Sabine Pass LNG, L.P. (Form: S-4, Received: 11/22/2006 16:05:48)

Index to Financial Statements

As filed with the Securities and Exchange Commission on November 22, 2006

Registration No. 333-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Sabine Pass LNG, L.P.

(Exact name of registrant as specified in its charter)

Delaware

2813

20-0466069

(State or other jurisdiction of

incorporation or organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification Number)

717 Texas Avenue, Suite 3100

Houston, Texas 77002

(713) 659-1361

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Don A. Turkleson

Chief Financial Officer

717 Texas Avenue, Suite 3100

Houston, Texas 77002

(713) 659-1361

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copy to:

Geoffrey K. Walker

Andrews Kurth LLP

600 Travis, Suite 4200

Houston, Texas 77002

(713) 220-4200

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

CALCULATION OF REGISTRATION FEE


Title of each class of securities to be registered	Amount to be registered		Proposed maximum offering price per unit		Proposed maximum aggregate offering price		Amount of registration fee
7 ¹ / 4 % Senior Secured Notes due 2013	$	550,000,000	100	%	$	550,000,000	$	58,850	(1)
Guarantees of the 7 ¹ / 4 % Senior Secured Notes due 2013		—	—			—		—	(2)
7 ¹ / 2 % Senior Secured Notes due 2016	$	1,482,000,000	100	%	$	1,482,000,000	$	158,574	(1)
Guarantees of the 7 ¹ / 2 % Senior Secured Notes due 2016		—	—			—		—	(2)

(1)

The registration fee was calculated pursuant to Rule 457(f) under the Securities Act of 1933, as amended. For purposes of this calculation, the offering price per note was assumed to be the stated principal amount of each original note that may be received by the registrant in the exchange transaction in which the notes will be offered.

(2)	Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable because the guarantees relate to other securities that are being registered concurrently.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

Index to Financial Statements

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED NOVEMBER 22, 2006

PROSPECTUS

SABINE PASS LNG, L.P.

Offer to Exchange

$550,000,000 of 7 ¹ / 4 % Senior Secured Notes due 2013

that have not been registered under the Securities Act of 1933

for

a like amount of 7 ¹ / 4 % Senior Secured Notes due 2013

that have not been registered under the Securities Act of 1933

and

$1,482,000,000 of 7 ¹ / 2 % Senior Secured Notes due 2016

that have not been registered under the Securities Act of 1933

for

a like amount of 7 ¹ / 2 % Senior Secured Notes due 2016

that have not been registered under the Securities Act of 1933

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 PM, NEW YORK

CITY TIME, ON [ ], UNLESS WE EXTEND THE DATE

Terms of the Exchange Offer

•

We are offering to exchange up to $2,032 million in aggregate principal amount of our outstanding 7 ¹ / 4 % Senior Secured Notes due 2013 and 7 ¹ / 2 % Senior Secured Notes due 2016, which were issued on November 9, 2006 in a transaction exempt from registration under the Securities Act of 1933, as amended, or the Securities Act, and which we refer to as the 2013 initial notes and the 2016 initial notes, respectively, and collectively the initial notes, for a like aggregate principal amount of our 7 ¹ / 4 % Senior Secured Notes due 2013 and 7 ¹ / 2 % Senior Secured Notes due 2016, which we refer to as the 2013 notes and the 2016 notes, respectively, and collectively the notes, the issuance of which will be registered under the Securities Act. The initial notes were issued, and the notes will be issued, under an indenture dated as of November 9, 2006.

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We will exchange an equal principal amount of notes for all outstanding initial notes that are validly tendered and not validly withdrawn prior to the expiration of the exchange offer.

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The terms of the notes are substantially identical to those of the outstanding initial notes, except that the transfer restrictions and registration rights relating to the initial notes do not apply to the notes.

•

You may withdraw tenders of initial notes at any time prior to the expiration of the exchange offer.

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The exchange of notes for initial notes will not be a taxable transaction for U.S. federal income tax purposes.

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We will not receive any cash proceeds from the exchange offer.

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The initial notes are, and the notes will be, fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by all of our future domestic restricted subsidiaries.

•

There is no established trading market for the notes or the initial notes, and we do not intend to apply for listing of the notes on any national securities exchange or for quotation through any quotation system. However, the notes are expected to be eligible to trade in The PORTAL ^SM Market, or PORTAL, a subsidiary of The Nasdaq Stock Market, Inc.

Terms of the Notes

•

We will pay interest on the notes on each May 30 and November 30, commencing May 30, 2007.

•

The 2013 notes and the 2016 notes will mature on November 30, 2013 and November 30, 2016, respectively.

•

We may redeem the 2013 notes and the 2016 notes, in whole or in part, at any time prior to maturity at the redemption prices described in this prospectus, which will include a make-whole premium. In addition, prior to November 30, 2009, we may redeem up to 35% of the 2013 notes and the 2016 notes with the net cash proceeds of one or more equity offerings. Redemption prices are set forth in this prospectus under “Description of Notes—Optional Redemption.”

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There is no sinking fund for the notes.

•

The notes will be secured by a first-priority security interest (subject to certain permitted liens) in our equity interests and substantially all of our assets. The notes will be our senior secured obligations and will rank pari passu in right of payment with all of our existing and future senior indebtedness and senior in right of payment to all of our subordinated indebtedness.

This investment involves risks. Please read “ Risk Factors ” beginning on page 18 for a discussion of certain risks that you should consider prior to tendering your outstanding initial notes in the exchange offer.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

Each broker-dealer that receives notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of notes received in exchange for initial notes where such initial notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, for a period of not less than 90 days after the consummation of the exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any such resale. Please read “Plan of Distribution.”

The date of the prospectus is [ ].

Index to Financial Statements

TABLE OF CONTENTS


		Page
F ORWARD -L OOKING S TATEMENTS		i
P RESENTATION OF I NFORMATION		ii
M ARKET AND I NDUSTRY D ATA		iii
S UMMARY		1
R ISK F ACTORS		18
U SE OF P ROCEEDS		33
S ELECTED H ISTORICAL F INANCIAL D ATA		34
M ANAGEMENT ’ S D ISCUSSION AND A NALYSIS OF F INANCIAL C ONDITION AND R ESULTS OF O PERATIONS		35
B USINESS		43
D ESCRIPTION OF P RINCIPAL P ROJECT D OCUMENTS		58
M ANAGEMENT		71
C ERTAIN R ELATIONSHIPS AND R ELATED T RANSACTIONS		74
S ECURITY O WNERSHIP OF C ERTAIN B ENEFICIAL O WNERS AND M ANAGEMENT		76
T HE E XCHANGE O FFER		77
D ESCRIPTION OF N OTES		88
U NITED S TATES F EDERAL I NCOME T AX C ONSIDERATIONS		147
P LAN OF D ISTRIBUTION		151
L EGAL M ATTERS		152
E XPERTS		152
I NDEPENDENT E NGINEER		152
A VAILABLE I NFORMATION		152
I NDEX TO F INANCIAL S TATEMENTS		F-1
A PPENDIX A—I NDEPENDENT E NGINEER ’ S R EPORT		A-1

You should rely only on the information contained in this document. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may be accurate only on the date of this document.

FORWARD-LOOKING STATEMENTS

This prospectus contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements, other than statements of historical fact, included herein are “forward-looking statements.” Included among “forward-looking statements” are, among others:

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statements that we expect to commence or complete construction of our LNG receiving terminal, or any expansions thereof, by certain dates, or at all;

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statements regarding future levels of domestic natural gas production or consumption or future levels of LNG imports into North America or sales of natural gas in North America, regardless of the source of such information, or the transportation or other infrastructure or prices related to natural gas, LNG or other hydrocarbon products;

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statements regarding any financing transactions or arrangements, or ability to enter into such transactions;

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statements relating to the construction of our LNG receiving terminal, including statements concerning the engagement of any EPC or other contractor and the anticipated terms and provisions of any agreement with any EPC or other contractor, and anticipated costs related thereto;

Index to Financial Statements

•

statements regarding any TUA or other agreement to be entered into or performed substantially in the future, including any cash distributions and revenues anticipated to be received and the anticipated timing thereof, and statements regarding the amounts of total LNG regasification capacity that are, or may become subject to, TUAs or other contracts;

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statements that our LNG receiving terminal and any pipelines, when completed, will have certain characteristics, including amounts of regasification and storage capacities, a number of storage tanks and docks, pipeline deliverability and the number of pipeline interconnections, if any;

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statements regarding our business strategy, our business plans or any other plans, forecasts, projections or objectives, any or all of which are subject to change;

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statements regarding any independent engineer’s assumptions, estimates, projections or conclusions;

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statements regarding legislative, governmental, regulatory, administrative or other public body actions, requirements, permits, investigations, proceedings or decisions; and

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any other statements that relate to non-historical or future information.

These forward-looking statements are often identified by the use of terms and phrases such as “achieve,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “plan,” “project,” “propose,” “strategy” and similar terms and phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in “Risk Factors” beginning on page 19 of this prospectus. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these risk factors. These forward-looking statements are made as of the date of this prospectus. Other than as required under the securities laws, we assume no obligation to update or revise these forward-looking statements or provide reasons why actual results may differ.

PRESENTATION OF INFORMATION

In this prospectus, we rely on and refer to information and statistics regarding our industry. We obtained this market data from independent industry publications or other publicly available information. Although we believe that these sources are reliable, we have not independently verified and do not guarantee the accuracy or completeness of this information.

In this prospectus, unless the context otherwise requires:

•

Bcf means billion cubic feet;

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Bcf/d means billion cubic feet per day;

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Bcfe means billion cubic feet of natural gas equivalent using the ratio of six Mcf of natural gas to one barrel (or 42 U.S. gallons liquid volume) of crude oil, condensate and natural gas liquids;

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cm means cubic meter;

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EPC means engineering, procurement and construction;

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EPCM means engineering, procurement, construction and management;

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LNG means liquefied natural gas;

Index to Financial Statements

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Mcf means thousand cubic feet;

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MMcf/d means million cubic feet per day;

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MMbtu means million British thermal units;

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Tcf means trillion cubic feet; and

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TUA means terminal use agreement.

MARKET AND INDUSTRY DATA

Some of the market and industry data contained in this prospectus are based on independent industry publications or other publicly available information, while other information is based on internal studies. Although we believe that these independent sources and our internal data are reliable as of their respective dates, the information contained in them has not been independently verified. As a result, you should be aware that the market and industry data contained in this prospectus, and beliefs and estimates based on such data, may not be reliable.

iii

Index to Financial Statements

SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information that you should consider before making a decision to participate in the exchange offer. You should carefully read the entire prospectus, especially “Risk Factors” beginning on page 19 and our financial statements and the related notes, before deciding to participate in the exchange offer. Unless otherwise indicated, financial information included in this prospectus is presented on an historical basis. As used in this prospectus, unless we indicate otherwise or the context otherwise requires, the terms Sabine Pass LNG, “we,” “our,” “us” and similar terms refer to Sabine Pass LNG, L.P.

Overview

We are a wholly-owned, indirect subsidiary of Cheniere Energy, Inc., or Cheniere, created to develop, own and operate the Sabine Pass LNG receiving terminal currently under construction in western Cameron Parish, Louisiana on the Sabine Pass Channel. The entire 4.0 Bcf/d of regasification capacity that will be available at our LNG receiving terminal upon completion of construction has been fully reserved under three 20-year terminal use agreements, or TUAs, under which the customers are generally required to pay fixed monthly fees, whether or not they use the terminal. These TUAs will provide us with the following stable, long-term cash flows upon completion of our LNG receiving terminal:

•

Total LNG USA, Inc., or Total, has reserved 1.0 Bcf/d, which will provide annual revenues of approximately $125 million for 20 years commencing April 1, 2009;

•

Chevron U.S.A., Inc., or Chevron, has reserved 1.0 Bcf/d, which will provide annual revenues of approximately $125 million for 20 years commencing July 1, 2009; and

•

Cheniere Marketing, Inc., or Cheniere Marketing, a wholly-owned subsidiary of Cheniere, has reserved 2.0 Bcf/d, which will provide annual revenues of approximately $250 million for at least 19 years commencing January 1, 2009, plus initial revenues of $5 million per month during 2008 commencing on the date of commercial operations completion.

Our LNG Receiving Terminal

In 2003, we were formed by Cheniere to develop our LNG receiving terminal. The initial phase, or Phase 1, of our LNG receiving terminal was designed with an initial regasification capacity of 2.6 Bcf/d and three LNG storage tanks with an aggregate LNG storage capacity of 10.1 Bcfe, along with two unloading docks capable of handling 87,000 cm to 250,000 cm LNG vessels. In July 2006, we received approval from the Federal Energy Regulatory Commission, or FERC, to increase the regasification capacity of our LNG receiving terminal from 2.6 Bcf/d to 4.0 Bcf/d by adding up to three additional LNG storage tanks, additional vaporizers and related facilities. We refer to the entire FERC-approved expansion as Phase 2. The first stage of the Phase 2 expansion will include the addition of a fourth and fifth LNG storage tank, additional vaporizers and related facilities, and will achieve a total regasification capacity of 4.0 Bcf/d. We refer to this expansion as Phase 2—Stage 1. Further Phase 2 expansion, if any, will be conducted in one or more additional stages.

Index to Financial Statements

Construction of our LNG receiving terminal began in March 2005. We expect to complete construction and cool down of the first two tanks, complete related equipment installation and precommissioning checks and tests, and achieve revaporized natural gas sendout at a rate of 2.0 Bcf/d or more for a continuous period of at least 24 hours, which we refer to as Phase 1 Target Completion, by the first quarter of 2008. We expect to complete construction and cool down of the third tank and the rest of Phase 1, and achieve the full 2.6 Bcf/d of Phase 1 regasification capacity, in the third quarter of 2008. LNG regasification operations relating to the Phase 2—Stage 1 expansion are expected to commence by April 2009. We expect to complete all of Phase 2—Stage 1, including construction, cool down and commissioning of the fourth and fifth tanks, and achieve full operability at 4.0 Bcf/d, in the third quarter of 2009.

Our cost to construct Phase 1 of our LNG facility is currently estimated at approximately $900 million to $950 million, before financing costs. Phase 2—Stage 1 is estimated to cost approximately $500 million to $550 million, before financing costs. Our cost estimates are subject to change due to such items as cost overruns, change orders, changes in commodity prices (particularly nickel and steel), escalation of labor costs and additional funds that may be expended to maintain our construction schedule. See “Description of Principal Project Documents.” As of September 30, 2006, we had spent $236.7 million of equity capital and capacity reservation fee prepayments and $309.5 million of project finance debt proceeds toward these construction costs.

Business Strategy

Our primary business objective is to generate stable cash flows by:

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completing construction and commencing operation of our LNG receiving terminal;

•

applying proven, conventional technology to mitigate development and operating risk, while utilizing advanced control and safety technology; and

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maintaining the effectiveness of long-term TUAs to generate steady and reliable revenues.

Strengths

We believe that we have several strengths and advantages in pursuing our business strategy:

Contracted and Stable Long-Term Cash Flows . All of the 4.0 Bcf/d of regasification capacity that will be available at our LNG receiving terminal upon completion of Phase 1 and Phase 2—Stage 1 is fully reserved under long-term TUAs. Approximately 50% of our anticipated revenues under the TUAs are with subsidiaries of, and supported by guarantees of, Total, S.A. and Chevron Corporation. The Moody’s corporate family rating and Standard & Poor’s corporate rating of these guarantors are Aa1/AA and Aa2/AA, respectively. Approximately 50% of our anticipated TUA revenues will be from Cheniere Marketing and will be guaranteed by Cheniere. The Standard & Poor’s corporate rating of Cheniere is B. Our TUAs will provide us with assured and stable cash flows as a result of the following:

•

Full Coverage by Total and Chevron TUAs . Contracted cash payments to us under the Total and Chevron TUAs will, alone, be sufficient to cover all of our anticipated annual debt service, as well as all of our anticipated annual operating and maintenance expenses. These cash payments from Total and Chevron will begin in 2009, subject to commercial operations completion of Phase 1.

•

Fixed Fee Cash Payments . Each of our TUA customers has agreed to pay us a monthly fixed capacity reservation fee plus a monthly operating fee in a fixed amount that is adjusted annually for inflation. These monthly fees will be paid to us on what is referred to as a “take-or-pay” basis, which means that each customer will pay the fees whether or not it uses our LNG receiving terminal.

Index to Financial Statements

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No Commodity Price Risk . Under our TUAs, the payments that we receive from our customers will not be affected by changes in the price of LNG or natural gas. Commodity price risk will be borne by our customers and not by us.

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No LNG Supply Risk . Our customers bear the risks associated with obtaining supplies of LNG, transporting LNG to our receiving terminal and assuring that the LNG satisfies specifications.

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Long-term Commitments . We will continue to receive monthly cash payments under each TUA for a 20-year term. The term of each TUA may be extended in the future for one or more additional 10-year terms. Our customers are able to terminate their TUAs only in very limited circumstances, such as a force majeure event that would extend for 18 months or more.

Solid Construction Arrangements . Bechtel Corporation, or Bechtel, is serving as the EPC contractor under a lump-sum turnkey EPC agreement for Phase 1, and will provide design and engineering services and also act as construction manager for Phase 2—Stage 1. Since 1898, Bechtel has executed over 22,000 projects in 140 nations on all seven continents, including numerous major baseload LNG liquefaction projects such as Darwin LNG and Equatorial Guinea LNG, together worth at least $2.0 billion. Along with Bechtel’s construction expertise, the fixed price Phase 1 EPC contract, with bonuses for early completion and liquidated damages in the event of delayed completion, helps mitigate construction risk. Construction risk is also relatively low given the relatively simple nature of LNG regasification technology, versus complicated petrochemical processes characteristic of LNG liquefaction. Construction is well underway, with $507 million of the anticipated $900 to $950 million of Phase 1 construction expenditures and $39 million of the anticipated $500 to $550 million of Phase 2—Stage 1 construction expenditures already funded as of September 30, 2006.

Economies of Scale . At approximately 4.0 Bcf/d of regasification capacity, our LNG receiving terminal will be the largest LNG receiving terminal in North America, designed to have more than two times the capacity of any operating North American terminal. With this capacity, we believe that our LNG receiving terminal will benefit from economies of scale in construction and operation.

Environmental and Community Friendly Approach . We are committed to an environmentally sound and community friendly approach in developing our LNG receiving terminal. We consider investing time and effort into developing strong community relationships a key factor in ensuring the success of our LNG receiving terminal. We began the application process for our LNG receiving facility only after we were convinced that the local community understood the process and was willing to support our LNG receiving terminal project. Furthermore, the local government in Louisiana is familiar with and supportive of the energy industry. We have received letters in support of the development of our LNG receiving terminal from Louisiana state representatives, a U.S. Senator from Louisiana, the Governor of Louisiana and local organizations.

Experienced Management Team . To pursue the overall business of Cheniere, including construction and operation of our LNG receiving facility, Cheniere has assembled a team of professionals with extensive experience in the LNG industry. Through tenure with major oil companies, major operators of LNG receiving terminals and major engineering and construction companies, our senior management team has substantial experience in the areas of LNG project development, operation, engineering, technology, transportation and marketing.

Comprehensive Collateral Package . The notes benefit from a comprehensive collateral package, including a first-priority lien on substantially all of our assets, including our rights under the TUAs. While all Phase 2—Stage 1 assets will form an integral part of the collateral package, the Total and Chevron TUAs do not rely on Phase 2—Stage 1 capacity, and Phase 2—Stage 1 construction has been structured to avoid potential interruption of the construction of Phase 1.

Index to Financial Statements

Availability of Reserves . The availability of reserve funds offers multiple sources of liquidity. A construction debt service reserve will fund the first five semi-annual interest payments, which will cover the anticipated construction period for Phase 1 and will be replaced by a permanent six-month debt service reserve to be funded with cash flow from operations. In addition, a debt payment reserve will be funded with monthly deposits of cash flow from operations and used to pay regular semiannual interest payments. See “Description of Notes—Project Accounts.”

Illustrative Cash Flow Summary

The information set forth below represents our anticipated results of operations, including the projected revenues under our 20-year TUAs with Total, Chevron and Cheniere Marketing, for 2010, the first full year of operating revenues under all three TUAs. In preparing this information, we have relied on assumptions regarding circumstances beyond the control of us or any other person. By their nature, the assumptions are subject to significant uncertainties and actual results will differ, perhaps materially, from those projected. We cannot give any assurance that these assumptions are correct or that this information will reflect actual results. Accordingly, this financial estimate is not intended to be a prediction of future results. If our actual results are materially less favorable than those shown, or if the assumptions used in preparing this information prove to be incorrect, our ability to make payments of principal and interest on the notes may be adversely affected. For additional information relating to these financial estimates, please read “Risk Factors—Risks Relating to the Exchange Offer and the Notes—Our financial estimates, including our illustrative cash flow summary, are based on certain assumptions that may not materialize.”


(Dollars in millions)	2010
TUA Revenues (1)
Total TUA(2)	$	126
Chevron TUA(2)		129
Cheniere Marketing TUA		251

Aggregate TUA Revenues		506
Fixed Operating Expenses(3)		(37	)
Additional Operating Expenses(4)		(2	)

EBITDA(5)	$	467

EBITDA/Interest(6)		3.1x
Total Debt/ EBITDA(7)		4.4x

Assuming payments under the 20-year TUAs with Total, Chevron and Cheniere Marketing are made as contractually stipulated, we expect (i) the Total TUA to provide annual revenues of approximately $125 million for 20 years commencing April 1, 2009, (ii) the Chevron TUA to provide annual revenues of approximately $125 million for 20 years commencing July 1, 2009 and (iii) the Cheniere Marketing TUA to provide annual revenues of approximately $250 million for at least 19 years commencing January 1, 2009, plus initial revenues of $5 million per month during 2008 commencing on the date of commercial operations completion. The Independent Engineer has estimated that the total annual operating expenses for our LNG receiving terminal will be approximately $39 million per year to support the full 4.0 Bcf/d of receiving capacity. Based on these expected TUA revenues and operating expenses, we believe that our LNG receiving terminal will generate approximately $467 million in EBITDA in 2010.

(1)	Fixed capacity reservation fees, plus operating fees that are subject to adjustment for annual CPI inflation (assumed to be 2.5%). We have not predicted potential inflation or deflation for subsequent years in estimating approximate annual revenues under our 20-year TUAs.

Index to Financial Statements

(2)	Includes $2 million of annual non-cash revenues (applicable to each of the first ten years from Phase 1 Target Completion), related to capacity prepayments.

(3)

Based on operating and maintenance expenses of approximately $37 million to support the base LNG receiving capacity of 2.0 Bcf/d (the amount necessary to support the Total and Chevron TUAs), as the Independent Engineer has estimated. See “Summary of Independent Engineer’s Report,” below, for more information.

(4)	Based on operating and maintenance expenses of approximately $2 million to support the additional 2.0 Bcf/d of LNG receiving capacity (to support the Cheniere Marketing TUA), as the Independent Engineer has estimated. See “Summary of Independent Engineer’s Report,” below, for more information.

(5)	Calculated as total revenues less operating expenses. See “Non-GAAP Financial Measure,” below, for more information.

(6)	Assumes weighted-average fixed interest rate of 7.432% paid semi-annually.

(7)	Assumes total debt of $2,032 million.

UHY LLP, our independent auditor, has not reviewed the foregoing illustrative cash flow summary and, accordingly, does not express an opinion or any other form of assurance on it. Holders of the notes will not be provided with any revised illustrative cash flow summary. We expressly disclaim any duty to update the illustrative cash flow summary under any circumstances.

Non-GAAP Financial Measure

EBITDA estimates are used as a supplemental financial measure by management and by external users of our financial statements, such as commercial banks, to assess:

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the anticipated financial performance of our assets without regard to financing methods, capital structure or historical cost basis;

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the ability of our assets to generate cash sufficient to pay interest on our indebtedness; and

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our anticipated operating performance and return on invested capital compared to other comparable companies, without regard to their financing methods and capital structure.

Our EBITDA should not be considered an alternative to net income, operating income, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with generally accepted accounting principles, or GAAP. Our EBITDA excludes some, but not all, items that affect net income and operating income, and these measures may vary among companies. Therefore, our EBITDA may not be comparable to similarly titled measures of other companies.

Our EBITDA is computed as total revenues less operating expenses. It does not include depreciation expense and certain non-operating items. Because we have not forecasted such depreciation expense and non-operating items, we have not forecasted net income, which would be the most directly comparable GAAP financial measure, and are therefore unable to reconcile differences between forecasts of EBITDA and net income.

Summary of Independent Engineer’s Report

This prospectus contains a report by Stone & Webster Management Consultants, Inc., or the Independent Engineer. The Independent Engineer has prepared a report that analyzes certain technical, environmental and economic aspects of our LNG receiving terminal. This report includes, among other things, discussions of the technology used at the LNG receiving terminal, engineering and construction execution issues and costs, operating plans, environmental permitting status, and a technical review of the documents and agreements

Index to Financial Statements

relating to our LNG receiving terminal. A copy of the report is attached as Appendix A to this prospectus and should be read in its entirety. The Independent Engineer is a leading consulting and engineering firm that devotes a substantial portion of its resources to providing services related to the technical, environmental and economic aspects of industrial facilities.

In the preparation of its report, the Independent Engineer has relied on assumptions regarding circumstances beyond the control of us or any other person. By their nature, these assumptions are subject to significant uncertainties and actual results will differ, perhaps materially, from those stated in the report. The persons responsible for the assumptions contained in the report cannot give any assurance that these assumptions will prove to be correct. If our actual results are materially less favorable than those shown in the Independent Engineer’s report, or if the assumptions prove to be incorrect, our ability to make payments of principal and interest on the notes may be adversely affected.

UHY LLP, our independent auditor, has not reviewed the Independent Engineer’s report and, accordingly, does not express an opinion or any other form of assurance on it. Holders of the notes will not be provided with any revised report from the Independent Engineer. We expressly disclaim any duty to update the Independent Engineer’s report under any circumstances.

Below is a summary of the conclusions expressed by the Independent Engineer in its report. This is merely a summary and is subject to the information contained, and the assumptions made, in the Independent Engineer’s report. The Independent Engineer’s report should be read in its entirety in order for the reader to understand the basis of the conclusions and the assumptions upon which they are based.

Certain terms used in the summary below are defined in the Independent Engineer’s report. On the basis of its studies, analyses and investigations of our LNG receiving terminal and the assumptions set forth in the Independent Engineer’s report, the Independent Engineer is of the opinion that:

•

The Phase 1 Project is technically viable;

•

The Phase 1 Project Budget is reasonable;

•

The Phase 1 Schedule is reasonable;

•

The Phase 1 Project has been approved by the FERC, indicating compliance with environmental regulations and that environmental risks are low;

•

The Phase 1 Project contracting strategy is reasonable and minimizes the strain on Sabine Pass LNG, which is a development stage company;

•

The Phase 1 EPC contract provides a suitable basis for contracting the required services;

•

The Phase 1 Project will provide ample availability to service the aggregate 2.0 Bcf/d export capacity requirements under the Total and Chevron TUAs;

•

The Phase 2—Stage 1 Expansion of Sabine Pass poses negligible risk to the timely completion and operation of the Phase 1 Project;

•

The Phase 2—Stage 1 Expansion is technically feasible and viable;

•

The Phase 2—Stage 1 Budget is reasonable and generally consistent with that for the Phase 1 Project;

•

The Phase 2—Stage 1 Schedule is reasonable;

•

The Phase 2—Stage 1 Project has been approved by the FERC, indicating compliance with environmental regulations and that environmental risks are low;

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•

The Phase 2—Stage 1 Project contracting strategy provides Sabine Pass LNG with maximum flexibility in Phase 2 Project execution;

•

The Phase 2—Stage 1 construction contracts provide a suitable basis for contracting the required services without impinging on the Phase 1 Project; and

•

The Phase 2—Stage 1 Project will increase the overall export capacity to a maximum peak rate of 4.0 Bcf/d and a long-term sustainable capacity of at least approximately 3.5 Bcf/d.

Organizational Structure

We are the operating subsidiary of Cheniere that was created to develop, own and operate the Sabine Pass LNG receiving terminal. Our general partner has sole responsibility and authority for conducting our business and for managing our operations. The directors and officers of our general partner are also officers of Cheniere, except for one independent director. See “Management.” The following chart shows the ownership of our partnership:

LOGO

Index to Financial Statements

Contractual Relationships

The following chart illustrates several of our key contractual relationships. See “Description of Principal Project Documents” and “Certain Relationships and Related Transactions” for additional information regarding the agreements listed below.

LOGO

Index to Financial Statements

The Exchange Offer

On November 9, 2006, we completed a private offering of the initial notes. As part of the private offering, we entered into a registration rights agreement with the representative of the initial purchasers of the initial notes in which we agreed, among other things, to deliver this prospectus to you and to use our commercially reasonable efforts to cause the registration statement to be effective within 270 days of the issue date of the initial notes and to complete the exchange offer within 30 days thereafter. The following is a summary of the exchange offer.

Original Notes

$550 million aggregate principal amount of 7 ¹ / 4 % Senior Secured Notes due 2013, which were issued in a private placement on November 9, 2006

$1,482 million aggregate principal amount of 7 ¹ / 2 % Senior Secured Notes due 2016, which were issued on November 9, 2006

Notes

7 ¹ / 4 % Senior Secured Notes due November 30, 2013 and 7 ¹ / 2 % Senior Secured Notes due November 30, 2016. The terms of the notes are substantially identical to those terms of the outstanding initial notes, except that the transfer restrictions, registration rights and provision for additional interest relating to the initial notes do not apply to the notes.

Exchange Offer

We are offering to exchange up to $2,032 million aggregate principal amount of our notes ($550 million of 7 ¹ / 4 % Senior Secured Notes due 2013 and $1,482 million of 7 ¹ / 2 % Senior Secured Notes due 2016) that have been registered under the Securities Act for an equal amount of our outstanding initial notes that have not been registered under the Securities Act to satisfy our obligations under the registration rights agreement.

The notes will evidence the same debt as the initial notes and will be issued under and be entitled to the benefits of the same indenture that governs the initial notes. Holders of the initial notes do not have any appraisal or dissenter rights in connection with the exchange offer. Because the notes will be registered, the notes will not be subject to transfer restrictions or the provisions for additional interest, and holders of initial notes that have tendered and had their initial notes accepted in the exchange offer will have no registration rights.

Expiration Date

The exchange offer will expire at 5:00 p.m., New York City time, on [ ], unless we decide to extend it. We do not currently intend to extend the exchange offer.

Conditions to the Exchange Offer

The exchange offer is subject to customary conditions, which we may waive. Please read “The Exchange Offer—Conditions to the Exchange Offer” for more information regarding the conditions to the exchange offer.

Procedures for Tendering Initial Notes

Unless you comply with the procedures described under the caption “The Exchange Offer—Procedures for Tendering—Guaranteed

Index to Financial Statements

Delivery,” you must do one of the following on or prior to the expiration of the exchange offer to participate in the exchange offer:

•

tender your initial notes by sending the certificates for your initial notes, in proper form for transfer, a properly completed and duly executed letter of transmittal, with any required signature guarantees, and all other documents required by the letter of transmittal, to The Bank of New York, as registrar and exchange agent, at the address listed under the caption “The Exchange Offer—Exchange Agent”; or

•

tender your initial notes by using the book-entry transfer procedures described below and transmitting a properly completed and duly executed letter of transmittal, with any required signature guarantees, or an agent’s message instead of the letter of transmittal, to the exchange agent. In order for a book-entry transfer to constitute a valid tender of your initial notes in the exchange offer, The Bank of New York, as registrar and exchange agent, must receive a confirmation of book-entry transfer of your initial notes into the exchange agent’s account at The Depository Trust Company prior to the expiration of the exchange offer. For more information regarding the use of book-entry transfer procedures, including a description of the required agent’s message, please read the discussion under the caption “The Exchange Offer—Procedures for Tendering—Book-Entry Transfer.”

Guaranteed Delivery Procedures

If you are a registered holder of the initial notes and wish to tender your initial notes in the exchange offer, but

•

the initial notes are not immediately available,

•

time will not permit your initial notes or other required documents to reach the exchange agent before the expiration of the exchange offer, or

•

the procedure for book-entry transfer cannot be completed prior to the expiration of the exchange offer,

then you may tender your initial notes by following the procedures described under the caption “The Exchange Offer—Procedures for Tendering—Guaranteed Delivery.”

