8, 2004
TABLE OF CONTENTS
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CURTAILMENT OF SERVICES OR TEMPORARY DISCONTINUATION OF SERVICES |
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Scheduled Curtailment or Temporary Discontinuation of Services |
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Unscheduled Curtailment or Temporary Discontinuation of Services |
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iii
LNG TERMINAL USE AGREEMENT
This LNG TERMINAL USE AGREEMENT ( Agreement ), dated as of this 8 th day of November, 2004 ( Effective Date ) is made by and between Chevron U.S.A. Inc ., a company incorporated under the laws of the state of Pennsylvania with an office at 1111 Bagby Street, Houston, Texas 77002 ( Customer ); and Sabine Pass LNG, L.P. , a Delaware limited partnership with a place of business at 717 Texas Avenue, Suite 3100, Houston, Texas, 77002 ( SABINE ). Capitalized terms defined in Article 1 of Part Two of this Agreement shall have the meaning assigned therein for all purposes of this Agreement.
RECITALS
WHEREAS, SABINE intends to construct, own and operate an LNG terminal facility in Cameron Parish, Louisiana capable of performing certain LNG terminalling services, including: the berthing of LNG vessels; the unloading, receiving and storing of LNG; the regasification of LNG; and delivery of natural gas to the Delivery Point;
WHEREAS, Customer desires to purchase such LNG terminalling services from SABINE;
WHEREAS, SABINE desires to make such LNG terminalling services available to Customer and to Other Customers in accordance with the terms hereof; and
WHEREAS, as an essential inducement for SABINE entering into this Agreement, ChevronTexaco Corporation ( Guarantor ), will execute in favor of SABINE the Guarantee.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Parties hereto and for the mutual covenants contained herein, SABINE and Customer hereby agree as follows:
PART ONE
PRINCIPAL
COMMERCIAL TERMS AND CONDITIONS
The Parties hereby incorporate the General Terms and Conditions included as Part Two of this Agreement.
A. Term
1. General . Subject to the provisions of this Agreement, the term of this Agreement ( Term ) shall consist of the Initial Term and, if applicable, any Extension Term.
2. Initial Term . The initial term of this Agreement ( Initial Term ) shall commence on the Effective Date and shall continue in full force and effect until the expiration of twenty (20) years from the Commercial Start Date.
3. Extension Term . Customer shall have the option of up to two (2) additional ten (10) year extension terms (each an Extension Term ). Customer must (a) notify SABINE in writing of its good faith desire to elect the applicable Extension Term at least five (5) years prior to the expiration of the then current Term and (b) no
later than four (4) years prior to the expiration of the then current Term send SABINE a binding confirmation ( Binding Confirmation ) that the Term is extended by an Extension Term. Upon Customers delivery of a Binding Confirmation to SABINE, this Agreement will then be automatically extended for the applicable Extension Term. The Fee for an Extension Term shall be determined in the same manner as the Fee for the Initial Term, except that the Reservation Fee shall be adjusted for inflation based on the increase in the United States Consumer Price Index (all Urban Consumers) from a basis set on January 1 following the Commercial Start Date to the beginning of such Extension Term.
1. The Maximum LNG Reception Quantity shall be the quantity of LNG that Customer shall have the right to deliver to SABINE in any Contract Year which shall be 282,761,850 MMBTUs per Contract Year.
2. The Gas Redelivery Rate shall be the quantity of Gas that Customer shall have the right to nominate for redelivery each day for its account at the Delivery Point and is equal to 759,500 MMBTUs per day.
C. Fees
Each month during the Initial Term, the fees to be paid under this Agreement shall consist of the following:
1. The Reservation Fee calculated as:
a. The quotient of the Maximum LNG Reception Quantity divided by twelve (12), multiplied by the Unit Price;
b. The Unit Price of U.S. twenty eight cents ($0.28) per MMBTU for the Initial Term and adjusted pursuant to Clause A for Extension Terms.
2. An Operating Fee equal to the product of four cents ($0.04) multiplied by the amount calculated in Clause C.1.a above. The Operating Fee shall be adjusted for inflation on January 1 of each Contract Year based on the increase in the United States Consumer Price Index (All Urban Consumers) from a basis set on January 1 of the year in which the Commercial Start Date occurs.
3. Retainage equal to two percent (2%) of the LNG delivered at the Receipt Point for Customers account. Included in such Retainage is fuel, including fuel for self-generated power or Gas unavoidably lost.
As an essential inducement for SABINE entering into this Agreement, ChevronTexaco Corporation, a Delaware corporation ( Guarantor ), shall execute in favor of SABINE, the Guarantee attached as Exhibit C ( Guarantee).
2
E. Notices
Pursuant to Article 23, the Parties have designated the following addresses for purposes of notices:
Sabine
Pass LNG, L.P.
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ChevronTexaco Global Gas a
division of
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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be duly executed and signed by its duly authorized officer as of the Effective Date.
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Sabine Pass LNG, L.P. |
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By: Sabine Pass LNG-GP, Inc., its General Partner |
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By: |
/s/ Charif Souki |
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Name: |
Charif Souki |
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Title: |
Chairman |
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Chevron U.S.A. Inc. |
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By: |
/s/ John D. Gass |
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Name: |
John D. Gass |
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Title: |
President |
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3
PART TWO
GENERAL TERMS
AND CONDITIONS
In addition to any terms or expressions defined elsewhere in this Agreement, the terms or expressions set forth below shall have the following meanings in this Agreement:
2
3
4
5
6
During the Term and subject to the provisions of this Agreement, SABINE shall make available the following services to Customer (and any permitted assignee of Customer) (such available services being herein referred to as the Services ) in the manner set forth herein:
7
From time to time during the Term, the representatives of SABINE and Customer may supplement this Agreement in accordance with Section 25.1 to provide that SABINE will also make available services to Customer in addition to the Services set forth in Section 2.1.
The Parties confirm that the following activities, inter alia , are not Services provided by SABINE to Customer and, therefore, such activities are outside of the scope of this Agreement:
8
9
On any given day during a Contract Year, Customer shall not be entitled to receive quantities of Gas in excess of Customers Inventory.
If on any day Customer fails to take redelivery at the Delivery Point of at least ninety percent (90%) of the Gas nominated by Customer pursuant to Section 5.3 for redelivery to or for its account on such day and such failure is for reasons other than an event of Force Majeure or the inability of a Downstream Pipeline to take delivery of Customers Gas, such inability being not reasonably within the control of Customer, then SABINE may, at its sole discretion, take title to the quantity of Gas nominated for redelivery on such day but not taken free and clear of any Claims, and sell or otherwise dispose of such Gas using good faith efforts to obtain commercially reasonable prices and to minimize costs. Customer shall indemnify, defend and hold harmless SABINE, its Affiliates, and their respective directors, officers, members and employees, for the actual and reasonable costs incurred by SABINE as a result of such sale or other disposition of same by SABINE. SABINE shall, within fourteen (14) Business Days subsequent to the receipt by SABINE of such sale proceeds, remit to Customer the net proceeds from the sale or other disposition of Customers Inventory to which it takes title hereunder, minus actual transportation costs, third party charges, and an administrative fee of U.S. five cents ($0.05) per MMBTU, provided, however, that if the amount of the credit exceeds the amount due to SABINE under the next monthly statement, then SABINE agrees to pay any such excess amount to Customer within five (5) Business Days after delivery of such monthly statement.
In the event SABINE is required to dispose of Customers Gas more than three (3) times in any Contract Year, the administrative fee shall be increased to U.S. ten cents ($0.10) for each occasion thereafter in such Contract Year.
Acting as a Reasonable and Prudent Operator, SABINE shall develop, maintain and revise from time to time a single services manual (the Sabine Pass Services Manual ) applicable to Customer and all Other Customers which contains detailed implementation procedures consistent with the terms and provisions of this Agreement necessary for performance of this Agreement with regard to the matters set forth in Exhibit A attached hereto (but excluding the matters governed by the Sabine Pass Marine Operations Manual). In developing such manual, SABINE shall provide Customer with a preliminary draft of the same (the Preliminary Services Manual ). If Customer desires to provide comments to SABINE regarding the contents of the Preliminary Services Manual Customer shall, no later than fifteen (15) days from receipt of such manual from SABINE, notify SABINE in writing of its desire to provide comments on the Preliminary Services Manual. In such event, within thirty (30) days of receipt of Customers notice, SABINE shall convene a meeting with Customer to discuss Customers comments. If (a) Customer does not submit the foregoing notice to SABINE
10
on a timely basis or (b) Customer and SABINE meet and are able to agree upon revisions to the Preliminary Services Manual, then such manual, as so revised, shall constitute the Sabine Pass Services Manual. If Customer and SABINE are unable to reach agreement upon revisions to the Preliminary Service Manual or any revisions thereto, SABINE shall determine the content of the Sabine Pass Services Manual, using commercially reasonable efforts to accommodate Customers comments. In the event SABINE intends to amend the Sabine Pass Services Manual, SABINE shall follow the same procedure as set forth above in relation to the Preliminary Services Manual. SABINE shall deliver to Customer and all Other Customers a copy of the Sabine Pass Services Manual and any amendments thereto promptly after they have been finalized or amended, as the case may be. SABINE and Customer shall comply with such Sabine Pass Services Manual in all respects. The Sabine Pass Services Manual shall be developed on a basis that is consistent with this Agreement; however, in the event of a conflict between the terms of this Agreement and the Sabine Pass Services Manual, the terms of this Agreement shall control.
Commencing with the Commercial Start Date, in the event the Sabine Pass Facility has reached commercial operation by that date and, if not, on the date it reaches such commercial operation, each month Customer shall, as full compensation for the performance by SABINE of its obligations under this Agreement, bear the Retainage and in addition pay to SABINE the sum of the following three (3) components (such sum collectively referred to as the Fee ):
11
12
4.4 Services Provided to Other Customers
Procedures for the receipt of LNG at the Receipt Point and redelivery of Gas at the Delivery Point will be detailed in the Sabine Pass Services Manual, as modified from time to time, in accordance with Section 3.5 but substantially in accordance with the following:
13
14
15
16
5.3 Gas Delivery
17
5.4 Standard
SABINE shall act as a Reasonable and Prudent Operator in performing the scheduling activities required by this Article 5.
By no later than six (6) months prior to the Commercial Start Date, Customer shall appoint an individual to act as Scheduling Representative for the purposes of this Article 5; provided, however, that Customer shall have the right to change its appointed Scheduling Representative at any time by notice to SABINE. Unless otherwise stated herein, Customer hereby authorizes the Scheduling Representative to do and perform any
18
and all acts for and on behalf of Customer with regard to scheduling matters provided for in this Article 5. SABINE acknowledges that Customer and any Other Customer may agree to coordinate their activities so as to make the most efficient use of the Sabine Pass Facility, and may for purposes of this Agreement and the terminal use agreements of the Other Customers jointly appoint a Scheduling Representative.
5.6 Scheduling Coordination Among Customer and Other Customers
Customer shall have the right to request SABINE to arrange a joint meeting with Other Customers with respect to any matter in relation to the performance of this Article 5. SABINE shall use reasonable efforts to organize such a meeting, provided that SABINE may elect to include additional Other Customers if SABINE determines that such matter affects such additional Other Customers. If the Other Customers invited by SABINE agree to participate in such a joint meeting among Customer, Other Customers and SABINE, the joint meeting shall be held as soon as practical. SABINE shall have the right to settle any scheduling disputes that may arise among Customer and Other Customers on a basis that does not unfairly discriminate against Customer. Unless otherwise agreed, any such joint meeting shall be held in Houston, Texas or by telephone, as appropriate.
6.1 Commencement of Deliveries
In accordance with the procedure set forth in this Section 6.1, Customer shall notify SABINE of the date on which Services for Customer will commence at the Sabine Pass Facility (the final date so notified being the Commercial Start Date ). The Commercial Start Date shall be a date within the period that (a) commences on February 1, 2009 and (b) ends on July 1, 2009 (such period being the First Window Period ). The First Window Period shall be narrowed pursuant to the following provisions:
19
6.2 Delay Caused by Force Majeure
20
7.2 Compatibility of Sabine Pass Facility with LNG Vessels
21
7.3 Customer Inspection Rights
Upon obtaining SABINEs prior written consent, which consent shall not be unreasonably withheld or delayed, a reasonable number of Customers designated representatives (including LNG Suppliers) may from time to time (including during the period of initial construction) inspect the operation of the Sabine Pass Facility so long as such inspection occurs from 8:00 a.m. Central Time to 5:00 p.m. Central Time on a Business Day. Any such inspection shall be at Customers sole risk and expense. Customer (and its designees) shall carry out any such inspection without any interference with or hindrance to the safe and efficient operation of the Sabine Pass Facility. Customers right to inspect and examine the Sabine Pass Facility shall be limited to verifying SABINEs compliance with SABINEs obligations under this Agreement and shall not entitle Customer to make direct requests to SABINE regarding any aspect of the Sabine Pass Facility. No inspection (or lack thereof) of the Sabine Pass Facility by
22
Customer hereunder, or any requests or observations made to SABINE or its representatives by or on behalf of Customer in connection with any such inspection, shall (a) modify or amend SABINEs obligations, representations, warranties and covenants under this Agreement or under any agreement or instrument contemplated by this Agreement; or (b) constitute an acceptance or waiver by Customer of SABINEs obligations under this Agreement.
8.1 LNG Vessels
23
24
15 + x = maximum LNG unloading time (in hours)
where:
x = y/12,000 Cubic Meters; and
y = the LNG cargo containment capacity of the LNG Vessel in excess of 140,000 Cubic Meters.
Time for connecting, cooling, stripping and disconnecting, and cooling of liquid arms shall not be included in the computation of pumping time.
8.2 Sabine Pass Marine Operations Manual
Acting as a Reasonable and Prudent Operator, SABINE shall develop and maintain and revise from time to time a single marine operations manual (the Sabine Pass Marine Operations Manual ) that governs activities at the Sabine Pass Facility, applies to all LNG Vessels and vessels used by Other Customers and which shall be consistent with International LNG Vessel Standards (but excluding the matters governed by the Sabine Pass Services Manual). In developing such a manual, SABINE shall provide Customer with a preliminary draft of the same ( Preliminary Marine Operations Manual ). If Customer desires to provide comments to SABINE regarding the contents of the Preliminary Marine Operations Manual Customer shall, no later than fifteen (15) days from receipt of such manual from SABINE, notify SABINE in writing of its desire to provide comments on the Preliminary Marine Operations Manual. In such event, within thirty (30) days of receipt of Customers notice, SABINE shall convene a meeting with Customer to discuss Customers comments. If (a) Customer does not submit the foregoing notice to SABINE on a timely basis or (b) Customer and SABINE meet and
25
are able to agree upon revisions to the Preliminary Marine Operations Manual, then such manual, as so revised, shall constitute the Sabine Pass Marine Operations Manual. If Customer and SABINE are unable to reach agreement upon revisions to the Preliminary Marine Operations Manual or any revisions thereto, SABINE shall determine the content of the Sabine Pass Marine Operations Manual, using commercially reasonable efforts to accommodate Customers comments. In the event SABINE intends to amend the Sabine Pass Marine Operations Manual, SABINE shall follow the same procedure as set forth above in relation to the Preliminary Marine Operations Manual. SABINE shall deliver to Customer and all Other Customers a copy of the Sabine Pass Marine Operations Manual and any amendments thereto promptly after they have been finalized or amended, as the case may be. SABINE and Customer shall comply with such Sabine Pass Marine Operations Manual in all respects. SABINE will undertake to develop a Sabine Pass Marine Operations Manual that is consistent with this Agreement; however, in the event of a conflict between the terms of this Agreement and the Sabine Pass Marine Operations Manual, the terms of this Agreement shall control.
8.3 LNG Vessel Inspections; Right to Reject LNG Vessel
26
8.4 Advance Notices Regarding LNG Vessel and Cargoes
Moreover, if the vessel that Customer proposes to use as an LNG Vessel has not, within the immediately preceding Contract Year, delivered LNG to the Sabine Pass Facility, Customer shall notify SABINE thereof at least sixty (60) days prior to the applicable Scheduled Arrival Date.
27
28
29
8.7 Unloading Time
For the avoidance of doubt, SABINE shall have the right to delay berthing of the LNG Vessel for any of the reasons set forth in (i) to (vii) above.
30
LNG Vessel Cargo Capacity |
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Demurrage Rate
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Less than 120,000 Cubic Meters |
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$ |
45,000 |
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120,000 Cubic Meters or greater up to, but not including, 160,000 Cubic Meters |
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$ |
55,000 |
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160,000 Cubic Meters or greater up to, but not including, 200,000 Cubic Meters |
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$ |
65,000 |
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200,000 Cubic Meters or greater |
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$ |
83,000 |
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8.8 Unloading at the Sabine Pass Facility
31
8.9 LNG Vessel Not Ready for Unloading; Excess Berth Time
24 + x = allowed berth time (in hours)
where:
x = y/12,000 Cubic Meters; and
y = the LNG cargo containment capacity of the LNG Vessel in excess of 140,000 Cubic Meters.
32
damages its incurs as a result thereof, including amounts SABINE becomes contractually obligated to pay as demurrage or excess boil-off to any Other Customer.
(v) In the event an LNG Vessel fails to vacate the berth pursuant to this Section 8.9 and Customer is not taking actions to cause it to vacate the berth, SABINE may effect such removal at the expense of the Customer.
9.1 Title , Custody and Risk of Loss
(a) Title to Customers Inventory, Risk of Loss . Subject to Section 3.4, SABINE shall not assume title or risk of loss with respect to Customers Inventory even during periods when it is in the possession and control of SABINE . For the avoidance of doubt, t itle and risk of loss with respect to Retainage shall pass to SABINE at the Receipt Point .
(b) Possession and Control . Possession and control of Customers LNG shall pass from Customer to SABINE upon delivery of same at the Receipt Point. Possession and control of Customers Inventory shall pass from SABINE to Customer upon delivery of same at the Delivery Point.
(a) Customers Covenants . Customer agrees to fully defend, indemnify and hold SABINE and its Affiliates harmless against all Encumbrances and Liabilities relating to such Encumbrances (collectively, Claims ) regarding Customers Inventory, including Claims brought by Other Customers, other than any Claims caused by SABINEs acts or omissions. For purposes of this Section 9.2(a), the term Encumbrance shall include any mortgage, pledge, lien, charge, adverse claim, proprietary right, assignment by way of security, security interest, title retention, preferential right or trust arrangement or any other security agreement or arrangement having the effect of security.
(b) SABINEs Covenants . SABINE covenants that it has the right to deliver, and shall deliver, to Customer at the Delivery Point all Gas held for Customers account free from all Claims relating thereto caused by SABINEs acts or omissions. SABINE agrees to fully defend, indemnify and hold Customer and its Affiliates harmless from and against all Claims regarding Customers Inventory caused by the acts or omissions of SABINE and Other Customers.
33
The receipt of LNG from an LNG Vessel at the Receipt Point shall be carried out by use of pumps and other equipment on the LNG Vessel under such reasonable and customary conditions as are specified in the Sabine Pass Marine Operations Manual.
9.4 Quality and Measurement of Customers LNG
Customers LNG shall be measured and tested in accordance with Annex I. Customer shall ensure that all LNG delivered at the Receipt Point for Customers account shall conform to the following specifications:
(a) Gross Heating Value .
LNG when delivered by Customer to SABINE shall have, in a gaseous state, a Gross Heating Value of not less than 950 BTUs per Standard Cubic Foot and not more than 1165 BTUs per Standard Cubic Foot.
(b) Components .
(i) The LNG when delivered by Customer to SABINE shall, in a gaseous state, contain not less than eighty-four molecular percentage (84.0 MOL%) of methane (C1) and, for the components and substances listed below, such LNG shall not contain more than the following:
a. Nitrogen (N2), 1.5 MOL%;
b. Ethane (C2), 11 MOL%;
c. Propane (C3), 3.5 MOL%;
d. Butanes (C4) and heavier, 2 MOL%;
e. Pentanes (C5) and heavier, 0.09 MOL%;
f. Hydrogen sulfide (H2S), 0.25 grains per 100 Standard Cubic Feet; and
g. Total sulfur content, 1.35 grains per 100 Standard Cubic Feet.
(ii) The LNG when delivered by Customer to SABINE shall contain no water, mercury, active bacteria or bacterial agents (including sulfate reducing bacteria or acid producing bacteria) or other contaminants or extraneous material.
(a) Refusal of Off-Spec LNG . Without prejudice to any other rights and remedies of SABINE hereunder, SABINE may refuse to take delivery of all or part of any
34
LNG not conforming to the quality specifications set forth in Section 9.4 ( Off-Spec LNG ).
(b) Notice . Customer shall provide notice to SABINE as soon as reasonably practicable of any existing or anticipated failure of the LNG available for delivery to SABINE hereunder to conform to the quality specifications set forth in Section 9.4, giving details of the nature and expected magnitude of the variance, the cause of the non-compliance and the probable duration thereof, including the Cargoes and Scheduled Arrival Dates to be affected thereby. If so notified, SABINE shall as soon as possible inform Customer whether it intends to reject any of such Off-Spec LNG. If SABINE is notified by Customer prior to the commencement of unloading of a Cargo at the Sabine Pass Facility that the LNG is Off-Spec LNG and the quantity is delivered to the Sabine Pass Facility, SABINE shall use reasonable endeavors to take delivery of any Cargoes which it would otherwise be entitled to reject; provided, however that SABINE shall be entitled to delay unloading of Off-Spec LNG for the period of time reasonably required for SABINE to determine whether it can take delivery of such Off-Spec LNG pursuant to this Section 9.5(b). Subject to SABINE first using its reasonable endeavors to take delivery of any Cargoes containing Off-Spec LNG, SABINE shall:
(i) notify Customer that SABINE will take delivery of some or all of the affected Cargoes, without prejudice to SABINEs rights and remedies with respect to such Off-Spec LNG other than SABINEs right to reject said Cargo; or
(ii) reject all or any of the affected Cargoes.
(c) Customers Responsibility . If SABINE accepts delivery of a Cargo of Off-Spec LNG which it would otherwise be entitled to reject, Customer shall:
(i) bear the financial responsibility for all reasonable and actual incremental costs (other than capital costs) and Liabilities incurred by SABINE or any of SABINEs Affiliates, in each case acting as a Reasonable and Prudent Operator, in connection with receiving and treating Off-Spec LNG by such means as are appropriate, including mixing such Off-Spec LNG with lower calorific value Gas or injecting nitrogen if facilities to allow for such mixing or injection presently exist at the Sabine Pass Facility; and
(ii) indemnify and hold harmless SABINE, its Affiliates and their respective directors, officers and employees from any and all Liabilities, including any of same attributable to claims of any Person and any Other Customers, which arise out of, are incident to or result from the acceptance, handling, disposal or use of Off-Spec LNG.
(d) No Continuing Waiver . Acceptance of Off-Spec LNG shall not prevent SABINE from refusing future deliveries of Off-Spec LNG. No waiver by SABINE of any
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default by Customer of any of the specifications set forth in this Article 9 shall ever operate as a continuing waiver of such specification or as a waiver of any subsequent default, whether of a like or different character.
(e) Extended Delivery of Off-Spec LNG . If (i) Customer notifies SABINE pursuant to Section 9.5(b) of an anticipated delivery of two (2) or more Cargoes of Off-Spec LNG and (ii) the Parties agree for SABINE to incur incremental capital costs in order to accept delivery of such Cargoes, then Customer shall, in addition to its payment and indemnification obligations under Section 9.5(c), bear the financial responsibility for and directly fund, at SABINEs election, all such incremental capital costs.
(a) Delivery Point . Subject to Section 3.3, the quantity of Gas nominated by Customer for any day pursuant to Section 5.3 shall be delivered at the Delivery Point.
(b) Commingled Stream . Customer acknowledges and agrees that Customers Inventory shall be delivered by SABINE in a commingled stream, including that combined with LNG received by SABINE from Other Customers. Customer furthers acknowledges and agrees that Customer shall have no right to receive Gas of the same quality as Customers LNG. Customer shall however, receive the same quantity of BTUs as the quantity tendered, less Retainage pursuant to Clause Clause C.3, and which Gas shall satisfy the requirements set forth in Section 10.3.
(c) Odorization . SABINE will deliver Customers Inventory at the Delivery Point in its natural state without the addition of any odorizing agent, and SABINE shall not be obligated to add odorizing agents to any Gas unless required to do so by a Governmental Authority. SABINE does not assume any responsibility for Liabilities by reason of the fact that it has not odorized Customers Inventory prior to its delivery to Customer, except to the extent such liabilities arise from a failure to comply with the requirements of a Governmental Authority .
10.2 Customers Responsibility
(a) Downstream Arrangements . Customer shall arrange for the transportation of Gas by Downstream Pipelines in order to meet its obligations to take redelivery of Gas in accordance with the provisions of Section 3.4 at the rates nominated by it pursuant to Section 5.3. In this regard, Customer shall be solely responsible for making all necessary arrangements with third parties at or downstream of the Delivery Point to enable SABINE to deliver Gas to Downstream Pipelines on a timely basis pursuant to the terms and conditions of this Agreement. Customer shall also be solely responsible for ensuring that all such arrangements are
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consistent with the terms and conditions of this Agreement and shall require all relevant third parties to confirm to SABINE all of Customers nominations and scheduling of deliveries of Gas, such confirmation to be by telephone, electronic transmission, or other means acceptable to SABINE and the Downstream Pipelines. Such third-party arrangements shall be timely communicated to, and coordinated with, SABINE, and SABINE shall have no liability whatsoever for any failure of any such third party to provide downstream arrangements. The rules, guidelines, and policies of a Downstream Pipeline transporting or purchasing any Gas for or from Customer at the Delivery Point (as may be changed from time to time by the Downstream Pipeline) shall set forth, among other things, the manner in which Customers Inventory is transported from the Delivery Point. Customer and SABINE recognize that the receipt and delivery on the Downstream Pipelines facilities of Gas shall be subject to the operational procedures of such Downstream Pipeline.
(b) Limitation . Customer shall ensure that its Gas transportation and sales arrangements are in compliance with all applicable laws and regulations.
10.3 Specifications and Measurement of Gas at the Delivery Point
Gas delivered to Customer at the Delivery Point shall be measured and tested in accordance with Annex II. SABINE shall ensure that all Gas delivered at the Delivery Point for Customers account shall conform to the following specifications :
(a) Gross Heating Value . Gas when delivered by SABINE to Customer shall have a Gross Heating Value of not less than 950 BTUs per Standard Cubic Foot and not more than 1165 BTUs per Standard Cubic Foot.
(b) Components
(i) Gas when delivered by SABINE to Customer shall contain not less than eighty-two molecular percentage (82 MOL%) of methane (C 1 ) and, for the components and substances listed below, such Gas shall not contain more than the following:
a. Nitrogen (N2), 3 MOL%;
b. Pentanes (C5) and heavier, 0.1 MOL%;
c. Hydrogen sulfide (H2S), 0.25 grains per 100 Standard Cubic Feet;
d. Total sulfur content, 5 grains per 100 Standard Cubic Feet;
e. Oxygen (O2), 10 parts per million;
f. Carbon dioxide (CO2), 2 MOL%; and
g. Water (H2O), 7 pounds per one million Standard Cubic Feet.
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(ii) Gas when delivered by SABINE to Customer shall contain no mercury, active bacteria or bacterial agents (including sulfate reducing bacteria or acid producing bacteria) or other contaminants or extraneous material.
(c) Gas Delivery Pressure . Customers Inventory shall be delivered to the Delivery Point at the appropriate pipeline pressure provided, however, that such pressure shall be at least 1000 psig but shall not be required to exceed a maximum pressure of 1200 psig.
(a) Right to Reject . Unless SABINE has accepted such Off-Spec LNG pursuant to Section 9.5, Customer shall have the right to reject Gas that does not conform to the specifications set forth in Section 10.3 ( Nonconforming Gas ) if the failure of such Nonconforming Gas to satisfy such specifications would: (a) be grounds for an operator of a Downstream Pipeline or a Person under contract with Customer to purchase such Gas ( Downstream Purchaser ) to reject such Nonconforming Gas; or (b) otherwise materially and adversely affect Customer, in Customers reasonable opinion.
(b) SABINE Indemnity . If Customer accepts delivery of Non-Conforming Gas which it would otherwise be entitled to reject, SABINE shall indemnify and hold harmless Customer, its Affiliates and their respective directors, officers and employees from any and all Liabilities, including any of same attributable to claims of any Person (including Other Customers, a Downstream Pipeline, and a Downstream Purchaser), which arise out of, are incident to, or result from the acceptance, handling, disposal or use of Non-Conforming Gas. If Customer accepts delivery of Non-Conforming Gas which it would otherwise be entitled to reject, SABINE shall bear the financial responsibility for all reasonable and actual incremental costs (other than capital costs) and Liabilities incurred by Customer or any of Customers Affiliates, in each case acting as a Reasonable and Prudent Operator, in connection with accepting delivery of Non-Conforming Gas.
Between the first (1 st ) day of each month and the tenth (10 th ) day of each month, commencing with the month prior to the Commercial Start Date, SABINE shall deliver to Customer a statement setting forth the following:
(a) the Reservation Fee for the following month;
(b) the Operating Fee for the following month; and
(c) any charges under Section 4.2 and/or Section 8.9 for the prior month.
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If any other moneys are due from one Party to the other hereunder and if provision for the invoicing of that amount due is not made elsewhere in this Article 11, then the Party to whom such moneys are due shall furnish a statement therefore to the other Party, along with pertinent information showing the basis for the calculation thereof.
11.3 Adjustments , Audit
(a) General . If, within ninety (90) days of the issuance by SABINE of a statement, SABINE acquires information indicating the necessity of an adjustment to such statement rendered hereunder, then SABINE shall promptly serve on Customer a written notice setting forth that information. Unless otherwise provided herein, after obtaining that information, SABINE shall promptly prepare and serve on Customer an adjusted statement, showing the necessary payment, the calculation of the payment amount, and the Party from whom the payment is owing. In the event Customer issued a statement and subsequently acquires information indicating the necessity of an adjustment to such statement, Customer shall follow the same procedure in issuing an adjusted statement.
(b) Audit . Upon thirty (30) days written notice issued within six (6) months of the conclusion of any Contract Year, Customer shall have the right to cause an internationally recognized firm of accountants, appointed by Customer at Customers sole expense, to audit the books, records and accounts of SABINE that are directly relevant to the determination of SABINE Taxes and New Regulatory Costs, LNG receipts and Gas deliveries for such prior Contract Year, as provided in statements issued to Customer pursuant to this Article 11. Such audit shall be conducted at the head office of SABINE and shall be completed within the Contract Year in which Customers notice is sent to SABINE. If Customer obtains information indicating the necessity of an adjustment to any statement rendered hereunder, then within ninety (90) days following completion of the audit pertaining to the affected Contract Year, Customer shall promptly serve on SABINE a statement pursuant to Section 11.2 and written notice setting forth the information and basis for such statement. If Customer waives its right to conduct an audit, statements may be contested by Customer only if, within a period of ninety (90) days after the end of the Contract Year, Customer serves on SABINE notice questioning their correctness. If no such notice is served, statements shall be deemed correct and accepted by both Parties. Promptly after resolution of any Dispute as to a statement, the amount of any overpayment or underpayment (plus interest as provided in Section 11.4(c) shall be paid by SABINE or Customer to the other, as the case may be.
(c) Records . SABINE shall keep all books and records relevant to such audit for a period of three (3) years following the end of the relevant Contract Year; provided that where SABINE is on notice of a Dispute, SABINE shall keep all such books, records, and other information until such Dispute has been finally resolved.
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(a) Due Date for Payment of Monthly Statement . Each monthly statement submitted pursuant to Section 11.1 shall become due and payable on the later of (i) ten (10) days after delivery by SABINE of such monthly statement or (ii) the twenty-fifth (25 th ) day of the month in which such monthly statement was received; provided that if such day is not a Business Day, it shall become due and payable on the next Business Day.
(b) Due Date for Payment of Other Statements . Each statement submitted pursuant to Section 11.2 shall become due and payable on the thirtieth (30 th ) day after the date on which it is received; provided that if such payment due date is not a Business Day, the due date for such payment shall be extended to the next Business Day. For purposes of this Section 11.4(b), a facsimile copy of an invoice shall be deemed received by a Party on the next Business Day following the day on which it was sent.
(c) Interest . If the full amount of any statement is not paid when due, the unpaid amount thereof shall bear interest at the Base Rate, compounded annually, from and including the day following the due date up to and including the date when payment is made.
Each Party shall pay, or cause to be paid, in United States dollars in immediately available funds, all amounts that become due and payable by such Party pursuant to any statement issued hereunder, to a bank account or accounts designated by and in accordance with instructions issued by the other Party. Each payment of any amount owing hereunder shall be in the full amount due without reduction or offset for any reason (except as expressly allowed under this Agreement), including Taxes, exchange charges, or bank transfer charges. Notwithstanding the preceding sentence, the paying Party shall not be responsible for a designated banks disbursement of amounts remitted to such bank, and a deposit in immediately available funds of the full amount of each statement with such bank shall constitute full discharge and satisfaction of the statement.
The term Cumulative Delinquency Amount shall mean, with respect to a Party, the cumulative amount, expressed in United States dollars, that is owed by that Party to the other Party under this Agreement and is past due. Without prejudice to a Partys right of offset, if a Partys failure to pay when due an amount owing hereunder causes its Cumulative Delinquency Amount to exceed three (3) times the Reservation Fee, then the Party to which such amount is owed shall have the right, upon giving thirty (30) days written notice (such notice hereinafter referred to as the Delinquency Notice ) to the owing Party, to suspend performance of its obligations under this Agreement until such amount, with interest in accordance with Section 11.4(c), has been paid in full; provided, however: that (a) no such suspension of a Partys obligations under this Section 11.6 shall
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excuse the owing Party from the performance of its obligations hereunder; and (b) in the event that SABINE suspends performance under this Section 11.6: (i) Customer shall continue to be liable for the Fee pursuant to Section 4.1; and (ii) SABINE may offer Customers unutilized Services to the Other Customers. If any such Cumulative Delinquency Amount has not been paid within sixty (60) days after the issuance of the Delinquency Notice, then the Party to whom such amount is owed shall have the right, upon not less than thirty (30) days notice to the other Party, to terminate this Agreement without the necessity of any further action, unless within that thirty (30) day period, the Party to which such amount is owed receives payments from or on behalf of the owing Party equal to the Cumulative Delinquency Amount. Any such termination shall be without prejudice to any other rights and remedies of the terminating Party arising hereunder or by law or otherwise, including the right of such Party to receive payment in respect of all obligations and claims that arose or accrued prior to such termination or by reason of such default by the owing Party.
In the event of disagreement concerning any statement, Customer or SABINE (as the case may be) shall make provisional payment of the total amount thereof and shall immediately notify the other Party of the reasons for such disagreement, except that in the case of an obvious error in computation, Customer or SABINE (as the case may be) shall pay the correct amount disregarding such error. Subject to Section 11.3(b), statements may be contested by Customer or SABINE (as the case may be) only if, within a period of ninety (90) days after a Partys receipt thereof, Customer or SABINE (as the case may be) serves on the other Party notice questioning their correctness. If no such notice is served, statements shall be deemed correct and accepted by both Parties. Promptly after resolution of any Dispute as to a statement, the amount of any overpayment or underpayment (plus interest as provided in Section 11.4(c) shall be paid by SABINE or Customer to the other, as the case may be.