Special Procedures for Beneficial Owners

If you are a beneficial owner whose initial notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your initial notes in the exchange offer, you should promptly contact the person in whose name the initial notes are registered and instruct that person to tender on your behalf.

If you wish to tender in the exchange offer on your own behalf, prior to completing and executing the letter of transmittal and delivering the certificates for your initial notes, you must either make

Index to Financial Statements

appropriate arrangements to register ownership of the initial notes in your name or obtain a properly completed bond power from the person in whose name the initial notes are registered.

Withdrawal; Non-Acceptance

You may withdraw any initial notes tendered in the exchange offer at any time prior to 5:00 p.m., New York City time, on [ ]. If we decide for any reason not to accept any initial notes tendered for exchange, the initial notes will be returned to the registered holder at our expense promptly after the expiration or termination of the exchange offer. In the case of initial notes tendered by book-entry transfer into the exchange agent’s account at The Depository Trust Company, any withdrawn or unaccepted initial notes will be credited to the tendering holder’s account at The Depository Trust Company. For further information regarding the withdrawal of tendered initial notes, please read “The Exchange Offer—Withdrawal Rights.”

U.S. Federal Income Tax Considerations

The exchange of notes for initial notes in the exchange offer will not be a taxable transaction for U.S. federal income tax purposes. Please read the discussion under the caption “Material United States Federal Income Tax Considerations” for more information regarding the tax consequences to you of the exchange offer.

Use of Proceeds

The issuance of the notes will not provide us with any new proceeds. We are making this exchange offer solely to satisfy our obligations under the registration rights agreement.

Fees and Expenses

We will pay all of the expenses incident to the exchange offer.

Exchange Agent

We have appointed The Bank of New York as exchange agent for the exchange offer. You can find the address, telephone number and fax number of the exchange agent under the caption “The Exchange Offer—Exchange Agent.”

Resales of Notes

Based on interpretations by the staff of the SEC, as set forth in no-action letters issued to third parties that are not related to us, we believe that the notes you receive in the exchange offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act so long as:

•

the notes are being acquired in the ordinary course of business;

•

you are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate in the distribution of the notes issued to you in the exchange offer;

•

you are not our affiliate; and

•

you are not a broker-dealer tendering initial notes acquired directly from us for your account.

Index to Financial Statements

The SEC has not considered this exchange offer in the context of a no-action letter, and we cannot assure you that the SEC would make similar determinations with respect to this exchange offer. If any of these conditions are not satisfied, or if our belief is not accurate, and you transfer any notes issued to you in the exchange offer without delivering a resale prospectus meeting the requirements of the Securities Act or without an exemption from registration of your notes from those requirements, you may incur liability under the Securities Act. We will not assume, nor will we indemnify you against, any such liability. Each broker-dealer that receives notes for its own account in exchange for initial notes, where the initial notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such notes. Please read “Plan of Distribution.”

Please read “The Exchange Offer—Resales of Notes” for more information regarding resales of the notes.

Consequences of Not Exchanging Your Initial Notes

If you do not exchange your initial notes in this exchange offer, you will no longer be able to require us to register your initial notes under the Securities Act, except in the limited circumstances provided under the registration rights agreement. In addition, you will not be able to resell, offer to resell or otherwise transfer your initial notes unless we have registered the initial notes under the Securities Act, or unless you resell, offer to resell or otherwise transfer them under an exemption from the registration requirements of, or in a transaction not subject to, the Securities Act.

For information regarding the consequences of not tendering your initial notes and our obligation to file a registration statement, please read “The Exchange Offer—Consequences of Failure to Exchange Outstanding Securities” and “Description of Notes.”

Index to Financial Statements

Description of Notes

The terms of the notes and those of the outstanding initial notes are substantially identical, except that the transfer restrictions and registration rights relating to the initial notes do not apply to the notes. As a result, the notes will not bear legends restricting their transfer and will not have the benefit of the registration rights and special interest provisions contained in the initial notes. The notes represent the same debt as the initial notes for which they are being exchanged. Both the initial notes and the notes are governed by the same indenture. When we use the term “notes” in this prospectus, unless the context otherwise requires, the term includes the initial notes and the notes issued pursuant to the exchange offer.

The following is a summary of the terms of the notes. It may not contain all of the information that is important to you. For a more detailed description of the notes, please read “Description of Notes.”

Issuer

Sabine Pass LNG, L.P.

Notes Offered

$550 million aggregate principal amount of 7 ¹ / 4 % Senior Secured Notes due 2013.

$1,482 million aggregate principal amount of 7 ¹ / 2 % Senior Secured Notes due 2016.

Maturity Date

2013 notes: November 30, 2013

2016 notes: November 30, 2016

The notes will not amortize prior to the Maturity Date.

Interest Payment Dates

May 30 and November 30 of each year, commencing on May 30, 2007.

Interest

7 ¹ / 4 % per annum on the 2013 notes and 7 ¹ / 2 % per annum on the 2016 notes, payable semiannually in arrears. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.

Guarantees

The notes will be guaranteed by all of our future domestic restricted subsidiaries. We currently have no subsidiaries. See “Description of Notes—The Note Guarantees.”

Ranking

The notes are our senior secured obligations and:

•

rank pari passu in right of payment with all of our other existing and future senior indebtedness; and

•

rank senior in right of payment to all of our subordinated indebtedness.

Optional Redemption

At any time and from time to time, we may redeem some or all of the 2013 notes at a redemption price equal to 100% of the principal amount plus a make-whole premium, plus accrued and unpaid interest and additional interest, if any, to the redemption date.

Index to Financial Statements

At any time and from time to time, we may redeem some or all of the 2016 notes at a redemption price equal to 100% of the principal amount plus a make-whole premium, plus accrued and unpaid interest and additional interest, if any, to the redemption date.

Until November 30, 2009, we may redeem up to 35% of the principal amount of the 2013 notes and the 2016 notes originally issued with the net cash proceeds of one or more equity offerings by us with the proceeds that we retain or that are contributed to us, as applicable, at par plus a premium equal to the coupon, plus accrued and unpaid interest and additional interest, if any, as long as at least 65% of the aggregate principal amount of the notes remains outstanding immediately after such optional redemption and such optional redemption occurs within 90 days of the date of the closing of such equity offering.

Mandatory Redemption

If we sell certain assets or experience certain events of loss, we must offer to purchase the notes at the prices determined as stated under “Description of Notes—Repurchase at the Option of Holders.”

Change of Control

If a change of control of our general partner occurs, we are required to offer to repurchase all or a portion of such holder’s notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest and additional interest, if any, as of the date of repurchase.

Collateral

Our obligations under the notes are secured on a first-priority basis (subject to certain permitted liens) by a security interest in our equity interests and substantially all of our assets, including a pledge of the stock of our future subsidiaries (provided that the pledge of voting stock of our future foreign subsidiaries will be limited to 65% of the voting stock owned by us or any guarantor). See “Description of Notes—Security.”

Construction Period Debt Service Reserve Account

We have deposited $335 million in a debt service reserve account, which will be withdrawn when necessary to pay the first five interest payments on the notes.

Cash Waterfall

We have deposited approximately $887 million from the sale of the initial notes in a construction account, which, until Phase 1 Target Completion, will only be applied to pay construction and startup costs of the project and to pay other expenses incidental for us to complete construction of the project. Following Phase 1 Target Completion, any amount remaining in the construction account will be transferred to a revenue account.

All revenues received by us will be deposited in a revenue account and will be applied as described in “Pre-Completion Account Flows” and “Post-Completion Account Flows” below.

Index to Financial Statements

Pre-Completion Account Flows

Prior to Phase 1 Target Completion, revenues received by us will be applied in the following manner:

•

first, to pay obligations, if any, under the assumption agreement, as described under “Certain Relationships and Related Transactions—Assumption Agreement,” which we refer to as the assumption agreement;

•

second, to the extent that amounts on deposit in the debt service reserve account are not sufficient to pay interest on the notes on the next interest payment date, to such account in an amount sufficient to make such payment; and

•

third, to the construction account (i) to fund the construction and start-up costs of our LNG receiving terminal; (ii) to pay other expenses (including taxes) incidental for us to complete construction of our LNG receiving terminal; and (iii) to be transferred to other project accounts.

Post-Completion Account Flows

After Phase 1 Target Completion, revenues received by us will be applied in the following manner:

•

first, to fund the operating account with amounts sufficient to cover the succeeding 45 days of operation and maintenance expenses, maintenance capital expenditures and obligations, if any, under the assumption agreement and a state tax sharing agreement;

•

second, on the last business day of each month, 1/6th of the amount of interest due on the notes on the next interest payment date (plus any shortfall from any such month subsequent to the preceding interest payment date) will be transferred to a debt payment account;

•

third, to pay outstanding principal then due and payable on the notes;

•

fourth, to pay taxes payable by us or the guarantors and permitted payments in respect of taxes;

•

fifth, to replenish the debt service reserve account when such account is not funded with the amount (or acceptable letters of credit or acceptable guarantees in respect of such amount) required to make the next interest payment on the notes; and

•

sixth, for all other purposes permitted by the indenture including restricted payments, subject to the limitations contained in the indenture.

Covenants

The indenture governing the notes contains covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to:

•

incur additional indebtedness or issue preferred stock;

•

make certain investments or pay dividends or distributions on our capital stock or subordinated indebtedness or purchase or redeem or retire capital stock;

•

sell or transfer assets, including capital stock of our restricted subsidiaries;

Index to Financial Statements

•

restrict dividends or other payments by restricted subsidiaries;

•

incur liens;

•

enter into transactions with affiliates;

•

consolidate, merge, sell or lease all or substantially all of our assets; and

•

enter into sale and leaseback transactions.

These covenants are subject to a number of important limitations and exceptions that are described later in this prospectus under the caption “Description of Notes—Certain Covenants.”

Restricted Payments

We will be permitted to make payments on subordinated debt, make distribution to our partners, purchase any equity interest in an affiliate and make restricted investments with any amounts of available cash, which includes revenues available after payment of construction costs and other capital expenditures, payments of required principal and interest on indebtedness and payment of operation and maintenance expenses. Such payments can be made as long as no default or event of default under the indenture has occurred and is continuing; Phase 1 has been completed in accordance with the target completion date performance standards set forth in the EPC contract with Bechtel; we would be permitted to incur at least $1.00 of additional indebtedness at the time of the payment and after giving pro forma effect thereto; the operating period debt service reserve account has at least six months of interest funded; and the debt payment account has on deposit the amount required at such time.

Transfer Restrictions; Absence of a Pubic Market for the Notes

The notes issued pursuant to this exchange offer will generally be freely transferable, but will also be new securities for which there will not initially be a market. There can be no assurance as to the development or liquidity of any market for the notes.

Governing Law

The indenture, the notes and related security documents are governed by, and construed in accordance with, the laws of the State of New York, while the real property mortgage is governed by the laws of the State of Louisiana.

Risk Factors

See “Risk Factors” beginning on page 19 of this prospectus for a discussion of certain factors that you should carefully consider before deciding to participate in the exchange offer.

Executive Offices

Our principal executive offices are located at 717 Texas Avenue, Suite 3100, Houston, Texas 77002. Our telephone number is (713) 659-1361.

Index to Financial Statements

Summary Selected Historical Financial Data

You should read the following summary selected historical financial data together with our financial statements and the related notes for the period from October 20, 2003 (inception) through December 31, 2003, for the years ended December 31, 2004 and 2005, for the period from October 20, 2003 (inception) through December 31, 2005, for the nine months ended September 30, 2005 and 2006 and for the period from October 20, 2003 (inception) through September 30, 2006, which are included in this prospectus. We have derived the statement of operations data for the period from October 20, 2003 (inception) through December 31, 2003, for the years ended December 31, 2004 and 2005, and for the period from October 20, 2003 (inception) to December 31, 2005, and the balance sheet information at December 31, 2004 and 2005 from our audited financial statements, which are included in this prospectus, and the balance sheet information at December 31, 2003, which is not included in this prospectus. We have derived the statement of operations data for the nine months ended September 30, 2005 and 2006 and for the period from October 20, 2003 (inception) to September 30, 2006 and the balance sheet data at September 30, 2006 from our unaudited financial statements, which are included in this prospectus. The unaudited financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management of our general partner, include all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the information set forth therein. Our past financial and/or operating performance is not a reliable indicator of our future performance (particularly anticipated revenues, debt costs and expenses), and you should not use our historical performance to anticipate results or future period trends.


(Dollars in thousands)	Period from October 20, 2003 (inception) to December 31, 2003			Year ended December 31,						Period from October 20, 2003 (inception) to December 31, 2005			Nine months ended September 30,						Period from October 20, 2003 (inception) to September 30, 2006
(Dollars in thousands)				2004			2005						2005			2006
Revenues	$	—		$	—		$	—		$	—		$	—		$	—		$	—
Expenses		2,763			4,682			4,711			12,156			3,405			9,392			21,548
Loss from operations		(2,763	)		(4,682	)		(4,711	)		(12,156	)		(3,405	)		(9,392	)		(21,548	)

Other income (expense)		—			28			456			484			83			113			597

Net loss	$	(2,763	)	$	(4,654	)	$	(4,255	)	$	(11,672	)	$	(3,322	)	$	(9,279	)	$	(20,951	)

Ratio of earnings to fixed charges(1)		—			—			—			—			—			—			—


(Dollars in thousands)	December 31,						September 30, 2006
(Dollars in thousands)	2003		2004		2005		September 30, 2006
Cash and cash equivalents (unrestricted)	$	—	$	21,822	$	—	$	—
Total assets		101		23,316		309,135		613,825
Long-term debt		—		—		37,377		351,500
Deferred revenues		—		22,000		40,000		40,000
Total other long-term liabilities		2,864		17,418		120		19,376

(1)

The ratios were computed by dividing earnings by fixed charges. For this purpose, “earnings” represent the aggregate of (a) pre-tax income from continuing operations before adjustment for minority interests in consolidated subsidiaries or income or loss from equity investees, (b) fixed charges, (c) amortization of capitalized interest, (d) distributed income of equity investees and (e) our share of pre-tax losses of equity investees for which charges arising from guarantees are included in fixed charges, net of (a) interest capitalized and (b) the minority interest in pre-tax income of subsidiaries that have not incurred fixed charges. “Fixed charges” represent the sum of (a) interest expensed and capitalized, (b) amortized premiums, discounts and capitalized expenses related to indebtedness and (c) an estimate of the interest within rental expense. As a result of reported losses, earnings were inadequate to cover fixed charges, thereby resulting in a coverage deficiency of $2.8 million for the period from October 20, 2003 (inception) to December 31, 2003, $4.7 million and $11.4 million for the years ended December 31, 2004 and 2005, respectively, $18.8 million for the period from October 20, 2003 (inception) to December 31, 2005, $7.1 million and $19.9 million for the nine months ended September 30, 2005 and 2006, respectively, and $38.7 million for the period from October 20, 2003 (inception) to September 30, 2006.

Index to Financial Statements

RISK FACTORS

Before deciding to participate in the exchange offer, you should carefully consider the following risk factors. We may encounter risks in addition to those described below. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also impair or adversely affect the development of our business, our assets, our contracts, our results of operations, our tax status, our financial condition and our prospects. As a result of any of these risks, known and unknown, you could lose all or part of your original investment in the notes.

The risk factors in this prospectus are grouped into the following categories:

•

Risks Relating to Completion of our LNG Receiving Terminal, beginning on this page 19;

•

Risks Relating to Development and Operation of our Business, beginning on page 22; and

•

Risks Relating to the Exchange Offer and the Notes, beginning on page 28.

Risks Relating to Completion of our LNG Receiving Terminal

Our inability to timely complete Phase 1 or Phase 2—Stage 1 of our LNG receiving terminal could prevent us from commencing operations when anticipated and could prevent us from realizing anticipated cash flows.

We may not complete Phase 1 or Phase 2—Stage 1 of our LNG receiving terminal in a timely manner, or at all, due to numerous factors, including:

•

the availability of sufficient debt financing and equity financing to fund completion;

•

performance by Bechtel of its Phase 1 contract, performance by Bechtel and others of their existing Phase 2—Stage 1 contracts, our ability to enter into satisfactory additional agreements with contractors for the rest of Phase 2—Stage 1, our ability to maintain good relationships with all of these contractors, and the performance by all of our contractors of their obligations under their agreements and the maintenance of their creditworthiness;

•

site development and facility construction difficulties, including change orders, cost overruns, construction delays and changes in commodity prices (particularly nickel and steel);

•

difficulties or delays in obtaining LNG for cool down and achieving commercial operability of Phase 1 or Phase 2—Stage 1;

•

our customers’ performance under their TUAs and the maintenance of their creditworthiness;

•

the issuance and/or continued availability of necessary permits, licenses and approvals from the FERC, other governmental agencies and third parties as are required to construct and operate our LNG receiving terminal;

•

local and general economic, labor and infrastructure conditions;

•

resistance in the local community to the development of our LNG receiving terminal;

•

labor disputes;

•

catastrophes, such as explosions, fires, floods, vessel failures, shipping accidents and product spills; and

•

weather conditions, such as hurricanes.

Cost overruns and delays in the completion of Phase 1 or Phase 2—Stage 1 of our LNG receiving terminal project could have a material adverse effect on our business, results of operations, financial condition and prospects.

The actual construction costs of our LNG receiving terminal may be significantly higher than our current estimates. We do not have any prior experience in constructing LNG receiving terminals, and no LNG receiving

Index to Financial Statements

terminal has been constructed and placed in service in the U.S. in over 25 years. As construction progresses, we may decide or be forced to submit change orders to our contractors that could result in longer construction periods, higher construction costs or both. Similarly, we may encounter significant cost overruns for labor and other costs during the construction process. In addition, we have retained and expect to retain the commodity price risk for nickel and various types of steel used in the construction process.

Delays in the construction of Phase 1 and Phase 2—Stage 1 of our LNG receiving terminal beyond the estimated development period could also increase the cost of completion beyond the amounts currently estimated in our capital budget, which could require us to obtain additional sources of financing to fund construction and operations until the receiving terminal is developed (which could cause further delays). Any delay in completion of our LNG receiving terminal would also cause a delay in the receipt of revenues projected from operation of the facility and could cause a loss of one or more of our TUA customers in the event of significant delays. As a result, any significant cost overruns or construction delays, whatever the cause, could have a material adverse effect on our business, results of operations, financial condition and prospects.

Successful construction and completion of our LNG receiving terminal will be dependent on performance by, and our relationship with, third-party contractors.

We have limited experience working with EPC contractors, including Bechtel, and with other construction contractors. The successful completion of Phase 1 of our LNG receiving terminal is highly dependent on the performance of Bechtel and its subcontractors. The successful completion of Phase 2—Stage 1 of the project is highly dependent on: the performance by contractors of their respective EPCM agreement, tank contract and soil contract; our ability to enter into acceptable contracts with reputable EPC contractors and other contractors performing portions of or supplying materials for Phase 2—Stage 1; and the performance by all of these contractors of their obligations under the contracts, including completing their projects or supplying their materials on a timely basis. See “Description of Principal Project Documents” for further information.

Any or all of these agreements could be terminated by the contractors under certain circumstances prior to completion of construction. If our relationship with any contractor fails for any reason, we will be forced to engage a substitute contractor, which would likely result in a significant delay in our development schedule and could have a material adverse effect on our business, results of operations, financial condition and prospects.

To complete construction of our LNG receiving terminal, we must purchase and process LNG for cool down and testing. We have not previously purchased or processed any LNG.

Our LNG receiving terminal must engage in a cool down process for its storage tanks and other equipment before commencement of commercial operation. The cool down process will require a substantial quantity of LNG, as well as access to adequate LNG tanker time, both of which must be obtained and paid for by us. We have no current arrangements for such LNG or tanker time, and the costs of this LNG (other than a minor portion we refer to as “heel” LNG) and tanker time are not included in our construction cost estimates. These additional costs could be substantial. We expect to contract with and pay an affiliate, Cheniere Marketing, to obtain this LNG and tanker time, but we have not negotiated or entered into any such contract at this time.

Our business plan and illustrative cash flow summary are dependent upon completion of Phase 2—Stage 1 of our LNG receiving terminal, in addition to completion of Phase 1.

Phase 2—Stage 1 contracting is still in progress, and, while important base contracts for the project are in place, a substantial number of additional contracts remain to be negotiated, primarily including procurement arrangements. Accordingly, the scope, design, timing and cost for Phase 2—Stage 1 construction are not as well defined as for Phase 1, and the risks of delays, cost overruns or non-completion may be greater for Phase 2—Stage 1 than for Phase 1.

Index to Financial Statements

We currently have no revenues or cash flows. Our ability to achieve profitability and generate positive operating cash flow in the future is subject to significant uncertainty.

We will continue to incur significant capital and operating expenditures while we develop our LNG receiving terminal. We currently expect that we will not begin to receive cash flows from operations under our TUAs until the first quarter of 2008, at the earliest. Any delays beyond the expected development periods for our LNG receiving terminal would prolong, and could increase the level of, our operating losses and negative operating cash flows. Our future liquidity may also be affected by the timing of construction financing availability in relation to the incurrence of construction costs and other outflows and by the timing of receipt of cash flow under TUAs in relation to the incurrence of project and operating expenses. Moreover, many factors (including factors beyond our control) could result in a disparity between liquidity sources and cash needs, including factors such as construction delays and breaches of agreements. Our ability to generate positive operating cash flow and achieve profitability in the future is dependent on our ability to successfully and timely complete our LNG receiving terminal, and our ability to achieve those objectives is subject to a number of risks, including those discussed here.

Our ability to complete development of our LNG receiving terminal will be contingent on the adequacy of our existing funding or our ability to obtain additional funding. If we are unable to obtain sufficient funding, we may be unable to implement or complete our business plan and our business may ultimately be unsuccessful.

Our cost estimates for Phase 1 and for Phase 2—Stage 1 are subject to change as a result of cost overruns, change orders under existing or future construction contracts, changes in commodity prices (particularly nickel and steel), escalating labor costs and the potential need for additional funds to be expended to maintain construction schedules. In the event we experience cost overruns, delays or both, the amount of funding needed to complete Phase 1 could exceed the amounts currently available to us. If we fail to obtain sufficient funding and fail to complete Phase 1, our TUAs with Total and Chevron could be terminated and our business plan could fail. If funding is sufficient for completion of Phase 1 but is not sufficient for completion of Phase 2—Stage 1, we will be entitled to payments under our TUAs, including our Cheniere Marketing TUA, but Cheniere Marketing may not have access to regasification capacity or other resources or business opportunities sufficient to generate cash flow to fund its required payments to us under the Cheniere Marketing TUA. This could cause Cheniere Marketing to default on its obligations, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

We are relying on third-party engineers to estimate the future capacity ratings and performance capabilities of our LNG receiving terminal, and these estimates may prove to be inaccurate.

We are relying on third parties, principally Bechtel, for the design and engineering services underlying our estimates of the future capacity ratings and performance capabilities of our LNG receiving terminal. If our LNG receiving terminal, when actually constructed, fails to have the capacity ratings and performance capabilities that we intend, the estimates set forth in this prospectus may not be accurate. Failure of our LNG receiving terminal to achieve our intended capacity ratings and performance capabilities could prevent us from achieving the commercial start dates under our TUAs and could have a material adverse effect on our business, results of operations, financial condition and prospects.

Failure to obtain and maintain approvals and permits from governmental and regulatory agencies with respect to the development of our LNG receiving terminal could impede completion and have a material adverse effect on us.

The design, construction and operation of LNG receiving terminals are all highly regulated activities. The FERC’s approval under Section 3 of the Natural Gas Act of 1938, or NGA, as well as several other material governmental and regulatory approvals and permits, are required in order to construct and operate our LNG receiving terminal. Although we have obtained NGA Section 3 authorization to construct and operate our LNG receiving terminal, such authorization is subject to ongoing conditions imposed by the FERC. We also have not

Index to Financial Statements

obtained several other material governmental and regulatory approvals and permits required in order to construct and operate the terminal. We have no control over the outcome of the review and approval process. We do not know whether or when any such approvals or permits can be obtained, or whether or not any existing or potential interventions or other actions by third parties will interfere with our ability to obtain and maintain such permits or approvals. If we are unable to obtain and maintain the necessary approvals and permits, we may not be able to recover our investment in the project. Failure to obtain and maintain any of these approvals and permits could have a material adverse effect on our business, results of operations, financial condition and prospects.

Hurricanes or similar storms could have a material adverse effect on our construction project and on our business, financial condition and results of operations.

In August and September of 2005, Hurricanes Katrina and Rita and related storm activity, such as windstorms, storm surges, floods and tornadoes, caused extensive and catastrophic physical damage in and to coastal and inland areas located in the Gulf Coast region of the U.S. (parts of Texas, Louisiana, Mississippi and Alabama) and certain other parts of the southeastern U.S. Construction at our LNG receiving terminal site was temporarily suspended in connection with Hurricane Katrina, as a precautionary measure. Approximately three weeks after the occurrence of Hurricane Katrina, the terminal site was again secured and evacuated in anticipation of Hurricane Rita, the eye of which made landfall to the east of the site. As a result of these 2005 storms and related matters, our LNG facility experienced construction delays and increased costs.

Future similar storms and related storm activity and collateral effects could result in damage to, delays or cost increases in construction of, or interruption of operations at, our LNG receiving terminal or related infrastructure.

Risks Relating to Development and Operation of our Business

As a development stage company without any operating history, we face significant risks relating to our lack of experience.

Our LNG receiving terminal will be the largest regasification facility ever constructed in North America in terms of throughput capacity at commencement of operation of Phase 1, and we have commenced a major expansion through Phase 2—Stage 1 prior to completion of Phase 1. There may be unanticipated issues with operating, maintaining and managing a facility of this size.

We will rely on our general partner, Sabine Pass LNG–GP, Inc., or Sabine Pass LNG GP, and its affiliates for services needed to manage the construction and operation of our LNG receiving terminal. Sabine Pass LNG GP has no employees and will rely upon Cheniere LNG Terminals, Inc. and its affiliates for personnel needed to manage our business. Cheniere LNG Terminals, Inc. and its affiliates have never managed the construction, operation or maintenance of an LNG facility.

We will rely on Cheniere LNG O&M Services, L.P., or O&M Services, and its affiliates for personnel needed to construct, operate and maintain our LNG receiving terminal. O&M Services has never constructed, operated or maintained an LNG facility.

Our lack of operating history may limit your ability to evaluate our prospects because of:

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our limited historical financial data;

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our unproven potential to generate profits; and

•

our limited experience in addressing issues that may affect our ability to manage the construction, operation or maintenance of an LNG facility.

Index to Financial Statements

We will be entirely dependent on Cheniere, including employees of Cheniere and its subsidiaries, for key personnel, and a loss of key personnel could have a material adverse effect on our business.

As of September 30, 2006, Cheniere and its subsidiaries had 212 full-time employees, who, for the most part, were focused on the development of three LNG receiving terminals and other complimentary businesses. As construction of our LNG receiving terminal progresses, we will have to hire or otherwise arrange for new onsite employees to manage the facility. Before our LNG receiving terminal commences operations, we will also have to hire or otherwise arrange for an entire staff to operate the facility. We will rely to a significant extent on the new employees that we hire or otherwise arrange to perform these functions. As our operations expand, our general partner and other Cheniere subsidiaries will also have to expand their administrative staffs. If our general partner is not able to successfully manage the expansion of our business, our business, results of operations, financial condition and prospects could be materially adversely affected.

We depend on our general partner’s executive officers for various activities. These persons are also officers of Cheniere or other subsidiaries of Cheniere. We do not maintain key person life insurance policies on any personnel. Although Cheniere has arranged agreements relating to compensation and benefits with certain of our general partner’s executive officers, our general partner does not have any employment contracts or other agreements with key personnel binding them to provide services for any particular term. The loss of the services of any of these individuals could have a material adverse effect on our business. In addition, our future success will depend in part on our general partner’s ability to engage, and Cheniere’s ability to attract and retain, additional qualified personnel.

We will have numerous contractual and commercial relationships, and conflicts of interest, with Cheniere and its affiliates, including Cheniere Marketing.

We have agreements to compensate and to reimburse expenses of affiliates of Cheniere. In addition, we have entered into a TUA with Cheniere Marketing, under which Cheniere Marketing will be able to derive substantially all of the economic benefits that may be generated by our LNG receiving facility beyond the payments to be received by us under our TUAs. Under its TUA, Cheniere Marketing may also require us to build a sixth LNG storage tank within four years after notification from Cheniere Marketing, provided that, among other things, we can obtain financing we consider to be reasonably acceptable. All of these agreements involve conflicts of interest between us, on the one hand, and Cheniere and its other affiliates, on the other hand.

We expect that there will be additional agreements or arrangements with Cheniere and its affiliates, including future interconnection and gas balancing agreements with one or more Cheniere-affiliated natural gas pipelines as well as other agreements and arrangements that cannot now be anticipated. In those circumstances where additional contracts with Cheniere and its affiliates may be necessary or desirable, additional conflicts of interest will be involved.

The interests of Cheniere could conflict with your interest. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of Cheniere, as an equity holder, might conflict with your interests as a noteholder.

If and when the applicable commercial start dates under the TUAs are achieved, we will become dependent upon our TUA counterparties, including cash flows from the Cheniere Marketing TUA, for substantially all of our revenues and cash flows.

Total and Chevron are creditworthy counterparties, and the cash flows from those parties’ 20-year TUAs will be sufficient to fund estimated annual debt service by us after providing for our operating and maintenance costs and other anticipated uses of our funds; however, if our estimates are incorrect and we require additional cash flows, we will be entirely dependent upon Cheniere Marketing’s performance of its obligations under its TUA, or Cheniere’s performance of its guarantee of these obligations of Cheniere Marketing, for any and all such additional cash flows.

Index to Financial Statements

Cheniere Marketing is a small, developing company with virtually no operating history. Its business plan is to utilize its TUA-contracted capacity in our LNG receiving terminal through any economically viable means, including, without limitation, one or more of the following activities:

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entering into sub-TUA arrangements with third parties seeking access to LNG regasification facilities;

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contracting for foreign supplies of LNG and transporting, regasifying and marketing natural gas from LNG;

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contracting for spot purchases of LNG cargoes and regasifying and marketing natural gas from LNG;

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providing marketing services to owners of LNG;

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providing services to owners and marketers of natural gas; and

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related activities.

Our revenues from the Cheniere Marketing TUA will be dependent upon Cheniere Marketing’s economic viability. The risks attendant to Cheniere Marketing’s future economic viability include the following:

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Cheniere Marketing has no agreements or arrangements for any supplies of LNG, for any vessels to transport LNG or to utilize the capacity that it has contracted for under its TUA with us and may not be able to obtain such agreements or arrangements on economical terms, or at all;

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Cheniere Marketing does not have unconditional commitments from customers for the purchase of the natural gas it proposes to sell from our LNG receiving terminal, and it may not be able to obtain commitments or other arrangements on economical terms, or at all;

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Cheniere Marketing has a “precedent agreement” with Cheniere Sabine Pass Pipeline, L.P., which we refer to as Sabine Pass Pipeline, for transportation of natural gas from our LNG receiving terminal to interconnections with other pipelines on which transportation will be required in order to deliver natural gas to purchasers. However, Sabine Pass Pipeline’s proposed pipeline has not been constructed and its timely construction remains a material risk factor for Cheniere Marketing. In addition, Cheniere Marketing has no existing arrangements with other pipelines for transportation of natural gas to customers;

•

even if Cheniere Marketing is able to arrange for supplies and transportation of LNG to our LNG receiving terminal, and for transportation and sales of natural gas to customers, it may experience negative cash flows and adverse liquidity effects due to fluctuations in supply, demand and price for LNG, for transportation of LNG, for natural gas and for transportation of natural gas; and

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Cheniere Marketing is expected to engage in trading and hedging activities, which could also result in negative cash flows and adverse liquidity effects for Cheniere Marketing.

In pursuing each aspect of its planned business, Cheniere Marketing will encounter intense competition, including competition from major oil companies and other competitors with significantly greater resources. Cheniere Marketing will also compete with our other customers and may compete with Cheniere and its other subsidiaries, which are developing other LNG receiving terminals. Cheniere Marketing’s regasification capacity at our LNG receiving terminal, in particular, will be marketed in competition with existing capacity and additional future capacity offered by other terminals that currently exist or that may be completed or expanded in the future by Cheniere affiliates or others.

Any or all of these factors, as well as other risk factors that we or Cheniere Marketing may not be able to anticipate, control or mitigate, could materially and adversely affect the business, results of operations, financial condition, prospects or liquidity of Cheniere Marketing, which in turn could have a material adverse effect upon us.

Index to Financial Statements

Each of the three TUAs that we have entered into is subject to termination by the contractual counterparty under certain circumstances, and we are dependent on the performance of those counterparties under the TUAs.

We have entered into long-term TUAs with Cheniere Marketing, Total and Chevron. Each of the TUAs contains various termination rights. For example, each counterparty may terminate its TUA if we fail to deliver a specified amount of natural gas redelivery nominations or fail to receive or unload a specified number of LNG cargoes. In addition, in the case of each of these TUAs, we are dependent on the respective counterparty’s creditworthiness and continued willingness to perform its obligations under the TUAs. If any of these counterparties fails to perform its obligations under its respective TUA, our business, results of operations, financial condition and prospects could be materially adversely affected, even if we were to be ultimately successful in seeking damages from that counterparty or its guarantor for a breach of the TUA.

We may face competition from competitors with far greater resources, as well as potential overcapacity in the LNG receiving terminal marketplace.

Many companies are considering or pursuing the development of infrastructure in the domestic LNG market, including, without limitation, major oil and gas companies such as ExxonMobil, ConocoPhillips, Royal Dutch/Shell and Chevron Corporation. Other energy companies such as Sempra, Tractebel, McMoRan Exploration, Occidental Petroleum, AES, Excelerate Energy and other public and private companies have also proposed developing or expanding LNG receiving facilities in North America, both onshore and offshore. Almost all of these competitors have longer operating histories, more development experience, greater name recognition, larger staffs and substantially greater financial, technical and marketing resources than we and our affiliates do. The superior resources that these competitors have available for deployment could allow them to compete successfully against us, if and when our TUAs terminate or expire, and/or against Cheniere Marketing, which could have a material adverse effect on us.

Industry analysts have predicted that if all of the proposed LNG receiving terminals in North America that have been announced by developers were actually built, there would likely be substantial excess capacity available from such terminals in the future. In addition, our LNG receiving terminal will likely continue to face competition when and if it is completed, including competition from North American sources of natural gas and onshore, offshore and shipboard LNG regasification facilities. Our LNG receiving terminal will also compete with the Corpus Christi and Creole Trail LNG receiving terminals that Cheniere is developing and the Freeport LNG receiving terminal in which Cheniere owns a minority interest. If the number of LNG receiving terminals built outstrips demand for natural gas from those terminals, the excess capacity could have a material adverse effect on Cheniere Marketing, or on us in the event we have to replace our TUAs, and on our business, results of operations, financial condition and prospects.

Cyclical changes in the demand for LNG regasification capacity may adversely affect our customers, particularly Cheniere Marketing, and may result in reduced operating revenues and may cause operating losses if and when our TUAs terminate or expire.

The economics of LNG terminal operations could be subject to cyclical swings, reflecting alternating periods of under-supply and over-supply of LNG importation capacity and available natural gas, principally due to the combined impact of several factors, including:

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significant additions in regasification capacity in North America, as well as European, Asian and other markets;

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reduced demand for natural gas in North America;

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increased natural gas production in North America;

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higher prices for LNG in alternative markets;

Index to Financial Statements

•

insufficient LNG production worldwide;

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cost improvements that allow competitors to offer LNG regasification services at reduced prices;

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changes in supplies of, and prices for, alternative energy sources such as coal, oil, nuclear, hydroelectric, wind and solar energy; and

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cyclical trends in general business and economic conditions that cause changes in the demand for natural gas.

Changes in the economics of LNG terminal operations could materially adversely affect Cheniere Marketing and, in the event we have to replace our TUAs, our business, results of operations, financial condition and prospects.

Decreases in the price of natural gas in North America could harm our customers, particularly Cheniere Marketing, and us if we have to replace TUAs that terminate or expire.

The development of domestic LNG receiving terminals is based on assumptions about the future price of natural gas and the availability of imported LNG. The willingness of potential customers to contract for regasification capacity would be negatively impacted and, once facilities are in operation, LNG throughput volumes would likely decline if the price of natural gas in North America is, or is forecasted to be, lower than the cost to produce and deliver LNG to North American markets. Any significant decline in the price of natural gas could cause the cost of natural gas produced from imported LNG to be higher than domestically produced natural gas. As a result, any significant decline in the price of natural gas could have a material adverse effect on Cheniere Marketing and/or on our business, results of operations, financial condition and prospects.

Natural gas prices have been, and are likely to continue to be, volatile and subject to wide fluctuations in response to any of the following factors:

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relatively minor changes in the supply of, and demand for, natural gas;

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political conditions in international natural gas producing regions;

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the extent of domestic production and importation of natural gas in relevant markets;

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the level of consumer demand;

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weather conditions;

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the competitive position of natural gas as a source of energy as compared with other energy sources; and

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the effect of federal and state regulation on the production, transportation and sale of natural gas.

Failure of imported LNG to become a competitive source of energy in the U.S. could have a material adverse effect on our customers, particularly Cheniere Marketing, and on us if we have to replace TUAs that terminate or expire.

In the U.S., due mainly to an abundant supply of natural gas, imported LNG has not historically been a major energy source. Cheniere Marketing’s business plan is based on the belief that LNG can be produced and delivered to the U.S. at a lower cost than the cost to produce some domestic supplies of natural gas, or other alternative energy sources. Through the use of improved exploration technologies, additional sources of natural gas may be discovered in North America, which would further increase the available supply of natural gas at a lower cost than LNG. In addition to natural gas, LNG also competes with other sources of energy, including coal, oil, nuclear, hydroelectric, wind and solar energy. As a result, LNG may not become a competitive source of energy in the U.S. The failure of LNG to become a competitive supply alternative to domestic natural gas, oil and other import alternatives could have a material adverse effect on Cheniere Marketing and/or on our business, results of operations, financial condition and prospects.

Index to Financial Statements

The inability to import LNG into the U.S. due to, among other things, governmental regulation or potential instability in countries that supply natural gas could materially adversely affect our customers, particularly Cheniere Marketing, and our business plans and results of operations if we have to replace TUAs that terminate or expire.

Upon completion of our LNG receiving terminal, our business will be dependent upon the ability of our customers to import LNG supplies into the U.S. Political instability in foreign countries that have supplies of natural gas, or strained relations between such countries and the U.S., may impede the willingness or ability of LNG suppliers in such countries to export LNG to the U.S. Such foreign suppliers may also be able to negotiate more favorable prices with other LNG customers around the world than with customers in the U.S., thereby reducing the supply of LNG available to be imported into the U.S. market. In addition, we believe that the existing fleet of tankers that is available to transport LNG is inadequate, and the failure to expand LNG tanker capacity would impede our customers’ ability to import LNG into the U.S. Any significant impediment to the ability to import LNG into the U.S. could have a material adverse affect on Cheniere Marketing and/or on our business, results of operations, financial condition and prospects.

We are subject to significant operating hazards and uninsured risks, one or more of which may create significant liabilities for us.

The construction and operation of our LNG receiving terminal will be subject to the inherent risks often associated with this type of operation, including explosions, pollution, release of toxic substances, fires, hurricanes and adverse weather conditions and other hazards, each of which could result in a significant delay in the timing of commencement of operations and/or in damage to or destruction of our facility or damage to persons and property. In addition, our operations face possible risks associated with acts of aggression or terrorism on our facilities and the facilities and tankers of third parties on which our operations are dependent.

In accordance with customary industry practices, we maintain and intend to maintain insurance against some, but not all, of these risks and losses. We may not be able to maintain desired or required insurance in the future at rates that we consider reasonable. The occurrence of a significant event not fully insured or indemnified against could have a material adverse effect on our business, results of operations, financial condition and prospects.

After our LNG receiving terminal is placed in service, its operation will involve significant risks.

If we are successful in completing Phase 1 and Phase 2—Stage 1 of our LNG receiving terminal, we will still face risks associated with operating the facility. These risks will include, but will not be limited to, the following:

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the facility’s performing below expected levels of efficiency;

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breakdown or failures of equipment;

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operational errors by vessel or tug operators;

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operational errors by us or any contracted facility operator;

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labor disputes; and

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weather-related interruptions of operations.

Our TUAs provide for an in-kind deduction of 2% of the LNG delivered to our LNG receiving terminal, from which we are obligated to provide fuel for self-generated power and gas unavoidably lost at the facility. Our forecasts and business plan assume that approximately one quarter of this in-kind gas deduction volume will remain available for regasification and sale by us after use of the remainder to provide fuel for self-generated power and gas unavoidably lost at the facility. However, our LNG facility is still under construction, the exact quantity of gas that will be required to meet our obligations is not known, and there may be overages or shortages in the allocation of this gas. If additional gas is required to meet our obligations, that gas must be obtained at our expense, and we have no plans or arrangements to obtain any such gas.

Index to Financial Statements

Terrorist attacks or sustained military campaigns may adversely impact our business.

The terrorist attacks that took place in the U.S. on September 11, 2001, and subsequent events have created many economic and political uncertainties, some of which may materially adversely impact our business. The continued threat of terrorism and the impact of military and other actions will likely lead to continued volatility in prices for natural gas and could affect the markets for the operations of our LNG suppliers and customers, on which we will be dependent, as well as lead to increased costs incurred by us in our construction project and in implementing security measures against such threats. Furthermore, the U.S. government has issued public warnings that indicate that pipelines and other energy assets might be specific targets of terrorist organizations. These potential targets might include our assets. Our operations could become subject to increased governmental scrutiny that would require increased security measures. Instability in the financial markets as a result of terrorism or war could also materially adversely affect our ability to raise capital. The continuation of these developments may subject our construction and our operations to increased risks, as well as increased costs, and, depending on their ultimate magnitude, could have a material adverse effect on our business, results of operations, financial condition and prospects.

Existing and future U.S. governmental regulation could seriously harm us.

Our LNG receiving terminal business is and will be subject to extensive federal, state and local laws and regulations that regulate the discharge of natural gas, hazardous substances, materials and other compounds into the environment or otherwise relate to the protection of the environment. Many of these laws and regulations restrict or prohibit the types, quantities and concentration of substances that can be released into the environment and can lead to substantial liabilities for non-compliance or for pollution or releases of hazardous substances, materials or compounds or otherwise require additional costs or changes in operations that could have a material adverse effect on our business, results of operations, financial condition and prospects. Failure to comply with these laws and regulations may also result in substantial civil and criminal fines and penalties.

Federal laws and regulations such as the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, the Clean Air Act, or CAA, the Oil Pollution Act, or OPA, and the Clean Water Act, or CWA, and analogous state laws and regulations have regularly imposed increasingly strict requirements for water and air pollution control, hazardous waste and materials management and strict financial responsibility and remedial response obligations. The cost of complying with such environmental legislation could have a material adverse effect on our business, results of operations, financial condition and prospects.

Existing environmental laws and regulations may be revised or reinterpreted or new laws and regulations may be adopted or become applicable to us. Present, as well as future, legislation and regulations could cause additional expenditures, restrictions and delays in our business and to our planned construction, the extent of which cannot be predicted and which may require us to limit substantially, delay or cease operations in some circumstances. Revised, reinterpreted or additional laws and regulations that result in increased compliance costs or additional operating restrictions could have a material adverse effect on our business, results of operations, financial condition and prospects.

Risks Relating to the Exchange Offer and the Notes

If you do not properly tender your initial notes, you will continue to hold unregistered outstanding notes and your ability to transfer outstanding notes will be adversely affected.

We will only issue notes in exchange for initial notes that you timely and properly tender. Therefore, you should allow sufficient time to ensure timely delivery of the initial notes, and you should carefully follow the instructions on how to tender your initial notes. Neither we nor the exchange agent is required to tell you of any defects or irregularities with respect to your tender of initial notes. Please read “The Exchange Offer—Procedures for Tendering” and “Description of Notes.”

Index to Financial Statements

If you do not exchange your initial notes for notes in the exchange offer, you will continue to be subject to the restrictions on transfer of your initial notes described in the legend on the certificates for your initial notes. In

general, you may only offer or sell the initial notes if they are registered under the Securities Act and applicable state securities laws, or offered and sold under an exemption from these requirements. Except in connection with this exchange offer or as required by the registration rights agreement, we do not intend to register resales of the initial notes under the Securities Act. For further information regarding the consequences of tendering your initial notes in the exchange offer, please read “The Exchange Offer—Consequences of Failure to Exchange Outstanding Securities.”

Some holders who exchange their initial notes may be deemed to be underwriters.

If you exchange your initial notes in the exchange offer for the purpose of participating in a distribution of the notes, you may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction.

In addition to incurring indebtedness as a result of the notes, we will still be able to incur substantially more indebtedness in the future. This could further exacerbate the risks associated with our substantial leverage.

The indenture governing the notes does not prohibit us from incurring additional indebtedness, including additional senior or secured indebtedness, and other liabilities, or from pledging assets to secure such indebtedness and liabilities. The incurrence of additional indebtedness and, in particular, the granting of a security interest to secure the indebtedness could adversely affect our ability to pay our obligations on the notes.

Our substantial indebtedness could adversely affect our ability to operate our business and prevent us from fulfilling our obligations under the notes.

In connection with the issuance of the initial notes, we incurred $2,032 million of indebtedness. Our substantial indebtedness could have important consequences to you, including:

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making it more difficult for us to satisfy our obligations with respect to the notes;

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limiting our ability to obtain additional financing to fund our capital expenditures, working capital, acquisitions, debt service requirements or liquidity needs for general business or other purposes;

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limiting our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to service debt, including indebtedness that we may incur in the future;

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limiting our ability to compete with other companies who are not as highly leveraged;

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limiting our ability to react to changing market conditions in our industry and in our customers’ industries and to economic downturns;

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limiting our flexibility in planning for, or reacting to, changes in our business and future business opportunities;

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making us more vulnerable than a less leveraged company to a downturn in our business or in the economy;

•

limiting our ability to attract customers; and

•

resulting in a material adverse effect on our business, results of operations and financial condition if we are unable to service our indebtedness or obtain additional financing, as needed.

Our ability to satisfy our obligations, including the notes, will depend upon our future operating performance. Prevailing economic conditions and financial, business and other factors, many of which are beyond our control, will affect our ability to make payments on our debt obligations. We do not anticipate

Index to Financial Statements

receiving continuous operating cash flows before 2008, when Phase 1 of our LNG receiving terminal is anticipated to commence terminal operations. If we cannot thereafter generate sufficient cash from operations to meet our other obligations, we may need to refinance or sell assets. Our business may not generate sufficient cash flow, or we may not be able to obtain sufficient funding, to make the payments required by all of our debt, including the notes.

To service our indebtedness, we will require significant amounts of cash. Our ability to generate cash will depend on many factors beyond our control.

Our ability to make payments on and to refinance our indebtedness, including the notes, and to fund planned capital expenditures, will depend on our ability to generate cash in the future. Our business may not generate sufficient cash flow from operations, currently anticipated costs may increase or future borrowings may not be available to us in an amount sufficient to enable us to pay our indebtedness, including the notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, including the notes, on or before maturity. If any of the counterparties to our TUAs fails to perform its obligations under its respective TUA or if any of our TUAs are terminated, it could adversely affect our ability to make payments on or refinance the notes. We may not be able to refinance any of our indebtedness, including the notes, on commercially reasonable terms or at all.

Our financial estimates, including our illustrative cash flow summary, are based on certain assumptions that may not materialize.

The financial estimates that we have included in this prospectus, including under “Summary—Illustrative Cash Flow Summary,” are based upon assumptions and information that we believe are reliable as of today. However, these estimates and assumptions are inherently subject to significant business, economic and other uncertainties, many of which are beyond our control. Financial estimates are necessarily speculative in nature, and you should expect that some or all of the assumptions will not materialize. Actual results will probably vary from the estimates, and the variations will likely be material and are likely to increase over time. Consequently, the inclusion of estimates in this prospectus should not be regarded as a representation by us or any other person that the estimated results will actually be achieved. Moreover, we do not intend to update or otherwise revise the estimates to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events. Undue reliance should not be placed on the estimates contained in this prospectus. Our estimates were not prepared with a view toward compliance with the American Institute of Certified Public Accountants or any other regulatory or professional body, compliance with accounting principles generally accepted in the U.S. or elsewhere, or consistency with our audited financial statements. Moreover, no independent accountants compiled or examined the estimates, and, accordingly, our independent accountants do not express an opinion or any other form of assurance with respect to our estimates and assume no responsibility for, and disclaim any association with, the estimates.

The funds raised in connection with the offering of the initial notes may not be adequate to meet all of our needs, and we may have to seek additional financing.

As of September 30, 2006, we had spent $236.7 million of equity capital and capacity reservation fee prepayments and $270.5 million of project finance debt proceeds toward the development and construction of our LNG receiving terminal. We expect to continue to make significant capital outlays for the foreseeable future to fund the remaining cost of our LNG receiving terminal prior to the time that we begin to generate positive cash flow from operations and for the foreseeable future thereafter. We currently believe that the net proceeds from the sale of the initial notes will be sufficient to meet our currently anticipated capital, operating and debt service requirements through the first half of 2009. We currently project that our cash flows from operations will commence in 2008, when Phase 1 of our LNG receiving terminal is anticipated to commence terminal operations, and will be sufficient to meet our ongoing capital and operating requirements and to pay the interest on our outstanding debt after the first half of 2009. Under its TUA, Cheniere Marketing may require us to build a

Index to Financial Statements

sixth LNG storage tank within four years after notification from Cheniere Marketing, provided that, among other things, we can obtain financing we consider to be reasonably acceptable. This agreement could require us to incur substantial additional debt. If our cash flows from operations are less than projected, or if our future operating, capital and debt service requirements are higher than we currently estimate, we will require additional debt or equity financing in amounts that could be substantial.

The type, timing and terms of any future financing will depend on our cash requirements, our cash flows and prevailing conditions in the financial markets. Future financing may not be available to us at any given time or the terms thereof may not be desirable. Our current estimates of future results of operations (which will depend upon numerous future factors and conditions, many of which are outside of our control) may not be accurate. They are merely estimates of future events, and actual events will probably vary from current estimates, possibly materially. If we decide or are required to further expand our facility or to introduce new products or services, our funding needs will increase, possibly to a significant degree.

Because the costs of constructing, maintaining and operating our LNG receiving terminal, the costs of conducting our business, and the amounts of our future revenues, will all depend on a variety of factors (including our ability to meet our construction schedules, performance by our contract counterparties and potential regulatory changes), actual costs and revenues may vary from expected amounts, possibly to a material degree, and such variations are likely to affect our future capital requirements. Accordingly, we may be required to raise substantial additional capital in the future and our current estimates may prove to be inaccurate.

The indenture governing the notes contains restrictions that limit our flexibility in operating our business.

The indenture governing the notes contains several significant covenants that, among other things, restrict our ability to:

•

incur additional indebtedness;

•

create liens on our assets; and

•

engage in sale and leaseback transactions and mergers or acquisitions and to make equity investments.

Under some circumstances, these restrictive covenants may not allow us the flexibility that we need to operate our business in an effective and efficient manner and may prevent us from taking advantage of strategic and financial opportunities that would benefit our business. However, these covenants are also subject to significant exceptions which provide flexibility to us but may provide greater risk to holders of the notes.

If we fail to comply with the restrictions in the indenture governing the notes or any other subsequent financing agreements, a default may allow the creditors, if the agreements so provide, to accelerate the related indebtedness as well as any other indebtedness to which a cross-acceleration or cross-default provision applies.

We may not be able to repurchase the notes upon a change in control or upon the exercise of the holders’ options to require repurchase of notes if certain asset sales or loss events occur.

Upon the occurrence of a change in control, you will have the right to require us to repurchase your notes at a purchase price in cash equal to 101% of the principal amount of your notes plus accrued and unpaid interest, if any. Any future credit agreement or other agreements relating to indebtedness to which we become a party may contain similar provisions. In the event that we or our general partner experiences a change in control that results in us having to repurchase the notes or upon the exercise of the holders’ options to require repurchase of the notes in the event of certain asset sales or loss events, we may not have sufficient financial resources to satisfy all of our obligations under the notes and our other debt instruments. Our failure to make the change in control offer or to pay the change in control purchase price when due or to make payments upon the exercise of the holders’ options to require repurchase of the notes in the event of certain asset sales or loss events would result in a

Index to Financial Statements

default under the indenture governing the notes. In addition, the change in control feature of the notes does not cover all corporate reorganizations, mergers or similar transactions and may not provide you with protection in a highly leveraged transaction. See “Description of Notes—Repurchase at the Option of Holders.”

Federal and state statutes allow courts, under specific circumstances, to void the notes and require note holders to return payments received from us.

Under the federal bankruptcy laws and comparable provisions of state fraudulent transfer laws, the notes could be voided, or claims in respect of the notes could be subordinated to all other debts of ours if, among other things, we, at the time the indebtedness evidenced by the notes was incurred:

•

received less than reasonably equivalent value or fair consideration for the incurrence of the indebtedness; and

•

were insolvent or rendered insolvent by reason of the incurrence of the indebtedness; or

•

were engaged, or about to engage, in a business or transaction for which our remaining assets constituted unreasonably small capital; or

•

intended to incur, or believed that we would incur, debts beyond our ability to pay such debts as they matured.

In addition, any payment by us could be voided and required to be returned to us, or to a fund for the benefit of our creditors. In any such case, your right to receive payments in respect of the notes from us would be effectively subordinated to all of our indebtedness and other liabilities.

The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, we would be considered insolvent if:

•

the sum of our debts, including contingent liabilities, was greater than the fair saleable value of all of our assets;

•

if the present fair saleable value of our assets were less than the amount that would be required to pay our probable liability on our total existing debts and liabilities, including contingent liabilities, as they become absolute and mature; or

•

we could not pay our debts as they become due.

The rights of the collateral trustee to foreclose upon collateral may be impaired by bankruptcy law.

The rights of the collateral trustee under the security documents to foreclose upon and sell collateral, including assets in any reserve account, upon the occurrence of an event of default on the notes is likely to be significantly impaired by applicable bankruptcy law if a bankruptcy or reorganization case were to be commenced by or against us. Under applicable bankruptcy law, secured creditors such as the holders of the notes would be prohibited from foreclosing upon or disposing of a debtor’s property without prior bankruptcy court approval.

Your ability to resell the notes may be limited by a number of factors; prices for the notes may be volatile.

The notes will not be listed on any securities exchange or on any automated dealer quotation system. An active market may not exist for the notes; any trading market that does develop may not be liquid. If a market for the notes were to develop, the notes could trade at prices that may be higher or lower than reflected by their initial offering price, depending on many factors, including among other things:

•

changes in the overall market for debt securities;

Index to Financial Statements

•

changes in our financial performance or prospects;

•

the prospects for companies in our industry generally;

•

the number of holders of the notes;

•

the interest of securities dealers in making a market for the notes; and

•

prevailing interest rates.

In addition, the market for non-investment grade indebtedness has historically been subject to disruptions that have caused substantial volatility in the prices of securities similar to the notes. The market for the notes, if any, may be subject to similar disruptions. Any such disruption could adversely affect the value of your notes.

The forward-looking statements contained in this prospectus are based on our predictions of future performance. As a result, you should not place undue reliance on these forward-looking statements.

This prospectus includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including, in particular, the statements about our plans, strategies, and prospects under the headings “Summary,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Our plans, intentions or expectations included in this prospectus may not be achieved. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this prospectus are set forth above in this “Risk Factors” section and elsewhere in this prospectus. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.

Index to Financial Statements

USE OF PROCEEDS

We will not receive any proceeds from the issuance of the notes in the exchange offer. The exchange offer is intended to satisfy our obligations under the registration rights agreement we entered into in connection with the private offering of the initial notes. In consideration for issuing the notes as contemplated in this prospectus, we will receive, in exchange, outstanding initial notes in like principal amount. We will cancel all initial notes surrendered in exchange for notes in the exchange offer. As a result, the issuance of the notes will not result in any increase or decrease in our indebtedness.

Index to Financial Statements

SELECTED HISTORICAL FINANCIAL DATA


(Dollars in thousands)	Period from October 20, 2003 (inception) to December 31, 2003			Year ended December 31,						Period from October 20, 2003 (inception) to December 31, 2005			Nine months ended September 30,						Period from October 20, 2003 (inception) to September 30, 2006
(Dollars in thousands)				2004			2005						2005			2006
Revenues	$	—		$	—		$	—		$	—		$	—		$	—		$	—
Expenses		2,763			4,682			4,711			12,156			3,405			9,392			21,548
Loss from operations		(2,763	)		(4,682	)		(4,711	)		(12,156	)		(3,405	)		(9,392	)		(21,548	)

Other income (expense)		—			28			456			484			83			113			597

Net loss	$	(2,763	)	$	(4,654	)	$	(4,255	)	$	(11,672	)	$	(3,322	)	$	(9,279	)	$	(20,951	)

Ratio of earnings to fixed charges(1)		—			—			—			—			—			—			—


(Dollars in thousands)	December 31,						September 30, 2006
(Dollars in thousands)	2003		2004		2005		September 30, 2006
Cash and cash equivalents (unrestricted)	$	—	$	21,822	$	—	$	—
Total assets		101		23,316		309,135		613,825
Long-term debt		—		—		37,377		351,500
Deferred revenues		—		22,000		40,000		40,000
Total other long-term liabilities		2,864		17,418		120		19,376

(1)

Index to Financial Statements

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of financial condition and results of operations should be read in conjunction with our historical financial statements included in this prospectus. The following discussion contains, in addition to historical information, forward-looking statements that are subject to significant risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those factors set forth under the captions “Forward-Looking Statements” and “Risk Factors” and elsewhere in this prospectus.

BUSINESS AND OPERATIONS

Overview

In 2003, we were formed by Cheniere to develop the Sabine Pass LNG receiving terminal. The initial phase, or Phase 1, of our LNG receiving terminal was designed with an initial regasification capacity of 2.6 Bcf/d and three LNG storage tanks with an aggregate LNG storage capacity of 10.1 Bcfe, along with two unloading docks capable of handling 87,000 cm to 250,000 cm LNG vessels. In July 2006, we received approval from the FERC to increase the regasification capacity of our LNG receiving terminal up to 4.0 Bcf/d and to add up to three additional LNG storage tanks and related facilities. This expansion is referred to as Phase 2.

Construction of our LNG receiving terminal began in March 2005. We expect to achieve Phase 1 Target Completion by the first quarter of 2008. We expect to complete construction and cool down of the third tank and the rest of Phase 1, and achieve the full 2.6 Bcf/d of Phase 1 regasification capacity, in the third quarter of 2008. LNG regasification operations relating to the Phase 2—Stage 1 expansion are expected to commence by April 2009. We expect to complete all of Phase 2—Stage 1, including construction, cool down and commissioning of the fourth and fifth tanks, and achieve full operability at 4.0 Bcf/d in the third quarter of 2009.

LIQUIDITY AND CAPITAL RESOURCES

Our LNG receiving terminal project will require significant amounts of capital and is subject to risks and delays in completion. Even if successfully completed, our LNG receiving terminal is not expected to begin to operate and generate significant cash flows before the first quarter of 2008, at the earliest.

The cost to construct Phase 1 of our LNG facility is currently estimated at approximately $900 million to $950 million, before financing costs. Phase 2—Stage 1 is estimated to cost approximately $500 million to $550 million, before financing costs. Our cost estimates are subject to change due to such items as cost overruns, change orders, changes in commodity prices (particularly nickel and steel), escalation of labor costs and additional funds that may be expended to maintain our construction schedule.

We currently expect that our capital resources requirements will be financed through the proceeds received from the issuance of the initial notes and cash flows under our three TUAs. We believe that we will have adequate financial resources available to us to complete Phase 1 and Phase 2—Stage 1 of our LNG receiving terminal and to meet our currently anticipated capital, operating and debt service requirements through the first half of 2009. We currently project that our cash flows from operations will commence in the first quarter of 2008, when Phase 1 of our LNG receiving terminal is anticipated to commence terminal operations, and will be sufficient to meet our ongoing capital and operating requirements and to pay the interest on our outstanding debt

Index to Financial Statements

after the first half of 2009. Under its TUA, Cheniere Marketing may require us to build a sixth LNG storage tank within four years after notification from Cheniere Marketing, provided that, among other things, we can obtain financing we consider to be reasonably acceptable. This agreement could require us to incur additional debt.

To service our indebtedness, we will require significant amounts of cash. Our ability to generate cash will depend on many factors beyond our control. Our ability to make payments on and to refinance our indebtedness, including the notes, and to fund planned capital expenditures will depend on our ability to operate our LNG receiving terminal and to generate cash in the future. This is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We may not complete our LNG receiving terminal, our business may not generate sufficient cash flow from operations, currently anticipated costs may increase or future borrowings may not be available to us in amounts sufficient to enable us to pay our indebtedness, including the notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, including the notes, on or before maturity, but we may not be able to do so on commercially reasonable terms or at all.

Capital Resources

Proceeds from Issuance of Initial Notes

We received approximately $2 billion in net proceeds from the issuance of the initial notes. We placed $335 million of the net proceeds in a reserve account to fund scheduled interest payments on the notes through May 2009. We also placed approximately $887 million in a construction account, which, until Phase 1 Target Completion, will only be applied to pay construction and startup costs of our LNG receiving terminal project and to pay other expenses incidental for us to complete construction of the project. Following completion of Phase 1 of the project, any amount remaining in the construction account will be transferred to a revenue account. All revenues received by us will be deposited in the revenue account and will be applied as described under “Description of Notes—Pre-Completion Account Flows” and “Description of Notes—Post-Completion Account Flows.”

Customer TUAs

Total has paid us nonrefundable advance capacity reservation fees of $20 million in the aggregate in connection with the reservation under its 20-year TUA of approximately 1.0 Bcf/d of LNG regasification capacity at our LNG receiving terminal. Chevron has also paid us nonrefundable advance capacity reservation fees of $20 million in the aggregate in connection with the reservation under its 20-year TUA of approximately 1.0 Bcf/d of LNG regasification capacity at our LNG receiving terminal. These capacity reservation fee payments will be amortized over a 10-year period as a reduction of each customer’s regasification capacity fees payable under its TUA. We have also entered into a 20-year TUA with Cheniere Marketing for the balance of the regasification capacity at our LNG receiving terminal.

Amended Sabine Pass Credit Facility

In February 2005, we entered into an $822 million credit agreement with HSBC Bank, USA and Société Générale and a syndicate of financial institutions, and related interest rate swap agreements. This original credit facility was subsequently amended and restated in July 2006, which increased the amount of loans available to us to $1.5 billion to finance Phase 1 and Phase 2—Stage 1 expansion construction of our LNG receiving terminal. In connection with the issuance of the initial notes, our amended credit facility and related interest rate swaps were terminated.

Uses of Capital

Phase 1 EPC Agreement

Index to Financial Statements

the engineering, procurement and construction of the receiving terminal. Except for certain third-party work specified in the EPC agreement, the work to be performed by Bechtel includes all of the work required to achieve substantial completion and final completion of Phase 1 of the LNG receiving terminal in accordance with the requirements of the EPC agreement.

We agreed to pay Bechtel a contract price of $646.9 million plus certain reimbursable costs for the work performed under the EPC agreement. This contract price is subject to adjustment for changes in certain commodity prices, contingencies, change orders and other items. As of September 30, 2006, change orders for $89.1 million were approved, increasing the total contract price to $736.1 million. We anticipate that additional change orders, intended to mitigate ongoing effects of the 2005 hurricanes, will not exceed $25 million.

We expect our costs to complete construction of Phase 1 will be approximately $900 million to $950 million, before financing costs.

Phase 2 Construction Agreements

In July 2006, we entered into three construction agreements to facilitate construction of the Phase 2—Stage 1 expansion, as follows:

We entered into an EPCM agreement with Bechtel pursuant to which Bechtel will provide design and engineering services for Phase 2—Stage 1 of our LNG receiving terminal project, except for such portions to be designed by other contractors and suppliers of equipment, materials and services that we contract with directly; construction management services to manage the construction of the LNG receiving terminal; and performance of a portion of the construction. Under the terms of the EPCM agreement, Bechtel will be paid on a cost reimbursable basis, plus a fixed fee in the amount of $18.5 million. A discretionary bonus may be paid to Bechtel at our sole discretion upon completion of Phase 2—Stage 1. See “Description of Principal Project Documents—Phase 2—Stage 1 EPCM Agreement.”