Within sixty (60) days after expiration of the Term, SABINE and Customer shall determine the amount of any final reconciliation payment. After the amount of the final settlement has been determined, SABINE shall send a statement to Customer, or Customer shall send a statement to SABINE, as the case may be, in United States dollars for amounts due under this Section 11.8, and SABINE or Customer, as the case may be, shall pay such final statement no later than twenty (20) days after the date of receipt thereof.
ARTICLE 12
DUTIES
, TAXES AND OTHER GOVERNMENTAL CHARGES
Notwithstanding Section 4.2, Customer shall be responsible for and pay, or cause to be paid, all Taxes that may be imposed or levied on Customers Inventory (including receipt or redelivery thereof) and the LNG Vessels and sales and use taxes that may be imposed on the Services or on SABINE for providing the Services to Customer. Customer shall reimburse and hold harmless
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SABINE for any such Taxes that may be required by law to be remitted by SABINE and shall pay such additional amount (including Taxes and corresponding interest at the Base Rate) as is necessary to ensure receipt by SABINE of the full amounts otherwise due to it under this Agreement. Notwithstanding the foregoing, neither Party shall be responsible for Taxes on the capital, revenue or income derived by the other Party. If any Governmental Authority requires Customer or SABINE to remit Taxes for which the other Party is responsible, the Party responsible for such Taxes shall promptly reimburse the other Party for such Taxes. Any Party entitled to an exemption from any such Taxes or charges shall furnish the other Party any necessary documentation thereof.
SABINE shall be responsible for obtaining and maintaining insurance for the Sabine Pass Facility to the extent required by applicable law; and additional insurance, as is reasonably necessary and available on reasonable commercial terms, against such other risks and at such levels as a Reasonable and Prudent Operator of a shared use LNG receiving and regasification terminal would obtain. SABINE shall obtain such insurance from a reputable insurer (or insurers) reasonably believed to have adequate financial reserves. SABINE shall exercise its best efforts to collect any amount due to SABINE under such insurance policies. Any insurance policy required pursuant to this Section 13.1 shall contain a standard waiver of subrogation endorsement and shall name Customer as an additional insured (except for Workmans Compensation insurance) to the extent of the liabilities assumed by SABINE under this Agreement. In the event of a casualty that destroys or materially impairs the Sabine Pass Facility, SABINE, upon consent of Lenders, shall be required to utilize such insurance proceeds to cause the facility to be rebuilt or repaired as quickly as commercially practicable. Upon request of Customer, SABINE shall provide to Customer satisfactory evidence that the insurance required pursuant to this Section 13.1 is in effect. In any event SABINE shall be required to obtain the following insurance coverages:
(a) Commercial General Liability Insurance / Marine Terminal Operators Liability Insurance;
(b) Workers Compensation / Employers Liability;
(c) All-Risk Property Insurance; and
(d) Wharfingers Liability Insurance.
In addition, during construction of the Sabine Pass Facility, SABINE shall cause the contractor under the engineering, procurement and construction contract to carry an appropriate level of insurance, including Construction All-Risk Insurance.
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(a) Loss of Product Insurance . Customer acknowledges that SABINE shall not at any time be responsible for securing or maintaining loss of product insurance covering the risk of loss of Customers Inventory and that Customer shall be responsible for insuring against such risk. If Customer elects to obtain loss of product insurance that insures the physical damage or loss of Customers Inventory, SABINE shall, upon request of Customer, provide Customer all documents and information reasonably necessary to enable Customer to obtain such loss of product insurance.
(b) LNG Vessel Insurance . Customer shall ensure that insurances are procured and maintained for each LNG Vessel in accordance with the following provisions. In all cases, such insurance shall establish insurance coverages consistent with insurances to the standards which a ship owner operating reputable LNG vessels, as a Reasonable and Prudent Operator, should observe in insuring LNG vessels of similar type, size, age and trade as such LNG Vessel. In this regard:
(c) Evidence of Insurance. Prior to the commencement of deliveries to the Sabine Pass Facility and thereafter at least once each Contract Year, Customer shall furnish the following evidence of insurance to SABINE in relation to each LNG Vessel: cover notes, certificates of entry, the latest rules of the particular provider, and detailed written information concerning all required insurance policies. These policies shall provide SABINE with thirty (30) days prior written notice of any cancellation, material change or alteration in coverage. These policies shall also contain a waiver of subrogation clause and name SABINE as an additional insured. The receipt of such information shall not impose any obligation on SABINE.
Notwithstanding any other provision of this Agreement and any rights that a Transporter may have under applicable law, each of SABINE and Customer agree to the Port Liability Agreement set forth in Exhibit B in relation to Liabilities for incidents involving an LNG Vessel occurring at the Sabine Pass Facility. SABINE shall cause each Other Customer to agree to the Port Liability Agreement or to indemnify SABINE in relation to Liabilities for incidents involving an LNG Vessel occurring at the Sabine Pass Facility. Customer shall cause Transporter to execute the Port Liability Agreement substantially in the form set forth on Exhibit B prior to Transporters LNG Vessels arrival at the Sabine
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Pass Facility. In the event a Transporter fails to execute such Port Liability Agreement, Customer shall indemnify and hold SABINE harmless from any Liabilities incurred by SABINE arising from such failure.
In no case shall the liability of SABINE to Customer arising out of, relating to, or connected with an Event under this Agreement exceed three (3) times the Reservation Fee; provided, however, that the foregoing limitation shall not apply to Liabilities caused by the Gross Negligence/Willful Misconduct of SABINE.
For purposes of this Section 14.1, an Event means any occurrence or series of occurrences having the same origin, and Gross Negligence/Willful Misconduct means any act or failure to act (whether sole, joint or concurrent) by SABINE which was intended to cause, or which was in reckless disregard of or wanton indifference to, harmful consequences SABINE knew, or should have known, such act or failure would have on the safety or property of another Person.
SABINE acknowledges that Customer has informed it that Customer intends to make significant investments in upstream liquefaction facilities and enter into long-term contracts in reliance of SABINEs performance of this Agreement, and SABINE acknowledges that as a result of the application of the liability limitation set forth in the first paragraph of this Section 14.1 , the damages available pursuant to this Agreement to compensate Customer for a material breach of this Agreement may not provide the Customer with an adequate remedy. Accordingly, SABINE agrees that it will not oppose the granting of specific performance or other temporary or permanent injunctive relief in Customers favor in the event of a material breach of this Agreement (including anticipatory repudiation) by SABINE for which Customer will not be adequately compensated by the award of damages as a result of the application of the liability limitation set forth in the first paragraph of this Section 14.1 .
Notwithstanding any other provision of this Agreement to the contrary, no Party shall be liable to the other Party for or in respect of:
suffered or incurred by the other Party or any Person resulting from breach of or failure to perform this Agreement or the breach of any representation or warranty hereunder, whether express or implied, and whether such damages are claimed under breach of
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warranty, breach of contract, tort, or other theory or cause of action at law or in equity, except to the extent such damages have been awarded to a third party and are subject to allocation between or among the parties to the Dispute. For purposes of this Agreement, any amounts payable by Customer to its Gas purchasers or Gas suppliers for replacement Gas or other similar Liabilities shall be deemed to be a consequential loss or damage.
Customers sole recourse and remedy under this Agreement for a breach hereof or a default hereunder shall be against SABINE and its assets. Except as otherwise provided herein, and pursuant to the terms of the Guarantee, SABINEs sole recourse and remedy under this Agreement shall be against Customer and its assets for a breach hereof or a default hereunder. In the event of a breach of this Agreement, the non-breaching Party shall exercise commercially reasonable efforts to mitigate its damages resulting therefrom.
Neither Party shall be liable to the other for any delay or failure in performance hereunder if and to the extent such delay or failure is a result of Force Majeure. Subject to the provisions of this Article 15, the term Force Majeure shall mean any cause not within the control of the Party claiming suspension, and which by the exercise of due diligence, such Party has been unable to prevent or overcome, including without limitation (to the extent consistent with the foregoing) acts of God, the government, or a public enemy: strikes, lockout, or other industrial disturbances; wars, blockades or civil disturbances of any kind; epidemics, Adverse Weather Conditions, fires, explosions, arrests and restraints of governments or people; freezing of, breakage or accident to, or the necessity for making repairs or alterations to tanks, machinery or lines of pipe, and unplanned outages of the Sabine Pass Facility. Nothing in this Article 15 shall be construed to require a Party to observe a higher standard of conduct than that required of a Reasonable and Prudent Operator as a condition to claiming the existence of Force Majeure.
Notwithstanding Section 15.1 of this Agreement, no Force Majeure shall relieve, suspend, or otherwise excuse Customer from performing any obligation to indemnify, reimburse, hold harmless or otherwise pay SABINE under this Agreement, including the obligations set forth in Clauses C and D, Sections 3.4, 7.3, 8.9, 9.2, 9.5, 10.2 and Article 4, Article 11, Article 12 and Article 20.
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A Force Majeure event shall take effect at the moment such an event or circumstance occurs. Upon the occurrence of a Force Majeure event that prevents, interferes with or delays the performance by SABINE or Customer, in whole or in part, of any of its obligations hereunder, the Party affected shall give notice thereof to the other Party describing such event and stating the obligations the performance of which are affected (either in the original or in supplemental notices) and stating, as applicable:
Such notices shall thereafter be updated at least monthly during the period of such claimed Force Majeure specifying the actions being taken to remedy the circumstances causing such Force Majeure.
In order to resume normal performance of this Agreement within the shortest time practicable, the Party affected by the Force Majeure shall take all measures to this end which are commercially reasonable under the circumstances, taking into account the consequences resulting from such event of Force Majeure. Prior to resumption of normal performance, the Parties shall continue to perform their obligations under this Agreement to the extent not excused by such event of Force Majeure.
The Term shall not be extended as a result of or by the duration of an event of Force Majeure.
Settlement of strikes, lockouts, or other industrial disturbances shall be entirely within the discretion of the Party experiencing such situations, and nothing herein shall require such Party to settle industrial disputes by yielding to demands made on it when it considers such action inadvisable.
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If, as a result of an event of Force Majeure, SABINE is unable to meet its contractual obligations to Customer and any Other Customers under LNG terminal use agreements, SABINE shall allocate the available capability of the Sabine Pass Facility to perform activities similar to the Services to Customer and Other Customers in a reasonable manner based on the ratio that the Maximum LNG Reception Quantity bears to the Aggregate Contracted Capacity for the remainder of such Contract Year.
Customer may terminate this Agreement if SABINE has declared Force Majeure with respect to a period that is either projected by SABINE to extend for eighteen (18) months or has in fact extended eighteen (18) months.
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49
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This Agreement is also subject to the termination provisions provided in Section 11.6.
Termination of this Agreement under this Article 18 or any other provision of this Agreement shall be without prejudice to any other rights and remedies of either Party arising hereunder or by law or otherwise which arose or accrued prior to or as a result of such termination or by reason of default of either Party, provided; however, that in no event shall Customer be entitled to recover damages or pursue any other remedy against SABINE in relation to Services which would have been performed by SABINE after the date of termination by Customer.
The substantive laws of the State of New York, United States of America, exclusive of any conflicts of laws principles that could require the application of any other law, shall govern this Agreement for all purposes, including the resolution of all Disputes between or among the Parties.
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52
53
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Neither this Agreement nor information or documents that come into the possession of a Party by means of the other Party in connection with the performance of this Agreement may be used or communicated to Persons (other than the Parties) without the mutual written agreement of the Parties, except that either Party shall have the right to disclose such information or documents without obtaining the other Partys prior consent in any of the situations described below:
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Notwithstanding the foregoing, Customer acknowledges and agrees that certain providers of finance to SABINE as well as SABINEs shareholders and partners may disclose this Agreement and information or documents disclosed pursuant to this Section 21.1 if required by any court of law or any law, rule, or regulation, or if requested by a Governmental Authority having or asserting jurisdiction over such Persons and having or asserting authority to require such disclosure in accordance with that authority, or pursuant to the rules of any recognized stock exchange or agency established in connection therewith. Customer further agrees and acknowledges that, at the time Cheniere Energy, Inc. files its quarterly report in form 10-Q for the third quarter,
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complete copies of this Agreement, with attachments, and any and all related agreements and material amendments hereto and thereto will be filed by Cheniere Energy, Inc. with the United States Securities and Exchange Commission as material agreements or amendments in accordance with applicable securities laws and regulations.
As of the date hereof and until the expiration of this Agreement, Customer represents, undertakes and warrants that:
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As of the date hereof and until the expiration of this Agreement, SABINE represents, undertakes and warrants that:
Except as otherwise specifically provided, all notices authorized or required between the Parties by any of the provisions of this Agreement shall be in writing (in English) and delivered in person or by courier service or by any electronic means of transmitting written communications which provides written confirmation of complete transmission, and addressed to such Party. Oral communication does not constitute notice for purposes of this Agreement, and e-mail addresses and telephone numbers for the Parties are listed as a matter of convenience only. The foregoing notwithstanding, notices given from LNG Vessels at sea may be given by radio, and notices required under Article 5 may be given by e-mail. A notice given under any provision of this Agreement shall be deemed delivered only when received by the Party to whom such notice is directed, and the time for such Party to deliver any notice in response to such originating notice shall run from the date the originating notice is received. Received for purposes of this Article 23 shall mean actual delivery of the notice, or delivery of the notice to the address of the Party specified in Clause E or, in the event notice was given by radio from an LNG Vessel at sea, actual receipt of the communication by radio, or to be thereafter notified in accordance with this Article 23. Each Party shall have the right to change its address at any time and/or designate that copies of all such notices be directed to another Person at another address, by giving written notice thereof to the other Party.
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This Agreement may not be amended, modified, varied or supplemented except by an instrument in writing signed by SABINE and Customer.
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Each Party shall use reasonable endeavors to maintain in force all Approvals necessary for its performance under this Agreement. Customer and SABINE shall cooperate fully with each other wherever necessary for this purpose.
This Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the Parties.
No failure to exercise or delay in exercising any right or remedy arising from this Agreement shall operate or be construed as a waiver of such right or remedy. Performance of any condition or obligation to be performed hereunder shall not be deemed to have been waived or postponed except by an instrument in writing signed by the Party who is claimed to have granted such waiver or postponement. No waiver by either Party shall operate or be construed as a waiver in respect of any failure or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver.
The interpretation of this Agreement shall exclude any rights under legislative provisions conferring rights under a contract to Persons not a party to that contract. Nothing in this Agreement shall otherwise be construed to create any duty to, or standard of care with reference to, or any liability to, any Person other than a Party.
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Any termination or expiration of this Agreement shall be without prejudice to any rights, remedies, obligations and liabilities which may have accrued to a Party pursuant to this Agreement or otherwise under applicable law. All rights or remedies which may have accrued to the benefit of either Party (and any of this Agreements provisions necessary for the exercise of such accrued rights or remedies) prior to the termination or expiration of this Agreement shall survive such termination or expiration. Furthermore, the provisions of Article 11, Article 12, Article 14, Article 19, Article 20, Article 23 and Article 25 shall survive the termination or expiration of this Agreement.
Except where this Agreement expressly provides to the contrary, the rights and remedies contained in this Agreement are cumulative and not exclusive of any rights and remedies provided by law.
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The rights, duties, obligations and liabilities of the Parties under this Agreement shall be individual, not joint or collective. It is not the intention of the Parties to create, nor shall this Agreement be deemed or construed to create, nor shall the Parties report for any purpose any transaction occurring pursuant to this Agreement as, (a) a partnership, joint venture or other association or a trust, nor (b) a lease or sales transaction with respect to any portion of the Sabine Pass Facility. This Agreement shall not be deemed or construed to authorize any Party to act as an agent, servant or employee for the other Party for any purpose whatsoever except as explicitly set forth in this Agreement. In their relations with each other under this Agreement, the Parties shall not be considered fiduciaries.
Any Party that now or hereafter has a right to claim sovereign immunity for itself or any of its assets hereby waives any such immunity to the fullest extent permitted by the laws of any applicable jurisdiction. This waiver includes immunity from (a) any expert determination or arbitration proceeding commenced or to be commenced pursuant to this Agreement; (b) any judicial, administrative or other proceedings to aid the expert determination or arbitration commenced pursuant to this Agreement; and (c) any effort to confirm, enforce, or execute any decision, settlement, award, judgment, service of process, execution order or attachment (including pre-judgment attachment) that results from an expert determination, mediation, arbitration or any judicial or administrative proceedings commenced pursuant to this Agreement. Each Party acknowledges that its rights and obligations hereunder are of a commercial and not a governmental nature.
If and for so long as any provision of this Agreement shall be deemed to be judged invalid for any reason whatsoever, such invalidity shall not affect the validity or
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operation of any other provision of this Agreement except only so far as shall be necessary to give effect to the construction of such invalidity, and any such invalid provision shall be deemed severed from this Agreement without affecting the validity of the balance of this Agreement.
In performance of their respective obligations under this Agreement, each Party agrees to comply with all applicable laws, statutes, rules, regulations, judgments, decrees, injunctions, writs and orders, and all interpretations thereof, of all Governmental Authorities having jurisdiction over such Party.
Each Party shall be responsible for and bear all of its own costs and expenses incurred in connection with the preparation and negotiation of this Agreement.
This Agreement constitutes the entire agreement between the Parties relating to the subject matter hereof and supersedes and replaces any provisions on the same subject contained in any other agreement between the Parties (except as provided in the Omnibus Agreement of even date), whether written or oral, prior to the date of the original execution hereof.