We entered into an EPC LNG tank contract with Zachry Construction Corporation, or Zachry, and Diamond LNG LLC, or Diamond, pursuant to which Zachry and Diamond will furnish all plant, labor, materials, tools, supplies, equipment, transportation, supervision, technical, professional and other services, and perform all operations necessary and required to satisfactorily engineer, procure and construct the two Phase 2—Stage 1 LNG storage tanks. In addition, we have the option (to be elected on or before March 31, 2007) for Zachry and Diamond to engineer, procure and construct a sixth tank, with the cost and completion date to be agreed upon if the option is elected. The tank contract provides that Zachry and Diamond will receive a lump-sum, fixed price payment for the two Phase 2—Stage 1 tanks of approximately $140.9 million, which is subject to adjustment based on fluctuations in the cost of labor and certain materials, including the steel used in the Phase 2—Stage 1 tanks, and change orders. See “Description of Principal Project Documents—Phase 2—Stage 1 EPC LNG Tank Contract.”

We entered into an EPC LNG unit rate soil contract with Remedial Construction Services, L.P., or Recon. Under the soil contract, Recon is required to furnish all plant, labor, materials, tools, supplies, equipment, transportation, supervision, technical, professional and other services, and perform all operations necessary and required to satisfactorily conduct soil remediation and improvement on the Phase 2 site. Upon issuing a final notice to proceed, we paid Recon an initial payment of approximately $2.9 million. The soil contract price is based on unit rates. Payments under the soil contract will be made based on quantities of work performed at unit rates. See “Description of Principal Project Documents—Phase 2—Stage 1 EPC LNG Soil Contract.”

We expect our costs to complete construction of Phase 2—Stage 1 will be approximately $500 million to $550 million, before financing costs.

Short-Term Liquidity Needs

We anticipate funding our more immediate liquidity requirements, including expenditures related to the construction of our LNG receiving terminal, with proceeds from the issuance of the initial notes.

Index to Financial Statements

Historical Cash Flows

Net cash used in operating activities was $6.2 million during the nine months ended September 30, 2006 compared to $3.2 million net cash provided by operating activities in the same period of 2005. Net cash provided by operating activities during the nine months ended September 30, 2005 was primarily the result of our receipt of $15.0 million in advance terminal capacity reservation fees partially offset by a $7.4 million reimbursement of expenses paid to an affiliate. Absent these items, we would have recorded net cash used in operating activities of $4.4 million for the nine-month period ended September 30, 2005.

Net cash used in investing activities was $296.4 million during the nine months ended September 30, 2006 compared to net cash used in investing activities of $181.0 million during the nine months ended September 30, 2005. During the first nine months of 2006, we invested $287.5 million of cash in expenditures relating to the construction of our LNG receiving terminal compared to $164.5 million in the comparable period of 2005. In addition, we advanced $4.9 million to third-party contractors for the procurement of long-term assets. Our investment activities during the first nine months of 2005 included $16.2 million of advances to Bechtel, net of transfers to construction-in-progress.

Net cash provided by financing activities during the first nine months of 2006 was $302.6 million compared to net cash provided by financing activities of $156.0 million during the same period of 2005. During the first nine months of 2006, we received proceeds from borrowings under the original Sabine Pass credit facility totaling $351.5 million. These proceeds were partially offset by $11.5 million in debt issuance costs primarily related to the amended credit facility, and the repayment of a $37.4 million related party subordinated note. During the first nine months of 2005, we received $171.8 million in limited partner capital contributions from an affiliate, which was partially reduced by $15.8 million in debt issuance costs related to the original credit facility.

Our cash and cash equivalent ending balances were zero as of September 30, 2006, as all cash and cash equivalents were restricted under the terms of the amended credit facility.

Contractual Obligations

We are committed to make cash payments in the future on certain of our contracts. We have no off-balance sheet debt or other such unrecorded obligations, and we have not guaranteed the debt of any other party. Below is a schedule of the future payments that we are obligated to make based on agreements in place as of December 31, 2005 (in thousands).


	Payments Due for Years Ended December 31,
	Total		2006		2007-2008		2009-2010		Thereafter
Operating leases	$	43,529	$	1,501	$	3,002	$	3,002	$	36,024

Lease Commitments and Other Obligations

In January 2005, we exercised our options and entered into three land leases for our LNG receiving terminal site. The leases have an initial term of 30 years, with options to renew for six 10-year extensions. In February 2005, two of the three leases were amended, thereby increasing the total acreage under lease to 853 acres and increasing the annual lease payments to $1.5 million. For 2005, these payments were capitalized as part of the construction cost of our receiving terminal; however, beginning in January 2006, these lease payments have been expensed as required by Financial Accounting Standards Board, or FASB, Staff Position, or FSP, 13-1, Accounting for Rental Costs Incurred During Construction .

Inflation

We have experienced escalated steel prices relating to the construction of our LNG receiving terminal and labor costs in connection with the collateral effects of the 2005 hurricanes, which have been reflected in our estimated costs to construct our LNG receiving terminal.

Index to Financial Statements

Off-Balance Sheet Arrangements

As of September 30, 2006, we had no off-balance sheet debt or other such unrecorded obligations, and we have not guaranteed the debt of any other party.

RESULTS OF OPERATIONS

Nine Months Ended September 30, 2006 compared to Nine Months Ended September 30, 2005

Overview

Our financial results for the nine months ended September 30, 2006 reflected a net loss of $9.3 million compared to a net loss of $3.3 million for the same period in 2005. Because we are a development stage company, currently in the construction phase for our LNG receiving terminal, no operating revenues have been recorded to date.

Expenses

Total expenses were $9.4 million during the first nine months of 2006 compared to $3.4 million during the first nine months of 2005, a $6.0 million increase. This increase was primarily attributable to the reimbursement of development expenses related to Phase 2 of our LNG receiving terminal and land site rental costs.

Prior to the execution of the amended credit facility in July 2006, an affiliate spent $4.5 million related to technical, consulting, legal and other professional fees associated with front-end engineering and design work, obtaining an order from the FERC authorizing construction of Phase 2 of our LNG receiving terminal and other required permitting. Concurrently with the execution of the amended credit facility in July 2006, such development expenses became our obligation, and we reimbursed the affiliate for such expenses in August 2006. During 2005, land site rental payments were capitalized as part of the construction cost of our LNG receiving terminal; however, beginning in January 2006, these rental payments ($1.1 million) have been expensed as required by FSP 13-1.

Fiscal Year Ended December 31, 2005 compared to Fiscal Year Ended December 31, 2004

Overview

Our financial results for the year ended December 31, 2005 reflected a net loss of $4.3 million compared to a net loss of $4.7 million for the year ended December 31, 2004.

Expenses

Total expenses for each of the years ended December 31, 2004 and 2005 were $4.7 million. During 2004, primarily all of our expenses related to technical, consulting, legal and other professional fees associated with front-end engineering and design work, obtaining an order from FERC authorizing construction of our LNG receiving terminal and other required permitting. In March 2005, we received the order from FERC authorizing construction of our LNG receiving terminal and, accordingly, began construction. In mid-February 2005, we began paying overhead charges to affiliates related to services required to construct our LNG receiving terminal. These charges totaled $4.1 million in 2005 (net of $0.3 million capitalized).

Other Income (Expense)

Other income for the year ended December 31, 2005 was $0.5 million compared to almost zero for 2004. We recorded a derivative gain of $0.3 million in 2005 compared to none in 2004. The derivative gain was related to the ineffective portion of our interest rate swap gain associated with the original credit facility entered into in February 2005.

Index to Financial Statements

Period from October 20, 2003 (Inception) to December 31, 2003

We recorded a net loss of $2.8 million for the period from October 20, 2003 (inception) to December 31, 2003. The net loss related to expenses incurred for technical, consulting, legal and other professional fees associated with front-end engineering and design work, obtaining an order from FERC authorizing construction of our LNG receiving terminal and other required permitting.

OTHER MATTERS

Critical Accounting Estimates and Policies

The selection and application of accounting policies is an important process that has developed as our business activities have evolved and as the accounting rules have developed. Accounting rules generally do not involve a selection among alternatives but involve an implementation and interpretation of existing rules, and the use of judgment, to the specific set of circumstances existing in our business. We make every effort to comply properly with all applicable rules on or before their adoption, and we believe that the proper implementation and consistent application of the accounting rules are critical. However, not all situations are specifically addressed in the accounting literature. In these cases, we must use our best judgment to adopt a policy for accounting for these situations. We accomplish this by analogizing to similar situations and the accounting guidance governing them.

Accounting for LNG Activities

Generally, expenditures for direct construction activities, major renewals and betterments are capitalized, while expenditures for maintenance and repairs and general and administrative activities are charged to expense as incurred. Beginning in 2006, site rental costs are expensed as required by FSP 13-1, Accounting for Rental Costs Incurred During a Construction Period .

During the construction period of our LNG receiving terminal, we capitalize interest and other related debt costs in accordance with Statement of Financial Accounting Standards, or SFAS, No. 34, Capitalization of Interest Cost , as amended by SFAS No. 58, Capitalization of Interest Cost in Financial Statements That Include Investments Accounted for by the Equity Method (an Amendment of FASB Statement No. 34) . Upon commencement of operations, capitalized interest, as a component of the total cost, will be amortized over the estimated useful life of the asset.

Revenue Recognition

LNG receiving terminal capacity reservation fees are recognized as revenue over the term of the respective TUAs. Advance capacity reservation fees are deferred initially.

Cash Flow Hedges

As defined in SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities , cash flow hedge transactions hedge the exposure to variability in expected future cash flows (i.e., in our case, the variability of floating interest rate exposure). In the case of cash flow hedges, the hedged item (the underlying risk) is generally unrecognized (i.e., not recorded on the balance sheet prior to settlement), and any changes in the fair value, therefore, will not be recorded within earnings. Conceptually, if a cash flow hedge is effective, this means that a variable, such as a movement in interest rates, has been effectively fixed so that any fluctuations will have no net result on either cash flows or earnings. Therefore, if the changes in fair value of the hedged item are not recorded in earnings, then the changes in fair value of the hedging instrument (the derivative) must also be excluded from the income statement or else a one-sided net impact on earnings will be reported, despite the fact that the establishment of the effective hedge results in no net economic impact. To prevent such a scenario from occurring, SFAS No. 133 requires that the fair value of a derivative instrument designated as a cash flow hedge be recorded as an asset or liability on the balance sheet, but with the offset reported as part of other comprehensive income, to the extent that the hedge is effective. Any ineffective portion will be reflected in earnings.

Index to Financial Statements

NEW ACCOUNTING PRONOUNCEMENTS

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments . SFAS No. 155 provides entities with relief from having to separately determine the fair value of an embedded derivative that would otherwise be required to be bifurcated from its host contract in accordance with SFAS No. 133. SFAS No. 155 allows an entity to make an irrevocable election to measure such a hybrid financial instrument at fair value in its entirety, with changes in fair value recognized in earnings. SFAS No. 155 is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring after the beginning of an entity’s first fiscal year that begins after September 15, 2006. We believe that the adoption of SFAS No. 155 will not have a material impact on our financial position, results of operations or cash flows.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets—An Amendment to FASB Statement No. 140 . SFAS No. 156 requires entities to recognize a servicing asset or liability each time they undertake an obligation to service a financial asset by entering into a servicing contract in certain situations. This statement also requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value and permits a choice of either the amortization or fair value measurement method for subsequent measurement. The effective date of this statement is for annual periods beginning after September 15, 2006, with earlier adoption permitted as of the beginning of an entity’s fiscal year provided the entity has not issued any financial statements for that year. We do not plan to adopt SFAS No. 156 early, and we are currently assessing the impact on our consolidated financial statements.

In July 2006, the FASB issued FASB Interpretation, or FIN, No. 48, Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109 . FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This new standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The provisions of FIN No. 48 are to be applied to all tax positions upon initial adoption of this standard. Only tax positions that meet the more likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized upon adoption of FIN No. 48. The cumulative effect of applying the provisions of FIN No. 48 should be reported as an adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for that fiscal year. The provisions of FIN No. 48 are effective for fiscal years beginning after December 15, 2006. Earlier application is permitted as long as the enterprise has not yet issued financial statements, including interim financial statements, in the period of adoption. We believe that the adoption of FIN No. 48 will not have a material impact on our financial position, results of operations or cash flows.

In July 2006, the FASB issued FSP No. FAS 13-2, Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction . FSP No. FAS 13-2 requires that changes in the projected timing of income tax cash flows generated by a leveraged lease transaction be recognized as a gain or loss in the year in which change occurs. The pretax gain or loss is required to be included in the same line item in which the leveraged lease income is recognized, with the tax effect being included in the provision for income taxes. FSP No. FAS 13-2 is effective for fiscal years beginning after December 15, 2006. We believe that the adoption of FSP No. FAS 13-2 will not have a material impact on our financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements . SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. We are currently determining the effect, if any, the adoption of SFAS No. 157 will have on our financial statements.

Index to Financial Statements

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plan—an amendment of FASB Statement No. 87, 88, 106 and 132(R) . SFAS No. 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and recognize changes in the funded status in the year in which the changes occur. SFAS No. 158 is effective for fiscal years ending after December 15, 2006. We believe that the adoption of SFAS No. 158 will not have a material impact on our financial position, results of operations or cash flows.

In September 2006, the FASB issued FSP No. AUG AIR-1, Accounting for Planned Major Maintenance Activities . FSP No. AUG AIR-1 prohibits the use of the accrue-in-advance method for accounting for major maintenance activities and confirms the acceptable methods of accounting for planned major maintenance activities. FSP No. AUG AIR-1 is effective the first fiscal year beginning after December 15, 2006. We believe that the adoption of FSP No. AUG AIR-1 will not have a material impact on our financial position, results of operations or cash flows.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have cash investments that we manage based on internal investment guidelines that emphasize liquidity and preservation of capital. Such cash investments are stated at historical cost, which approximates fair market value on our balance sheet.

Interest Rates

Prior to termination of our amended credit facility on November 9, 2006, we were exposed to changes in interest rates primarily as a result of our debt obligations. The fair value of our fixed rate debt was affected by changes in market rates. We utilized interest rate swap agreements to mitigate exposure to rising interest rates. We did not use interest rate swap agreements for speculative or trading purposes.

At September 30, 2006, we had approximately $351.5 million of non-affiliated debt outstanding. Our amended credit facility bore interest at floating rates; however, we entered into interest rate swaps with respect to this loan amount. In connection with the issuance of the initial notes, our amended credit facility and interest rate swaps were terminated. The following table summarizes the fair market values of our interest rate swap agreements as of September 30, 2006 (in thousands):


Maturity Date	Weighted Average Notional Principal Amount		Fixed Interest Rate (Pay)	Weighted Average Interest Rate		Fair Market Value(1)
September through December 2006	$	468,847	4.49% - 5.69%	US$	LIBOR BBA	$	917
January through December 2007		768,989	4.49% - 5.69%	US$	LIBOR BBA		1,230
January through December 2008		1,075,088	4.49% - 5.69%	US$	LIBOR BBA		(1,212	)
January through December 2009		1,243,482	4.49% - 5.69%	US$	LIBOR BBA		(2,273	)
January through December 2010		1,249,997	4.98% - 5.69%	US$	LIBOR BBA		(3,359	)
January through December 2011		1,249,996	4.98% - 5.69%	US$	LIBOR BBA		(1,943	)
January through December 2012		1,250,000	4.98% - 5.69%	US$	LIBOR BBA		(3,210	)
January through December 2013		881,483	5.69%	US$	LIBOR BBA		(3,742	)
January through December 2014		619,241	5.69%	US$	LIBOR BBA		(1,831	)
January through June 2015		597,166	5.69%	US$	LIBOR BBA		(1,406	)
						$	(16,829	)

(1)	The fair market value is based upon a marked-to-market calculation utilizing an extrapolation of third-party mid-market LIBOR rate quotes at September 30, 2006.

Index to Financial Statements

BUSINESS

Overview

•

Total LNG USA, Inc., or Total, has reserved 1.0 Bcf/d, which will provide annual revenues of approximately $125 million for 20 years commencing April 1, 2009;

•

Chevron U.S.A., Inc., or Chevron, has reserved 1.0 Bcf/d, which will provide annual revenues of approximately $125 million for 20 years commencing July 1, 2009; and

•

Industry Overview

Natural gas currently satisfies more than 23% of worldwide, and 24% of North American, primary energy consumption. Natural gas has an advantage over other primary energy sources such as oil and coal because it is clean burning and therefore more environmentally friendly. North America’s energy requirements will continue to increase.

Natural gas reserves located close to major markets are facing declines in mature basins. In order for natural gas to be effectively transported by sea, it must be liquefied to condense its volume. LNG is therefore becoming an increasingly significant means of distributing natural gas from remote supply areas to key consuming centers. Investment in liquefaction plants has increased dramatically in the last five years to meet the global need for natural gas. According to the Groupe International des Importateurs de Gaz Naturel Liquifie, or GIIGNL, as of December 31, 2005, there were 76 “trains,” or production units, in 13 countries capable of producing approximately 23.4 Bcf/d of LNG. LNG production capacity grew by over 40% between 2001 and 2005. We estimate that liquefaction capacity will more than double by 2010, reaching 38 Bcf/d.

Although LNG has been used commercially in the U.S. since the 1940s, its role was limited to meeting demand peaks caused by seasonal variations. Historically, abundant supplies of domestically sourced, low-cost, piped natural gas kept pace with demand, making the need for LNG imports minimal and sporadic. However, the average wellhead price of natural gas produced in the U.S. has more than doubled in the last five years, indicating a maturing domestic resource base and supporting the economic viability of marginal drilling and imports of LNG.

According to GIIGNL, at the end of 2005, there were four operational LNG receiving terminals in the continental U.S. with an aggregate send-out capacity of 4.3 Bcf/d and the capability to satisfy about 6% of natural gas consumption in North America. LNG imports to the U.S. reached 618 Bcf in 2005. LNG is expected to play a more pivotal role in satisfying North American natural gas demand as additional receiving capacity becomes available.

Imports can only increase significantly if new LNG receiving capacity is constructed. Former Chairman of the Federal Reserve, Alan Greenspan, stated that greater access to global natural gas reserves is required for North American natural gas markets “to be able to adjust effectively to unexpected shortfalls in domestic supply

Index to Financial Statements

[and that] access to world natural gas supplies will require a major expansion of LNG terminal import capacity.” Ben Bernanke, the current Federal Reserve Chairman, reaffirmed this view in February 2006, when he said, “building LNG terminals is one thing that we can do and we should continue to do to create a more global market for natural gas.”

Business Strategies

Our primary business objective is to generate stable cash flows by:

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completing construction and commencing operation of our LNG receiving terminal;

•

applying proven, conventional technology to mitigate development and operating risk, while utilizing advanced control and safety technology; and

•

maintaining the effectiveness of long-term TUAs to generate steady and reliable revenues.

Strengths

We believe that we have several strengths and advantages in pursuing our business strategy:

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No LNG Supply Risk . Our customers bear the risks associated with obtaining supplies of LNG, transporting LNG to our receiving terminal and assuring that the LNG satisfies specifications.

•

Index to Financial Statements

expertise, the fixed price Phase 1 EPC contract, with bonuses for early completion and liquidated damages in the event of delayed completion, helps mitigate construction risk. Construction risk is also relatively low given the relatively simple nature of LNG regasification technology, versus complicated petrochemical processes characteristic of LNG liquefaction. Construction is well underway, with $507 million of the anticipated $900 to $950 million of Phase 1 construction expenditures and $39 million of the anticipated $500 to $550 million of Phase 2—Stage 1 construction expenditures already funded as of September 30, 2006.

LNG Receiving Terminal Development

In 2003, we were formed by Cheniere to develop, own and operate our LNG receiving terminal in western Cameron Parish, Louisiana, on the Sabine Pass Channel. We have entered into leases for three tracts of land comprising 853 acres in Cameron Parish, Louisiana for the project site. Phase 1 of our LNG receiving terminal was designed with an initial regasification capacity of 2.6 Bcf/d and three LNG storage tanks with an aggregate LNG storage capacity of 10.1 Bcfe, along with two unloading docks capable of handling 87,000 cm to 250,000 cm LNG vessels. In July 2006, we received FERC approval to increase the regasification capacity of our LNG receiving terminal up to 4.0 Bcf/d and to add up to three additional LNG storage tanks and related facilities. This expansion is referred to as Phase 2.

Index to Financial Statements

Phase 1

In March 2005, the FERC issued an order authorizing us to commence construction of Phase 1 of our LNG receiving terminal, subject to certain ongoing conditions. Construction of our LNG receiving terminal began in March 2005. We expect to achieve Phase 1 Target Completion by the first quarter of 2008. We expect to complete construction and cool down of the third tank and the rest of Phase 1, and achieve the full 2.6 Bcf/d of Phase 1 regasification capacity, in the third quarter of 2008.

The cost to construct Phase 1 of our LNG facility is currently estimated at approximately $900 million to $950 million, before financing costs, but including the change orders discussed below. In December 2004, we entered into a lump-sum turnkey agreement with Bechtel, a major international EPC contractor, which currently requires us to pay Bechtel $736.1 million. Our cost estimates are subject to change due to such items as cost overruns, change orders, changes in commodity prices (particularly nickel and steel), escalation of labor costs and additional funds which may be expended to maintain our construction schedule.

In August 2005, construction at Phase 1 of our LNG receiving terminal site was temporarily suspended in connection with Hurricane Katrina, as a precautionary measure. In September 2005, the terminal site was again secured and evacuated in anticipation of Hurricane Rita. Construction activities were remobilized at the site and returned to pre-hurricane levels by mid-November 2005. While no significant damage occurred to the site, equipment or materials at our LNG receiving facility, as a residual effect of the hurricanes, Bechtel and certain subcontractors temporarily experienced a shortage of available skilled labor necessary to meet the requirements of the Phase 1 construction plan. As a result, we agreed to a change order with Bechtel and are in negotiations with certain of Bechtel’s subcontractors concerning additional activities and expenditures to mitigate the hurricanes’ effects on the completion of Phase 1 of our LNG receiving terminal. See “Description of Principal Project Documents—Phase 1 EPC Agreement—Force Majeure.”

Phase 2

In July 2006, we received authorization from the FERC to commence site preparation construction activities for the Phase 2 expansion of our LNG receiving terminal, subject to certain ongoing conditions. The first stage of the Phase 2 expansion will include the addition of a fourth and fifth LNG storage tank, additional vaporizers and related facilities, thereby increasing the total regasification capacity of our LNG receiving terminal to 4.0 Bcf/d. This expansion is referred to as Phase 2—Stage 1. LNG regasification operations relating to the Phase 2—Stage 1 expansion are expected to commence by April 2009. We expect to complete all of Phase 2—Stage 1, including construction, cool down and commissioning of the fourth and fifth tanks, and achieve full operability at 4.0 Bcf/d in the third quarter of 2009.

In July 2006, we entered into three construction agreements to facilitate construction of the Phase 2—Stage 1 expansion, as follows:

We entered into an EPC LNG tank contract with Zachry and Diamond pursuant to which Zachry and Diamond will furnish all plant, labor, materials, tools, supplies, equipment, transportation, supervision, technical, professional and other services, and perform all operations necessary and required to satisfactorily engineer, procure and construct the two Phase 2—Stage 1 LNG storage tanks. In addition, we have the option (to be

Index to Financial Statements

elected on or before March 31, 2007) for Zachry and Diamond to engineer, procure and construct a sixth tank, with the cost and completion date to be agreed upon if the option is elected. The tank contract provides that Zachry and Diamond will receive a lump-sum, fixed price payment for the two Phase 2—Stage 1 tanks of approximately $140.9 million, which is subject to adjustment based on fluctuations in the cost of labor and certain materials, including the steel used in the Phase 2—Stage 1 tanks, and change orders. See “Description of Principal Project Documents—Phase 2—Stage 1 EPC LNG Tank Contract.”

We entered into an EPC LNG unit rate soil contract with Recon. Under the soil contract, Recon is required to furnish all plant, labor, materials, tools, supplies, equipment, transportation, supervision, technical, professional and other services, and perform all operations necessary and required to satisfactorily conduct soil remediation and improvement on the Phase 2 site. Upon issuing a final notice to proceed, we paid Recon an initial payment of approximately $2.9 million. The soil contract price is based on unit rates. Payments under the soil contract will be made based on quantities of work performed at unit rates. See “Description of Principal Project Documents—Phase 2—Stage 1 EPC LNG Soil Contract.”

Phase 2—Stage 1 is estimated to cost approximately $500 million to $550 million, before financing costs. Operations relating to the Phase 2—Stage 1 expansion are expected to commence by April 2009, and all of Phase 2—Stage 1 is expected to be completed in the third quarter of 2009.

Customers

Although we are still in the process of constructing our LNG receiving terminal, we have already entered into three TUAs, through which Total, Chevron and Cheniere Marketing have reserved, in the aggregate, the entire 4.0 Bcf/d of LNG regasification capacity that will be available upon completion of Phase 1 and Phase 2—Stage 1 of our LNG receiving terminal. The Total TUA and the Chevron TUA reserve a combined annual LNG regasification capacity of approximately 2.0 Bcf/d. Phase 1 of our LNG receiving terminal (2.6 Bcf/d) will be sufficient to cover our obligations under the Total and Chevron TUAs. Cheniere Marketing has reserved the entire 2.0 Bcf/d of capacity that will be available beyond the Total and Chevron TUA capacity reservations, upon completion of Phase 2—Stage 1, as well as any Phase 1 capacity that is available prior to the commencement of the Total and Chevron TUAs and after we have fulfilled our obligations under the Total and Chevron TUAs.

Total TUA

In September 2004, we entered into a TUA with Total to provide berthing for LNG vessels and for the unloading, storage and regasification of LNG at our LNG receiving terminal. We have no obligation to provide Total with certain services such as (i) harbor, mooring and escort services for LNG vessels, including the provision of tugboats, (ii) the transportation of natural gas downstream from our LNG receiving terminal or the construction of any pipelines to provide such transportation or (iii) the marketing of natural gas.

Under the TUA, Total has reserved 390,915,000 MMBtu of annual LNG receipt capacity, which is equivalent to approximately 1.0 Bcf/d of regasification capacity, assuming an energy content of 1.05 MMBtu per Mcf and retainage of 2%. The Total TUA is scheduled to commence on April 1, 2009 (subject to commercial operations completion), runs for an initial term of 20 years and is subject to six additional 10-year extensions. Beginning on the commercial start date under the Total TUA, Total has agreed to pay a monthly fixed capacity reservation fee of $9.1 million; a monthly operating fee of $1.3 million, which is adjusted annually for changes in the U.S. Consumer Price Index (All Urban Consumers); and certain other incremental costs and governmental authority taxes and costs. These monthly payment amounts are equivalent to payments of $0.28 per MMBtu for capacity and $0.04 per MMBtu for operating fees, respectively, of reserved monthly LNG receipt capacity. In addition, each month we are entitled to receive a “retainage” equal to 2% of the LNG delivered for Total’s account, out of which we are obligated to provide fuel for self-generated power and gas unavoidably lost at the facility.

Index to Financial Statements

If any governmental authority (i) imposes any taxes on us (excluding taxes on revenue or income) with respect to the services provided under the TUA, or the LNG receiving terminal or (ii) enacts any safety or security related regulation which materially increases our costs in relation to the services provided or the LNG receiving terminal, Total will bear 40% of such taxes or increased regulatory costs. When LNG regasification capacity exceeds 3.0 Bcf/d, Total will thereafter bear a proportionate share of such taxes or increased regulatory costs, not to exceed 40%. After the Chevron and Total TUAs commence, we expect that Total’s proportionate share of such taxes and increased regulatory costs will be 25%. To the extent any ad valorem taxes are imposed and not abated, we will reimburse Total for up to one-half of such amount, not to exceed $3.9 million per year.

We are obligated to pay liquidated damages to Total in the event of certain types of docking and unloading delays.

Either party may assign its interests under the TUA to affiliates, and, as permitted by the TUA, we have pledged our interest under the TUA to the collateral trustee of the notes to secure our obligations under the notes. In addition, Total may make a partial assignment of its total reserved regasification capacity to nonaffiliates provided that (i) the assignee agrees to be bound by the TUA, (ii) the parent guarantee continues to apply to all assigned obligations and (iii) Total and the assignee designate a representative and jointly exercise all rights under the TUA.

Total may terminate the TUA if we have declared force majeure with respect to a period that has extended, or is projected to extend, for 18 months, or for reasons not excused by force majeure or Total’s actions, if we:

•

fail to deliver at least 191,625,000 MMBtu of Total’s total natural gas nominations in a 12-month period;

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fail entirely to receive at least 15 cargoes nominated by Total over a period of 90 consecutive days; or

•

fail to unload 50 cargoes or more scheduled for delivery by Total for a 12-month period.

We may terminate the TUA if:

•

the parent guarantee ceases to be in full force and effect;

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for a period exceeding 15 days, two of the parent guarantor’s credit ratings fall below investment grade; or

•

the parent guarantor commences bankruptcy or liquidation proceedings, or has such proceedings commenced against it.

Either party may terminate the TUA with 30 days written notice if (i) a party has failed to pay when due an amount owed that causes its cumulative delinquency to exceed three times the monthly capacity reservation fee, (ii) the cumulative delinquency has not been paid within 60 days of such notice and (iii) the other party has subsequently given 30 days’ written notice to terminate the TUA.

In November 2004, Total exercised its option to proceed with the transaction by delivering to us an advance capacity reservation fee payment of $10 million and an irrevocable guarantee for an amount up to $2.5 billion by its parent entity, Total S.A., of Total’s payment obligations under the TUA, except for claims arising in tort or strict liability or claims for damages to property or personal injury. Because Total elected to proceed with the transaction and Bechtel accepted the final notice to proceed, or NTP, in April 2005, Total paid us an additional advance capacity reservation fee payment of $10 million.

We also entered into an omnibus agreement with Total in September 2004, under which the TUA remains subject to certain conditions. Under the omnibus agreement, if we enter into a new TUA with a third party, other than our affiliates, for capacity of 50 MMcf/d or more, with a term of five years or more, prior to the commercial start date under the TUA, Total will have the option, exercisable within 30 days of the receipt of notice of such

Index to Financial Statements

transaction, to adopt the pricing terms contained in such new TUA for the remainder of the term of the Total TUA. In addition, the omnibus agreement provides Total with an option to increase its reserved capacity in the event that either party provided notice of a plan to expand our LNG facility. During 2005, we provided such notice to Total and its option to increase its reserved capacity expired.

Chevron TUA

In November 2004, we entered into a TUA with Chevron to provide berthing for LNG vessels and for the unloading, storage and regasification of LNG at our LNG receiving terminal. We have no obligation to provide certain services such as (i) harbor, mooring and escort services for LNG vessels, including the provision of tugboats, (ii) the transportation of natural gas downstream from our LNG receiving terminal or the construction of any pipelines to provide such transportation or (iii) the marketing of natural gas.

In December 2005, Chevron exercised its option under its omnibus agreement to increase its regasification capacity by 300 MMcf/d for a total of 1.0 Bcf/d and paid us an additional $3 million advance capacity reservation fee. As a result of Chevron exercising its option, the TUA was amended to reflect the increased reservation of regasification capacity. Under the amended TUA, Chevron has reserved 403,945,500 MMBtu of annual LNG receipt capacity, which is equal to approximately 1.0 Bcf/d of regasification capacity, assuming an energy content of 1.085 MMBtu per Mcf and retainage of 2%.

The Chevron TUA commences on July 1, 2009 (subject to commercial operations completion), runs for an initial term of 20 years and is subject to two additional 10-year extensions. Beginning on the commercial start date under the Chevron TUA, Chevron is required to pay us a fixed monthly fee for this regasification capacity that is comprised of (i) a reservation fee of $0.28 per MMBtu times one-twelfth of the reserved annual LNG receipt capacity, (ii) an operating fee of $0.04 per MMBtu times one-twelfth of the reserved annual LNG receipt capacity and (iii) certain taxes and regulatory costs. The operating fee is adjusted annually for changes in the U.S. Consumer Price Index (All Urban Consumers). In addition, each month we are entitled to receive a “retainage” equal to 2% of the LNG delivered for Chevron’s account, out of which we are obligated to provide fuel for self-generated power and gas unavoidably lost at the facility. Chevron Corporation has guaranteed Chevron’s payment obligations under the TUA, up to a maximum of 80% of the fees payable under the TUA.

If any governmental authority (i) imposes any taxes on us (excluding taxes on revenue or income) with respect to the services provided under the TUA, or our LNG receiving terminal or (ii) enacts any safety or security related regulation which materially increases our costs in relation to the services provided at our LNG receiving terminal, Chevron will bear a proportionate share of such taxes or increased regulatory costs, not to exceed 28%. After the Chevron and Total TUAs commence, we expect that Chevron’s proportionate share of such taxes and increased regulatory costs will be 25%.

We are obligated to pay liquidated damages to Chevron in the event of certain types of docking and unloading delays.

Both parties may assign their interests under the TUA to affiliates, and, as permitted by the TUA, we have pledged our interest under the TUA to the collateral trustee of the notes to secure our obligations under the notes. In addition, Chevron may make a partial assignment of its total reserved regasification capacity to non-affiliates provided (i) the assignee agrees to be bound by the TUA, (ii) the parent guarantee continues to apply to all assigned obligations, (iii) Chevron remains liable for payments owed and (iv) the respective responsibilities of the parties under the TUA are not increased or decreased.

An assignment under the TUA will terminate Chevron’s or our obligations only if (i) the assignment constitutes all of such party’s rights and obligations under the TUA, (ii) the assignee agrees to be bound by the TUA and (iii) the assignee demonstrates creditworthiness at the time of the assignment that is the same or better than the guarantor, in the case of Chevron, or us.

Index to Financial Statements

Chevron may terminate the TUA if we have declared force majeure with respect to a period that has extended, or is projected to extend, for 18 months, or for reasons not excused by force majeure or Chevron’s actions, if we:

•

fail to deliver at least 191,625,000 MMBtu of Chevron’s total natural gas nominations in a 12-month period;

•

fail entirely to receive 15 cargoes or more nominated by Chevron over a period of 90 days; or

•

fail to unload, or notify Chevron that we would be unable to unload, 50 cargoes or more scheduled for delivery by Chevron for a 12-month period.

We may terminate the TUA if the parent guarantee ceases to be in full force and effect or if Chevron or its parent guarantor, Chevron Corporation, commences bankruptcy, insolvency or liquidation proceedings, or has such proceedings commenced against it, that are not stayed within 60 days.

Either party may terminate the TUA with 30 days written notice if (i) a party has failed to pay when due an amount owed that causes its cumulative delinquency to exceed three times the monthly capacity reservation fee, (ii) the cumulative delinquency has not been paid within 60 days after issuance of a delinquency notice and (iii) the other party has subsequently given 30 days written notice to terminate the TUA.

We simultaneously entered into an omnibus agreement with Chevron, under which Chevron agreed to make advance capacity reservation fee payments. Under the omnibus agreement, Chevron exercised an option in December 2005, at the same fee, to increase its reserved capacity to 1.0 Bcf/d. As a result, Chevron paid us a total of $20 million of advance capacity reservation fee payments under the omnibus agreement. In addition, the omnibus agreement provided Chevron with an option to increase its reserved capacity in the event that either party provided notice of a plan to expand our LNG facility. During 2005, we provided such notice to Chevron and its option expired.

Cheniere Marketing TUA

In November 2006, we entered into an amended and restated TUA with Cheniere Marketing, a wholly-owned subsidiary of Cheniere, to provide berthing for LNG vessels and for the unloading, storage and regasification of LNG at our LNG receiving terminal. We have no obligation to provide Cheniere Marketing with certain services such as (i) harbor, mooring and escort services for LNG vessels, including the provision of tugboats, (ii) the transportation of natural gas downstream from our LNG receiving terminal or the construction of any pipelines to provide such transportation or (iii) the marketing of natural gas.

Under the TUA, Cheniere Marketing has reserved 781,830,000 MMBtu of annual LNG receipt capacity, which is equivalent to approximately 2.0 Bcf/d of regasification capacity assuming an energy content of 1.05 MMBtu per Mcf and retainage of 2%.

The Cheniere Marketing TUA commences on January 1, 2008 (subject to commercial operations completion), runs for a term of 20 years from the commercial start date under the Cheniere Marketing TUA and is subject to four additional 10-year extension terms. Beginning on the commercial start date under the Cheniere Marketing TUA, Cheniere Marketing is required to pay us a fixed monthly fee for this regasification capacity that is comprised of: (i) a reservation fee of $0.28 per MMBtu times 1/12 of the reserved LNG receipt capacity; (ii) an operating fee of $0.04 per MMBtu times 1/12 of the reserved LNG receipt capacity, which operating fee is adjusted annually for changes in the U.S. Consumer Price Index (All Urban Consumers); and (iii) certain other taxes and regulatory costs. Notwithstanding the foregoing, Cheniere Marketing is required to pay a flat fee of $5 million per month from the commercial start date under the Cheniere Marketing TUA through December 31, 2008. The maximum LNG reception quantity allocated to Cheniere Marketing is reduced to the extent that our LNG receiving terminal is unable to provide services up to such amount as a result of the timing of start dates under existing customer agreements (including the Total and Chevron TUAs) or delays in commencing

Index to Financial Statements

commercial operations of the Phase 2—Stage 1 expansion of our LNG receiving terminal; however, the fees to be paid by Cheniere Marketing under the TUA will not be accordingly adjusted. In addition, each month, we are entitled to receive a “retainage” equal to 2% of the LNG delivered for Cheniere Marketing’s account, out of which we are obligated to provide fuel for self-generated power and gas unavoidably lost at the facility. All of Cheniere Marketing’s obligations during the initial 20-year term of the TUA are supported by an irrevocable guaranty in favor of us by Cheniere.

If any governmental authority (i) imposes any taxes on us (excluding taxes on revenue or income) with respect to the services provided under the TUA, or our LNG receiving terminal or (ii) enacts any safety or security related regulation which materially increases our costs in relation to the services provided at our LNG receiving terminal, Cheniere Marketing will bear such taxes or increased regulatory costs at a rate proportional to its percentage of the right to use of our LNG receiving terminal’s total capacity.

Both we and Cheniere Marketing may assign our respective interests under the Cheniere Marketing TUA to affiliates, and, as permitted by the TUA, we have pledged our interest under the TUA to the collateral trustee of the notes to secure our obligations under the notes. In addition, Cheniere Marketing may make a partial assignment of its total reserved regasification capacity (but not its rights to excess capacity described below) to non-affiliates provided that (i) the assignee agrees to be bound by the TUA, (ii) Cheniere Marketing continues to be liable for all payments due under the TUA, and (iii) Cheniere Marketing and the assignee designate a representative and jointly exercise all rights under the TUA.

An assignment under the TUA will terminate Cheniere Marketing’s obligations only if (i) the assignment constitutes all of Cheniere Marketing’s rights and obligations, (ii) the assignee agrees to assume all obligations of the assignor from inception of the TUA, and (iii) the assignee demonstrates creditworthiness at the time of the assignment that is reasonably acceptable to us (and including credit standards that will be deemed acceptable).

Cheniere Marketing may terminate the TUA if we have declared force majeure with respect to a period that has extended, or is projected to extend, for 18 months, or for reasons not excused by force majeure or Cheniere Marketing’s actions, if we:

•

fail to deliver at least 201,972,750 MMBtu of Cheniere Marketing’s total natural gas nominations in a 12-month period;

•

fail entirely to receive at least 17 cargoes nominated by Cheniere Marketing over a period of 90 consecutive days; or

•

fail to unload 53 cargoes or more scheduled for delivery by Cheniere Marketing for a 12-month period.

We may terminate the TUA if Cheniere Marketing commences bankruptcy, reorganization or liquidation proceedings, or has such proceedings commenced against it.

The Cheniere Marketing TUA is designed to work in tandem with the Total TUA and the Chevron TUA and states that no provision of the Cheniere Marketing TUA shall be effective if and to the extent that it expressly conflicts with a provision of the Total TUA or the Chevron TUA. Any excess capacity at our LNG receiving terminal that we are not contractually obligated to make available to any other customer and any capacity that any other customer elects not to use may be used exclusively by Cheniere Marketing without any additional charge or fee except for 2% retainage and port charges in respect of vessels entering or leaving our LNG receiving terminal. This excess capacity may be available from time to time, including at completion of Phase 1 and the outset of commercial operation of our LNG receiving terminal, which is the date on which our LNG receiving terminal is projected to have capacity of 2.6 Bcf/d.

Index to Financial Statements

The effective date at which Cheniere Marketing is to purchase and pay for services from our LNG receiving terminal is the later of January 1, 2008 or the date of commercial operations completion, which is currently expected to be 15 to 18 months before the commercial start date under the Total TUA or Chevron TUA.

The Cheniere Marketing TUA provides that, at Cheniere Marketing’s request, we must construct a sixth LNG storage tank with a working capacity of approximately 160,000 cubic meters of LNG for the benefit of Cheniere Marketing as soon as possible but not later than four years after notification from Cheniere Marketing. Our obligation to construct the additional LNG storage tank will be subject to our (i) receipt of all FERC and other required governmental permits and approvals and (ii) obtaining financing that we consider reasonably acceptable in form and content.

Cheniere Marketing has also entered into a letter agreement with Cheniere LNG, Inc. and us pursuant to which Cheniere Marketing has agreed to relinquish up to 200 Mmcf/d of its capacity (and proportionately reduce its fixed monthly fee) under the Cheniere Marketing TUA if required to allow us to satisfy obligations under a potential TUA with J&S Cheniere S.A., or J&S Cheniere. J&S Cheniere is a Swiss company in which Cheniere holds a minority interest. This arrangement stems from a 2003 option agreement between Cheniere LNG, Inc. and J&S Cheniere pursuant to which J&S Cheniere has an option to negotiate a TUA for up to 200 Mmcf/d of vaporization capacity and proportional LNG storage at our LNG receiving terminal. The terms of the potential TUA contemplated by the J&S Cheniere option agreement have not been negotiated or finalized, and Cheniere has publicly disclosed its anticipation that definitive arrangements with J&S Cheniere may involve different terms and transaction structures than were contemplated when the option agreement was entered into in December 2003.

FERC and Other Governmental Regulation

Our LNG operations are subject to extensive regulation under federal, state and local statutes, rules, regulations and other laws. Among other matters, these laws require the acquisition of certain consultations, permits and other authorizations before commencement of construction and operation of our LNG receiving terminal. This regulatory burden increases the cost of constructing and operating our LNG receiving terminal, and failure to comply with such laws could result in substantial penalties.

Federal Energy Regulatory Commission

In order to site, construct and operate our LNG receiving terminal, we must receive and maintain authorization from the FERC under Section 3 of the NGA. The FERC permitting process includes:

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public notice and public meetings;

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data gathering and analysis at the FERC’s request;

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issuance of a Draft Environmental Impact Statement by the FERC;

•

public meetings;

•

issuance of a Final Environmental Impact Statement by the FERC; and

•

the FERC order authorizing construction.

In addition, the orders from the FERC authorizing construction of our LNG receiving terminal are subject to specified conditions that must be satisfied throughout the construction, commissioning and operation of the terminal.

Other Federal Governmental Permits, Approvals and Consultations

In addition to FERC authorization under Section 3 of the NGA, our construction and operation of our LNG receiving terminal is also subject to additional federal permits, approvals and consultations required by certain other federal agencies, including: Advisory Counsel on Historic Preservation, U.S. Army Corps of Engineers,

Index to Financial Statements

U.S. Department of Commerce, National Marine Fisheries Services, U.S. Department of the Interior, U.S. Fish and Wildlife Service, U.S. Environmental Protection Agency and U.S. Department of Homeland Security.

Our LNG receiving terminal will also be subject to U.S. Department of Transportation siting requirements and regulations of the U.S. Coast Guard relating to facility security. Moreover, our LNG receiving terminal will be subject to local and state laws, rules and regulations.

Energy Policy Act of 2005

In 2005, the Energy Policy Act of 2005, or EPAct, was signed into law. The EPAct contains numerous provisions relevant to the natural gas industry and to interstate pipelines. The EPAct includes several provisions which amend the NGA. The primary provisions of interest to our operations focus on two areas: infrastructure development, and market manipulation and enforcement. Regarding infrastructure development, the EPAct states that the FERC has exclusive authority to approve or deny an application for the siting, construction, expansion or operation of an LNG receiving terminal. The EPAct also provides for market-based rates for new storage facilities placed into service after August 8, 2005, even if the storage provider has market power if the FERC determines that market-based rates are in the public interest and necessary to encourage the construction of the storage capacity and customers are adequately protected from the exercise of market power. Regarding market manipulation and enforcement, the EPAct amends the NGA to prohibit market manipulation. The EPAct also amends the Natural Gas Act of 1938, or NGA, and the Natural Gas Policy Act of 1978, or NGPA, to increase civil and criminal penalties for any violations of the NGA, NGPA and any rules, regulations or orders of the FERC. The FERC has initiated a rulemaking proceeding regarding market-based storage rates. In addition, the FERC issued a final rule effective January 26, 2006 regarding market manipulation, which makes it unlawful for any entity, in connection with the purchase or sale of natural gas or transportation service subject to the FERC’s jurisdiction, to defraud, make an untrue statement or omit a material fact or engage in any practice, act or course of business that operates or would operate as a fraud. This final rule works together with the FERC’s enhanced penalty authority to provide increased oversight of the natural gas marketplace.

Environmental Regulation

Our LNG operations are subject to various federal, state and local laws and regulations relating to the protection of the environment. In some cases, these laws and regulations require us to obtain governmental permits and authorizations before we may conduct certain activities. These environmental laws and regulations may impose substantial penalties for noncompliance and substantial liabilities for pollution. Many of these laws and regulations restrict or prohibit the types, quantities and concentration of substances that can be released into the environment and can lead to substantial liabilities for non-compliance or for pollution or releases of hazardous substances, materials or compounds or otherwise require additional costs or changes in operations that could have a material adverse effect on our business, results of operations, financial condition and prospects. Failure to comply with these laws and regulations may also result in substantial civil and criminal fines and penalties. As with the industry generally, our operations will entail risks in these areas, and compliance with these laws and regulations increases our overall cost of business. While these laws and regulations affect our capital expenditures and earnings, we believe that these laws and regulations do not affect our competitive position in the industry because our competitors are similarly affected. Environmental laws and regulations have historically been subject to frequent revision and reinterpretation. Consequently, we are unable to predict the future costs or other future impacts of environmental regulations on our future operations.

Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)

CERCLA, also known as the “Superfund” law, imposes liability, without regard to fault, on certain classes of persons who are considered to be responsible for the spill or release of a hazardous substance into the environment. Potentially liable persons include the owner or operator of the site where the release occurred and

Index to Financial Statements

persons who disposed or arranged for the disposal of hazardous substances at the site. Under CERCLA, responsible persons may be subject to joint and several liability for:

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the costs of cleaning up the hazardous substances that have been released into the environment;

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damages to natural resources; and

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the costs of certain health studies.

In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances. Although CERCLA currently excludes petroleum, natural gas, natural gas liquids and LNG from its definition of “hazardous substances,” this exemption may be limited or modified by the U.S. Congress in the future.

Clean Air Act (CAA)

Our operations are subject to the federal CAA and comparable state and local laws. We may be required to incur certain capital expenditures in the next several years for air pollution control equipment in connection with maintaining or obtaining permits and approvals addressing other air emission-related issues. We do not believe, however, that our operations will be materially adversely affected by any such requirements.

Certain persons have expressed concerns that air emissions from our LNG receiving terminal, which are allowed under our existing permits, could adversely impact regional air quality in southeastern Texas so as to trigger future federal sanctions for that area under the CAA. While we have no reason to believe that any formal challenge will be made regarding our existing permits under the CAA, such challenges may be pursued and, if pursued, may result in costs or conditions that could have a material adverse effect on our business and operations.

Clean Water Act (CWA)

Our operations are also subject to the federal CWA and analogous state and local laws. Pursuant to certain requirements of the CWA, the EPA has adopted regulations concerning discharges of wastewater and storm water runoff. This program requires covered facilities to obtain individual permits, participate in a group permit or seek coverage under an EPA general permit.

Resource Conservation and Recovery Act (RCRA)

The federal RCRA and comparable state statutes govern the disposal of “hazardous wastes.” In the event any hazardous wastes are generated in connection with our LNG operations, we may be subject to regulatory requirements affecting the handling, transportation, treatment, storage and disposal of such wastes.

Endangered Species Act

Our operations and planned construction activities may also be restricted by requirements under the Endangered Species Act, which seeks to ensure that human activities do not jeopardize endangered or threatened animal, fish and plant species nor destroy or modify their critical habitats.

Competition

We currently do not experience competition because the entire 4.0 Bcf/d of regasification capacity that will be available at our LNG receiving terminal upon completion of construction has been fully reserved under three 20-year TUAs under which the customers are generally required to pay monthly capacity reservation and operating fees, whether or not they use the terminal. If and when we have to replace any TUAs, we will compete with other companies for customers.

Index to Financial Statements

The volume of natural gas supply additions required to meet U.S. consumption needs is a function of not only demand growth but also the decline in the underlying production base. In North America, this natural decline has been accelerating over the last decade, significantly increasing the need to bring in new supplies. According to data from IHS Energy, the natural gas production from existing wells in the U.S. in 1991 declined 17%, or 9.0 Bcf/d, by 1992; in contrast, natural gas production from existing wells in 2004 declined 28%, or 17 Bcf/d, by 2005.

New supplies to replace North America’s natural decline of natural gas production could be developed from a combination of the following sources:

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existing producing basins in the U.S., Canada and Mexico;

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frontier basins in Alaska, northern Canada and offshore deepwater;

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areas currently restricted from exploration and development due to public policies, such as areas in the Rocky Mountains and offshore Atlantic, Pacific and Gulf of Mexico coasts; and

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imported LNG.

In addition, demand for natural gas could be met by alternative energy forms, including coal, hydroelectric, oil, wind, solar and nuclear energy. LNG will face competition from each of these energy sources.

According to the FERC, there are currently over 40 LNG receiving terminals actively proposed to be constructed in the U.S., although we anticipate that only four new terminals (including our LNG receiving terminal) will be constructed in the U.S. by 2010. In addition, one shipboard regasification facility has commenced operations, and companies are pursuing other offshore terminals and shipboard regasification facilities to import LNG into U.S. markets.

BP Statistical Review has reported that, as of December 31, 2005, there was 6,348 Tcf of proved natural gas reserves worldwide, and we believe that LNG has the potential to be a significant new source of lower cost supply to North America. If and when we have to replace any TUAs, we will compete with other importers of LNG at existing and proposed North American LNG receiving terminals. As of December 31, 2005, there were four onshore LNG receiving terminals operating in North America, which will compete with our LNG receiving terminal. We believe that all of the capacity at these four existing onshore U.S. terminals is committed to customers under long-term arrangements. As of December 31, 2005, there were 51 LNG receiving terminals in 15 countries, and if and when we have to replace any TUAs, we will compete with these and other proposed LNG receiving terminals worldwide to be the most economical delivery point for LNG production for both long-term contracted and spot volumes.

Insurance

We maintain a comprehensive insurance program to insure potential losses to our LNG receiving terminal from physical loss or damage, hurricanes and terrorism, as well as third-party liabilities, during construction and subsequent operation. We have engaged Aon Risk Services, Inc., or Aon, as our independent insurance advisor, who has provided independent validation regarding the appropriateness of our insurance policies compared to other similar projects. We may not be able to maintain adequate insurance in the future at rates that are considered reasonable. See “Risk Factors—Risks Relating to Development and Operation of our Business—We are subject to significant operating hazards and uninsured risks, one or more of which may create significant liabilities for us.”

Insurance During Construction Period

During construction of Phase 1, under terms of the EPC contract, Bechtel is responsible for providing substantially all of the required insurance covering loss or damage to our assets, approximately 18 months of debt

Index to Financial Statements

service plus fixed charges due to a delay in our LNG receiving terminal’s completion, and third-party liabilities. Terrorism insurance and our primary auto liability insurance are excluded from Bechtel’s contractual obligations and as such have been procured by us directly. Upon substantial completion of Phase 1, we will assume responsibility of maintaining the insurance program. For Phase 2—Stage 1, we intend to expand many of our current insurance policies to insure Phase 2—Stage 1 exposures.

Windstorm and Flood Insurance

For Phase 1 and Phase 2—Stage 1, we have $400 million in total windstorm and flood insurance, $100 million of which is shared with Phase 2—Stage 1. We are currently in the process of expanding the amount of coverage shared with Phase 2—Stage 1. The value of Phase 2—Stage 1 assets exposed during the 2006 hurricane season will be less than $10 million.

This aggregate $400 million limit applies to both physical damage and delayed startup, or DSU, losses. Aon has deemed the current insurance package as more than sufficient to cover a “worst-case” scenario.

Physical Damage and DSU Insurance

For Phase 1 and Phase 2—Stage 1, we have total insurance coverage against property damage of approximately $1.1 billion, subject to customary sublimits. We have $259 million in both builder’s risk and marine cargo DSU insurance in addition to the property damage insurance. For Phase 2—Stage 1, the builder’s risk property damage limit was increased by $448 million to cover additional insurable Phase 2—Stage 1 assets. We do not intend to acquire builder’s risk DSU or marine cargo DSU insurance for delays in the completion of Phase 2—Stage 1. Delays in completion of Phase 1 are insured under the builder’s risk DSU and marine cargo DSU policies.

Third-Party Liability

We have $100 million of third-party liability insurance shared between Phase 1 and Phase 2—Stage 1. Due to changes in the risk of loss and required amount of insurance for major Phase 2—Stage 1 construction contractors, we placed an additional $100 million of third-party liability insurance during construction dedicated to only Phase 2—Stage 1.

Terrorism

Earlier this year, we, the lenders of our original credit facility, and Aon agreed that there was limited exposure to physical damage and subsequent loss of income arising out of a terrorist act against Phase 1. As a result, until the first LNG tanker reaches our LNG receiving terminal, it was agreed that only $25 million of terrorism insurance would be required. Aon believes that this risk is unlikely to change significantly as a result of Phase 2—Stage 1 and the required amount of terrorism insurance will not be increased. However, 60 days prior to the arrival of the first LNG tanker, we intend to complete a terrorism maximum foreseeable loss study that incorporates Phase 1 and Phase 2—Stage 1. We plan on re-assessing our terrorism insurance policy upon completion of this study.

Pollution Legal Liability

There is $25 million of pollution legal liability insurance covering third-party liabilities, remediation legal liability, and legal defense expense. This limit is shared by both Phase 1 and Phase 2—Stage 1.

Insurance During Operational Period

Upon commencement of operations, we will have responsibility for all insurance coverage. We intend to place insurance coverages that are in such form and amounts as are customary for project facilities of similar type and scale to this facility.

Index to Financial Statements

Employees

We have no employees. We will rely on a subsidiary of Cheniere to provide all necessary services required to construct, operate and maintain our LNG receiving terminal. In addition, we have appointed our general partner to manage all aspects of the construction and operation of our LNG receiving terminal not managed by such subsidiary of Cheniere. Because our general partner has no employees, it will rely on another subsidiary of Cheniere to provide it with the support necessary to allow our general partner to meet its management obligations to us. See “Certain Relationships and Related Transactions” for a discussion of these arrangements.

Legal Proceedings

We are not a party to any legal proceeding but may in the future be a party to various administrative, regulatory or other legal proceedings that may arise in the ordinary course of our business.

Index to Financial Statements

DESCRIPTION OF PRINCIPAL PROJECT DOCUMENTS

The following are summaries of material terms of certain agreements related to the construction of our LNG receiving terminal. These summaries should not be considered to be a full statement of the terms and provisions of such agreements. Accordingly, the following summaries are qualified in their entirety by reference to each agreement. Copies of the agreements described below are filed as exhibits to the registration statement of which this prospectus is a part. Unless otherwise stated, any reference in this prospectus to any agreement means such agreement and all schedules, exhibits and attachments thereto as amended, supplemented or otherwise modified and in effect as of the date hereof.

Phase 1 EPC Agreement

Scope of Work

In December 2004, we entered into a lump-sum turnkey EPC agreement with Bechtel for the construction of Phase 1 of our LNG receiving terminal. Under the EPC agreement, Bechtel agreed to provide us with services for the engineering, procurement and construction of our LNG receiving terminal. Except for certain specified third-party work outlined in the EPC agreement, the work to be performed by Bechtel includes all of the work required to achieve substantial completion and final completion of Phase 1 of our LNG receiving terminal in accordance with the requirements of the EPC agreement, including achieving specified minimum acceptance criteria and performance guarantees. Bechtel is obligated to perform its work in accordance with good engineering and construction practices and applicable laws, codes and standards.

We issued a limited notice to proceed, or LNTP, in December 2004 and an NTP in early April 2005, which required Bechtel to commence all other aspects of the work under the EPC agreement. Bechtel must achieve substantial completion in accordance with the requirements of the EPC agreement on or before December 20, 2008. Final completion must be attained no later than 90 days after achieving substantial completion.

Payment for Work

We agreed to pay to Bechtel a contract price of $646.9 million plus certain reimbursable costs for the work under the EPC agreement. This contract price is subject to adjustment for changes in certain commodity prices, contingencies, change orders and other items. Payments under the EPC agreement will be made in accordance with the payment schedule set forth in the EPC agreement. The contract price and payment schedule, including milestones, may be amended only by change order. Bechtel will be liable to us for certain delays in achieving substantial completion, minimum acceptance criteria and performance guarantees. Bechtel will be entitled to a scheduled bonus of $12 million if on or before April 3, 2008, Bechtel completes construction sufficient to achieve, among other requirements specified in the EPC agreement, a sendout rate of at least 2.0 Bcf/d for a minimum sustained test period of 24 hours. The amount of such scheduled bonus will decrease by a specified amount for each day after April 3, 2008, that Bechtel fails to meet this test, up to a total of 40 days. The specified amount per day is $125,000 for the first 15 days, $300,000 for the next 10 days and $425,000 for the next 15 days. Bechtel will be entitled to receive an additional bonus of $67,000 per day (up to a maximum of $6 million) for each day that commercial operation is achieved prior to April 1, 2008. As of September 30, 2006, change orders for $89.1 million had been approved, increasing the total contract price to $736.1 million. We anticipate that additional change orders intended to mitigate ongoing effects of the 2005 hurricanes will not exceed $25 million.

Change Orders

Until substantial completion under the terms of the EPC agreement, we have certain rights to request change orders, and Bechtel has the right to request change orders up to and after substantial completion in the event of specified occurrences, including, among other things:

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a force majeure event;

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a suspension of work ordered by us;

Index to Financial Statements

•

certain acts and omissions by us (including failure to fulfill obligations), but, in each case, only where such act or omission adversely affects Bechtel’s costs of the performance of work, its ability to perform the work in accordance with the project schedule or its ability to perform any material obligation under the EPC agreement; and

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certain changes in law, but only where such delay adversely affects Bechtel’s costs of the performance of the work, its ability to perform the work in accordance with the project schedule or its ability to perform any material obligation under the EPC agreement.

Liquidated Damages

Bechtel is required to pay “delay” liquidated damages for each day of delay that Bechtel fails to complete the work necessary to commence the cool down phase at our LNG receiving terminal beyond a date estimated by Bechtel for completion of such work. The maximum aggregate amount of liquidated damages for such delay is one percent of the contract price. In addition, Bechtel is required to pay liquidated damages for each day of delay beyond December 20, 2008 that Bechtel fails to achieve substantial completion. The maximum aggregate amount of all delay liquidated damages is 10% of the contract price.

In addition, if our LNG receiving terminal fails to achieve one or more performance guarantees relating to sendout rate and ship unloading time by December 20, 2008, but meets specified minimum acceptance criteria and all other requirements for substantial completion, then Bechtel is required to pay “performance” liquidated damages for such failure. The maximum aggregate amount of all performance liquidated damages is 10% of the contract price.

Subject to certain exceptions, Bechtel’s maximum aggregate liability under the EPC agreement (including its liability for liquidated damages) is 30% of the contract price.

Warranty

Bechtel warrants in the EPC agreement that:

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the equipment required for our LNG receiving terminal will be new and of good quality;

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the work and the equipment will meet the requirements of the EPC agreement, including good engineering and construction practices and applicable laws, codes and standards; and

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the work and the equipment will be free from encumbrances to title.

Until 18 months after our provisional acceptance of our LNG receiving terminal, Bechtel will be liable for promptly correcting any work that is found to be defective.

Force Majeure

Under the EPC agreement, if Bechtel experiences a force majeure event, it could be entitled to an extension of the date by which substantial completion is to be accomplished and an extension of the date by which it could earn the $12 million bonus. If any force majeure delay lasts at least 30 days, Bechtel would be entitled to an adjustment of the contract price under the EPC agreement to compensate it for its standby expenses, up to a limit of $3.8 million in the aggregate. A force majeure event generally occurs if any act or event occurs that:

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prevents or delays the affected party’s performance of its obligations in accordance with the terms of the EPC agreement;

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is beyond the reasonable control of the affected party, not due to its fault or negligence; and

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could not have been prevented or avoided by the affected party through the exercise of due diligence.

Index to Financial Statements

Bechtel has claimed events of force majeure arising out of three hurricanes that made landfall along the U.S. Gulf Coast in 2005. We are currently in negotiations with Bechtel and certain subcontractors concerning additional activities and expenditures in order, among other things, to attract sufficient skilled labor to mitigate potential schedule delays and provide a reasonable opportunity for Bechtel to attain the initial target bonus date of April 3, 2008 (the date originally anticipated for completion of construction sufficient to achieve a sendout rate of at least 2.0 Bcf/d for a minimum sustained test period of 24 hours and that, if attained, would entitle Bechtel to a scheduled $12 million bonus). As part of these negotiations, we have agreed in principle to defer the date by which substantial completion of the entire project is required to be accomplished under the EPC agreement from September 3 to December 20, 2008, or the new substantial completion date. In the absence of substantial completion by such date, Bechtel would be obligated to pay us certain liquidated damages as provided under the terms of the contract. We expect to expend up to $41 million in connection with the above-described arrangements to mitigate the ongoing effects of the 2005 hurricanes. We have entered into one change order with Bechtel in the amount of $16 million related to these mitigating measures, and we expect to enter into additional change orders with Bechtel for the remaining $25 million.

Termination and Suspension

In the event of an uncured default by Bechtel, we may terminate the EPC agreement and take any of the following actions:

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take possession of the facility, equipment, construction equipment, work product and books and records;

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take assignment of certain subcontracts; and

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complete the work.

Following such a termination, if the cost to reach final completion exceeded the unpaid balance of the contract price, Bechtel would be liable for the difference. If the cost to reach final completion were less than the unpaid balance of the contract price, the difference would be payable to Bechtel.

We also have the right to terminate the EPC agreement for convenience. In the event of any such termination for convenience, Bechtel would be paid:

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the portion of the contract price for the work performed prior to termination, less that portion of the contract price paid previously;

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actual reasonable cancellation charges owed by Bechtel to subcontractors (if we do not take assignment of such subcontracts);

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actual costs associated with demobilization charges; and

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lost profits, except in certain cases, equal to 10% of the contract price less a portion of the advance payment related to the NTP.

We may, upon a 30-day written notice to Bechtel, suspend the work under the EPC agreement. In the event of such suspension for a period exceeding 90 consecutive days or 120 aggregate days, other than any suspension due to an event of force majeure or the fault or negligence of Bechtel or its subcontractors, Bechtel would be permitted to terminate the EPC agreement subject to giving 14 days’ notice. In the event of such a termination, Bechtel would be entitled to the compensation described above in relation to termination for convenience. If we suspend work under the EPC agreement, Bechtel could be entitled to a change order to recover the reasonable costs of the suspension, including demobilization and remobilization costs. Bechtel may also suspend or terminate the EPC agreement upon the occurrence of certain other events, including force majeure and our uncured defaults, such as:

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failure to pay any undisputed amounts;

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failure to comply materially with material obligations under the EPC agreement; and

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insolvency.