This Agreement may be executed in any number of counterparts and each such counterpart shall be deemed an original Agreement for all purposes; provided that no Party shall be bound to this Agreement unless and until both Parties have executed a counterpart. For purposes of assembling all counterparts into one document, Customer is
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authorized to detach the signature page from one or more counterparts and, after signature thereof by the respective Party, attach each signed signature page to a counterpart.
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MEASUREMENTS AND TESTS FOR LNG AT RECEIPT POINT
a) General . Unless otherwise agreed, Customer and SABINE shall supply equipment and conform to procedures that are in accordance with the latest appropriate International Organization for Standards ( ISO ) documents.
b) Customer Devices . Customer or Customers agent shall supply, operate and maintain, or cause to be supplied, operated and maintained, suitable gauging devices for the liquid level in LNG tanks of the LNG Vessels, pressure and temperature measuring devices, and any other measurement or testing devices which are incorporated in the structure of LNG vessels or customarily maintained on board ship.
c) SABINE Devices . SABINE shall supply, operate and maintain, or cause to be supplied, operated and maintained, devices required for collecting samples and for determining quality and composition of the LNG and any other measurement or testing devices which are necessary to perform the measurement and testing required hereunder at the Sabine Pass Facility.
d) Dispute . Any Dispute arising under this Annex I shall be submitted to an Expert under Section 20.2.
All devices provided for in this Annex I shall be approved by SABINE, acting as a Reasonable and Prudent Operator. The required degree of accuracy (which shall in any case be within the permissible tolerances defined herein and in the applicable standards referenced herein) of such devices selected shall be mutually agreed upon by Customer and SABINE. In advance of the use of any device, the Party providing such device shall cause tests to be carried out to verify that such device has the required degree of accuracy.
a) Accuracy . Accuracy of devices used shall be tested and verified at the request of either Party, including the request by a Party to verify accuracy of its own devices. Each Party shall have the right to inspect at any time the measurement devices installed by the other Party, provided that the other Party is notified in advance. Testing shall be performed only when both Parties are represented, or have received adequate advance notice thereof, using methods recommended by the manufacturer or any other method agreed to by SABINE and Customer. At the request of any Party hereto, any test shall be witnessed and verified by an independent surveyor mutually agreed upon by Customer and SABINE. Permissible tolerances shall be as defined herein or as defined in the applicable standards referenced herein.
1
b) Inaccuracy . Inaccuracy of a device exceeding the permissible tolerances shall require correction of previous recordings, and computations made on the basis of those recordings, to zero error with respect to any period which is definitely known or agreed upon by the Parties as well as adjustment of the device. All invoices issued during such period shall be amended accordingly to reflect such correction, and an adjustment in payment shall be made between Customer and SABINE. If the period of error is neither known nor agreed upon, and there is no evidence as to the duration of such period of error, corrections shall be made and invoices amended for each receipt of LNG made during the last half of the period since the date of the most recent calibration of the inaccurate device. However, the provisions of this Paragraph 3 shall not be applied to require the modification of any invoice that has become final pursuant to Section 11.7.
c) Costs and Expenses of Test Verification . All costs and expenses for testing and verifying SABINEs measurement devices shall be borne by SABINE, and all costs and expenses for testing and verifying Customers measurement devices shall be borne by Customer. The fees and charges of independent surveyors for measurements and calculations shall be borne directly by Customer.
a) Initial Calibration . Customer shall arrange or caused to be arranged, for each tank of each LNG Vessel, a calibration of volume against tank level. Customer shall provide SABINE or its designee, or cause SABINE or its designee to be provided, with a certified copy of tank gauge tables for each tank of each LNG Vessel verified by a competent impartial authority or authorities mutually agreed upon by the Parties. Such tables shall include correction tables for list, trim, tank contraction and any other items requiring such tables for accuracy of gauging.
Tank gauge tables prepared pursuant to the above shall indicate volumes in cubic meters expressed to the nearest thousandth (1/1000), with LNG tank depths expressed in meters to the nearest hundredth (1/100).
b) Presence of Representatives . SABINE and Customer shall each have the right to have representatives present at the time each LNG tank on each LNG Vessel is volumetrically calibrated.
c) Recalibration . If the LNG tanks of any LNG Vessel suffer distortion of such nature as to create a reasonable doubt regarding the validity of the tank gauge tables described herein (or any subsequent calibration provided for herein), Customer or Customers agent shall recalibrate the damaged tanks, and the vessel shall not be employed as an LNG Vessel hereunder until appropriate corrections are made. If mutually agreed between Customer and SABINE representatives, recalibration of damaged tanks can be deferred until the next time when such damaged tanks are warmed for any reason, and any corrections to the prior tank gauge tables will be made from the time the distortion occurred. If the time of the distortion cannot be ascertained, the Parties shall mutually agree on the time period for retrospective adjustments.
2
The Parties shall co-operate in the design, selection and acquisition of devices to be used for measurements and tests in order that all measurements and tests may be conducted in the SI system of units, except for the quantity delivered which is expressed in MMBTUs, the Gross Heating Value (Volume Based) which is expressed in Btu/SCF and the pressure which is expressed in millibar and temperature in Celsius. In the event that it becomes necessary to make measurements and tests using a new system of units of measurements, the Parties shall establish agreed upon conversion tables.
All measuring equipment must be maintained, calibrated and tested in accordance with the manufacturers recommendations. In the absence of a manufacturers recommendation, the minimum frequency of calibration shall be one hundred eighty (180) days, unless otherwise mutually agreed between the Parties. Documentation of all tests and calibrations will be made available by the Party performing the same to the other Party. Acceptable accuracy and performance tolerances shall be:
a) Liquid Level Gauging Devices .
Each LNG tank of the LNG Vessel shall be equipped with primary and secondary liquid level gauging devices as per Paragraph 7(b) of this Annex I.
The measurement accuracy of the primary gauging devices shall be plus or minus seven point five (± 7.5) millimeters and the secondary liquid level gauging devices shall be plus or minus ten (± 10) millimeters.
The liquid level in each LNG tank shall be logged or printed.
b) Temperature Gauging Devices .
The temperature of the LNG and of the vapor space in each LNG tank shall be measured by means of a number of properly located temperature measuring devices sufficient to permit the determination of average temperature.
The measurement accuracy of the temperature gauging devices shall be as follows:
(i) in the temperature range of minus one hundred sixty five to minus one hundred forty degree Celsius (-165C to -140°C), the accuracy shall be plus or minus zero point two degree Celsius (± 0.2 °C);
(ii) in the temperature range of minus one hundred forty to plus forty degree Celsius (-140C to +40 °C), the accuracy shall be plus or minus one point five degree Celsius (± 1.5 °C).
The temperature in each LNG tank shall be logged or printed.
c) Pressure Gauging Devices .
Each LNG tank of the LNG Vessel shall have one (1) absolute pressure gauging device.
3
The measurement accuracy of the pressure gauging device shall be plus or minus one percent (± 1%) of the measuring range.
The pressure in each LNG tank shall be logged or printed.
d) List and Trim Gauging Devices .
A list gauging device and a trim gauging device shall be installed. These shall be interfaced with the custody transfer system.
The measurement accuracy of the list and the trim gauging devices shall be better than plus or minus zero point zero five (±0.05) degrees for list and plus or minus zero point zero one (± 0.01) degrees for trim.
a) Gauge Tables . Upon SABINEs representative and the independent surveyor, if present, arriving on board the LNG Vessel prior to the commencement of or during unloading, Customer or Customers representative shall make available to them a certified copy of tank gauge tables for each tank of the LNG Vessel.
b) Gauges . Volumes of LNG delivered pursuant to this Agreement shall be determined by gauging the LNG in the tanks of the LNG Vessels before and after unloading. Each LNG Vessels tank shall be equipped with a minimum of two (2) sets of level gauges, each set utilizing a different measurement principle. Comparison of the two (2) systems, designated as Primary and Secondary Measurement Systems, shall be performed from time to time to ensure compliance with the acceptable performance tolerances stated herein.
c) Gauging Process . Gauging the liquid in the tanks of the LNG Vessels and measuring of liquid temperature, vapor temperature and vapor pressure in each LNG tank, trim and list of the LNG Vessels, and atmospheric pressure shall be performed, or caused to be performed, by Customer before and after unloading. SABINEs representative shall have the right to be present while all measurements are performed and shall verify the accuracy and acceptability of all such measurements. The first gauging and measurements shall be made immediately before the commencement of unloading. The second gauging and measurements shall take place immediately after the completion of unloading. The liquid level in the LNG Vessel before and after the unloading shall be determined by at least two (2) separate tank gaugings to be conducted at least fifteen (15) minutes apart.
d) Records . Copies of gauging and measurement records shall be furnished to SABINE immediately upon completion of unloading.
e) Gauging Liquid Level of LNG . The level of the LNG in each LNG tank of the LNG Vessel shall be gauged by means of the primary gauging device installed in the LNG Vessel for that purpose. The level of the LNG in each tank shall be logged or printed.
4
Measurement of the liquid level in each LNG tank of the LNG Ship shall be made to the nearest millimeter by using the primary liquid level gauging devices. Should the primary devices fail, the secondary device shall be used.
Five (5) readings shall be made following manufacturers recommendations on reading interval. The arithmetic average of the readings rounded to the nearest millimeter using one (1) decimal place shall be deemed the liquid level.
f) Determination of Temperature . The temperature of the LNG and of the vapor space in each LNG tank shall be measured by means of a sufficient number of properly located temperature measuring devices to permit the determination of average temperature. Temperatures shall be measured at the same time as the liquid level measurements and shall be logged or printed.
In order to determine the temperature of liquid and vapor respectively in the LNG Vessel one (1) reading shall be taken at each temperature gauging device in each LNG tank. An arithmetic average of such readings rounded to the nearest zero point one degree Celsius (0.1 °C) using two (2) decimal places with respect to vapor and liquid in all LNG tanks shall be deemed the final temperature of the vapor and liquid respectively.
Customer shall cause each cargo tank in the LNG Vessel to be provided with a minimum of five (5) temperature measuring devices. One such measuring device shall be located in the vapor space at the top of each cargo tank, one near the bottom of each cargo tank and the remainder distributed at appropriate intervals from the top to the bottom of the cargo tank. These devices shall be used to determine the average temperatures of the liquid cargo and the vapor in the cargo tank.
The average temperature of the vapor in an LNG Vessel shall be determined immediately before unloading by means of the temperature measuring devices specified above at the same time as when the liquid level is measured. The temperature measuring devices shall be fully surrounded by the vapor. This determination shall be made by taking the temperature readings of the temperature measuring devices in question to the nearest zero point zero one degrees Celsius (0.01°C), and if more than one of the devices are fully surrounded by the vapor, by averaging those readings, and rounding to one (1) decimal place.
g) Determination of Pressure . The pressure of the vapor in each LNG tank shall be determined by means of pressure measuring devices installed in each LNG tank of the LNG Vessels. The atmospheric pressure shall be determined by readings from the standard barometer installed in the LNG Vessels. Pressures shall be measured at the same time as the liquid level measurements, and shall be logged or printed.
Customer shall cause the LNG Vessel to be provided with pressure measuring equipment capable of determining the absolute pressure of the vapor in each cargo
5
tank with an accuracy equal to or better than plus or minus one percent (± 1%) of the measuring range.
The pressure of the vapor in an LNG Vessel shall be determined immediately before unloading at the same time as when the liquid level is measured.
Such determination shall be made by taking the pressure readings of the pressure measuring devices to the nearest millibar, then averaging these readings and rounding to a whole millibar.
h) Determination of Density . The LNG density shall be calculated using the method described within ISO 6976-2000, Calculation of calorific values, density, relative density and Wobbe Index from composition. This method shall be updated to conform to any official published revision of that document. Should any improved data, method of calculation or direct measurement device become available which is acceptable to both Customer and SABINE, such improved data, method or device shall then be used. If density is determined by measurements, the results shall be measured at the same time as the liquid level measurements and shall be logged or printed.
a) General . Flow proportional representative liquid samples shall be collected from an appropriate point located as close as practical to the unloading line starting two (2) hours after the beginning of transfer and ending two (2) hours before the end of transfer. Samples taken when biphasic or overheated LNG is suspected to be in the main transfer line will be disregarded. These incremental samples will be passed through a vaporizer, and samples of the vaporized liquid will be analyzed. The resulting analyses, which are proportional to time, will be mathematically flow rate weighted to yield an analysis that is representative of the unloaded Cargo. This flow rate weighted analysis shall be used for all appropriate calculations associated with the delivered Cargo. Should the automatic sampling system fail during the unloading, manual samples shall be collected and analyzed for accounting purposes.
b) Manual Samples . Prior to the end of the unloading cycle, two (2) spot samples shall be collected from the vaporizer. Spot samples shall be collected in accordance with Gas Processors Association (GPA) Standard 2166 - Methods for Obtaining Gas Samples for Analysis by Gas Chromatography - or by other mutually agreeable methods. The samples shall be properly labeled and then distributed to Customer and SABINE. SABINE shall retain one (1) sample for a period of thirty (30) days, unless the analysis is in dispute. If the analysis is in dispute, the sample will be retained until the dispute is resolved.
Sampling and analysis methods and procedures that differ from the above may be employed with the mutual agreement of the Parties.
6
a) Certification and Deviation . Chromatograph calibration gasses shall be provided and their composition certified by an independent third party. From time to time, deviation checks shall be performed to verify the accuracy of the gas composition mole percentages and resulting calculated physical properties. Analyses of a sample of test gas of known composition resulting when procedures that are in accordance with the above mentioned standards have been applied will be considered as acceptable if the resulting calculated gross real heating value is within plus or minus zero point three percent (± 0.3%) of the known gross real heating value of the test gas sample. If the deviation exceeds the tolerance stated, the gross real heating value, relative density and compressibility previously calculated will be corrected immediately. Previous analyses will be corrected to the point where the error occurred, if this can be positively identified to the satisfaction of both Parties. Otherwise it shall be assumed that the drift has been linear since the last recalibration and correction shall be based on this assumption.
b) GPA Standard 2261 . All samples shall be analyzed by SABINE to determine the molar fraction of the hydrocarbon and other components in the sample by gas chromatography using a mutually agreed method in accordance with GPA Standard 2261 - Method of Analysis for Gas and Similar Gaseous Mixtures by Gas Chromatography, current as of January 1, 1990 and as periodically updated or as otherwise mutually agreed by the Parties. If better standards for analysis are subsequently adopted by GPA or other recognized competent impartial authority, upon mutual agreement of Customer and SABINE, they shall be substituted for the standard then in use, but such substitution shall not take place retroactively. A calibration of the chromatograph or other analytical instrument used shall be performed by SABINE immediately prior to the analysis of the sample of LNG delivered. SABINE shall give advance notice to Customer of the time SABINE intends to conduct a calibration thereof, and Customer shall have the right to have a representative present at each such calibration; provided, however, SABINE will not be obligated to defer or reschedule any calibration in order to permit the representative of Customer to be present.
c) GPA Standard 2377 and 2265 . SABINE shall determine the presence of Hydrogen Sulfide (H2S) by use of GPA Standard 2377 - Test of Hydrogen Sulfide and Carbon Dioxide in Gas Using Length of Stain Tubes. If necessary, the concentration of H2S and total sulfur will be determined using one or more of the following methods as is appropriate: gas chromatography, Gas Processors Standard 2265 - Standard for Determination of Hydrogen Sulfide and Mercaptan Sulfur in Gas (Cadmium Sulfate - Iodometric Titration Method) or any other method that is mutually acceptable.
a) Notice . Prior to conducting operations for measurement, gauging, sampling and analysis provided in this Annex I, the Party responsible for such operations shall notify the appropriate representatives of the other Party, allowing such
7
representatives reasonable opportunity to be present for all operations and computations; provided that the absence of the other Partys representative after notification and opportunity to attend shall not prevent any operations and computations from being performed.
b) Independent Surveyor . At the request of either Party any measurement, gauging, sampling and analysis shall be witnessed and verified by an independent surveyor mutually agreed upon by Customer and SABINE. The results of such surveyors verifications shall be made available promptly to each Party.
c) Preservation of Records . All records of measurement and the computed results shall be preserved by the Party responsible for taking the same, or causing the same to be taken, and made available to the other Party for a period of not less than three (3) years after such measurement and computation.
11. Quantities Delivered
a) Calculation of MMBTU Quantities . The quantity of MMBTUs delivered shall be calculated by SABINE and verified by Customer. Either Party ma``y, at its own expense, require the measurements and calculations and/or their verification by an independent surveyor, mutually agreed upon by the Parties. Consent to an independent surveyor proposed by a Party shall not be unreasonably withheld by the other Party.
b) Determination of Gross Real Heating Value . All component values shall be in accordance with the latest revision of ISO 6579 and the latest revision of the reference standards therein.
c) Determination of Volume of LNG Unloaded.
i The LNG volume in the tanks of the LNG Vessel before and after unloading (valves have to be closed) shall be determined by gauging on the basis of the tank gauge tables provided for in Paragraph 6. The volume of LNG remaining in the tanks after unloading of the LNG Vessel shall be subtracted from the volume before unloading and the resulting volume shall be taken as the volume of the LNG delivered from the LNG Vessel.