Index to Financial Statements

Phase 2—Stage 1 EPCM Agreement

Scope of Work

In July 2006, we entered into an Agreement for Engineering, Procurement, Construction and Management of Construction Services of the Phase 2 Receiving, Storage and Regasification Terminal Expansion, or the EPCM agreement, with Bechtel. Under the EPCM agreement, Bechtel will provide design and engineering services for Phase 2—Stage 1 of our LNG receiving terminal expansion project, except for such portions to be designed by other contractors and suppliers of equipment, materials and services that we contract with directly, who we refer to as the Sabine contractors; construction management services to manage the construction of the facility; and performance of a portion of the construction. The EPCM agreement does not contain any guaranteed completion dates, but Bechtel will provide a schedule for our approval.

Payment for Work

The EPCM agreement provides for compensating Bechtel on a cost reimbursable basis, plus a fixed fee in the amount of $18.5 million. A discretionary bonus may be paid to Bechtel at our sole discretion upon completion of Phase 2—Stage 1. Payments under the EPCM agreement will be based on monthly estimates, with a reconciliation in the next month, and the fixed fee will be paid in accordance with a payment schedule set forth in the EPCM agreement. In addition to disputed amounts, we may, upon giving prior written notice and subject to specified cure periods, withhold payment or a portion thereof, in an amount and to such extent as may be reasonably necessary to protect us from loss due to:

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defective services;

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liens or other encumbrances on all or a portion of the Phase 2 site or the Phase 2 facility filed by Bechtel or any subcontractor or any person acting through or under any of them;

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any material breach by Bechtel of any provision of the EPCM agreement;

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the assessment of any fines or penalties against us as a result of Bechtel’s failure to comply with applicable law or applicable codes and standards;

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amounts we paid to Bechtel in a preceding month incorrectly; or

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any other costs and liabilities that we have incurred for which Bechtel is responsible under the EPCM agreement.

Bechtel has the right to submit a change order to us to increase the fixed fee:

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in the event that we adjust the scope of Phase 2—Stage 1 at a cost individually or in the aggregate of $5,000,000 or more, excluding any increased costs caused by escalation in the cost of labor or materials, estimating errors or higher than expected costs for labor, materials or equipment;

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for significant delays to Phase 2—Stage 1 resulting from a force majeure event (as described below) causing a delay in excess of 90 consecutive days;

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if we suspend all or a significant portion of Phase 2—Stage 1 for more than 60 consecutive days; or

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if we direct Bechtel or our Sabine contractors to significantly delay the progress of Phase 2—Stage 1.

In such circumstances, Bechtel will be entitled to an adjustment in the fixed fee equal to 4% of the value of the additional work.

Warranty

Bechtel warrants that the materials, equipment and supplies provided by Bechtel and its subcontractors (but not our contractors) will be new and of good quality; the services will be provided in accordance with all

Index to Financial Statements

requirements of the EPCM agreement; and all equipment, materials and supplies furnished by Bechtel and its subcontractors will be free from encumbrances to title. There are three distinct defect correction periods, and during any such period and for 18 months thereafter, Bechtel is responsible for promptly correcting any defective service and performing any other services necessary to correct the defect to the Phase 2—Stage 1 facility. Bechtel will be reimbursed on a recoverable cost basis for performing corrective services, including the cost of field labor, field supervision, materials and equipment, but Bechtel will not be entitled to payment for any costs associated with design, engineering, construction management, or for the costs of field personnel above a rank of general foreman. In addition, Bechtel will not be entitled to any increase in the fixed fee in connection with the performance of corrective services.

Limitation of Liability

Bechtel’s liability in contract, warranty, tort, strict liability, products liability, professional liability, indemnity, contribution or any other cause is limited to the amount of 50% of the fixed fee (as adjusted pursuant to a change order), except that this limitation does not apply to: (i) Bechtel’s indemnification obligations; (ii) proceeds of insurance required to be obtained by Bechtel and its subcontractors; or (iii) Bechtel’s obligation to deliver unencumbered title to us in accordance with the EPCM agreement for materials, equipment and supplies furnished by Bechtel or its subcontractors.

Force Majeure

Because the EPCM agreement is cost-reimbursable, no change order is required for costs incurred by Bechtel related to a force majeure event. Any costs incurred by Bechtel in exercising reasonable efforts to prevent, avoid, overcome or mitigate the effects of force majeure on Phase 2—Stage 1 will be recoverable under the cost reimbursable structure. A force majeure under the EPCM agreement is any act or event that:

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prevents or delays the affected party’s performance of its obligations in accordance with the terms of the EPCM agreement;

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is beyond the reasonable control of the affected party, not due to its fault or negligence; and

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could not have been prevented or avoided by the affected party through the exercise of due diligence.

Termination and Suspension

In the event of an uncured default by Bechtel, we may terminate the EPCM agreement and take any of the following actions:

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take possession of the facility, materials, equipment, construction equipment, work product, books and records and other items owned or rented by Bechtel;

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take assignment of any or all subcontracts; and

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complete the work.

Following such a termination, we have no further obligation to pay Bechtel, and Bechtel must refund any advance payments made for services not yet performed, and Bechtel will be liable for reasonable costs incurred by us due to the default.

We also have the right to terminate the EPCM agreement for convenience upon 30 days’ prior written notice to Bechtel. In the event of any such termination for convenience, Bechtel would be paid:

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all recoverable costs for services performed through the date of termination, less that portion of the recoverable costs previously paid;

Index to Financial Statements

•

all recoverable costs reasonably incurred by Bechtel on account of such termination, including cancellation charges owed by Bechtel to its subcontractors if we do not take assignment of such subcontracts, and costs associated with demobilization of personnel and construction equipment; and

•

the fixed fee for services performed through the date of termination, less amounts previously paid.

Bechtel’s ability to terminate the EPCM agreement is limited to the following events:

•

our failure to pay an undisputed amount, if such failure is not cured within 45 days after notice from Bechtel;

•

our failure to materially comply with any of our material obligations under the EPCM agreement (but only to the extent such material failure and the impact thereof is not subject to adjustment by change order), and we fail to cure such failure within 45 days (or a reasonable time beyond 45 days, not to exceed 90 days) after notice from Bechtel; or

•

we experience an insolvency event.

In the event of any such termination event, Bechtel is entitled to the same compensation set forth above as if we had terminated for convenience.

If any force majeure event or the effects thereof causes suspension of a substantial portion of the work at the Phase 2 site for a period exceeding 100 consecutive days or 180 days in the aggregate during any continuous 24-month period, then either party has the right to terminate the EPCM agreement by providing 14 days’ written notice to the other party. In the event of such termination, Bechtel is entitled to the same compensation set forth above as if we had terminated the EPCM agreement for convenience.

We may, upon 10 days’ written notice to Bechtel, suspend the work under the EPCM agreement. In the event such suspension period exceeds 90 consecutive days or 180 aggregate days, Bechtel is permitted to terminate the EPCM agreement subject to giving 14 days’ written notice to us. Bechtel is also permitted to suspend performance of its services after 14 days’ prior written notice if we fail to pay any undisputed amount due and owing to Bechtel and such failure continues for more than 30 days after the due date for such payment.

Phase 2—Stage 1 EPC LNG Tank Contract

Scope of Work

In July 2006, we entered into an Engineer, Procure and Construct (EPC) LNG Tank Contract, or the tank contract, with Zachry and Diamond, who are collectively referred to as the tank contractor, for the Phase 2—Stage 1 expansion of our LNG receiving terminal. Under the tank contract, the tank contractor will furnish all plant, labor, materials, tools, supplies, equipment, transportation, supervision, technical, professional and other services, and perform all operations necessary and required to satisfactorily engineer, procure and construct two Phase 2—Stage 1 tanks. In addition, we have the option (to be elected on or before March 31, 2007) for the tank contractor to engineer, procure and construct a third tank, with the cost and completion date thereof to be agreed upon after such option is elected.

Scheduling

The target milestone completion date of the first Phase 2—Stage 1 tank is scheduled in the first quarter of 2009, and the target milestone completion date of the second Phase 2—Stage 1 tank is scheduled in the second quarter of 2009.

Payments

The tank contract provides that the tank contractor will receive a lump-sum, fixed price payment of approximately $140.9 million. The contract price is subject to adjustment based on fluctuations in the cost of labor and certain materials for the Phase 2—Stage 1 tanks, including the steel used in the Phase 2—Stage 1 tanks.

Index to Financial Statements

Payments under the tank contract will be made in accordance with a specified milestone payment schedule. As retainage, we withhold 5% of each milestone payment for the work performed up to provisional acceptance. One-half of the retainage will be released upon provisional acceptance of the first Phase 2—Stage 1 tank, and the remaining retainage will be released upon provisional acceptance of the second Phase 2—Stage 1 tank.

In addition to disputed invoice amounts, we may, upon giving prior written notice and allowing the tank contractor an opportunity to cure, withhold payment on an invoice or a portion thereof, or collect on the letter of credit, if:

•

the tank contractor is in default of any tank contract condition, including, but not limited to, the schedule, quality assurance and health and safety requirements;

•

the tank contractor has not submitted the tank contract schedule, including any revisions or updates, as required by the tank contract;

•

the tank contractor has failed to submit proper insurance certificates, or not provided proper coverage or proof thereof;

•

the tank contractor has failed to submit securities approved by us;

•

the tank contractor fails to submit interim lien waivers from the tank contractor and major subcontractors; or

•

adjustments are due from previous overpayment or audit results.

Letter of Credit

The tank contractor has furnished us with an irrevocable standby letter of credit in the amount of 5% of the contract price, issued and confirmed by a bank acceptable to us. The letter of credit will expire upon final acceptance of the two Phase 2—Stage 1 tanks and our notice to the issuing bank to release the letter of credit. If at any time the contract price is increased by change order by at least 1% of the contract price, in the aggregate, the tank contractor will increase the amount of the letter of credit to 5% of the adjusted contract price. In addition, Mitsubishi Heavy Industries Ltd. has executed a guarantee agreement with respect to the obligations of Diamond under the tank contract.

Change Orders

We have the right to submit any change order, subject to certain caps on unilateral change orders (including an individual cap of 5% and an aggregate cap of 10% of the contract price).

The tank contractor has the right to submit a change order in the event of specified circumstances, including the following:

•

a change in law;

•

acts or omissions by us that constitute a change in the work under the tank contract;

•

force majeure ;

•

acceleration of the work directed by us;

•

if the finished work conforms with the requirements of the tank contract, but we require disassembling or dismantling of a tank for the purpose of inspection;

•

in the event of a delay or suspension of work ordered by us;

•

in the event subsurface soil conditions are materially different from the information provided by us; and

•

discovery of pre-existing hazardous material at the site.

Index to Financial Statements

In many instances, before such a change order can be submitted by the tank contractor, such occurrences must adversely affect the tank contractor’s (i) cost of performing the work; (ii) ability to perform the work in accordance with the project schedule; or (iii) ability to perform any material obligation under the tank contract.

Liquidated Damages

The tank contractor is required to pay liquidated damages for each day of delay that the tank contractor fails to achieve mechanical completion for each Phase 2—Stage 1 tank by the respective mechanical completion milestone date. The amount of the liquidated damages for each tank is $50,000 for each of the first 75 days of delay and $100,000 for each day thereafter, subject to a maximum of 10% of the contract price.

Limitation of Liability

The tank contractor is obligated to perform all of the work required to achieve ready for cool down for both of the Phase 2—Stage 1 tanks. Once both of the Phase 2—Stage 1 tanks are ready for cool down, liability under the tank contract or under any cause of action related to the subject matter of the tank contract, whether in contract, warranty, tort, strict liability, products liability, professional liability, indemnity, contribution or any other cause of action, is limited to an aggregate of 30% of the contract price, except that this limitation does not apply to: (i) losses caused by criminal acts, fraud or gross negligence of the tank contractor’s key personnel or their superiors; (ii) the tank contractor’s indemnification obligations under the tank contract; or (iii) proceeds of insurance required to be obtained by the tank contractor and its subcontractors and sub-subcontractors.

Warranty

The tank contractor warrants that the work (including all materials and equipment) will be new (unless otherwise agreed) and of good quality, in accordance with all requirements of the tank contract (including good engineering and construction practices, applicable law and applicable codes and standards), and free from encumbrances to title. Until the end of the defect correction period (ending 18 months after provisional acceptance of each Phase 2—Stage 1 tank or 24 months after each Phase 2—Stage 1 tank is ready for cool down, whichever occurs first, and subject to extension for corrected work), the tank contractor is liable to promptly correct any work that is found to be defective.

Force Majeure

A force majeure event entitles the tank contractor to an extension to the project schedule if the delay caused by the force majeure event affects the performance of any work that is on the critical path of the work and causes, or will cause, the tank contractor to complete the work beyond the applicable milestone date. The tank contractor is also entitled to its reasonable incremental costs incurred as a result of a force majeure event, but only after such costs incurred with respect to any one force majeure event exceed $250,000.

A force majeure under the tank contract is any act or event that:

•

prevents, delays or materially and adversely impacts the affected party’s performance of its obligations in accordance with the terms of the tank contract;

•

is beyond the reasonable control of the affected party, not due to its fault or negligence; and

•

could not have been prevented or avoided by the affected party through the exercise of commercially reasonable efforts.

The tank contractor may terminate the tank contract upon 30 days’ prior written notice if a force majeure event causes a complete suspension of all work that continues for more than 120 consecutive days, unless we agree to a modification of the contract price and modifying the milestone schedule to account for such force majeure event.

Index to Financial Statements

Termination and Suspension

We have the right to terminate the tank contract as a result of a default by the tank contractor, which occurs if the tank contractor:

•

performs work that fails materially to conform to the requirements of the tank contract;

•

fails to make progress according to the agreed-upon tank contract schedule so as to endanger performance of the tank contract;

•

abandons or refuses to proceed with any of the work, including modifications thereto;

•

fails to fulfill or comply with any of the other material terms of the tank contract;

•

fails to commence the work in accordance with the provisions of the tank contract;

•

abandons the work;

•

fails to maintain insurance required under the tank contract;

•

materially disregards applicable law or applicable standards and codes;

•

engages in behavior that is dishonest, fraudulent or constitutes a conflict with the tank contractor’s obligations under the tank contract; or

•

suffers an insolvency event or makes a general assignment for the benefit of creditors.

In the event of such a default (other than such set forth in the last bullet, in which case we have an immediate right to terminate the tank contract) which remains uncured after 30 days’ notice (or a reasonable time beyond 30 days, not to exceed 90 days), we may:

•

terminate the tank contract in whole or in part;

•

complete the work in whatever manner we deem expedient;

•

take possession of and utilize any data, designs, work product, licenses, materials, equipment and tools furnished by the tank contractor or subcontractors or sub-subcontractors and necessary to complete the work;

•

hire any or all of the tank contractor’s employees; and

•

take assignment of any or all of the subcontracts and sub-subcontracts.

Notwithstanding the foregoing, we are not entitled to terminate the tank contract for delay in achieving mechanical completion for a Phase 2—Stage 1 tank during the first three months after the milestone date for the tank unless the tank contractor is not paying our liquidated damages when owed during such three-month period or the tank contractor is not diligently performing the work, and we are otherwise entitled to terminate the tank contract.

Following such termination, if the cost to complete the Phase 2—Stage 1 tanks exceeds the unpaid balance of the contract price, the tank contractor will be liable for the difference. In addition, the tank contractor is also liable for liquidated damages and the cost to accelerate the work of any substitute contractor to achieve the milestone dates.

We have the right to terminate the tank contract in whole or in part for convenience by written notice to the tank contractor. In such event, the tank contractor will be paid:

•

the portion of the contract price for the work performed prior to termination, less that portion of the contract price paid previously;

•

all reasonable costs for work thereafter performed as specified in such notice;

Index to Financial Statements

•

reasonable administrative costs of settling and paying claims arising out of the termination of work under subcontracts and sub-subcontracts;

•

reasonable costs associated with demobilization;

•

a reasonable overhead and profit on the amounts;

•

a sum equal to 5% of the unpaid contract price, not to exceed $4,000,000; and

•

less all payments previously made.

If we fail to pay any undisputed amount due and owing to the tank contractor and such failure continues for more than 30 days after the due date for such payment, then the tank contractor may suspend performance of the work until the tank contractor receives such undisputed amounts. If we do not cure such failure within 30 days after receipt of the notification given above, or fail to provide satisfactory evidence that such default will be corrected within 90 days, the tank contractor may, by written notice to us, terminate in whole or in part the tank contract.

We may, upon written notice, suspend all or any portion of the work. The tank contractor is permitted to submit a change order to recover the reasonable costs of such suspension. The tank contractor has no equivalent right to terminate or suspend the tank contract.

Phase 2—Stage 1 EPC LNG Soil Contract

Scope of Work

In July 2006, we entered into an Engineer, Procure and Construct (EPC) LNG Unit Rate Soil Contract, or the soil contract, with Recon, or the soil contractor, for Phase 2—Stage 1 of our LNG receiving terminal expansion project. Under the soil contract, the soil contractor is required to furnish all plant, labor, materials, tools, supplies, equipment, transportation, supervision, technical, professional and other services, and perform all operations necessary and required to satisfactorily conduct soil remediation and improvement on the Phase 2 site.

Payments

Upon issuing the NTP, we paid the soil contractor an initial payment of $2,850,000. The soil contract price is based on unit rates. Payments under the soil contract will be made based on quantities of work performed at unit rates. As retainage, we withhold 10% of each invoiced amount, with the retainage being released upon final completion of the work.

In addition to disputed invoice amounts, we may, upon giving prior written notice and allowing the soil contractor an opportunity to cure, withhold payment on an invoice or a portion thereof, or collect on the letter of credit, if:

•

the soil contractor is in default of any soil contract condition, including, but not limited to, the schedule, quality assurance and health and safety requirements;

•

the soil contractor has not submitted the soil contract schedule, including any revisions or updates, as required by the soil contract;

•

the soil contractor has failed to submit proper insurance certificates, or not provided proper coverage or proof thereof;

•

the soil contractor fails to submit interim lien waivers from the soil contractor and major subcontractors; or

•

adjustments are due from previous overpayment or audit results.

Index to Financial Statements

Letter of Credit

The soil contractor has furnished us with an irrevocable standby letter of credit in an amount of $2,850,000, issued by a bank acceptable to us. The letter of credit will expire upon final completion of the work. If at any time the unit rates are increased by change order by more than 10% of the unit rates, upon our request, the soil contractor will increase the amount of the letter of credit to 10% of the adjusted unit rates.

Change Orders

We have the right to submit any change order to make any change in the work that is within the scope of the soil contract.

The soil contractor has the right to submit a change order in the event of specified circumstances, including the following:

•

a change in law;

•

acts or omissions by us that constitute a change in the work under the soil contract;

•

force majeure ;

•

acceleration of the work directed by us;

•

in the event of a delay or suspension of work ordered by us;

•

in the event subsurface soil conditions are materially different from the information provided by us; and

•

discovery of pre-existing hazardous material at the site.

In many instances, before such a change order can be submitted by the soil contractor, such occurrences must adversely affect the soil contractor’s (i) ability to perform the work in accordance with the project schedule; or (ii) ability to perform any material obligation under the soil contract.

Liquidated Damages

The soil contractor is required to pay liquidated damages for each day of delay that the soil contractor fails to achieve substantial completion for each Phase 2—Stage 1 tank and final completion by the respective specified milestone date. The amount of the liquidated damages for failure to achieve the milestone date for substantial completion and final completion of each tank is $21,000 for each day of delay, subject in all cases to a maximum of $3,000,000.

Limitation of Liabilities

The soil contractor is obligated to perform all of the work required to achieve substantial completion. Following attainment of substantial completion, liability under the soil contract or under any cause of action related to the subject matter of the soil contract, whether in contract, warranty, tort, strict liability, products liability, professional liability, indemnity, contribution or any other cause of action, is limited to an aggregate of $7,500,000, except that this limitation does not apply to: (i) losses caused by intentional misconduct or gross negligence of the soil contractor; (ii) the soil contractor’s indemnification obligations under the soil contract; or (iii) proceeds of insurance required to be obtained by the soil contractor and its subcontractors and sub-subcontractors.

Warranty

The soil contractor warrants that the work (including all materials and equipment) will be new (unless otherwise agreed) and of good quality, in accordance with all requirements of the soil contract (including good engineering and construction practices, applicable law and applicable codes and standards), and free from encumbrances to title. Until the end of the defect correction period (ending 24 months after substantial completion, subject to extension to 36 months where corrective work is performed), the soil contractor is liable to promptly correct any work that is found defective.

Index to Financial Statements

Force Majeure

A force majeure event entitles the soil contractor to an extension to the project schedule if the delay caused by the force majeure event affects the performance of any work that is on the critical path of the work and causes, or will cause, the soil contractor to complete the work beyond the applicable milestone date. A force majeure under the soil contract is any act or event that:

•

prevents or delays the affected party’s performance of its obligations in accordance with the terms of the soil contract;

•

is beyond the reasonable control of the affected party, not due to its fault or negligence; and

•

could not have been prevented or avoided by the affected party through the exercise of due diligence.

If there is a force majeure event, the soil contractor shall be entitled to an extension of the applicable milestone date, which is the soil contractor’s sole remedy for the occurrence of such delay for a continuous period of less than 30 days. For such an event that extends beyond 30 consecutive days, the soil contractor may be entitled to an adjustment to the unit rates for reimbursement of the standby time for the soil contractor’s employees and construction equipment and other standby costs that are incurred by the soil contractor after the expiration of such 30-day period and which are caused by such excusable delay, up to a maximum aggregate of 40 days of standby time.

Termination and Suspension

We have the right to terminate the soil contract as a result of a default by the soil contractor, which occurs if the soil contractor:

•

performs work which fails materially to conform to the requirements of the soil contract;

•

fails to make progress so as to endanger performance of the soil contract;

•

abandons or refuses to proceed with any of the work, including modifications thereto;

•

fails to fulfill or comply with any of the terms of the soil contract;

•

fails to commence the work in accordance with the provisions of the soil contract;

•

abandons the work;

•

fails to maintain insurance required under the soil contract;

•

materially disregards applicable law or applicable standards and codes;

•

engages in behavior that is dishonest, fraudulent or constitutes a conflict with the soil contractor’s obligations under the soil contract; or

•

suffers an insolvency event or makes a general assignment for the benefit of creditors.

In the event of such a default (other than such set forth in the last bullet, which provides an immediate right of termination) which remains uncured after 48 hours’ notice (or a reasonable time beyond 48 hours, not to exceed 30 days), we may:

•

terminate the soil contract in whole or in part;

•

complete the work in whatever manner we deem expedient;

•

take possession of and utilize any data, designs, work product, licenses, materials, plant, equipment, tools and property of any kind furnished by the soil contractor or subcontractors or sub-subcontractors and necessary to complete the work;

•

hire any or all of the soil contractor’s employees; and

•

take assignment of any or all of the subcontracts and sub-subcontracts.

Index to Financial Statements

Following such termination, the soil contractor will be liable for liquidated damages and the cost of any substitute contractor to accelerate the work in order to achieve the substantial completion milestone dates.

We have the right to terminate the soil contract in whole or in part for convenience by written notice to the soil contractor. In this event, the soil contractor will be paid:

•

the unit rates corresponding to the work performed prior to termination;

•

all reasonable costs for work thereafter performed as specified in such notice;

•

reasonable administrative costs of settling and paying claims arising out of the termination of work under subcontracts and sub-subcontracts;

•

reasonable costs incurred in demobilization and the disposition of residual material, plant and equipment;

•

a sum equal to 5% of the result obtained by subtracting all previous payments to the soil contractor from $30,000,000, but such sum shall not in any event exceed $1,000,000; and

•

less all payments previously made.

We may, upon written notice, suspend all or any portion of the work. The soil contractor is permitted to submit a change order to recover the reasonable costs of such suspension. The soil contractor has no equivalent right to terminate or suspend the soil contract.

Index to Financial Statements

MANAGEMENT

Directors and Executive Officers of Our General Partner

We have no employees, directors or officers. We are managed by our general partner, Sabine Pass LNG GP. The following sets forth information, as of November 1, 2006, regarding the individuals who currently serve on the board of directors and as officers of our general partner.


Name	Age	Position with Our General Partner
Charif Souki	53	Director
Stanley C. Horton	56	Director and Chief Executive Officer
Keith G. Little	49	President
Don A. Turkleson	52	Chief Financial Officer
Anne V. Vaughan	40	Secretary
Graham A. McArthur	41	Treasurer
Victor Duva	48	Director

Charif Souki is a director of our general partner. Mr. Souki, a co-founder of Cheniere, is Chairman of Cheniere’s board of directors and Chief Executive Officer of Cheniere. In December 2002, Mr. Souki assumed the positions of President and Chief Executive Officer of Cheniere. He relinquished the title of President of Cheniere in April 2005. From September 1997 until June 1999, he was co-chairman of the board of directors of Cheniere, and he served as Secretary of Cheniere from July 1996 until September 1997. Mr. Souki has over 20 years of independent investment banking experience in the industry and has specialized in providing financing for promising microcap and small capitalization companies with an emphasis on the oil and gas industry. Mr. Souki received a B.A. from Colgate University and an M.B.A. from Columbia University.

Stanley C. Horton is a director and Chief Executive Officer of our general partner. Mr. Horton is President and Chief Operating Officer of Cheniere. He has over 30 years of experience in the natural gas and energy industry. From November 2004 to April 2005, when he joined Cheniere, Mr. Horton served as President and Chief Operating Officer of Panhandle Energy, an owner and operator of 18,000 miles of interstate pipelines and the Lake Charles LNG receiving terminal. From June 2003 until November 2004, he was President and Chief Executive Officer of CrossCountry Energy, which holds interests in and operates natural gas pipeline businesses. From 1997 to June 2003, Mr. Horton was Chairman and Chief Executive Officer of Enron Transportation Services which had responsibility for all of Enron’s North American interstate natural gas pipeline and transmission line companies. Mr. Horton currently serves on the Board of Directors for the Interstate Natural Gas Association of America and was its Chairman in 2001. He also has chaired the Gas Industry Standards Board (2000) and the Natural Gas Council (2002). He previously served on the Board of Directors of Portland General Electric, an electric utility, and the Board of Directors of Elektro Eletricidade e Serviços S.A., a local electricity distribution company in Sao Paulo, Brazil. Mr. Horton received a B.S. in finance from the University of Florida and a M.S. from Rollins College.

Keith G. Little is the President of our general partner. Mr. Little has served as Vice President—Business Development of Cheniere LNG, Inc. since June 2005 where he has led the development of the Sabine Pass and Creole Trail LNG receiving terminals in Cameron Parish, Louisiana. Prior to joining Cheniere, Mr. Little worked for more than 20 years for ConocoPhillips in a variety of business development, finance and strategic planning roles in the upstream, downstream and corporate sectors. His business development work focused on midstream gas and power projects in the U.S. Gulf Coast, the North Sea and emerging markets. Mr. Little led ConocoPhillips’ participation in the Freeport LNG receiving terminal project, in which Cheniere holds a 30% limited partner interest. Mr. Little received a B.A. in math and economics from Swarthmore College and an MBA with a concentration in finance from the University of Chicago.

Don A. Turkleson is Chief Financial Officer of our general partner. Mr. Turkleson is Senior Vice President and Chief Financial Officer of Cheniere. He became a Senior Vice President of Cheniere in May 2004,

Index to Financial Statements

relinquished the position of Treasurer of Cheniere in December 2004 and relinquished the position of Secretary in September 2006. He had served as Vice President, Chief Financial Officer, Secretary and Treasurer of Cheniere since December 1997. Prior to joining Cheniere in 1997, Mr. Turkleson was employed by PetroCorp Incorporated from 1983 to 1996, as Controller until 1986, then as Vice President—Finance, Secretary and Treasurer. From 1975 to 1983, he worked as a Certified Public Accountant in the natural resources division of Arthur Andersen & Co. in Houston. Mr. Turkleson received a B.S. in accounting from Louisiana State University. He is a director and past Chairman of the Board of Neighborhood Centers, Inc., a nonprofit organization.

Anne V. Vaughan is Secretary of our general partner. Ms. Vaughan is Assistant General Counsel and Secretary of Cheniere. Prior to joining Cheniere in June 2006, she served as a Senior Attorney with Burlington Resources Inc., a large independent oil and gas company. From October 1996 to April 2000, Ms. Vaughan was an associate with the law firm of Chamberlain, Hrdlicka, White, Williams & Martin in Houston, Texas. She received a B.S. in psychology from Tulane University and a J.D. from the University of Texas.

Graham A. McArthur is Treasurer of our general partner. Mr. McArthur is Vice President and Treasurer of Cheniere. He became a Vice President of Cheniere in January 2005 and has served as Treasurer of Cheniere since December 2004. Prior to joining Cheniere in 2004, Mr. McArthur was with Westlake Chemical Corporation since 1996, serving most recently as Assistant Treasurer. He began his career in commercial banking in 1987 before moving into a corporate treasury role in 1991. Mr. McArthur received a B.B.A. in Finance from Texas A&M University in 1987 and an M.B.A. from the University of Houston in 1990.

Victor Duva serves as an independent director of our general partner. Mr. Duva has been the President of C T Corporate Staffing, Inc. since 2003. Between 1981 and 2003, Mr. Duva has held various positions with C T Corporate Staffing, Inc., including Account Representative, Assistant Vice President/Office Manager of two offices and Business Process Analyst. He received his B.A. at St. Thomas of Villanova University.

Governance and Management

Except for Mr. Duva, the individuals who serve on the board of directors and as officers of our general partner also serve as executive officers and/or directors of other affiliated entities, including Cheniere and direct or indirect subsidiaries of Cheniere. None of our general partner’s directors or officers spends or is expected to spend 100% (or near 100%) of his or her time on our business.

As long as any of the notes remain outstanding, our general partner must have at least one director who is not, and for at least five years preceding such appointment has not been, a stockholder, director, manager, officer, trustee, employee, partner, member, attorney, counsel, creditor, customer or supplier of us, our general partner or any of our respective affiliates and who does not and has not had specified financial relationships with us, our general partner or any of our respective affiliates. We refer to this person as an independent director, and any such person may not control, be under common control with or be a member of the immediate family of any person excluded from serving as an independent director.

Our and our general partner’s organizational documents require that any voluntary filing under bankruptcy or insolvency laws by the general partner on its own behalf or on behalf of us must be approved by the entire board of directors of our general partner, including the independent director. Our and our general partner’s organizational documents also contain limitations on the ability to (i) guaranty third-party obligations (including those of any affiliates), (ii) incur, create or assume indebtedness and (iii) consolidate, merge, sell or otherwise transfer any assets outside the ordinary course of business. In addition, we and our general partner are also subject to prohibitions on, among other actions, (x) the ability to engage in any business other than as contemplated in our organizational documents, (y) any dissolution or liquidation and (z) any amendment, modification or change to the single purpose entity requirements set forth in our organizational documents.

Index to Financial Statements

We and our general partner are also required to observe certain “separateness” covenants designed to maintain each of our existences as separate legal entities distinct from any other entity. For example, we and our general partner are each required, among other things, to (i) maintain separate books, records and bank accounts, (ii) maintain separate financial statements subject to certain exceptions, (iii) prepare and file our own tax returns separate from those of any other person to the extent required by law, (iv) enter into transactions with affiliates on an arms-length basis (or on terms that are fair if no comparable transactions with unaffiliated third parties would be available), (v) not commingle our accounts or funds with those of another person, (vi) pay our liabilities and expenses out of and to the extent of our own funds and (vii) maintain a sufficient number of employees or engage affiliated or independent contractors in light of our contemplated business purpose.

Compensation

Our general partner was formed in October 2003. Our general partner has paid no compensation to its directors and officers since inception and has no plans to do so in the future, except that Mr. Duva is compensated $2,300 per year for serving as its independent director. Officers and employees, if any, of the general partner may participate in employee benefit plans and arrangements sponsored by Cheniere and its affiliates, including plans that may be established by Cheniere and its affiliates in the future.

Index to Financial Statements

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We are significantly dependent on Cheniere and its affiliates and our general partner and have numerous contractual and commercial relationships and conflicts of interests with them. Please read “Risk Factors” for a more thorough explanation of these commercial and contractual relationships and the conflicts of interest related thereto.

Cheniere Marketing TUA

In November 2006, we entered into an amended and restated TUA with Cheniere Marketing for the reservation of 2.0 Bcf/d of regasification capacity at our LNG receiving terminal. See “Business—Customers—Cheniere Marketing TUA.”