The volume of LNG stated in cubic meters to the nearest zero point zero zero one (0.001) cubic meter, shall be determined by using the tank gauge tables and by applying the volume corrections set forth therein.
ii Gas returned to the LNG Vessel during unloading shall not be deemed to be volume unloaded for Customers account.
iii If failure of the primary gauging and measuring devices of an LNG Vessel should make it impossible to determine the LNG volume, the volume of LNG unloaded shall be determined by gauging the liquid level using the
8
secondary gauging and measurement devices. If an LNG Vessel is not so equipped, the volume of LNG delivered shall be determined by gauging the liquid level in SABINEs onshore LNG storage tanks immediately before and after unloading the LNG Vessel, and such volume shall have added to it an estimated LNG volume, agreed upon by the Parties, for boil-off from such tanks during the unloading of such LNG Vessel and have added to it the volume of any LNG that has been pumped from the LNG Vessels tanks during unloading. SABINE shall provide Customer, or cause Customer to be provided with, a certified copy of tank gauge tables for each onshore LNG tank which is to be used for this purpose, such tables to be verified by a competent impartial authority.
12. Calculations
The calculation procedures contained in this Section are generally in accordance wit h the Institute of Petroleum Measurement Manual, Part XII, the Static Measurement of Refrigerated Hydrocarbon Liquids, Section 1, IP 251/76.
d |
= |
density of LNG unloaded at the prevailing composition and temperature Tl in kg/m3, rounded to two (2) decimal places, calculated according to the method specified in Paragraph 12.1 of this Annex I. |
|
|
|
Hi |
= |
gross heating value (mass based) of component i in MJ/kg, in accordance with Paragraph 12.6.1 of this Annex I. |
|
|
|
Hm |
= |
gross heating value (mass based) of the LNG unloaded in MJ/kg, calculated in accordance with the method specified in Paragraph 12.3 of this Annex I, rounded to four (4) decimal places. |
|
|
|
Hv |
= |
gross heating value (volume based) of the LNG unloaded in Btu/SCF, calculated in accordance with the method specified in Paragraph12.5 of this Annex I. |
|
|
|
K1 |
= |
volume correction in m3/kmol, at temperature Tl, obtained by linear interpolation from Paragraph 12.6.3 of this Annex I, rounded to six (6) decimal places. |
|
|
|
K2 |
= |
volume correction in m3/kmol, at temperature Tl obtained by linear interpolation from Paragraph 12.6.4 of this Annex I, rounded to six (6) decimal places. |
|
|
|
Mi |
= |
molecular mass of component i in kg/kmol, in accordance with Paragraph 12.6.1 of this Annex I. |
|
|
|
P |
= |
average absolute pressure of vapor in an LNG Vessel immediately before unloading, in millibars, rounded to a whole millibar. |
|
|
|
Q |
= |
number of MMBTUs contained in the LNG delivered, rounded to the nearest ten (10) MMBTU. |
9
Tl |
= |
average temperature of the liquid cargo in the LNG Vessel immediately after unloading, in degrees Celsius, rounded to one (1) decimal place. |
|
|
|
Tv |
= |
average temperature of the vapor in an LNG Vessel immediately before unloading, in degrees Celsius, rounded to one (1) decimal place. |
|
|
|
V |
= |
the volume of the liquid cargo unloaded, in cubic meters, rounded to three (3) decimal places. |
|
|
|
Vh |
= |
the volume of the liquid cargo in an LNG Vessel immediately after unloading, in cubic meters, rounded to three (3) decimal places. |
|
|
|
Vb |
= |
the volume of the liquid cargo in an LNG Vessel immediately before unloading, in cubic meters, rounded to three (3) decimal places. |
|
|
|
Vi |
= |
molar volume of component i at temperature Tl, in m3/kmol, obtained by linear interpolation from Paragraph 12.6.2 of this Annex I, rounded to six (6) decimal places. |
|
|
|
Xi |
= |
molar fraction of component i of the LNG samples taken from the receiving line, rounded to four (4) decimal places, determined by gas chromatographic analysis. |
|
|
|
Xm |
= |
the value of Xi for methane. |
|
|
|
Xn |
= |
the value of Xi for nitrogen. |
12.1 Density Calculation Formula
The density of the LNG unloaded which is used in the MMBTU calculation in 12.4 of this Annex I shall be calculated from the following formula derived from the revised Klosek-McKinley method:
|
In the application of the above formula, no intermediate rounding shall be made if the accuracy of d is thereby affected.
12.2 Calculation of Volume Delivered
The volume, in cubic meters, of each LNG cargo unloaded shall be calculated by using the following formula:
|
10
12.3 Calculation of Gross Heating Value (Mass Based)
The gross heating value (mass based), in MJ/kg, of each LNG cargo unloaded shall be calculated by using the following formula:
|
12.4 MMBtu Calculation of the Quantity of LNG Unloaded
The number of MMBTUs contained in the LNG unloaded shall be calculated using the following formula:
|
The derivation of the conversion factor 1/1055.12 in the formula in this Paragraph for the conversion of MJ into MMBTUs is obtained from GPA-2145:1994 and IP-251:1976 as follows:
(a) q(T,P) means the gross heating value (measured at temperature T and pressure P), contained in a given quantity of gas;
(b) q(60°F, 14.696 psia) in MJ = 1/1.00006 x q(15°C, 1013.25 millibar) in MJ;
(c) 1 MMBTU corresponds to 1055.06 MJ;
(d) q(60°F, 14.696 psia) in MMBTUs = 1/1055.06 x q(60°F, 14.696 psia) in MJ; and
(e) Combining (b) and (d) above yields:
q(60°F, 14.696 psia) in MMBTUs = 1/1055.12 x q(15°C, 1013.25 millibar) in MJ.
Hence the number of MJ derived shall be divided by 1055.12 to obtain the number of MMBTUs for invoicing purposes.
12.5 Calculation of Gross Heating Value (Volume Based)
The calculation of the Gross Heating Value (Volume Based) in Btu/SCF shall be derived from the same compositional analysis as is used for the purposes of calculating the Gross Heating Value (Mass Based) Hm and the following formula shall apply:
|
11
The derivation of the conversion factor 1.13285 for the conversion of MJ/kmol into Btu/SCF is obtained as follows:
(a) molar gross heating value = (Xi x Mi x Hi) MJ/kmol;
(b) 1 kmol = 2.20462 lbmol;
(c) 1 lbmol = 379.482 SCF;
(d) hence 1 kmol = 836.614 SCF; and
(e) Hv = 1,000,000/ (1055.12 x 836.614) x (Xi x Mi x Hi) Btu/SCF; or
Hv = 1.13285 x (Xi x Mi x Hi) Btu/SCF,
12.6 Data
12.6.1 Values of Hi and Mi
Component |
|
Hi (in MJ/kg) |
|
Mi (in kg/kmol) |
|
Methane |
|
55.575 |
|
16.043 |
|
Ethane |
|
51.950 |
|
30.070 |
|
Propane |
|
50.368 |
|
44.097 |
|
Iso-Butane |
|
49.388 |
|
58.123 |
|
N-Butane |
|
49.546 |
|
58.123 |
|
Iso-Pentane |
|
48.949 |
|
72.150 |
|
N-Pentane |
|
49.045 |
|
72.150 |
|
N-Hexane |
|
48.716 |
|
86.177 |
|
Nitrogen |
|
0 |
|
28.013 |
|
Carbon Dioxide |
|
0 |
|
44.010 |
|
Oxygen |
|
0 |
|
31.999 |
|
Source: GPA Publication 2145 Sl-96: Physical Constants of Paraffin Hydrocarbons and other components of natural gas.
12.6.2 Values of Vi (cubic meter/kmol)
Temperature |
|
-150°C |
|
-154°C |
|
-158°C |
|
-160°C |
|
-162°C |
|
-166°C |
|
-170°C |
|
Methane |
|
0.039579 |
|
0.038983 |
|
0.038419 |
|
0.038148 |
|
0.037884 |
|
0.037375 |
|
0.036890 |
|
Ethane |
|
0.048805 |
|
0.048455 |
|
0.048111 |
|
0.047942 |
|
0.047774 |
|
0.047442 |
|
0.047116 |
|
Propane |
|
0.063417 |
|
0.063045 |
|
0.062678 |
|
0.062497 |
|
0.062316 |
|
0.061957 |
|
0.061602 |
|
Iso-Butane |
|
0.079374 |
|
0.078962 |
|
0.078554 |
|
0.078352 |
|
0.078151 |
|
0.077751 |
|
0.077356 |
|
N-Butane |
|
0.077847 |
|
0.077456 |
|
0.077068 |
|
0.076876 |
|
0.076684 |
|
0.076303 |
|
0.075926 |
|
Iso-Pentane |
|
0.092817 |
|
0.092377 |
|
0.091939 |
|
0.091721 |
|
0.091504 |
|
0.091071 |
|
0.090641 |
|
N-Pentane |
|
0.092643 |
|
0.092217 |
|
0.091794 |
|
0.091583 |
|
0.091373 |
|
0.090953 |
|
0.090535 |
|
N-Hexane |
|
0.106020 |
|
0.105570 |
|
0.105122 |
|
0.104899 |
|
0.104677 |
|
0.104236 |
|
0.103800 |
|
Nitrogen |
|
0.055877 |
|
0.051921 |
|
0.048488 |
|
0.046995 |
|
0.045702 |
|
0.043543 |
|
0.041779 |
|
Carbon Diox |
|
0.027950 |
|
0.027650 |
|
0.027300 |
|
0.027200 |
|
0.027000 |
|
0.026700 |
|
0.026400 |
|
Oxygen |
|
0.03367 |
|
0.03275 |
|
0.03191 |
|
0.03151 |
|
0.03115 |
|
0.03045 |
|
0.02980 |
|
Source: National Bureau of Standards Interagency Report 77-867, Institute of Petroleum IP251/76 for Oxygen.
Note: For intermediate values of temperature and molecular mass a linear interpolation shall be applied.
12
12.6.3 Values of Volume Correction Factor, K1 (cubic meter/kmol)
Molecular
|
|
-150°C |
|
-154°C |
|
-158°C |
|
-160°C |
|
-162°C |
|
-166°C |
|
-170°C |
|
16.0 |
|
-0.000012 |
|
-0.000010 |
|
-0.000009 |
|
-0.000009 |
|
-0.000008 |
|
-0.000007 |
|
-0.000007 |
|
16.5 |
|
0.000135 |
|
0.000118 |
|
0.000106 |
|
0.000100 |
|
0.000094 |
|
0.000086 |
|
0.000078 |
|
17.0 |
|
0.000282 |
|
0.000245 |
|
0.000221 |
|
0.000209 |
|
0.000197 |
|
0.000179 |
|
0.000163 |
|
17.2 |
|
0.000337 |
|
0.000293 |
|
0.000261 |
|
0.000248 |
|
0.000235 |
|
0.000214 |
|
0.000195 |
|
17.4 |
|
0.000392 |
|
0.000342 |
|
0.000301 |
|
0.000287 |
|
0.000274 |
|
0.000250 |
|
0.000228 |
|
17.6 |
|
0.000447 |
|
0.000390 |
|
0.000342 |
|
0.000327 |
|
0.000312 |
|
0.000286 |
|
0.000260 |
|
17.8 |
|
0.000502 |
|
0.000438 |
|
0.000382 |
|
0.000366 |
|
0.000351 |
|
0.000321 |
|
0.000293 |
|
18.0 |
|
0.000557 |
|
0.000486 |
|
0.000422 |
|
0.000405 |
|
0.000389 |
|
0.000357 |
|
0.000325 |
|
18.2 |
|
0.000597 |
|
0.000526 |
|
0.000460 |
|
0.000441 |
|
0.000423 |
|
0.000385 |
|
0.000349 |
|
18.4 |
|
0.000637 |
|
0.000566 |
|
0.000499 |
|
0.000477 |
|
0.000456 |
|
0.000412 |
|
0.000373 |
|
18.6 |
|
0.000677 |
|
0.000605 |
|
0.000537 |
|
0.000513 |
|
0.000489 |
|
0.000440 |
|
0.000397 |
|
18.8 |
|
0.000717 |
|
0.000645 |
|
0.000575 |
|
0.000548 |
|
0.000523 |
|
0.000467 |
|
0.000421 |
|
19.0 |
|
0.000757 |
|
0.000685 |
|
0.000613 |
|
0.000584 |
|
0.000556 |
|
0.000494 |
|
0.000445 |
|
19.2 |
|
0.000800 |
|
0.000724 |
|
0.000649 |
|
0.000619 |
|
0.000589 |
|
0.000526 |
|
0.000474 |
|
19.4 |
|
0.000844 |
|
0.000763 |
|
0.000685 |
|
0.000653 |
|
0.000622 |
|
0.000558 |
|
0.000503 |
|
19.6 |
|
0.000888 |
|
0.000803 |
|
0.000721 |
|
0.000688 |
|
0.000655 |
|
0.000590 |
|
0.000532 |
|
19.8 |
|
0.000932 |
|
0.000842 |
|
0.000757 |
|
0.000722 |
|
0.000688 |
|
0.000622 |
|
0.000561 |
|
20.0 |
|
0.000976 |
|
0.000881 |
|
0.000793 |
|
0.000757 |
|
0.000721 |
|
0.000654 |
|
0.000590 |
|
25.0 |
|
0.001782 |
|
0.001619 |
|
0.001475 |
|
0.001407 |
|
0.001339 |
|
0.001220 |
|
0.001116 |
|
30.0 |
|
0.002238 |
|
0.002043 |
|
0.001867 |
|
0.001790 |
|
0.001714 |
|
0.001567 |
|
0.001435 |
|
Source: National Bureau of Standards Interagency Report 77-867.
Note 1: Molecular mass of mixture equals ( Xi x Mi ).
Note 2: For intermediate values of temperature and molecular mass a linear interpolation shall be applied.
12.6.4 Values of Volume Correction Factor, K2 (cubic meter/kmol)
Molecular
|
|
-150°C |
|
-154°C |
|
-158°C |
|
-160°C |
|
-162°C |
|
-166°C |
|
-170°C |
|
16.0 |
|
-0.000039 |
|
-0.000031 |
|
-0.000024 |
|
-0.000021 |
|
-0.000017 |
|
-0.000012 |
|
-0.000009 |
|
16.5 |
|
0.000315 |
|
0.000269 |
|
0.000196 |
|
0.000178 |
|
0.000162 |
|
0.000131 |
|
0.000101 |
|
17.0 |
|
0.000669 |
|
0.000568 |
|
0.000416 |
|
0.000377 |
|
0.000341 |
|
0.000274 |
|
0.000210 |
|
17.2 |
|
0.000745 |
|
0.000630 |
|
0.000478 |
|
0.000436 |
|
0.000397 |
|
0.000318 |
|
0.000246 |
|
17.4 |
|
0.000821 |
|
0.000692 |
|
0.000540 |
|
0.000495 |
|
0.000452 |
|
0.000362 |
|
0.000282 |
|
17.6 |
|
0.000897 |
|
0.000754 |
|
0.000602 |
|
0.000554 |
|
0.000508 |
|
0.000406 |
|
0.000318 |
|
17.8 |
|
0.000973 |
|
0.000816 |
|
0.000664 |
|
0.000613 |
|
0.000564 |
|
0.000449 |
|
0.000354 |
|
18.0 |
|
0.001049 |
|
0.000878 |
|
0.000726 |
|
0.000672 |
|
0.000620 |
|
0.000493 |
|
0.000390 |
|
18.2 |
|
0.001116 |
|
0.000939 |
|
0.000772 |
|
0.000714 |
|
0.000658 |
|
0.000530 |
|
0.000425 |
|
18.4 |
|
0.001184 |
|
0.001000 |
|
0.000819 |
|
0.000756 |
|
0.000696 |
|
0.000567 |
|
0.000460 |
|
18.6 |
|
0.001252 |
|
0.001061 |
|
0.000865 |
|
0.000799 |
|
0.000735 |
|
0.000605 |
|
0.000496 |
|
18.8 |
|
0.001320 |
|
0.001121 |
|
0.000912 |
|
0.000841 |
|
0.000773 |
|
0.000642 |
|
0.000531 |
|
19.0 |
|
0.001388 |
|
0.001182 |
|
0.000958 |
|
0.000883 |
|
0.000811 |
|
0.000679 |
|
0.000566 |
|
19.2 |
|
0.001434 |
|
0.001222 |
|
0.000998 |
|
0.000920 |
|
0.000844 |
|
0.000708 |
|
0.000594 |
|
19.4 |
|
0.001480 |
|
0.001262 |
|
0.001038 |
|
0.000956 |
|
0.000876 |
|
0.000737 |
|
0.000623 |
|
19.6 |
|
0.001526 |
|
0.001302 |
|
0.001078 |
|
0.000992 |
|
0.000908 |
|
0.000765 |
|
0.000652 |
|
19.8 |
|
0.001573 |
|
0.001342 |
|
0.001118 |
|
0.001029 |
|
0.000941 |
|
0.000794 |
|
0.000681 |
|
20.0 |
|
0.001619 |
|
0.001382 |
|
0.001158 |
|
0.001065 |
|
0.000973 |
|
0.000823 |
|
0.000709 |
|
25.0 |
|
0.002734 |
|
0.002374 |
|
0.002014 |
|
0.001893 |
|
0.001777 |
|
0.001562 |
|
0.001383 |
|
30.0 |
|
0.003723 |
|
0.003230 |
|
0.002806 |
|
0.002631 |
|
0.002459 |
|
0.002172 |
|
0.001934 |
|
13
Source: National Bureau of Standards Interagency Report 77-867.
Note 1: Molecular mass of mixture equals ( Xi x Mi ).
Note 2: For intermediate values of temperature and molecular mass a linear interpolation shall be applied.
14
MEASUREMENTS AND TESTS FOR GAS AT DELIVERY POINT
1. Applicability . The measurement procedures in this Annex II shall apply to the measurement of quantities (volume, energy) Gas delivered by SABINE for Customers Account at the Delivery Point.
2. Unit of Measurement . All Gas delivered at the Delivery Point shall be measured in MMBTUs.
3. Metering .
(a) Metering Equipment . SABINE shall supply, operate and maintain (or cause to be supplied, operated and maintained at or near the Delivery Point) the following:
i) meters with redundancy and other equipment as is necessary to accurately measure the volume of Gas delivered at the Delivery Point hereunder;
ii) devices for collecting samples and for determining the quality and composition of Gas delivered at the Delivery Point hereunder; and
iii) and any other measurement or testing devices which are necessary to perform the measurement and testing required hereunder at the Delivery Point.
(collectively, the Downstream Metering Equipment ). The Downstream Metering Equipment shall be designed and installed in accordance with the current recommendations of the American Gas Association, Report No. 3 and 9 for Ultrasonic Metering.
(b) Check Measurement Equipment and Access . Customer may, at Customers expense, install and operate, at or near the Downstream Metering Equipment, independent check measuring equipment similar to the Downstream Metering Equipment to monitor the accuracy of the measurements made by the Downstream Metering Equipment. Such check metering equipment will be installed and operated by Customer so that it does not unreasonably interfere with the operation of the Downstream Metering Equipment.
(c) General . A pressure transmitter shall be installed on each meter tube to measure the static pressure at the plane of the upstream differential pressure tapping. The temperature of the flowing Gas shall be measured on each meter tube by a platinum resistance thermometer installed in a thermowell so that the probe tip is in the center one-third of the pipe. Each meter run shall be provided with a dedicated microprocessor-based flow computer system powered by an appropriate back-up power supply.
(d) Measuring and Density Standards . Gas shall be measured by ultrasonic meters. Ultrasonic meters shall be constructed and operated, Gas shall be measured, and properties shall be determined in accordance with American Gas Association, Report No. 9 and any subsequent modification and amendment thereof. The
1
compressibility and density shall be calculated in accordance with the latest revision of the American Gas Association, Report No. 9. Metering equipment shall include the use of flow conditioners, straightening vanes, and pulsation dampening devices where necessary. Meter tubes shall be of a design incorporating suitable access for periodic internal inspection, including access for internal inspection of the upstream side of the flow conditioner. Electronic gas measurement with a continuous readout of pressure, temperature, and Gas flow rate shall be used. All computations shall be made as prescribed in the above cited standard.
(e) Ultrasonic Metering Standard . All ultrasonic metering shall comply with the American Gas Association, Report No. 9 and any subsequent modification and amendment thereof.
4. Determination of Gross Heating Value .
(a) GPA 2261 and 2145 . The heating value of the Gas delivered by SABINE at the Delivery Point shall be determined by gas chromatograph. The composition of the Gas shall be continuously measured by on-line chromatographs. The Gross Heating Value of the Gas shall be calculated using results from the on-line chromatograph. The chromatographs will analyze all hydrocarbon components, up to and including at least the Nonanes+ group, and inerts having a concentration of greater than 0.002 mol percent. The determination of Gas composition shall be in accordance with the GPA Standard 2261 Analysis for Natural Gas and Similar Gaseous Mixtures by Gas Chromatography. All physical properties used in quality and quantity calculations shall be based on these compositional analyses and the component values published in GPA 2145, or the latest revision thereof. Water vapor content shall be included in the component analyses. The sample analysis cycle time shall be less than six (6) minutes. The maximum response time from sample probe to analyzer shall be four (4) minutes. In the event of failure of the on-line Gas chromatograph, chromatograph analysis of samples collected proportional to the flow through the meters shall be used. Auto-calibration of the Gas chromatograph shall be conducted on a weekly basis or as otherwise mutually agreed by the Parties.
(b) GPA 2145 . Back-up composite samples of the flowing Gas shall be obtained weekly to be used for relative density (specific gravity), Gross Heating Value, and compressibility factors in case of electronic failure. Composite sampling of the flowing stream shall be by use of a mutually agreeable continuous sampler, designed and installed to sample proportionally to the flow rate. The end point of each composite sample chromatographic analysis shall be the Nonane+ fraction, and values for this fraction shall be based on the C9 value in the latest revision of GPA Standard 2145 Table of Physical Constants of Paraffin Hydrocarbons and Other Components of Natural Gas. All component values shall be in accordance with such standard.
(c) Quarterly Deviation Checks . Monthly gas chromatograph deviation checks shall be made on Gas composition mole percentages and resulting Gross Heating Value. Analyses of a sample of test Gas of known composition resulting when
2
procedures that are in accordance with the above mentioned standards have been applied will be considered as acceptable if the resulting calculated Gross Heating Value is within plus or minus five (5) BTU per Standard Cubic Foot of the known Gross Heating Value. If the deviation exceeds the tolerance stated, Gross Heating Value, relative density, and compressibility previously calculated will be corrected immediately. Previous analyses will be corrected to the point where the error occurred. If the point that the error occurred cannot be determined, previous analyses will be corrected for one-half the period since the last verification test, not to exceed a correction period of six (6) months.
(d) Corrections for Water Content . The heating value on a dry basis for Gas containing water shall be corrected in accordance with standards followed by the American Gas Association. Moisture content of flowing Gas shall be determined as often as found necessary in real practice by use of a mutually acceptable calculation or test instrument, which could include a Meco Moisture Analyzer.
5. Operating Procedures
(a) Notice . Prior to conducting operations for measurement, calibration, sampling and analysis provided in Annex II, the Party responsible for such operations shall notify the appropriate representatives of the other Party, allowing such representatives reasonable opportunity to be present for all operations and computations; provided that the absence of the other Partys representative after notification and opportunity to attend shall not prevent any operations and computations from being performed.
(b) Independent Surveyor . At the request of either Party any measurement, calibration, sampling and analysis shall be witnessed and verified by an independent surveyor mutually agreed upon by Customer and SABINE. The results of such surveyors verifications shall be made available promptly to each Party.
(c) Preservation of Records . All records of measurement and the computed results shall be preserved by the Party responsible for taking the same, or causing the same to be taken, and made available to the other Party for a period of not less than three (3) years after such measurement and computation.
6. Verification . At least once each month, and in addition, from time to time upon at least two (2) weeks prior written notice by either Party to the other, SABINE shall verify or cause to be verified the accuracy of the Downstream Metering Equipment. When as a result of such test any of the Downstream Metering Equipment is found to be out of calibration within the accuracy provided by the manufacturer in the specification for such equipment , no adjustment shall be made to the Fee. If the testing of the Downstream Metering Equipment demonstrates that any meter is out of calibration by more than the accuracy provided by the manufacturer in the specifications for such equipment, the applicable Downstream Metering Equipment reading for the actual period during which out of calibration measurements were made shall be estimated as follows, in descending order of priority:
3
(a) by using the registration of any check meter or meters if installed and accurately registering;
(b) by correcting the error if the percentage of error is ascertainable by calibration, test, or mathematical calculation; or
(c) by estimating the quantity of delivery by measuring deliveries during prior periods under similar conditions when any meter was registering accurately.
If the actual period that such equipment has been out of calibration cannot be determined to the mutual satisfaction of SABINE and Customer, the adjustment shall be for a period equal to one-half of the time elapsed since the most recent test. The previous payments made by Customer to SABINE for this period shall be subtracted from the amount of payments that are calculated to have been owed under this Agreement. The difference (which may be a positive or negative amount) shall be added to the next monthly statement pursuant to Section 12.2.
7. Costs . The cost of the monthly testing and calibration of the Downstream Metering Equipment shall be borne by SABINE. The cost of any testing and calibration of the Downstream Metering Equipment beyond the monthly test permitted above shall also be paid by SABINE, unless the request to test any of the Downstream Metering Equipment is made by Customer and the results of such test requested by Customer demonstrate that the Downstream Metering Equipment is less than one percent (1%) out of calibration or outside of the accuracy given by the manufacturer, in which case the cost of such testing and calibration shall be for Customers account. Each Party shall comply with any reasonable request of the other Party concerning the sealing of the Downstream Metering Equipment, the presence of a representative of Customer when the seals are broken and tests are conducted, and other matters affecting the accuracy, testing and calibration of the Downstream Metering Equipment.
8. Disputes . Any Dispute arising under this Annex II shall be submitted to an Expert under Section 20.2.
4
SABINE PASS SERVICES MANUAL
The Sabine Pass Services Manual referred to in Section 3.5 shall address the following matters and other matters of a similar nature:
1. Details associated with the implementation of Section 5.1 among SABINE, Customer and Other Customers
2. Details associated with the Gas delivery procedures in Section 5.3 among SABINE, Customer and Other Customers
3. Details associated with the content and format of the Sabine Pass Website
4. Details associated with the invoicing process under Article 11, including:
a. Format of invoices (electronic and original)
b. Numbering systems/codes for all invoice-related documents
1
PORT LIABILITY AGREEMENT PORT OF SABINE PASS, LOUISIANA
THIS PORT LIABILITY AGREEMENT (this Agreement ) is effective as of , 20 , and is made by and between Sabine Pass LNG L.P., a Delaware limited partnership, represented herein by Sabine Pass LNG-GP, Inc., its General Partner ( SABINE ), and [INSERT NAME(S) OF VESSEL OWNER(S), a [TYPE OF ENTITY AND JURISDICTION OF ORGANIZATION] ([collectively] Vessel Owner ).
RECITALS
WHEREAS, Vessel Owner, using the LNG vessel set forth below under its name and signature ( Vessel ), proposes to deliver certain quantities of liquefied natural gas to SABINE at its marine terminal and receiving, storage and regasification facilities located in Cameron Parish, Louisiana (as more fully defined below, the Marine Terminal ); and
WHEREAS, Vessel Owner and SABINE (collectively, the Parties and individually a Party ) have agreed to allocate the risk of and responsibility for loss and damage resulting from an Incident (as defined below) at the Marine Terminal in the following manner;
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:
1. The following terms shall have the following meanings when used herein:
Affiliate means, with respect to any Person, any other Person which, directly or indirectly, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, control (including, with correlative meanings, the terms controlled by and under common control with) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or otherwise.
Incident means any occurrence or series of occurrences having the same origin arising out of or relating to the Vessels use of the Marine Terminal in which there is any one or more of the following: (i) loss of or damage to the Marine Terminal or the Vessel; (ii) injury to the employees and agents comprising Terminal Interests or Vessel Interests; (iii) loss or damage, other than to the Marine Terminal or the Vessel, caused or contributed to by the Vessel, including but not limited to, injury to third parties or damage to the property of third parties; or (iv) an obstruction or danger affecting or interfering with the normal operation of the Marine Terminal or the Port.
Terminal Interests means (i) SABINE, (ii) all Affiliates of SABINE, (iii) all Persons (other than the Vessel Interests and Persons providing fire boats, tugs and escort vessels to Vessel at the Port) employed or providing services at the Marine Terminal in connection with the unloading, storage, or regasification of LNG at the Marine Terminal, and (iv) the employees and agents of all Persons referred to in this paragraph.
1
Marine Terminal means SABINEs marine terminal and LNG receiving, storage and regasification facilities located at the Port, including all berths, buoys, gear, craft, equipment, plant, facilities and property of any kind (whether afloat or ashore) located thereat or adjacent thereto and in the ownership, possession or control of the Terminal Interests.
Person means any individual, firm, corporation, trust, partnership, association, joint venture (incorporated or unincorporated), or other business entity.
Port means the port at or near Cameron Parish, Louisiana, including its anchorage, turning basin and approaches into the Marine Terminal associated therewith.
Vessel Interests means (i) Vessel Owner, (ii) all Affiliates, participating in the ownership and/or operation, of Vessel, (iii) all Persons (other than the Terminal Interests) participating, employed, or providing services in connection with the ownership or operation (including all operations related to navigation and berthing/unberthing) of the Vessel, and (iv) the employees and agents of all Persons referred to in this paragraph.
2. In all circumstances, the Master of the Vessel shall remain solely responsible for the proper navigation and safety of the Vessel and her cargo.
3. Any liability arising from an Incident shall, as between the Vessel Interests and the Terminal Interests, be borne (i) by the Vessel Interests alone, if the Vessel Interests are wholly or partially at fault and the Terminal Interests are not at fault, (ii) by the Terminal Interests alone, if the Terminal Interests are wholly or partially at fault and the Vessel Interests are not at fault, (iii) by the Vessel Interests and the Terminal Interests, in proportion to the degree of their respective fault, if both are at fault and the degree of such fault can be established or (iv) by the Vessel Interests and the Terminal Interests equally if neither of them appears to be at fault or it is not possible to establish the degree of their respective fault. In this regard, any acts or omissions of Persons providing fire boats, tugs and escort vessels to Vessel at the Port shall be deemed to be the responsibility of the Vessel Interests.
4.
(i) Subject to Section 5(ii) below, the total aggregate liability of the Vessel Interests to the Terminal Interests, however arising, in respect of any one Incident, shall not exceed one hundred fifty million dollars (US$150,000,000). Payment of an aggregate sum of one hundred fifty million dollars (US$150,000,000) to any one or more of the Terminal Interests in respect of any one Incident shall be a complete defense to any claim, suit or demand relating to such Incident made by the Terminal Interests against the Vessel Interests.
(ii) Vessel Owner shall cause to be provided to SABINE at all times sufficient written evidence that the Vessels Protection and Indemnity Association has agreed to (a) cover the Vessel Interests as a member of the Association against the liabilities and responsibilities provided for in this Agreement in accordance with its Rules; (b) give SABINE prior notice of cancellation of the Vessels entry in such
2
Protection and Indemnity Association; and (c) waive in favor of the Terminal Interests all rights of subrogation of claims by the Protection and Indemnity Association against the Terminal Interests to the extent such claims have been waived in this Agreement by the Vessel Interests.
5. As to matters subject to this Agreement and regardless of fault or negligence on the part of any Party, with respect to an Incident:
(i) except to the extent expressly preserved in this Agreement, Terminal Interests hereby expressly, voluntarily and intentionally waive any right or claims they might otherwise have against the Vessel Interests under applicable laws or under any port liability agreement or similar port conditions of use previously signed by the Master for the Port; and
(ii) except to the extent expressly preserved in this Agreement, Vessel Interests hereby expressly, voluntarily and intentionally waive any rights to limit their liability under the United States Limitation of Vessel Owners Liability Act or any other similar law or convention, as applicable. Such waiver shall include any right to petition a court, arbitral tribunal or other entity for limitation of liability, any right to claim limitation of liability as a defense in an action, and any other similar right under relevant law.
6. The substantive law of New York, without regard to any conflicts of law principles that could require the application of any other law, shall govern the interpretation of this Agreement and any dispute, controversy, or claim arising out of, relating to, or in any way connected with this Agreement, including, without limitation, the existence, validity, performance, or breach hereof.
7. If and for so long as any provision of this Agreement shall be deemed to be judged invalid for any reason whatsoever, such invalidity shall not affect the validity or operation of any other provision of this Agreement except only so far as shall be necessary to give effect to the construction of such invalidity, and any such invalid provision shall be deemed severed from this Agreement without affecting the validity of the balance of this Agreement.
IN WITNESS WHEREOF , the Parties have caused this Agreement to be executed by their duly authorized representatives effective as of the date first set forth above.
SABINE PASS LNG L.P. |
[INSERT SIGNATURES OF
EACH OF
|
||||||
|
|
||||||
By: SABINE PASS LNG-GP,
|
By: |
|
|
||||
|
|
||||||
By: |
|
|
By: |
|
|
||
Title: |
Title: |
||||||
3
|
As owner of the Name of
Vessel
|
4
Exhibit C
Guarantee
Exhibit D
Consent
1
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT , is made and entered into as of , by CHEVRONTEXACO CORPORATION ( ChevronTexaco ), a corporation organized and existing under the laws of the State of Delaware, to SABINE PASS LNG L.P. , a limited partnership organized under the laws of Delaware ( Sabine Pass );
WITNESSETH:
WHEREAS, Sabine Pass has entered into that certain Terminal Use Agreement dated as of with Chevron U.S.A. Inc., a corporation incorporated under the laws of the Commonwealth of Pennsylvania; and
WHEREAS, the ChevronTexaco Subsidiary is a wholly-owned subsidiary of ChevronTexaco; and
WHEREAS, it is a condition precedent to the effectiveness of the TUA that certain of the ChevronTexaco Subsidiarys obligations thereunder be guaranteed by ChevronTexaco in accordance with and subject to the provisions of this Guaranty Agreement;
NOW, THEREFORE, in consideration of the premises ChevronTexaco does hereby covenant and agree with Sabine Pass, as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. Except as otherwise expressly provided or unless the context otherwise requires, the terms defined in this Section 1.1 shall, for all purposes of this Guaranty Agreement, have the meanings herein specified, the following definitions to be equally applicable to both the singular and plural forms of any of the terms herein defined:
Banking Day
The term Banking Day shall mean any day other than a Saturday, a Sunday or any other day on which commercial banks in New York or California are authorized or required to be closed.
ChevronTexaco
The term ChevronTexaco shall mean ChevronTexaco Corporation, a Delaware corporation, until a successor corporation shall have become such pursuant to the applicable provisions hereof, and thereafter ChevronTexaco shall mean such successor corporation.
ChevronTexaco Subsidiary
The term ChevronTexaco Subsidiary shall mean Chevron U.S.A. Inc., a corporation incorporated under the Commonwealth of Pennsylvania, until a successor corporation shall have become such pursuant to the applicable provisions of the TUA, and thereafter the ChevronTexaco Subsidiary shall mean such successor corporation.
1
Guaranty Agreement
The term Guaranty Agreement shall mean this Guaranty Agreement dated as of , as originally executed or as it may from time to time be supplemented, modified or amended as provided herein.
Guaranteed Obligations
The term Guaranteed Obligations shall have the meaning accorded such term in Section 3.1 of this Guaranty Agreement.