Sabine Pass LNG Operation and Maintenance Agreement

In February 2005, we entered into an Operation and Maintenance Agreement, or O&M Agreement, with Cheniere LNG O&M Services, L.P., or O&M Services, an indirect wholly-owned subsidiary of Cheniere. Pursuant to the O&M Agreement, O&M Services has agreed to provide all necessary services required to construct, operate and maintain our LNG receiving terminal. The O&M Agreement will remain in effect until 20 years after substantial completion of the facility. Prior to substantial completion of the facility, we are required to reimburse O&M Services for its operating expenses and pay a fixed monthly fee of $95,000 (indexed for inflation). The fixed monthly fee will increase to $130,000 (indexed for inflation) upon substantial completion of the facility, and O&M Services will thereafter in certain circumstances be entitled to a bonus equal to 50% of the salary component of labor costs. Pursuant to the O&M Agreement, we paid O&M Services $868,571 for services provided from February 2005 through December 31, 2005 and $855,000 for services provided from January 1, 2006 through September 30, 2006.

General Partner Management Services Agreement

In September 2006, our general partner entered into a Management Services Agreement, or the general partner MSA, with Cheniere LNG Terminals, Inc., or Terminals, a wholly-owned subsidiary of Cheniere. Pursuant to the general partner MSA, Terminals provides to the general partner the technical, financial, staffing and related support necessary to allow our general partner to meet its obligations to us under the Sabine Pass LNG MSA. Under the general partner MSA, our general partner will pay Terminals amounts that it receives from us for management of our LNG receiving terminal. Through September 30, 2006, our general partner has paid $340,000 to Terminals pursuant to the general partner MSA.

Sabine Pass LNG Management Services Agreement

In February 2005, we entered into a Management Services Agreement, or the Sabine Pass LNG MSA, with our general partner, which is also a wholly-owned subsidiary of Cheniere. Pursuant to the Sabine Pass LNG MSA, we appointed our general partner to manage the construction and operation of our LNG receiving terminal, excluding those matters provided for under the O&M Agreement. The Sabine Pass LNG MSA terminates 20 years after the commercial start date set forth in the Total TUA. Prior to substantial completion of construction of our LNG receiving facility, we are required to pay our general partner a monthly fixed fee of $340,000; thereafter, the monthly fixed fee will increase to $520,000 (indexed for inflation). Pursuant to the Sabine Pass LNG MSA, we paid our general partner $3,060,000 for services provided from February 2005 through December 31, 2005 and $3,108,571 for services provided from January 1, 2006 through September 30, 2006.

J&S Cheniere Agreement

In November 2006, Cheniere Marketing entered into a letter agreement with Cheniere LNG, Inc. and us pursuant to which Cheniere Marketing has agreed to relinquish up to 200 Mmcf/d of its regasification capacity (and proportionately reduce its fixed monthly fee) under the Cheniere Marketing TUA if required to allow us to

Index to Financial Statements

satisfy our obligations under a potential TUA with J&S Cheniere S.A., or J&S Cheniere. J&S Cheniere is a Swiss company in which Cheniere holds a minority interest. This arrangement stems from a 2003 option agreement between Cheniere LNG, Inc. and J&S Cheniere pursuant to which J&S Cheniere has an option to negotiate a TUA for up to 200 Mmcf/d of regasification capacity and proportional LNG storage at our LNG receiving terminal. The terms of the potential TUA contemplated by the J&S Cheniere option agreement have not been negotiated or finalized, and Cheniere has publicly disclosed its anticipation that definitive arrangements with J&S Cheniere may involve different terms and transaction structures than were contemplated when the option agreement was entered into in December 2003.

Assumption Agreement

Under a settlement agreement dated as of June 14, 2001, Cheniere and affiliated entities engaged in the LNG business, including our partnership, have agreed to pay a royalty, which we refer to as the Crest Royalty. The Crest Royalty is calculated based on the volume of natural gas processed through covered LNG facilities and is subject to a maximum of $10.95 million per production year beginning when natural gas is first commercially processed through a covered LNG facility.

We do not expect to pay any Crest Royalty amounts at any time for two reasons:

•

Freeport LNG, L.P., in which Cheniere holds a 30% limited partner interest and which we refer to as Freeport LNG, has assumed the obligation to pay the Crest Royalty based on natural gas processed at Freeport LNG’s receiving terminal. The maximum annual Crest Royalty payment of $10.95 million per contract year is payable if approximately 1.0 Bcf/d is processed. Freeport LNG has entered into TUAs with ConocoPhillips Company and with The Dow Chemical Company, under which payments begin when the Freeport LNG receiving terminal begins commercial operations. The ConocoPhillips TUA is for 0.5 Bcf/d initially and increases to 1.0 Bcf/d in October 2009. The Dow TUA is for 0.5 Bcf/d. Freeport LNG has announced that it expects to commence commercial operations in 2008.

•

Our parent company, Cheniere, has agreed to indemnify us against any Crest Royalty obligation and to pay any Crest Royalty amounts that may be due and not paid by Freeport LNG.

As agreed in the 2001 settlement agreement, Cheniere and affiliated entities engaged in the LNG business, including our partnership, have each entered into an agreement, which we refer to as the Assumption Agreement, under which we each have assumed and adopted the Crest Royalty obligation and have agreed not to create any non-permitted lien, security interest or other encumbrance for borrowed money that is senior to or pari passu with the Crest Royalty obligation. In accordance with this agreement, the payment of any Crest Royalty amount that we may become obligated to pay will be secured by the same collateral as, and payable prior to any payments in respect of, the notes.

Arrangements Regarding Taxes

In November 2006, we entered into a State Tax Sharing Agreement with Cheniere pursuant to which Cheniere has agreed to prepare and file all Texas franchise tax returns which we and Cheniere are required to file on a combined basis and to timely pay the combined tax liability. If Cheniere, in its sole discretion, demands such payment, we will pay to Cheniere an amount equal to the Texas franchise tax that we would be required to pay if our Texas franchise tax liability were computed on a separate company basis. The State Tax Sharing Agreement contains similar provisions for other state and local taxes required to be filed by Cheniere and our partnership on a combined, consolidated or unitary basis. The State Tax Sharing Agreement is effective for tax returns first due on or after January 1, 2008.

We will also make distributions to our partners in respect of federal, state and local income taxes not covered by the State Tax Sharing Agreement in respect of periods in which we and any of our subsidiaries are treated as pass-through entities for federal and state income tax purposes. See “Description of Notes—Certain Definitions—Permitted Payments to Parent.”

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The limited partner interest in our partnership is divided into units. The following table sets forth the beneficial ownership of our units owned of record and beneficially as of November 1, 2006:

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each person known by us to be a beneficial owner of more than 5% of the units;

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each of the directors of our general partner;

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each of the named executive officers of our general partner; and

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all directors and executive officers of our general partner as a group.

The amounts and percentage of units beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed a beneficial owner of securities as to which he has no economic interest.

Sabine Pass LNG-LP, LLC has sole voting and investment power with respect to all of the units. The address for the beneficial owner listed below is 717 Texas Avenue, Suite 3100, Houston, Texas 77002.


Name of Beneficial Owner	Units Beneficially Owned	Percentage of Total Units Beneficially Owned
Sabine Pass LNG-LP, LLC	100	100	%
Sabine Pass LNG-GP, Inc.(1)	—	—
Charif Souki	—	—
Stanley C. Horton	—	—
Keith G. Little	—	—
Don A. Turkleson	—	—
Anne V. Vaughan	—	—
Graham A. McArthur	—	—
Victor Duva	—	—
All executive officers and directors as a group (7 persons)	—	—

(1)	Sabine Pass LNG-GP, Inc. is our sole general partner. It holds all of our general partner interest and controls us. It has no economic interest in us. It has sole voting and investment power with respect to its general partner interest in us.

Index to Financial Statements

THE EXCHANGE OFFER

Purpose and Effect of the Exchange Offer

On November 9, 2006, we sold $2,032 million in aggregate principal amount at maturity of the initial notes in a private placement. The initial notes were sold to the initial purchasers who in turn resold the notes to a limited number of qualified institutional buyers and foreign investors pursuant to Rule 144A and Regulation S of the Securities Act, respectively.

In connection with the sale of the initial notes, we entered into a registration rights agreement with the representative of the initial purchasers of the initial notes, pursuant to which we agreed to file and to use all commercially reasonable efforts to cause to be declared effective by the SEC a registration statement with respect to the exchange of the initial notes for the notes. We are making the exchange offer to fulfill our contractual obligations under that agreement. A copy of the registration rights agreement has been filed as an exhibit to the registration statement of which this prospectus is a part.

Pursuant to the exchange offer, we will issue the notes in exchange for initial notes. The terms of the notes are identical in all material respects to those of the initial notes, except that the notes (1) have been registered under the Securities Act and therefore will not be subject to certain restrictions on transfer applicable to the initial notes and (2) will not have registration rights or provide for any liquidated damages related to the obligation to register. Please read “Description of Notes” for more information on the terms of the respective notes and the differences between them.

We are not making the exchange offer to, and will not accept tenders for exchange from, holders of initial notes in any jurisdiction in which an exchange offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction. Unless the context requires otherwise, the term “holder” with respect to the exchange offer means any person in whose name the initial notes are registered on our books or any other person who has obtained a properly completed bond power from the registered holder, or any person whose initial notes are held of record by The Depository Trust Company, referred to as DTC, who desires to deliver such initial notes by book-entry transfer at DTC.

We make no recommendation to the holders of initial notes as to whether to tender or refrain from tendering all or any portion of their initial notes pursuant to the exchange offer. In addition, no one has been authorized to make any such recommendation. Holders of initial notes must make their own decision whether to tender pursuant to the exchange offer and, if so, the aggregate amount of initial notes to tender after reading this prospectus and the letter of transmittal and consulting with the advisers, if any, based on their own financial position and requirements.

In order to participate in the exchange offer, you must represent to us, among other things, that:

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you are acquiring the notes in the exchange offer in the ordinary course of your business;

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you are not engaged in, and do not intend to engage in, a distribution of the notes;

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you do not have and to your knowledge, no one receiving notes from you has, any arrangement or understanding with any person to participate in the distribution of the notes;

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you are not a broker-dealer tendering initial notes acquired directly from us for your own account or if you are a broker-dealer, you will comply with the prospectus delivery requirements of the Securities Act in connection with any resale of the notes; and

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you are not one of our “affiliates,” as defined in Rule 405 of the Securities Act.

Each broker-dealer that receives notes for its own account in exchange for initial notes, where such initial notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such notes. Please read “Plan of Distribution.”

Index to Financial Statements

Terms of Exchange

Upon the terms and conditions described in this prospectus and in the accompanying letter of transmittal, which together constitute the exchange offer, we will accept for exchange initial notes that are properly tendered at or before the expiration time and not withdrawn as permitted below. As of the date of this prospectus, $550 million aggregate principal amount of 7 ¹ / 4 % Senior Secured Notes due 2013 and $1,482 million aggregate principal amount of 7 ¹ / 2 % Senior Secured Notes due 2016 are outstanding. This prospectus, together with the letter of transmittal, is first being sent on or about the date on the cover page of the prospectus to all holders of initial notes known to us. Initial notes tendered in the exchange offer must be in denominations of principal amount of $100,000 and any integral multiple of $1,000.

Our acceptance of the tender of initial notes by a tendering holder will form a binding agreement between the tendering holder and us upon the terms and subject to the conditions provided in this prospectus and in the accompanying letter of transmittal.

The form and terms of the notes being issued in the exchange offer are the same as the form and terms of the initial notes except that:

•

the notes being issued in the exchange offer will have been registered under the Securities Act;

•

the notes being issued in the exchange offer will not bear the restrictive legends restricting their transfer under the Securities Act; and

•

the notes being issued in the exchange offer will not contain the registration rights contained in the initial notes.

Expiration, Extension and Amendment

The expiration time of the exchange offer is 5:00 p.m., New York City time, on [ ]. However, we may, in our sole discretion, extend the period of time for which the exchange offer is open and set a later expiration date for the offer. The term “expiration time” as used herein means the latest time and date to which we extend the exchange offer. If we decide to extend the exchange offer period, we will then delay acceptance of any initial notes by giving oral or written notice of an extension to the holders of initial notes as described below. During any extension period, all initial notes previously tendered will remain subject to the exchange offer and may be accepted for exchange by us. Any initial notes not accepted for exchange will be returned to the tendering holder after the expiration or termination of the exchange offer.

Our obligation to accept initial notes for exchange in the exchange offer is subject to the conditions described below under “—Conditions to the Exchange Offer.” We may decide to waive any of the conditions in our discretion. Furthermore, we reserve the right to amend or terminate the exchange offer, and not to accept for exchange any initial notes not previously accepted for exchange, upon the occurrence of any of the conditions of the exchange offer specified below under the same heading. We will give oral or written notice of any extension, amendment, non–acceptance or termination to the holders of the initial notes as promptly as practicable. If we materially change the terms of the exchange offer, we will resolicit tenders of the initial notes, file a post–effective amendment to the prospectus and provide notice to you. If the change is made less than five business days before the expiration of the exchange offer, we will extend the offer so that the holders have at least five business days to tender or withdraw. We will notify you of any extension by means of a press release or other public announcement no later than 9:00 a.m., New York City time, on the first business day after the previously scheduled expiration time.

Index to Financial Statements

Procedures for Tendering

Valid Tender

Except as described below, a tendering holder must, prior to the expiration time, transmit to The Bank of New York, the exchange agent, at the address listed below under the caption “—Exchange Agent”:

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a properly completed and duly executed letter of transmittal, including all other documents required by the letter of transmittal; or

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if initial notes are tendered in accordance with the book–entry procedures listed below, an agent’s message transmitted through DTC’s Automated Tender Offer Program, referred to as ATOP.

In addition, you must:

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deliver certificates, if any, for the initial notes to the exchange agent at or before the expiration time; or

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deliver a timely confirmation of the book–entry transfer of the initial notes into the exchange agent’s account at DTC, the book–entry transfer facility, along with the letter of transmittal or an agent’s message; or

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comply with the guaranteed delivery procedures described below.

The term “agent’s message” means a message, transmitted by DTC to, and received by, the exchange agent and forming a part of a book–entry confirmation, that states that DTC has received an express acknowledgment that the tendering holder agrees to be bound by the letter of transmittal and that we may enforce the letter of transmittal against such holder.

If the letter of transmittal is signed by a person other than the registered holder of initial notes, the letter of transmittal must be accompanied by a written instrument of transfer or exchange in satisfactory form duly executed by the registered holder with the signature guaranteed by an eligible institution. The initial notes must be endorsed or accompanied by appropriate powers of attorney. In either case, the initial notes must be signed exactly as the name of any registered holder appears on the initial notes.

If the letter of transmittal or any initial notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys–in–fact, officers of corporations or others acting in a fiduciary or representative capacity, these persons should so indicate when signing. Unless waived by us, proper evidence satisfactory to us of their authority to so act must be submitted.

By tendering, each holder will represent to us that, among other things, the person is not our affiliate, the notes are being acquired in the ordinary course of business of the person receiving the notes, whether or not that person is the holder, and neither the holder nor the other person has any arrangement or understanding with any person to participate in the distribution of the notes. Each broker-dealer that receives notes for its own account in exchange for initial notes, where such initial notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such notes. Please read “Plan of Distribution.”

The method of delivery of initial notes, letters of transmittal and all other required documents is at your election and risk, and the delivery will be deemed made only upon actual receipt or confirmation by the exchange agent. If the delivery is by mail, we recommend that you use registered mail, properly insured, with return receipt requested. In all cases, you should allow sufficient time to assure timely delivery. Holders tendering through DTC’s ATOP system should allow sufficient time for completion of the ATOP procedures during the normal business hours of DTC on such dates.

No initial notes, agent’s messages, letters of transmittal or other required documents should be sent to us. Delivery of all initial notes, agent’s messages, letters of transmittal and other documents must be made to the

Index to Financial Statements

exchange agent. Holders may also request their respective brokers, dealers, commercial banks, trust companies or nominees to effect such tender for such holders.

If you are a beneficial owner whose initial notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, and wish to tender, you should promptly instruct the registered holder to tender on your behalf. Any registered holder that is a participant in DTC’s ATOP system may make book–entry delivery of the initial notes by causing DTC to transfer the initial notes into the exchange agent’s account. The tender by a holder of initial notes, including pursuant to the delivery of an agent’s message through DTC’s ATOP system, will constitute an agreement between such holder and us in accordance with the terms and subject to the conditions set forth herein and in the letter of transmittal.

All questions as to the validity, form, eligibility, time of receipt and withdrawal of the tendered initial notes will be determined by us in our sole discretion, which determination will be final and binding. We reserve the absolute right to reject any and all initial notes not validly tendered or any initial notes which, if accepted, would, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive any irregularities or conditions of tender as to particular initial notes. Our interpretation of the terms and conditions of this exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of initial notes must be cured within such time as we shall determine. Although we intend to notify you of defects or irregularities with respect to tenders of initial notes, none of us, the exchange agent, or any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of initial notes, nor shall any of them incur any liability for failure to give such notification. Tenders of initial notes will not be deemed to have been made until such irregularities have been cured or waived. Any initial notes received by the exchange agent that are not validly tendered and as to which the defects or irregularities have not been cured or waived will be returned without cost to such holder by the exchange agent, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date of the exchange offer.

Although we have no present plan to acquire any initial notes that are not tendered in the exchange offer or to file a registration statement to permit resales of any initial notes that are not tendered in the exchange offer, we reserve the right, in our sole discretion, to purchase or make offers for any initial notes after the expiration date of the exchange offer, from time to time, through open market or privately negotiated transactions, one or more additional exchange or tender offers, or otherwise, as permitted by law, the indenture and our other debt agreements. Following consummation of this exchange offer, the terms of any such purchases or offers could differ materially from the terms of this exchange offer.

Signature Guarantees

Signatures on a letter of transmittal or a notice of withdrawal must be guaranteed, unless the initial notes surrendered for exchange are tendered:

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by a registered holder of the initial notes who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal; or

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for the account of an “eligible institution.”

If signatures on a letter of transmittal or a notice of withdrawal are required to be guaranteed, the guarantees must be by an “eligible institution.” An “eligible institution” is an “eligible guarantor institution” meeting the requirements of the registrar for the notes within the meaning of Rule 17Ad-15 under the Exchange Act.

Book-Entry Transfer

The exchange agent will make a request to establish an account for the initial notes at DTC for purposes of the exchange offer. Any financial institution that is a participant in DTC’s system may make book–entry delivery of initial notes by causing DTC to transfer those initial notes into the exchange agent’s account at DTC in

Index to Financial Statements

accordance with DTC’s procedure for transfer. The participant should transmit its acceptance to DTC at or prior to the expiration time or comply with the guaranteed delivery procedures described below. DTC will verify this acceptance, execute a book–entry transfer of the tendered initial notes into the exchange agent’s account at DTC and then send to the exchange agent confirmation of this book–entry transfer. The confirmation of this book–entry transfer will include an agent’s message confirming that DTC has received an express acknowledgment from this participant that this participant has received and agrees to be bound by the letter of transmittal and that we may enforce the letter of transmittal against this participant.

Delivery of notes issued in the exchange offer may be effected through book–entry transfer at DTC. However, the letter of transmittal or facsimile of it or an agent’s message, with any required signature guarantees and any other required documents, must:

•

be transmitted to and received by the exchange agent at the address listed under “—Exchange Agent” at or prior to the expiration time; or

•

comply with the guaranteed delivery procedures described below.

Delivery of documents to DTC in accordance with DTC’s procedures does not constitute delivery to the exchange agent.

Guaranteed Delivery

If a registered holder of initial notes desires to tender the initial notes, and the initial notes are not immediately available, or time will not permit the holder’s initial notes or other required documents to reach the exchange agent before the expiration time, or the procedures for book–entry transfer described above cannot be completed on a timely basis, a tender may nonetheless be made if:

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the tender is made through an eligible institution;

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prior to the expiration time, the exchange agent receives by facsimile transmission, mail or hand delivery from such eligible institution a properly and validly completed and duly executed notice of guaranteed delivery, substantially in the form provided by us:

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stating the name and address of the holder of the initial notes and the amount of initial notes tendered,

•

stating that the tender is being made, and

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guaranteeing that within three New York Stock Exchange trading days after the expiration time, the certificates for all physically tendered initial notes, in proper form for transfer, or a book–entry confirmation, as the case may be, and a properly completed and duly executed letter of transmittal, or an agent’s message, and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and

•

the certificates for all physically tendered initial notes, in proper form for transfer, or a book–entry confirmation, as the case may be, and a properly completed and duly executed letter of transmittal, or an agent’s message, and all other documents required by the letter of transmittal, are received by the exchange agent within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery.

Determination of Validity

We will determine in our sole discretion all questions as to the validity, form and eligibility of initial notes tendered for exchange. This discretion extends to the determination of all questions concerning the timing of receipts and acceptance of tenders. These determinations will be final and binding. We reserve the right to reject any particular initial note not properly tendered or of which our acceptance might, in our judgment or our counsel’s judgment, be unlawful. We also reserve the right to waive any defects or irregularities or conditions of

Index to Financial Statements

the exchange offer as to any particular initial note either before or after the expiration time, including the right to waive the ineligibility of any tendering holder. Our interpretation of the terms and conditions of the exchange offer as to any particular initial note either before or after the applicable expiration time, including the letter of transmittal and the instructions to the letter of transmittal, shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of initial notes must be cured within a reasonable period of time.

Neither we, the exchange agent nor any other person will be under any duty to give notification of any defect or irregularity in any tender of initial notes. Moreover, neither we, the exchange agent nor any other person will incur any liability for failing to give notifications of any defect or irregularity.

Acceptance of Initial Notes for Exchange; Issuance of Notes

Upon the terms and subject to the conditions of the exchange offer, we will accept, promptly after the expiration time, all initial notes properly tendered. We will issue the notes promptly after acceptance of the initial notes. For purposes of an exchange offer, we will be deemed to have accepted properly tendered initial notes for exchange when, as and if we have given oral or written notice to the exchange agent, with prompt written confirmation of any oral notice.

For each initial note accepted for exchange, the holder will receive a new note registered under the Securities Act having a principal amount equal to that of the surrendered initial note. As a result, registered holders of initial notes issued in the exchange offer on the relevant record date for the first interest payment date following the completion of the exchange offer will receive interest accruing from the most recent date to which interest has been paid on the initial notes or, if no interest has been paid on the initial notes, from November 9, 2006. Initial notes that we accept for exchange will cease to accrue interest from and after the date of completion of the exchange offer. Under the registration rights agreement, we may be required to make additional interest payments to the holders of the initial notes under circumstances relating to the timing of the exchange offer.

In all cases, issuance of notes for initial notes will be made only after timely receipt by the exchange agent of:

•

certificate for the initial notes, or a timely book-entry confirmation of the initial notes, into the exchange agent’s account at the book-entry transfer facility;

•

a properly completed and duly executed letter of transmittal or an agent’s message; and

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all other required documents.

Unaccepted or non-exchanged initial notes will be returned without expense to the tendering holder of the initial notes. In the case of initial notes tendered by book-entry transfer in accordance with the book-entry procedures described above, the non-exchanged initial notes will be credited to an account maintained with DTC as promptly as practicable after the expiration or termination of the exchange offer. For each initial note accepted for exchange, the holder of the initial note will receive a new note having a principal amount equal to that of the surrendered initial note.

Interest Payments on the Notes

Registered holders of notes on the relevant record date for the first interest payment date following the completion of the exchange offer will receive interest accruing from the date of issuance of the initial notes. Initial notes accepted for exchange will cease to accrue interest from and after the date of completion of the exchange offer and will be deemed to have waived their rights to receive the accrued interest on the initial notes.

Withdrawal Rights

Tender of initial notes may be properly withdrawn at any time before 5:00 p.m., New York City time, on the expiration date of the exchange offer.

Index to Financial Statements

For a withdrawal to be effective with respect to initial notes, the exchange agent must receive a written notice of withdrawal before the expiration time delivered by hand, overnight by courier or by mail, at the address indicated under “—Exchange Agent” or, in the case of eligible institutions, at the facsimile number, or a properly transmitted “Request Message” through DTC’s ATOP system. Any notice of withdrawal must:

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specify the name of the person, referred to as the depositor, having tendered the initial notes to be withdrawn;

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identify the initial notes to be withdrawn, including certificate numbers and principal amount of the initial notes;

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contain a statement that the holder is withdrawing its election to have the initial notes exchanged;

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other than a notice transmitted through DTC’s ATOP system, be signed by the holder in the same manner as the original signature on the letter of transmittal by which the initial notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer to have the trustee with respect to the initial notes register the transfer of the initial notes in the name of the person withdrawing the tender; and

•

specify the name in which the initial notes are registered, if different from that of the depositor.

If certificates for initial notes have been delivered or otherwise identified to the exchange agent, then, prior to the release of these certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and signed notice of withdrawal with signatures guaranteed by an eligible institution, unless this holder is an eligible institution. If initial notes have been tendered in accordance with the procedure for book-entry transfer described below, any notice of withdrawal must specify the name and number of the account at the book-entry transfer facility to be credited with the withdrawn initial notes.

Any initial notes properly withdrawn will be deemed not to have been validly tendered for exchange. Notes will not be issued in exchange unless the initial notes so withdrawn are validly re-tendered.

Properly withdrawn initial notes may be re-tendered by following the procedures described under “—Procedures for Tendering” above at any time at or before the expiration time.

We will determine all questions as to the validity, form and eligibility, including time of receipt, of notices of withdrawal.

Conditions to the Exchange Offer

Notwithstanding any other provisions of the exchange offer, or any extension of the exchange offer, we will not be required to accept for exchange, or to exchange, any initial notes for any notes, and, as described below, may terminate an exchange offer, whether or not any initial notes have been accepted for exchange, or may waive any conditions to or amend the exchange offer, if any of the following conditions has occurred or exists:

•

there shall occur a change in the current interpretation by the staff of the SEC which permits the notes issued pursuant to such exchange offer in exchange for initial notes to be offered for resale, resold and otherwise transferred by the holders (other than broker-dealers and any holder which is an affiliate) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such notes are acquired in the ordinary course of such holders’ business and such holders have no arrangement or understanding with any person to participate in the distribution of the notes;

•

any action or proceeding shall have been instituted or threatened in any court or by or before any governmental agency or body seeking to enjoin, make illegal or delay completion of the exchange offer or otherwise relating to the exchange offer;

•

any law, statute, rule or regulation shall have been adopted or enacted which, in our judgment, would reasonably be expected to impair our ability to proceed with such exchange offer;

Index to Financial Statements

•

a banking moratorium shall have been declared by United States federal or New York State authorities;

•

trading on the New York Stock Exchange or generally in the United States over-the-counter market shall have been suspended, or a limitation on prices for securities imposed, by order of the SEC or any other governmental authority;

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an attack on the United States, an outbreak or escalation of hostilities or acts of terrorism involving the United States, or any declaration by the United States of a national emergency or war shall have occurred;

•

a stop order shall have been issued by the SEC or any state securities authority suspending the effectiveness of the registration statement of which this prospectus is a part or proceedings shall have been initiated or, to our knowledge, threatened for that purpose or any governmental approval has not been obtained, which approval we shall, in our sole discretion, deem necessary for the consummation of such exchange offer; or

•

any change, or any development involving a prospective change, in our business or financial affairs has occurred which is or may be adverse to us or we shall have become aware of facts that have or may have an adverse impact on the value of the initial notes or the notes, which in our sole judgment in any case makes it inadvisable to proceed with such exchange offer and/or with such acceptance for exchange or with such exchange.

If we determine in our sole discretion that any of the foregoing events or conditions has occurred or exists, we may, subject to applicable law, terminate the exchange offer, whether or not any initial notes have been accepted for exchange, or may waive any such condition or otherwise amend the terms of such exchange offer in any respect. Please read “—Expiration, Extension and Amendment” above.

If any of the above events occur, we may:

•

terminate the exchange offer and promptly return all tendered initial notes to tendering holders;

•

complete and/or extend the exchange offer and, subject to your withdrawal rights, retain all tendered initial notes until the extended exchange offer expires;

•

amend the terms of the exchange offer; or

•

waive any unsatisfied condition and, subject to any requirement to extend the period of time during which the exchange offer is open, complete the exchange offer.

We may assert these conditions with respect to the exchange offer regardless of the circumstances giving rise to them. All conditions to the exchange offer, other than those dependent upon receipt of necessary government approvals, must be satisfied or waived by us before the expiration of the exchange offer. We may waive any condition in whole or in part at any time in our reasonable discretion. Our failure to exercise our rights under any of the above circumstances does not represent a waiver of these rights. Each right is an ongoing right that may be asserted at any time. Any determination by us concerning the conditions described above will be final and binding upon all parties.

If a waiver constitutes a material change to the exchange offer, we will promptly disclose the waiver by means of a prospectus supplement that we will distribute to the registered holders of the initial notes, and we will extend the exchange offer for a period of five to ten business days, as required by applicable law, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the exchange offer would otherwise expire during the five to ten business day period.

Resales of Notes

Based on interpretations by the staff of the SEC, as described in no-action letters issued to third parties that are not related to us, we believe that notes issued in the exchange offer in exchange for initial notes may be

Index to Financial Statements

offered for resale, resold or otherwise transferred by holders of the notes without compliance with the registration and prospectus delivery provisions of the Securities Act, if:

•

the notes are acquired in the ordinary course of the holder’s business;

•

the holders have no arrangement or understanding with any person to participate in the distribution of the notes;

•

the holders are not “affiliates” of ours within the meaning of Rule 405 under the Securities Act; and

•

the holders are not a broker-dealer who purchased initial notes directly from us for resale pursuant to Rule 144A, Regulation S or any other available exemption under the Securities Act.

However, the SEC has not considered the exchange offer described in this prospectus in the context of a no-action letter. The staff of the SEC may not make a similar determination with respect to the exchange offer as in the other circumstances. Each holder who wishes to exchange initial notes for notes will be required to represent that it meets the requirements above.

Any holder who is an affiliate of ours or who intends to participate in the exchange offer for the purpose of distributing notes or any broker-dealer who purchased initial notes directly from us for resale pursuant to Rule 144A, Regulation S or any other available exemption under the Securities Act:

•

cannot rely on the applicable interpretations of the staff of the SEC mentioned above;

•

will not be permitted or entitled to tender the initial notes in the exchange offer; and

•

must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction.

Each broker-dealer that receives notes for its own account in exchange for initial notes must acknowledge that the initial notes were acquired by it as a result of market-making activities or other trading activities and agree that it will deliver a prospectus that meets the requirements of the Securities Act in connection with any resale of the notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. Please read “Plan of Distribution.” A broker-dealer may use this prospectus, as it may be amended or supplemented from time to time, in connection with the resales of notes received in exchange for initial notes that the broker-dealer acquired as a result of market-making or other trading activities. Any holder that is a broker-dealer participating in the exchange offer must notify the exchange agent at the telephone number set forth in the enclosed letter of transmittal and must comply with the procedures for broker-dealers participating in the exchange offer. We have not entered into any arrangement or understanding with any person to distribute the notes to be received in the exchange offer.

In addition, to comply with state securities laws, the notes may not be offered or sold in any state unless they have been registered or qualified for sale in such state or an exemption from registration or qualification, with which there has been compliance, is available. The offer and sale of the notes to “qualified institutional buyers,” and foreign investors as defined under Rule 144A and Regulation S of the Securities Act, respectively, are generally exempt from registration or qualification under the state securities laws. We currently do not intend to register or qualify the sale of notes in any state where an exemption from registration or qualification is required and not available.

Exchange Agent

The Bank of New York has been appointed as the exchange agent for the exchange offer. All executed letters of transmittal and any other required documents should be directed to the exchange agent at the address or facsimile number set forth below. Questions and requests for assistance, requests for additional copies of this

Index to Financial Statements

prospectus or of the letter of transmittal and requests for notices of guaranteed delivery should be directed to the exchange agent addressed as follows:

THE BANK OF NEW YORK

By Facsimile for Eligible Institutions:

(212) 298-1915

Attention: Mrs. Evangeline R. Gonzales

By Mail/Overnight Delivery/Hand:

The Bank of New York

Corporate Trust Operators

101 Barclay Street, 7 East

New York, New York 10286

Attention: Mrs. Evangeline R. Gonzales

Confirm By Telephone:

(212) 815-3738

DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF SUCH LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.

Fees and Expenses

The expenses of soliciting tenders pursuant to this exchange offer will be paid by us. We have agreed to pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection with the exchange offer. We will also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this prospectus and related documents to the beneficial owners of initial notes, and in handling or tendering for their customers. We will not make any payment to brokers, dealers or others soliciting acceptances of the exchange offer.