Maximum Guaranteed Amount
The term Maximum Guaranteed Amount shall mean, as of any date, an amount equal to MGA where:
MGA = [(Q x R x T) x 80%]- F
Where:
Q = ChevronTexaco Subsidiarys Maximum LNG Reception Quantity under the TUA;
R = thirty-two cents ($0.32);
T = twenty (20); and
F = the cumulative amount of Fees paid by the ChevronTexaco Subsidiary under the TUA
Sabine Pass
The term Sabine Pass shall mean Sabine Pass LNG, L.P., a limited partnership organized under the laws of the State of Delaware, or its permitted successor or assign pursuant to the TUA.
TUA
The term TUA shall mean the Terminal Use Agreement dated as of , between the ChevronTexaco Subsidiary and Sabine Pass, as such TUA was originally executed or as it may from time to time be supplemented, modified or amended as provided therein.
Section 1.2. Other Defined Terms. Capitalized terms not otherwise defined in this Guaranty Agreement shall have the meanings ascribed thereto in the TUA.
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ARTICLE II
REPRESENTATIONS OF CHEVRONTEXACO
Section 2.1. Representations of ChevronTexaco . ChevronTexaco makes the following representations to the Guaranteed Parties:
(a) ChevronTexaco has been duly organized and is validly existing under the laws of the State of Delaware, has full legal right, power and authority to enter into this Guaranty Agreement and to carry out and consummate all transactions contemplated by this Guaranty Agreement, and by proper corporate action has duly authorized the execution and delivery of this Guaranty Agreement.
(b) The execution and delivery of this Guaranty Agreement and the consummation of the transactions herein contemplated will not conflict with or constitute on the part of ChevronTexaco a breach of or default under its Restated Certificate of Incorporation, as amended to the date hereof, its By-Laws, as amended to the date hereof, or any indenture, or other material agreement or instrument to which ChevronTexaco is a party or by which it or its properties are bound or any order, rule or regulation of any court or governmental agency or body having jurisdiction over ChevronTexaco or any of its activities or properties.
(c) This Guaranty Agreement has been duly authorized, executed and delivered by ChevronTexaco and constitutes the valid and binding obligation of ChevronTexaco.
(d) ChevronTexaco has made available to Sabine Pass ChevronTexacos Annual Report on Form 10-K for the year ended December 31, 2003 and its Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 2004 and its Current Reports on Form 8-K dated July 29, 2004, July 30, 2004 and October 29, 2004 filed with the Securities and Exchange Commission (collectively, the ChevronTexaco Reports ). ChevronTexacos Quarterly Report on form 10-Q for the quarter ended June 30, 2004 was filed with the Securities and Exchange Commission on August 4, 2004. The ChevronTexaco Reports at and as of their respective dates do not include any untrue statement of a material fact nor omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made. Since June 30, 2004, there has been no material adverse change in the financial condition of ChevronTexaco and its consolidated subsidiaries taken as a whole.
ARTICLE III
GUARANTY AND AGREEMENTS
Section 3.1. Guaranty . The Guarantor absolutely, unconditionally and irrevocably guarantees to Sabine Pass the full and prompt payment by the ChevronTexaco Subsidiary of all of its payment obligations under the TUA to Sabine Pass and its successors and permitted assigns
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from and after the Commercial Start Date, including payment obligations in respect of any breach of the TUA by the ChevronTexaco Subsidiary; provided, however, (a) the Guarantor shall be entitled to all defenses, counterclaims and rights of set off and recoupment that the ChevronTexaco Subsidiary may have under the TUA other than any such defenses based on (i) failure of consideration supporting the TUA, (ii) the Companys lack of authority to execute or deliver the TUA or to perform its obligations thereunder, and (iii) any defense arising out of the bankruptcy, insolvency or similar proceeding concerning the ChevronTexaco Subsidiary; and (b) the Guarantors aggregate liability in respect of the obligations guaranteed hereunder shall be the Maximum Guaranteed Amount (the obligations guaranteed under this Guaranty, subject to this proviso, are hereinafter referred to as the Guaranteed Obligations ).
Section 3.2. Unconditional Nature of Obligations. The obligations of ChevronTexaco under this Guaranty Agreement shall be absolute, irrevocable and unconditional and shall remain in full force and effect until the entire Guaranteed Obligations shall have been paid, and such obligations shall not be affected, modified or impaired upon the happening from time to time of any event, including without limitation any of the following, whether or not with notice to, or the consent of, ChevronTexaco:
(a) the waiver, surrender, compromise, settlement, release or termination of any or all of the obligations, covenants or agreements of the ChevronTexaco Subsidiary under the TUA;
(b) the failure to give notice to ChevronTexaco of the occurrence of a default under the TUA;
(c) the waiver, compromise or release of the payment, performance or observance by the ChevronTexaco Subsidiary or by ChevronTexaco, respectively, of any or all of the obligations, covenants or agreements of either of them contained in the TUA or this Guaranty Agreement, as the case may be;
(d) the extension of the time for payment of any Guaranteed Obligation under the TUA or of the time for performance of any other obligations, covenants or agreements under or arising out of the TUA;
(e) the modification, amendment or alteration (whether material or otherwise) of any obligation, covenant or agreement set forth in the TUA;
(f) the taking or the omission of any of the actions referred to in the TUA;
(g) any failure, omission, delay or lack on the part of Sabine Pass to enforce, assert or exercise any right, power or remedy conferred on it in the TUA;
(h) the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all the assets, marshalling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition with creditors or readjustment of, or other similar proceedings affecting ChevronTexaco or the ChevronTexaco Subsidiary or any of the respective assets of either of them, or any allegation or contest of the validity of this Guaranty Agreement in any such proceeding;
(i) any defense based upon any legal disability of the ChevronTexaco Subsidiary or, to the extent permitted by law, any release, discharge, reduction or limitation of or with
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respect to any sums owing by the ChevronTexaco Subsidiary or any other liability of the ChevronTexaco Subsidiary to Sabine Pass;
(j) to the extent permitted by law, the release or discharge by operation of law of ChevronTexaco from the performance or observance of any obligation, covenant or agreement contained in this Guaranty Agreement;
(k) the default or failure of ChevronTexaco fully to perform any of its obligations set forth in this Guaranty Agreement; or
(l) the invalidity of the TUA or any part thereof.
If any payment by the ChevronTexaco Subsidiary to Sabine Pass is rescinded or must be returned by the Lender, the obligations of ChevronTexaco hereunder shall be reinstated with respect to such payment.
Subject to clause (a) of the proviso of the first paragraph of this Section 3.1, no set-off, counterclaim, reduction, or diminution of any obligation, or any defense of any kind or nature which ChevronTexaco has or may have against Sabine Pass shall be available hereunder to ChevronTexaco to reduce the payments to Sabine Pass under Section 3.1 of this Guaranty Agreement. Furthermore, no defense previously raised by the ChevronTexaco Subsidiary arising out of or in connection with a Guaranteed Obligation claimed hereunder and which has been settled in Sabine Passs favor by the dispute resolution procedures of Article 20 of the TUA may be raised by the Guarantor and no cure period previously used by the Guarantor Subsidiary may be used by the Guarantor.
ChevronTexaco assumes responsibility for being and remaining informed of the financial condition of the ChevronTexaco Subsidiary and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations which diligent inquiry would reveal and agrees that Sabine Pass shall not have a duty to advise ChevronTexaco of information known to it regarding such condition or any such circumstances.
Section 3.3. Proceedings Against ChevronTexaco. In the event of a default in the payment of the amounts guaranteed pursuant to the terms hereof when and as the same shall become due, Sabine Pass shall have the right to proceed first and directly against ChevronTexaco under this Guaranty Agreement without proceeding against the ChevronTexaco Subsidiary or exhausting any other remedies which it may have.
Section 3.4. Costs. ChevronTexaco agrees to pay all costs, expenses and fees, including without limitation all reasonable attorneys fees, which may be incurred by Sabine Pass in enforcing or attempting to enforce this Guaranty Agreement following any default on the part of ChevronTexaco hereunder, whether the same shall be enforced by suit or otherwise.
Section 3.5. Corporate Existence of ChevronTexaco; Consolidation, Merger, Sale or Transfer. ChevronTexaco covenants that so long as it has any outstanding obligations under this Guaranty Agreement, it will maintain its corporate existence, will not dissolve, sell or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another corporation or permit one or more other corporations to consolidate with or merge into it; provided that ChevronTexaco may, without violating the covenants in this Section 3.5 contained, consolidate with or merge into another corporation or permit one or more other corporations to consolidate with or merge into it, or sell or otherwise transfer to another corporation all or substantially all of its assets as an entirety and thereafter dissolve, if the surviving, resulting or transferee corporation, as the
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case may be, (i) shall be incorporated and existing under the laws of one of the States of the United States of America, (ii) assumes, if such corporation is not ChevronTexaco, all of the obligations of ChevronTexaco hereunder and (iii) is not, after such transaction, otherwise in default under any provisions hereof.
ARTICLE IV
MISCELLANEOUS
Section 4.1. Governing Law. This Guaranty Agreement shall be governed by the laws of the State of California (excluding the choice of law principles thereof). Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Guaranty Agreement or the transactions contemplated hereby.
Section 4.2. Notices. All notices and other communications to ChevronTexaco or Sabine Pass may be electronically communicated or hand delivered or sent by overnight courier, to any party hereto at the addresses as provided in this Section 4.2:
All communications intended for ChevronTexaco shall be sent to:
ChevronTexaco Corporation
6001 Bollinger Canyon Road
Building E
San Ramon, CA 94583
Attention: Treasurer
Fax Number: (925) 842-8090
All communications intended for Sabine Pass shall be sent to:
Sabine Pass LNG, L.P.
717 Texas Avenue, Suite 3100
Houston, Texas 77002
Attention: President
Fax Number: (713) 659-5459
or at any other address of which either of the foregoing shall have notified the other in any manner prescribed in this Section 4.2.
For all purposes of this Guaranty Agreement, a notice or communication will be deemed effective:
(a) if delivered by hand or sent by overnight courier, on the day it is delivered unless (i) that day is not a day upon which commercial banks are open for the transaction of business in the city specified (a Local Banking Day ) in the address for notice provided by the recipient or (ii) if delivered after the close of business on a Local Banking Day, then on the next succeeding Local Banking Day and
(b) if sent by facsimile transmission, on the date transmitted, provided that oral or written confirmation of receipt is obtained by the sender unless the date of
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transmission and confirmation is not a Local Banking Day, in which case on the next succeeding Local Banking Day.
Section 4.3. Banking Days. Except as otherwise provided in this Guaranty Agreement, if any date on which a payment is to be made, notice is to be given or other action taken hereunder is not a Banking Day, then such payment, notice or other action shall be made, given or taken on the next succeeding Banking Day in such place, and in the case of any payment, no interest shall accrue for the delay.
Section 4.4. Successors and Assigns. This Guaranty Agreement shall be binding upon ChevronTexaco and its successors and assigns and inure to the benefit of Sabine Pass and its successors and assigns. Except as provided in Section 3.5 hereof, ChevronTexaco may not assign its obligations hereunder without the prior written consent of Sabine Pass. Sabine Pass may assign, mortgage or pledge all or any of its rights, interests or benefits hereunder to secure payment of any indebtedness incurred or to be incurred in connection with the financing of the construction and start up of the Sabine Pass facility. The Guarantor, in connection therewith, shall execute and deliver to the lenders to whom such indebtedness is owed a consent to such assignment in form and substance substantially similar to the consent and agreement executed and delivered by the ChevronTexaco Subsidiary to such lenders in connection with the TUA.
Section 4.5. Guaranty for Benefit of Sabine Pass. This Guaranty Agreement is entered into by ChevronTexaco for the benefit of Sabine Pass. Nothing contained herein shall be deemed to create any right in, or to be in whole or in part for the benefit of any person other than ChevronTexaco and Sabine Pass and their respective permitted successors and assigns.
Section 4.6. Term. This Guaranty Agreement shall terminate and be of no further force and effect upon the earliest of (a) full payment by ChevronTexaco of its obligations under Section 3.1 hereof or (b) full payment by the ChevronTexaco Subsidiary of its obligations under the TUA.
Section 4.7. Amendments and Waivers. Any provision of this Guaranty agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by each of ChevronTexaco and Sabine Pass.
Section 4.8. Headings. The article and section headings of this Guaranty Agreement are for convenience only and shall not affect the construction hereof.
Section 4.9. Partial Invalidity. The invalidity of any one or more phrases, sentences, clauses or sections in this Guaranty Agreement shall not affect the validity or enforceability of the remaining portions of this Guaranty Agreement or any part thereof.
Section 4.10. No Waiver, Remedies. No failure or delay by Sabine Pass in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.
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Section 4.11. Execution in Several Counterparts. This Guaranty Agreement may be executed in any number of counterparts, each of which shall for all purposes be deemed to be an original; but such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, CHEVRONTEXACO CORPORATION has caused this Guaranty Agreement to be executed in its name and on its behalf by its duly authorized officer as of the date first above written.
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THIS CONSENT AND AGREEMENT (this Consent and Agreement ) dated as of [ ] is made and entered into by and among Chevron U.S.A. Inc., a corporation duly incorporated and validly existing under the laws of the Commonwealth of Pennsylvania (the Project Party ), and [ ], in its capacity as collateral agent (together with its successors and assigns in such capacity, the Collateral Agent ) under the Security Documents.
W I T N E S S E T H
WHEREAS, Sabine Pass LNG, L.P., a limited partnership duly organized and validly existing under the laws of the State of Delaware (the Company ), the lenders under the Credit Agreement referred to below and the Collateral Agent are parties to a Credit Agreement dated as of [ ] (as amended, modified and supplemented and in effect from time to time, the Credit Agreement ) pursuant to which the lenders will make loans and extend other credit to the Company for the purpose of financing the cost of constructing and operating the Sabine Pass Facility and related expenses;
WHEREAS, the Project Party and the Company have entered into the Terminal Use Agreement, dated as of [ ], 2004 (as amended, restated, modified or otherwise supplemented from time to time, the Assigned Agreement ) with respect to the LNG terminalling services of the Sabine Pass Facility, including (i) the berthing of LNG vessels, (ii) the unloading, receiving and storing of LNG, (iii) the regasification of LNG and (iv) delivery of natural gas to the Delivery Point; and
WHEREAS, as security for the loans made by the lenders under the Credit Agreement, the Company has assigned, pursuant to the security documents entered into between the Company and the Collateral Agent (as amended, modified and supplemented and in effect from time to time, the Security Documents ), all of its right, title and interest in, to and under, and granted a security interest in, the Assigned Agreement to the Collateral Agent on behalf of the secured parties identified therein (the Secured Parties );
NOW THEREFORE, as an inducement to the lenders to make the loans, and in consideration of other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions . Terms defined in the Assigned Agreement are used herein as defined therein. Unless otherwise stated, references herein to any Person shall include its permitted successors and assigns and, in the case of any Governmental Authority, any Person succeeding to its functions and capacities.
2. Representations and Warranties . The Project Party hereby represents and warrants to the Collateral Agent and each of the Secured Parties that:
(a) The Project Party has been duly organized and is validly existing under the laws of the Commonwealth of Pennsylvania, has full legal right, power and authority to enter into this Consent and Agreement and to carry out and consummate all transactions
contemplated by this Consent and Agreement, and by proper corporate action has duly authorized the execution and delivery of this Consent and Agreement.
(b) The execution and delivery of this Consent and Agreement and the consummation of the transactions herein contemplated will not conflict with or constitute on the part of the Project Party a breach of or default under its certificate of incorporation, as amended to the date hereof, its by-laws, as amended to the date hereof, or any indenture, or other material agreement or instrument to which the Project Party is a party or by which it or its properties are bound or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Project Party or any of its activities or properties.
(c) This Consent and Agreement has been duly authorized, executed and delivered by the Project Party and constitutes the valid and binding obligation of the Project Party.
(d) All consents, licenses, clearances, authorizations and approvals of, and registrations and declarations with, any governmental authority or regulatory body necessary for the due execution, delivery and performance of this Consent and Agreement have been obtained and all conditions thereof have been duly complied with, and no other action by, and no notice or filing with, any governmental authority or regulatory body is required in connection with the execution, delivery or performance of this Consent and Agreement.
3. Consent and Agreement . The Project Party hereby acknowledges and agrees that:
(a) At any time that an event of default has occurred and is continuing under the Credit Agreement, the Collateral Agent and any permitted assignee thereof shall be entitled to exercise any and all rights of the Company under the Assigned Agreement in accordance with its terms and the Project Party shall comply in all respects with such exercise. Without limiting the generality of the foregoing, the Collateral Agent and any permitted assignee thereof shall have the full right and power to enforce directly against the Project Party (subject to Project Partys defenses, counterclaims and rights of set off under the Assigned Agreement) all obligations of the Project Party under the Assigned Agreement and otherwise to exercise all remedies thereunder and to make all demands and give all notices and make all requests required or permitted to be made by the Company under the Assigned Agreement; provided that, in any case in this Section 3(a), where the exercise by the Collateral Agent of any rights or remedies shall have the effect of transferring the Assigned Agreement from the Company to the Collateral Agent, its designee or any other person or a transfer by the Company in lieu of the exercise of such rights and remedies, the conditions set forth in the proviso in Section 3(d) or (e), as applicable, shall have been fulfilled to the satisfaction of the Project Party.
(b) The Project Party will not (i) without the prior written consent of the Collateral Agent, take any action to as a result of a Company default under the Assigned Agreement, cancel or terminate, or suspend performance under, the Assigned Agreement
or consent to or accept any cancellation, termination or suspension thereof except in accordance with the terms thereof; (ii) exercise any of its rights set forth in the Assigned Agreement to cancel or terminate, or suspend performance under, the Assigned Agreement as a result of a Company default thereunder, unless the Project Party shall have first delivered to the Collateral Agent written notice stating that it intends to exercise such right, specifying the nature of the default giving rise to such right and permitting the Collateral Agent to cure such default by performing or causing to be performed the obligation in default, the Collateral Agent to have the period of time the Company is allowed to cure such default if the notice is given to the Collateral Agent at the same time as the notice of the default is given to the Company or a period of time equivalent to the period of time the Company is allowed to cure such default if the notice is given to the Collateral Agent is given at a later time than the time when the notice is given to the Company, (iii) amend, supplement or otherwise modify the Assigned Agreement (as in effect on the date hereof) without giving prior notice thereof to the Collateral Agent, (iv) without the prior written consent of the Collateral Agent, sell, assign or otherwise dispose of (by operation of law or otherwise) any part of its interest in the Assigned Agreement (other than for assignments permitted under the Assigned Agreement) or (v) without the prior written consent of the Collateral Agent, petition, request or take any other legal or administrative action which seeks, to rescind, terminate, suspend (other than as permitted under the Assignment Agreement), amend or modify the Assigned Agreement or any part thereof. Additionally, nothing in this Section 3(b) shall limit the Project Partys ability to invoke the dispute resolution provisions of the Assigned Agreement.
Neither the Collateral Agent nor any Secured Party shall have any obligation to the Project Party for the performance of any obligations under the Assigned Agreement unless and until (and to the extent), in the case of the Collateral Agent, such entity succeeds to the interest of the Company under the Assigned Agreement as contemplated by Section 3(d) or 3(e) below; and any curing of or attempt to cure any of the Companys defaults under the Assigned Agreement prior thereto shall not be construed as an assumption by the Collateral Agent or any Secured Party of any covenants, agreements or obligations of the Company under the Assigned Agreement.
(c) The Project Party shall deliver to the Collateral Agent at the address set forth on the signature pages hereof, or at such other address as the Collateral Agent may designate in writing from time to time to the Project Party, concurrently with the delivery thereof to the Company, a copy of each material notice, request or demand given by the Project Party pursuant to the Assigned Agreement.
(d) The Project Party consents to the transfer of the Companys interest under the Assigned Agreement pursuant to the exercise of the Secured Parties remedies under the Security Documents and agrees that upon such transfer the Project Party shall recognize the Collateral Agent or its designee as the Company under the Assigned Agreement (subject as follows), provided that (i) the Project Party is provided written documentation that reasonably evidences such remedy and transfer; (ii) in the event that the Collateral Agent or its designee(s) succeeds to the Companys interest under the Assigned Agreement, whether by foreclosure or otherwise, the Collateral Agent or its designee(s)
shall assume liability for all of the Companys obligations and liabilities under such Assigned Agreement; (iii) the Collateral Agent shall have first obtained the prior written consent of the Project Party to any assignment to the Collateral Agents designee, provided that the Event of Default under the Credit Agreement with respect to which the Companys obligations thereunder have been accelerated has not been substantially caused by a failure by the Project Party to comply with its obligations under the Assigned Agreement; and (iv) the Collateral Agent or its designee shall have agreed to cure all of the breaches and defaults by the Company under the Assigned Agreement. Except as otherwise set forth in the immediately preceding sentence, none of the Secured Parties shall be liable for the performance or observance of any of the obligations or duties of the Company under the Assigned Agreement, and the assignment of the Assigned Agreement by the Company to the Collateral Agent pursuant to the Security Documents shall not give rise to any duties or obligations whatsoever on the part of any of the Secured Parties owing to the Project Party.
(e) Upon the exercise by the Collateral Agent of any of the remedies under the Security Documents in respect of the Assigned Agreement, the Collateral Agent may assign its rights and interests and the rights and interests of the Company under the Assigned Agreement to any Person, if (i) such Person shall assume all of the obligations and liabilities of the Company under the Assigned Agreement; (ii) the Collateral Agent shall have first obtained the prior written consent of the Project Party to any assignment to such Person if the Event of Default under the Credit Agreement with respect to which the Companys obligations thereunder have been accelerated shall not have been substantially caused by a failure by the Project Party to comply with its obligations under the Assigned Agreement; and (iii) such Person shall have agreed to cure all of the breaches and defaults by the Company under the Assigned Agreement.
(f) In the event that (i) the Assigned Agreement is rejected by a trustee, liquidator, debtor-in-possession or similar Person in any bankruptcy, insolvency or similar proceeding involving the Company or (ii) the Assigned Agreement is terminated as a result of any bankruptcy, insolvency or similar proceeding involving the Company and, if within 90 days after such rejection or termination, the Collateral Agent or its designee(s) shall so request and shall certify in writing to the Project Party that it intends to perform the obligations of the Company as and to the extent required under such Assigned Agreement, the Project Party will execute and deliver to the Collateral Agent or such designee(s) a new Assigned Agreement which shall be for the balance of the remaining term under the original Assigned Agreement before giving effect to such rejection or termination and shall contain the same conditions, agreements, terms, provisions and limitations as the original Assigned Agreement (except for any requirements which have been fulfilled by the Company and the Project Party prior to such rejection or termination). References in this Consent and Agreement to the Assigned Agreement shall be deemed also to refer to the new Assigned Agreement.
(g) In the event that the Collateral Agent or its designee(s), or any purchaser, transferee, grantee or assignee of the interests of the Collateral Agent or its designee(s) in the Project assumes or becomes liable under the Assigned Agreement (as contemplated in
subsection (d), (e) or (f) above or otherwise), no officer, director, employee, shareholder or agent thereof shall have any liability with respect thereto.
(h) All references in this Consent and Agreement and elsewhere in this Consent and Agreement to the Collateral Agent shall be deemed to refer to the Collateral Agent and/or any designee or transferee thereof acting on behalf of the Secured Parties (regardless of whether so expressly provided), and all actions permitted to be taken by the Collateral Agent under this Consent and Agreement may be taken by any such designee or transferee.
(i) The Collateral Agent shall not exercise any of its rights or remedies with respect to any interest it may have in the Sabine Pass Facility or the real property rights relating to the site on which the Sabine Facility is located so long as the Event of Default under the Credit Agreement with respect to which the Companys obligations thereunder have been accelerated has not been substantially caused by a failure by the Project Party to comply with its obligations under the Assigned Agreement unless (i) in connection with such exercise of such rights or remedies, the Collateral Agent shall also have exercised its rights and remedies in the Assigned Agreement, with the result that the Assigned Agreement shall have been transferred to the Person to whom the Sabine Pass Facility or such real property rights have been transferred, and (ii) in connection therewith, the Collateral Agent shall have satisfied all of the conditions set forth in Section 3(d) or (e), as applicable.
4. Collateral Agent . Collateral Agent represents that it is acting on behalf of the Secured Parties and is authorized to bind and does hereby bind the Secured Parties to the obligations of Collateral Agent herein.
5. Arrangements Regarding Payments . Notwithstanding anything in the Assigned Agreement to the contrary, all payments to be made by the Project Party to the Company under the Assigned Agreement shall be made in lawful money of the United States, directly to the Collateral Agent, for deposit into the [ACCOUNT NAME] (Account No. [COLLATERAL AGENTS ACCOUNT NUMBERD, at the Principal Office of [NAME OF DEPOSITARY] at [ADDRESS] or to such other Person and/or at such other address as the Collateral Agent may from time to time specify in writing, and shall be accompanied by a notice from the Project Party stating that such payments are made under the Assigned Agreement. The Company hereby authorizes and directs the Project Party to make such payments as aforesaid, and agrees that such payment shall satisfy the Project Partys obligation to pay such amounts to the Company under the Assigned Agreement.
6. Miscellaneous .
(a) No failure on the part of the Project Party or the Collateral Agent or any of its agents to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege hereunder shall operate as a waiver thereof (subject to any statute of limitations), and no single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
(b) The notice provisions of Section 23 of the Assigned Agreement shall be deemed to apply for purposes of this Consent and Agreement; provided , however , that the parties addresses are set forth on the signature pages hereto.
(c) This Consent and Agreement may be amended or modified only by an instrument in writing signed by the Project Party, the Company and the Collateral Agent acting in accordance with the Credit Agreement.
(d) This Consent and Agreement shall be binding upon and inure to the benefit of the respective successors and permitted assigns of each of the Project Party, the Company, the Secured Parties and the Collateral Agent ( provided , however , that the Project Party shall not assign or transfer its rights hereunder without the prior written consent of the Collateral Agent).
(e) This Consent and Agreement may be executed in any number of counterparts, all of which when taken together shall constitute one and the same instrument and any of the parties hereto may execute this Consent and Agreement by signing any such counterpart. This Consent and Agreement shall become effective at such time as the Collateral Agent shall have received counterparts hereof signed by all of the intended parties hereto.
(f) If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction.
(g) Headings appearing herein are used solely for convenience and are not intended to affect the interpretation of any provision of this Consent and Agreement.
(h) Each of the Project Party and the Company hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State Court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Consent and Agreement or the transactions contemplated hereby. Each of the Project Party and the Company hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.
(i) The agreements of the parties hereto are solely for the benefit of the Project Party, the Company, the Collateral Agent and the Secured Parties, and no Person (other than the parties hereto and the Secured Parties and their successors and assigns permitted hereunder) shall have any rights hereunder.
(j) This Consent and Agreement shall be governed by, and construed in accordance with, the law of the State of New York.
(k) EACH OF THE PROJECT PARTY, THE COMPANY AND THE COLLATERAL AGENT HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS CONSENT AND AGREEMENT OR THE ASSIGNED AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
(l) This Consent and Agreement shall terminate upon the indefeasible payment in full of all amounts owed under the Credit Agreement.
IN WITNESS WHEREOF, the undersigned by its officer duly authorized has caused this Consent and Agreement to be duly executed and delivered as of this day of [ ].
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Exhibit 10.5
OMNIBUS AGREEMENT
This OMNIBUS AGREEMENT (this Agreement ), dated as of this 8 th day of November, 2004 ( Effective Date ), is made by and between Chevron U.S.A., Inc., a Pennsylvania corporation with a place of business at 1111 Bagby Street, Houston, Texas 77002 ( Customer ); and Sabine Pass LNG, L.P. , a Delaware limited partnership with a place of business at 717 Texas Avenue, Suite 3100, Houston, Texas, 77002 ( SABINE ).
RECITALS
WHEREAS , the Parties are executing simultaneously herewith an LNG Terminal Use Agreement ( TUA ), and the Parties agree to condition the effectiveness of certain portions of the TUA on the fulfillment of certain conditions precedent; and
WHEREAS , the Parties wish to memorialize and document other understandings supplementing the TUA, including Customers obligation to pay certain capacity reservation fees, Customers expansion rights, Customers agreement to utilize dedicated tug services available at the Sabine Pass Facility and certain equity participation rights;
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Parties hereto, SABINE and Customer hereby agree as follows:
Capitalized terms used in this Agreement and not otherwise defined herein have the meanings given to them in the TUA; provided that the terms defined below shall have the following meanings:
Customer shall remit the following amounts to SABINE, by wire transfer in immediately available funds to an account specified in writing by SABINE, in accordance with the following provisions:
(a) First Installment . No later than fifteen (15) days following the Effective Date, Customer shall pay to SABINE five million United States dollars (US$5,000,000) (the Capacity Reservation Fee First Installment );
(b) Second Installment . No later than fifteen (15) days following the satisfaction of the Management Condition Precedent, unless this Agreement is earlier terminated by Customer pursuant to Clause 3.3(c) below, Customer shall pay to SABINE seven million United States dollars (US$7,000,000) ( Capacity Reservation Fee Second Installment );
(c) Third Installment . No later than fifteen (15) days following the later of (i) satisfaction of the Management Condition Precedent, or (ii) receipt of FERC Approval and fulfillment of the Financing Condition Precedent, unless this Agreement is earlier terminated by Customer pursuant to Clause 3.3(c) below, Customer shall pay to SABINE five million United States dollars (US$5,000,000) ( Capacity Reservation Fee Third Installment ); and
(d) Fourth Installment . No later than fifteen (15) days following the exercise of the option contained under Clause 4.1(b), unless this Agreement is earlier terminated by Customer pursuant to Clause 3.3(c) below, Customer shall pay to SABINE three million United States dollars (US$3,000,000) ( Capacity Reservation Fee Fourth Installment ).
Any provision of the TUA notwithstanding, the Parties acknowledge and agree that only the provisions of Article 1, Article 17, Article 18, Article 19, Article 20, Article 21, Article 22, Article 23, and Article 25 of the TUA shall become effective and binding as of the Effective Date, and that SABINEs obligations with regard to all other provisions contained in the TUA shall not become effective and binding unless and until both of the following conditions ( SABINE Conditions Precedent ) have been satisfied or waived by SABINE no later than December 31, 2005:
Any provision of the TUA notwithstanding, the Parties acknowledge and agree that only the provisions of Article 1, Article 17, Article 18, Article 19, Article 20, Article 21, Article 22, Article 23, and Article 25 of the TUA shall become effective and binding as of the Effective Date, and that Customers obligations with regard to all other provisions contained in the TUA shall not become effective and binding unless and until both of the following conditions ( Customer Conditions Precedent ) have been satisfied or waived by Customer no later than December 20, 2004:
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The Parties acknowledge that three (3) 5,000-horsepower, greater than 50 ton bollard pull tug boats with fire-fighting capability and two (2) line handling boats to assist with the safe berthing of LNG Vessels will be dedicated to the Sabine Pass Facility. Such tug and line handling boats will be available to Customer and all Other Customers of the Sabine Pass Facility on a non-discriminatory basis. The Parties agree to cooperate in seeking competitive bids to fulfill the dedication requirements for these tugs in accordance with the TUA. Customer shall have the right to nominate potential vendors to bid on these services for SABINE. It is the intent of SABINE to select the supplier which has the most competitive bid taking into account multiple factors including, without limitation, price, contractual terms
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and conditions, specifications of the bid, the reputation, financial condition and technical capability of the bidders and responsiveness of service.
ARTICLE 6
Customer Equity Participation
ARTICLE 7
PIPELINE COORDINATION
The substantive laws of the State of New York, United States of America, exclusive of any conflicts of laws principles that could require the application of any other law, shall govern this Agreement for all purposes, including the resolution of Disputes between the Parties.
Each Party acknowledges and agrees that it shall be bound by the rights, duties and obligations set forth in Section 21.1 of the TUA with respect to the disclosure of information or documents that come into such Partys possession in connection with this Agreement.
All notices authorized or required between the Parties shall be provided in the manner set forth in Article 23 of the TUA.
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This Agreement may not be amended, modified, varied or supplemented except by an instrument in writing signed by SABINE and Customer.
This Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the Parties in accordance with the provisions of Article 17 of the TUA.
No failure to exercise or delay in exercising any right or remedy arising from this Agreement shall operate or be construed as a waiver of such right or remedy. Performance of any condition or obligation to be performed hereunder shall not be deemed to have been waived or postponed except by an instrument in writing signed by the Party who is claimed to have granted such waiver or postponement. No waiver by either Party shall operate or be construed as a waiver in respect of any failure or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver.
The interpretation of this Agreement shall exclude any rights under legislative provisions conferring rights under a contract to Persons not a party to that contract. Nothing in this Agreement shall otherwise be construed to create any duty to, or standard of care with reference to, or any liability to, any Person other than a Party.
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If and for so long as any provision of this Agreement shall be deemed to be judged invalid for any reason whatsoever, such invalidity shall not affect the validity or operation of any other provision of this Agreement.
Each Party shall be responsible for and bear all of its own costs and expenses incurred in connection with the preparation and negotiation of this Agreement.
This Agreement constitutes the entire agreement between the Parties relating to the subject matter hereof and supersedes and replaces any provisions on the same subject contained in any other agreement between the Parties, whether written or oral, prior to the date of the original execution hereof. In the event any conflict arises between this Agreement and the TUA, this Agreement shall prevail.
This Agreement may be executed in any number of counterparts and each such counterpart shall be deemed an original Agreement for all purposes.
IN WITNESS WHEREOF, each Party has caused this Agreement to be duly executed and signed by its duly authorized officer as of the Effective Date.
Sabine Pass LNG, L.P. |
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By:Sabine Pass LNG-GP, Inc., its General Partner |
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/s/ Charif Souki |
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Charif Souki |
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Chairman |
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Chevron U.S.A., Inc. |
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By: |
/s/ John Gass |
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John Gass |
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President |
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Exhibit 31.1
CERTIFICATION BY CHIEF EXECUTIVE OFFICER REQUIRED BY RULE 13a-14(a) AND 15d-14(a) UNDER THE EXCHANGE ACT
I, Charif Souki, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cheniere Energy, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and
c) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 12, 2004
/s/ Charif Souki |
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Charif Souki |
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Chief Executive Officer |
Exhibit 31.2
CERTIFICATION BY CHIEF FINANCIAL OFFICER REQUIRED BY RULE 13a-14(a) AND 15d-14(a) UNDER THE EXCHANGE ACT
I, Don A. Turkleson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cheniere Energy, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation as of the Evaluation Date; and
c) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 12, 2004
/s/ Don A. Turkleson |
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Don A. Turkleson |
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Chief Financial Officer |
Exhibit 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
In connection with the Quarterly Report of Cheniere Energy, Inc. (the Company) on Form 10-Q for the period ending September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Charif Souki, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Charif Souki |
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Charif Souki |
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Chief Executive Officer |
November 12, 2004
Exhibit 32.2
CERTIFICATION BY CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Cheniere Energy, Inc. (the Company) on Form 10-Q for the period ending September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Don A. Turkleson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Don A. Turkleson |
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Don A. Turkleson |
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Chief Financial Officer |
November 12, 2004