Holders who tender their initial notes for exchange will not be obligated to pay any transfer taxes on the exchange. If, however, notes are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the initial notes tendered, or if a transfer tax is imposed for any reason other than the exchange of initial notes in connection with the exchange offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed directly to such tendering holder.

Transfer Taxes

We will pay all transfer taxes, if any, applicable to the exchange of initial notes under the exchange offer. The tendering holder, however, will be required to pay any transfer taxes, whether imposed on the registered holder or any other person, if a transfer tax is imposed for any reason other than the exchange of initial notes under the exchange offer.

Consequences of Failure to Exchange Outstanding Securities

Holders who desire to tender their initial notes in exchange for notes registered under the Securities Act should allow sufficient time to ensure timely delivery. Neither the exchange agent nor us is under any duty to give notification of defects or irregularities with respect to the tenders of initial notes for exchange.

Initial notes that are not tendered or are tendered but not accepted will, following the completion of the exchange offer, continue to be subject to the provisions in the indenture regarding the transfer and exchange of the initial notes and the existing restrictions on transfer set forth in the legend on the initial notes set forth in the

Index to Financial Statements

indenture for the notes. Except in limited circumstances with respect to specific types of holders of initial notes, we will have no further obligation to provide for the registration under the Securities Act of such initial notes. In general, initial notes, unless registered under the Securities Act, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws.

We do not currently anticipate that we will take any action to register the initial notes under the Securities Act or under any state securities laws. Upon completion of the exchange offer, holders of the initial notes will not be entitled to any further registration rights under the registration rights agreement, except under limited circumstances.

Accounting Treatment

We will record the notes at the same carrying value as the initial notes, as reflected in our accounting records on the date of the exchange. Accordingly, we will not recognize any gain or loss for accounting purposes. The expenses of the exchange offer will be amortized over the term of the notes.

Other

Participation in the exchange offer is voluntary, and you should consider carefully whether to accept. You are urged to consult your financial and tax advisors in making your own decision on what action to take.

Index to Financial Statements

DESCRIPTION OF NOTES

You can find the definitions of certain terms used in this description under the subheading “Certain Definitions.” In this description, the word “Sabine Pass LNG” refers only to Sabine Pass LNG, L.P. and not to any of its partners or potential future subsidiaries. References to the “notes” refer to the 2013 notes and the 2016 notes collectively.

We issued the initial notes under a secured notes indenture between us and The Bank of New York, as trustee (the “ Trustee ”). We refer to the secured notes indenture as the indenture. We will issue the notes under the same indenture under which we issued the initial notes, and the notes will represent the same debt as the initial notes for which they are exchanged.

The indenture is governed by the Trust Indenture Act of 1939, as amended. The terms of the notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act. The security documents referred to below under the caption “—Security” by and among Sabine Pass LNG and The Bank of New York, as collateral trustee (the “ Collateral Trustee ”), contain the terms of the security arrangements that will secure the notes.

The following description is a summary of the material provisions of the indenture and the security documents. It does not restate those agreements in their entirety. We urge you to read the indenture and the security documents because they, and not this description, define your rights as holders of the notes. Copies of the indenture and the security documents have been filed as exhibits to the registration statement of which this prospectus is a part. Certain defined terms used in this description but not defined below under “—Certain Definitions” have the meanings assigned to them in the indenture.

The registered holder of any note will be treated as the owner of it for all purposes. Only registered holders will have rights under the indenture.

Brief Description of Notes and the Note Guarantees

The Notes

The notes:

•

will be general obligations of Sabine Pass LNG;

•

will be secured on a first-priority basis subject only to the Assumption Agreement and Permitted Liens by security interests in all Shared Collateral owned or at any time acquired by Sabine Pass LNG;

•

will be pari passu in right of payment with all existing and future Senior Debt (other than the Assumption Agreement) of Sabine Pass LNG;

•

will be senior in right of payment to any future Subordinated Indebtedness of Sabine Pass LNG; and

•

will be unconditionally guaranteed by the Guarantors, if applicable.

The Note Guarantees

The notes will be guaranteed by all of Sabine Pass LNG’s future Domestic Subsidiaries, if any.

Each guarantee of the notes:

•

will be a general obligation of the Guarantor;

•

will be secured on a first-priority basis subject only to the Assumption Agreement and Permitted Liens by security interests in all Shared Collateral owned or at any time acquired by that Guarantor;

Index to Financial Statements

•

will be pari passu in right of payment with all existing and future Senior Debt of that Guarantor (other than the Assumption Agreement); and

•

will be senior in right of payment to any future Subordinated Indebtedness of that Guarantor.

As of the date of the indenture Sabine Pass LNG has no subsidiaries. Under the circumstances described below under the caption “—Certain Covenants—Designation of Restricted and Unrestricted Subsidiaries,” we will be permitted to designate certain of our Subsidiaries as “Unrestricted Subsidiaries.” Our Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the indenture. Our Unrestricted Subsidiaries will not guarantee the notes.

Principal, Maturity and Interest

Sabine Pass LNG has issued $550 million in aggregate principal amount of 2013 notes and $1,482 million in aggregate principal amount of 2016 notes. Sabine Pass LNG may issue additional notes under the indenture from time to time. Any issuance of additional notes is subject to all of the covenants in the indenture, including the covenant described below under the caption “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock.” The 2013 notes and any additional 2013 notes subsequently issued under the indenture will be treated as a single class and the 2016 notes and any additional 2016 notes issued under the indenture will be treated as a single class, in each case, for all purposes under the indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. Sabine Pass LNG will issue notes in denominations of $100,000 and integral multiples of $1,000 in excess of $100,000. The 2013 notes will mature on November 30, 2013 and the 2016 notes will mature on November 30, 2016.

2013 Notes

Interest on the 2013 notes will accrue at the rate of 7 ¹ / 4 % per annum and will be payable semi-annually in arrears on May 30 and November 30, commencing on May 30, 2007. Interest on overdue principal and interest and Additional Interest, if any, will accrue at a rate that is 1% higher than the then applicable interest rate on the 2013 notes. Sabine Pass LNG will make each interest payment to the holders of record on the immediately preceding May 15 and November 15.

Interest on the 2013 notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.

2016 Notes

Interest on the 2016 notes will accrue at the rate of 7 ¹ / 2 % per annum and will be payable semi-annually in arrears on May 30 and November 30, commencing on May 30, 2007. Interest on overdue principal and interest and Additional Interest, if any, will accrue at a rate that is 1% higher than the then applicable interest rate on the 2016 notes. Sabine Pass LNG will make each interest payment to the holders of record on the immediately preceding May 15 and November 15.

Interest on the 2016 notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.

Methods of Receiving Payments on the Notes

All payments on the notes will be made at the office or agency of the paying agent and registrar within the City and State of New York unless Sabine Pass LNG elects to make interest payments by check mailed to the noteholders at their address set forth in the register of holders.

Index to Financial Statements

Paying Agent and Registrar for the Notes

The Trustee will initially act as paying agent and registrar. Sabine Pass LNG may change the paying agent or registrar without prior notice to the holders of the notes, and Sabine Pass LNG or any of its Subsidiaries may act as paying agent or registrar.

Transfer and Exchange

A holder may transfer or exchange notes in accordance with the provisions of the indenture. The registrar and the Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents in connection with a transfer of notes. Holders will be required to pay all taxes due on transfer. Sabine Pass LNG will not be required to transfer or exchange any note selected for redemption. Also, Sabine Pass LNG will not be required to transfer or exchange any note for a period of 15 days before a selection of notes to be redeemed.

Funding of Interest Payments During Construction Period

As described in further detail below in “—Pre-Completion Account Flows—DSR Account,” on the Issue Date, amounts, together with interest on such amounts and $20.0 million that is expected to be earned on amounts in deposit in the Construction Account as described below, which is expected to be sufficient to fund five semi-annual interest payments on the notes were set aside in the DSR Account.

Note Guarantees

The 2013 notes and 2016 notes will be guaranteed by each of Sabine Pass LNG’s future Domestic Subsidiaries. These Note Guarantees will be joint and several obligations of the Guarantors. The obligations of each Guarantor under its Note Guarantee will be limited as necessary to prevent that Note Guarantee from constituting a fraudulent conveyance under applicable law. See “Risk Factors—Federal and state statutes allow courts, under specific circumstances, to void guarantees and require note holders to return payments received from guarantors.”

A Guarantor may not sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person, other than Sabine Pass LNG or another Guarantor, unless:

(1)

immediately after giving effect to that transaction, no Default or Event of Default exists; and

(2)

either:

(a)

the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger assumes all the obligations of that Guarantor under the indenture, its Note Guarantee and the registration rights agreement pursuant to a supplemental indenture and appropriate Security Documents satisfactory to the Trustee; or

(b)

the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the indenture.

The Note Guarantee of a Guarantor will be released:

(1)

in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) Sabine Pass LNG or a Restricted Subsidiary of Sabine Pass LNG, if the sale or other disposition does not violate the “Asset Sale” provisions of the indenture;

(2)

in connection with any sale or other disposition of all of the Capital Stock of that Guarantor to a Person that is not (either before or after giving effect to such transaction) Sabine Pass LNG or a Restricted Subsidiary of Sabine Pass LNG, if the sale or other disposition does not violate the “Asset Sale” provisions of the indenture;

Index to Financial Statements

(3)

if Sabine Pass LNG designates any Restricted Subsidiary that is a Guarantor to be an Unrestricted Subsidiary in accordance with the applicable provisions of the indenture; or

(4)

upon legal defeasance or satisfaction and discharge of the indenture as provided below under the captions “—Legal Defeasance and Covenant Defeasance” and “—Satisfaction and Discharge.”

Project Accounts

Sabine Pass LNG will maintain a series of cash accounts (the “ Project Accounts ”) with the Collateral Trustee. The Project Accounts will be pledged to the Collateral Trustee for the benefit of the present and future holders of the Secured Obligations including notes. The following is a list of the Project Accounts through which the net proceeds of the notes and the revenues of the Project will flow:


Account	Currency	Location of Project Account
Construction Account	US$	New York
DSR Account	US$	New York
Revenue Account	US$	New York
Operating Account	US$	New York
Debt Payment Account	US$	New York

Pre-Completion Account Flows

Construction Account

Funds in the Construction Account will only be used (i) to fund the construction and start-up costs of the Project, (ii) to pay other expenses (including taxes, operating expenses and management fees) incidental for Sabine Pass LNG to complete the construction and commissioning of the Project, and (iii) to be transferred to other Project Accounts as described below. Sabine Pass LNG may make withdrawals from the Construction Account to fund construction costs or expenses of the Project then payable and estimated construction costs for the next forty-five (45) days as well as to fund the DSR Account from interest received on the Construction Account by issuing a withdrawal notice to the Trustee and Collateral Trustee no more frequently than once a month. The withdrawal notice will, among other things, specify the amount of the proposed withdrawal, the purpose of the proposed withdrawal, including details of the nature of the construction costs, that no Event of Default under the indenture has occurred and is continuing and that Sabine Pass LNG has sufficient funds (including amounts expected to be withdrawn from the Construction Account, binding equity commitments with respect to funds, anticipated insurance proceeds and/or available borrowings under Indebtedness permitted under the indenture) to achieve Phase 1 Target Completion. Pending disbursement, all funds contained in the Construction Account will be invested in cash or Cash Equivalents. Each month interest accrued on amounts in the Construction Account will be transferred to the DSR Account until an aggregate of $20.0 million of interest has been transferred to the DSR Account.

Revenue Account

All revenue received by Sabine Pass, other than the first $20 million, advance reservation or similar payments under terminal use or similar agreements in respect of the Project capacity, sales tax reimbursements and operating revenues from the Project shall be deposited in the Revenue Account. Amounts in the Revenue Account shall be applied to amounts owing in the following categories, if any, on the date of application of the funds:

Prior to Phase 1 Target Completion:

(i)

first , to pay obligations under the Assumption Agreement;

Index to Financial Statements

(ii)

second , to the extent that amounts on deposit in the DSR Account are not sufficient to pay interest on the notes on the next interest payment date, to the DSR Account in an amount sufficient to make such payment and, at the option of Sabine Pass LNG, to deposit additional amounts in the DSR Account; and

(iii)

third , to the Construction Account for application as provided in “Pre-Completion Account Flows—Construction Account” above.

DSR Account

The DSR Account was funded on the Issue Date with an amount that, together with interest to be earned on such account plus $20.0 million that is expected to be earned on amounts in the Construction Account, that is expected to be sufficient to pay the first five semi-annual interest payment on the notes. The Collateral Trustee will withdraw funds from the DSR Account on each interest payment date to pay the amount of interest then due and payable and to pay from time to time any amounts payable under the Assumption Agreement. Upon achievement of Phase 1 Final Completion and thereafter to the extent amounts are available as described in “—Post-Completion Account Flows—Revenue Account” below, Sabine Pass LNG will maintain an amount no less than the amount required to make the interest payment on the notes on the next succeeding interest payment date (the “ Operating Period Required Amount ”). Pending disbursement, all funds contained in the DSR Account will be invested in cash or Cash Equivalents. Amounts in the DSR Account are required to be maintained in U.S. dollars.

Post-Completion Account Flows

Construction Account

Upon Phase 1 Target Completion, any remaining funds in the Construction Account will be used, (i) first , to fund the Operating Account with an amount sufficient to cover any outstanding incurred construction expenses, operating expenses or maintenance capital expenditure and the next 45 days of the Project’s estimated operating expenses and maintenance capital expenditure; (ii) second , to pay any outstanding principal and interest on the notes then due and payable; and (iii) third , to fund any shortfall in the DSR Account such that the DSR Account contains the Operating Period Required Amount. After all funds have been applied as described in (i) through (iii) above, the remaining funds, if any, shall be transferred to the Revenue Account. Pending disbursement, all funds contained in the Construction Account will be invested in cash or Cash Equivalents.

Revenue Account

Following Phase 1 Target Completion, amounts in the Revenue Account shall be applied as follows:

(i)

first , to fund the Operating Account with amounts sufficient to cover the succeeding 45 days of Operation and Maintenance Expenses, maintenance capital expenditures and obligations under the Assumption Agreement and, so long as the relevant state or local combined, consolidated or unitary tax return is properly filed that includes Sabine Pass LNG and Parent, State Tax Sharing Agreement;

(ii)

second , on the last business day of each month, 1/6th of the amount of interest due on the notes on the next interest payment date (plus any shortfall from any prior month subsequent to the preceding interest payment date) shall be transferred to the Debt Payment Account;

(iii)

third , to pay outstanding principal then due and payable on the notes;

(iv)

fourth , to pay taxes payable by Sabine Pass LNG or the Guarantors and payments in respect of taxes;

(v)

fifth , to replenish the DSR Account when such account is not funded with the Operating Period Required Amount; provided that the Operating Period Required Amount shall be deemed reduced by the face amount of any Acceptable Letter of Credit or Acceptable Guarantees procured by Sabine Pass LNG for the benefit of the Collateral Trustee; and

Index to Financial Statements

(vi)

sixth , for all other purposes permitted by the indenture including Restricted Payments, subject to the limitations contained in the indenture.

Notwithstanding the foregoing, any Indebtedness issued to complete Phase 1 construction and/or Phase 2 construction shall be maintained in the Revenue Account to pay the construction costs for Phase 1 and/or Phase 2. Any such amounts Sabine Pass LNG determines not to use to fund Phase 1 or Phase 2 construction shall be used to make an offer to all holders of the notes and all holders of other Indebtedness that is pari passu with the notes containing provisions similar to those set forth in the indenture with respect to offers to purchase or redeem with the proceeds of funds not used to fund Phase 1 or Phase 2 construction, to purchase the maximum principal amount of notes and such other pari passu Indebtedness that may be purchased out of such amounts not used to fund Phase 1 or Phase 2 construction. The offer price will be equal to 100% of the principal amount plus accrued and unpaid interest and Additional Interest, if any, to the date of purchase, and will be payable in cash. If any amounts remain unapplied after consummation of such offer, Sabine Pass LNG and its Restricted Subsidiaries may use such amounts for any purpose not otherwise prohibited by the indenture.

Debt Payment Account

On each interest payment date, amounts on deposit in the Debt Payment Account shall be transferred to the Trustee to be applied to pay interest on the notes.

Operating Account

The Operating Account will be funded in U.S. dollars in the amount in the aggregate to be expended during the immediately following 45 days by Sabine Pass LNG and the Guarantors for operating lease payments, other Operation and Maintenance Expense, maintenance capital expenditures for the Project and obligations under the Assumption Agreement and, so long as the relevant state or local combined, consolidated or unitary tax return is properly filed that includes Sabine Pass LNG and Parent, the State Tax Sharing Agreement.

DSR Account

Following the fifth interest payment date on the notes, to the extent amounts are available as described in “Post-Completion Account Flows—Revenue Account” above, the DSR Account shall be funded in an amount not less than the amount required to make the next interest payment on the notes on the next succeeding interest payment date for the notes. Amounts in excess of such interest payment shall be transferred to the Revenue Account. Pending disbursement, all funds contained in the DSR Account will be held as cash or invested in Cash Equivalents.

Amounts in the DSR Account will be maintained in US dollars.

Discretionary Capital Expenditures and Restricted Payments

Any remaining funds after application through the cash waterfall described above may be used by Sabine Pass LNG to fund discretionary capital expenditures for the Project or, if the conditions set forth below under “—Certain Covenants—Restricted Payments” have been satisfied in full, to fund cash dividends or cash distributions in accordance with the provisions of the indenture.

Security

The payment of the notes, when due, and the performance of all other Parity Secured Debt are secured equally and ratably by liens upon Sabine Pass LNG’s rights in the Shared Collateral. The payment of the guarantees of each Guarantor and all other obligations of such Guarantor, when due, and the performance of all other obligations of such Guarantor with respect to Parity Secured Debt under the Secured Debt Documents are secured equally and ratably by liens upon such Guarantor’s rights in the Shared Collateral.

Index to Financial Statements

Collateral Trust Agreement

On the date of the indenture, Sabine Pass LNG and the other Pledgors entered into a collateral trust agreement with the Collateral Trustee, which sets forth the terms on which the Collateral Trustee receives, holds, administers, maintains, enforces and distributes the proceeds of all Liens upon any Shared Collateral at any time delivered to it, in trust for the benefit of the present and future holders of the Secured Obligations, including the holders of the notes. The 2013 notes and the 2016 notes have been designated as Parity Secured Debt for purposes of the collateral trust agreement.

Collateral Trustee

Pursuant to the collateral trust agreement, Sabine Pass LNG has appointed the Collateral Trustee for the benefit of the holders of:

•

the 2013 notes;

•

the 2016 notes;

•

any and all future Parity Secured Debt; and

•

all other Secured Obligations outstanding from time to time including the Assumption Agreement. The lien priority and payment rights of the obligees under the Assumption Agreement shall be senior to the lien priority and payment rights of the holders of the notes.

The Collateral Trustee (directly or through co-trustees, agents or sub-agents) holds, and is entitled to enforce, all Liens on the Shared Collateral; provided that it shall be a condition precedent to any sale of the Shared Collateral that such purchaser enter into an assumption agreement substantially in the form of the Assumption Agreement unless, at the time of each such transfer, the Parent or any of its Affiliates, joint ventures, and subsidiaries that are involved in the LNG business have under contract at one or more LNG facilities it retains, the right and obligation to process and receive a tariff for processing at least 1.0 Bcf/d, for a period of at least five years following such transfer of assets.

Except as provided in the collateral trust agreement or the Security Documents or as directed by an Act of Required Debtholders, the Collateral Trustee is not obligated:

(1)

to act upon directions purported to be delivered to it by any other Person;

(2)

to foreclose upon or otherwise enforce any Lien; or

(3)

to take any other action whatsoever with regard to any or all of the Security Documents, the Liens created thereby or the Shared Collateral.

Shared Collateral

The indenture and the Security Documents provide that:

(1)

the notes will be secured, together with all other Parity Secured Debt of Sabine Pass LNG, equally and ratably by security interests granted to the Collateral Trustee in all of the assets of Sabine Pass LNG, and

(2)

each Guarantor’s subsidiary guarantees will be secured, together with such Guarantor’s guarantee of all future Parity Secured Debt of such Guarantor, equally and ratably by security interests granted to the Collateral Trustee in all assets of such Guarantor.

The Shared Collateral consists of substantially all of the operating assets of Sabine Pass LNG and the Guarantors, including:

(1)

a pledge by Sabine Pass LNG-LP, LLC and Sabine Pass LNG-GP, Inc. of all ownership interests in Sabine Pass LNG;

Index to Financial Statements

(2)

a collateral assignment of Sabine Pass LNG’ rights in the Material Project Agreements;

(3)

a collateral assignment of Sabine Pass LNG’s rights in the Cheniere Marketing TUA;

(4)

a mortgage on all real property, machinery and equipment;

(5)

a security interest in all Project Accounts and Permitted Investments;

(6)

a collateral assignment of all insurance policies;

(7)

a collateral assignment of all intellectual property and Project related governmental approvals to the extent assignable;

(8)

a collateral assignment of all receivables;

(9)

a pledge of any intercompany debt; and

(10)

a pledge of the Sabine Pass LNG’ interest, if any, in the inventory of natural gas or LNG stored on the Project’s premises.

Additional Parity Secured Debt

The indenture and the Security Documents provide that Sabine Pass LNG may incur additional Parity Secured Debt by issuing additional notes under the indenture. The additional Parity Secured Debt will be pari passu with the notes, will be guaranteed on a pari passu basis by each Guarantor and will be secured by the Shared Collateral equally and ratably with the notes for as long as the notes and guarantees of notes, subject to the covenants contained in the indenture, are secured by the Shared Collateral. The additional Parity Secured Debt will only be permitted to share in the Shared Collateral if such Indebtedness and the related Liens are permitted to be incurred under the covenants described below under the captions “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock” and “—Certain Covenants—Liens.”

Equal and Ratable Sharing of Shared Collateral by Holders of Parity Secured Debt

Notwithstanding (1) anything to the contrary contained in the Secured Debt Documents, (2) the time of incurrence of any Series of Parity Secured Debt, (3) the order or method of attachment or perfection of any Liens securing any Series of Parity Secured Debt, (4) the time or order of filing or recording of financing statements, mortgages or other documents filed or recorded to perfect any Lien upon any Shared Collateral, (5) the time of taking possession or control over any Shared Collateral or (6) the rules for determining priority under any law governing relative priorities of Liens:

(A)

all Liens at any time granted by the General Partner, the Limited Partner, Sabine Pass LNG or any of its subsidiaries in the Shared Collateral to secure any of the Parity Secured Debt shall secure, equally and ratably, all liabilities of the General Partner, the Limited Partner, Sabine Pass LNG or such subsidiary under or in respect of the Parity Secured Debt; and

(B)

after paying or discharging obligations if any outstanding under the Assumption Agreement, all proceeds of all Liens at any time granted by the General Partner, the Limited Partner, Sabine Pass LNG or any of its subsidiaries in the Shared Collateral to secure any of the Parity Secured Debt shall be allocated and distributed equally and ratably on account of all liabilities of the General Partner, the Limited Partner, Sabine Pass LNG or such subsidiary under or in respect of the Parity Secured Debt.

The foregoing provision is intended for the benefit of, and will be enforceable as a third party beneficiary by, each present and future holder of Parity Secured Debt and each present and future Secured Debt Representative.

Index to Financial Statements

Enforcement of Security Interests

If the Collateral Trustee at any time receives written notice that any event has occurred that constitutes a default under any Secured Debt Document entitling the Collateral Trustee to foreclose upon, collect or otherwise enforce its Liens thereunder, it will promptly deliver written notice thereof to each Secured Debt Representative. Thereafter, the Collateral Trustee may await direction by an Act of Required Debtholders and will act, or decline to act, as directed by an Act of Required Debtholders, in the exercise and enforcement of the Collateral Trustee’s interests, rights, powers and remedies in respect of the Shared Collateral or under the Security Documents or applicable law and, following the initiation of such exercise of remedies, the Collateral Trustee will act, or decline to act, with respect to the manner of such exercise of remedies as directed by an Act of Required Debtholders. Unless it has been directed to the contrary by an Act of Required Debtholders, the Collateral Trustee in any event may (but will not be obligated to) take or refrain from taking such action with respect to any default under any Secured Debt Document as it may deem advisable and in the best interest of the holders of Secured Obligations.

Junior Liens

The indenture also permits Sabine Pass LNG and the Guarantors to grant Liens on all or portions of the Shared Collateral that are subordinated to the Liens securing the Secured Obligations. See “Certain Covenants—Liens.” These Liens will be subject to subordination terms set forth in the collateral trust agreement, including an agreement by the holders of such Liens not to exercise any remedies with respect to the Shared Collateral until the Secured Debt Termination Date. The holders of such Liens will also not be entitled to the proceeds of any Shared Collateral upon a sale thereof until the Secured Debt Termination Date.

Order of Application

The collateral trust agreement provides that if, pursuant to the exercise of any default remedies set forth in any security document, any Shared Collateral is sold or otherwise realized upon by the Collateral Trustee, the proceeds received by the Collateral Trustee in respect of such Shared Collateral will be distributed by the Collateral Trustee in the following order of application (the “ Order of Application ”):

FIRST , paid to the payment of any amounts due by Sabine Pass LNG under the Assumption Agreement;

SECOND , to the payment of all reasonable legal fees and expenses and other reasonable costs or expenses or other liabilities of any kind incurred by the Collateral Trustee or any co-trustee or agent in connection with any security document, including the reimbursement to any Secured Debt Representative of any amounts theretofore advanced by such Secured Debt Representative for the payment of such fees, costs and expenses;

THIRD , to the Collateral Trustee (without duplication) in an amount equal to the Collateral Trustee’s fees which are unpaid and to any Secured Debt Representative which has theretofore advanced or paid any such Collateral Trustee’s fees in an amount equal to the amount thereof so advanced or paid by such Secured Debt Representative;

FOURTH , to the respective Secured Debt Representatives for application to the Parity Secured Debt equally and ratably until all Parity Secured Debt has been paid in full in cash for distribution, to (1) in the case of note Obligations, to the Trustee for application pursuant to the indenture and (2) in the case of all other Parity Secured Debt, to the respective Secured Debt Representatives for application pursuant to the applicable Secured Debt Documents; and

FIFTH , any surplus remaining after the payment in full in cash of all of the Secured Obligations shall be paid to the applicable Pledgor, its successors or assigns, or to whomsoever may be lawfully entitled to receive the same, or as a court of competent jurisdiction may direct.

Index to Financial Statements

Release of Security Interests

The indenture and the collateral trust agreement provide that the Collateral Trustee’s Liens upon the Shared Collateral will be released:

(1)

in whole, at any time, if neither Sabine Pass LNG nor any Guarantor has any Secured Debt nor Junior Lien Debt secured by Liens under the Security Documents;

(2)

as to any or all Shared Collateral at any time, if (A) consent to the release of Shared Collateral has been given by an Act of Required Debtholders and (B) such release has become effective in accordance with the terms of such consent;

(3)

as to (A) deposits in any cash collateral account that are to be applied to fund any mandatory prepayment or purpose offer (including an Asset Sale Offer) that becomes required as to any Secured Debt as a result of a sale of assets, concurrently with such application, so long as effective provision is made for apportionment of such funding to all holders of Secured Debt entitled to participate in such mandatory prepayment or purchase offer in accordance with their respective entitlements under the Secured Debt Documents; and (B) deposits in any cash collateral account that constitute proceeds from an asset sale that are permitted under the Secured Debt Documents to be reinvested or otherwise are not required under the Secured Debt Documents to be reinvested or otherwise are not required to be applied to a mandatory prepayment or purchase offer in respect of any Secured Debt, concurrently with such reinvestment in assets constituting Shared Collateral or other permitted use under the Secured Debt Documents;

(4)

in accordance with the provisions of the Security Documents as in effect from time to time; or

(5)

in order to permit the consummation of any Asset Sales permitted by the indenture.

With respect to the notes or each series of notes, the indenture also will provide that the Collateral Trustee’s Liens upon Shared Collateral will no longer secure the note Obligations with respect to the notes or that series of notes and the right of the holders of such note Obligations to the benefits and proceeds of the Collateral Trustee’s Liens on Shared Collateral will terminate and be discharged:

(1)

upon satisfaction and discharge of the indenture as set forth under the caption “—Satisfaction and Discharge”;

(2)

upon a Legal Defeasance or Covenant Defeasance with respect to that series of notes as set forth under the caption “—Legal Defeasance and Covenant Defeasance”; or

(3)

upon payment in full in cash of the applicable notes and all other related note Obligations that are outstanding, due and payable at the time the notes are paid in full in cash.

Sabine Pass LNG will otherwise comply with the provisions of TIA §314(b).

To the extent applicable, Sabine Pass LNG will cause TIA §313(b), relating to reports, and TIA §314(d), relating to the release of property or securities or relating to the substitution therefor of any property or securities to be subjected to the Lien of the Security Documents, to be complied with. Any certificate or opinion required by TIA §314(d) may be made by an officer of Sabine Pass LNG except in cases where TIA §314(d) requires that such certificate or opinion be made by an independent Person, which Person will be an independent engineer, appraiser or other expert selected or reasonably satisfactory to the Trustee. Notwithstanding anything to the contrary in this paragraph, Sabine Pass LNG will not be required to comply with all or any portion of TIA §314(d) (1) with respect to certain ordinary course of business releases of Shared Collateral as described in the indenture and (2) if it determines, in good faith based on advice of counsel, that under the terms of TIA §314(d) and/or any interpretation or guidance as to the meaning thereof of the Commission and its staff, including “no action” letters or exemptive orders, all or any portion of TIA §314(d) is inapplicable to one or a series of released Shared Collateral.

Index to Financial Statements

To the extent applicable, Sabine Pass LNG will furnish to the Trustee, prior to each proposed release of Shared Collateral pursuant to the Security Documents:

(1)

all documents required by TIA §314(d); and

(2)

an opinion of counsel to the effect that such accompanying documents constitute all documents required by TIA §314(d).

Optional Redemption

2013 Notes

At any time prior to November 30, 2009, Sabine Pass LNG may redeem up to 35% of the aggregate original principal amount of the 2013 notes issued under the indenture at a redemption price of 107.25% of the principal amount, plus accrued and unpaid interest and Additional Interest, if any, to the redemption date, with the net cash proceeds of one or more Equity Offerings; provided that:

(1)

at least 65% of the aggregate principal amount of the 2013 notes originally issued on the Issue Date (excluding notes held by Sabine Pass LNG and its Affiliates) remains outstanding immediately after the occurrence of such redemption; and

(2)

the redemption occurs within 90 days of the date of the closing of such Equity Offering.

Sabine Pass LNG may also redeem all or a part of the notes, upon not less than 30 nor more than 60 days’ prior notice mailed by first-class mail to each holder’s registered address, at a redemption price equal to 100% of the principal amount of notes redeemed plus the Applicable Premium, and accrued and unpaid interest and Additional Interest, if any, to the date of redemption (the “ Redemption Date ”), subject to the rights of holders of notes on the relevant record date to receive interest due on the relevant interest payment date.

2016 Notes

At any time prior to November 30, 2009, Sabine Pass LNG may redeem up to 35% of the aggregate original principal amount of the 2016 notes issued under the indenture at a redemption price of 107.50% of the principal amount, plus accrued and unpaid interest and Additional Interest, if any, to the redemption date, with the net cash proceeds of one or more Equity Offerings; provided that:

(1)

at least 65% of the aggregate principal amount of the 2016 notes originally issued on the Issue Date (excluding notes held by Sabine Pass LNG and its Affiliates) remains outstanding immediately after the occurrence of such redemption; and

(2)

the redemption occurs within 90 days of the date of the closing of such Equity Offering.

Sabine Pass LNG may also redeem all or a part of the notes, upon not less than 30 nor more than 60 days’ prior notice mailed by first-class mail to each holder’s registered address, at a redemption price equal to 100% of the principal amount of notes redeemed plus the Applicable Premium, and accrued and unpaid interest and Additional Interest, if any, to the Redemption Date, subject to the rights of holders of notes on the relevant record date to receive interest due on the relevant interest payment date.

Selection and Notice

If less than all of the notes are to be redeemed at any time, the Trustee will select notes for redemption on a pro rata basis unless otherwise required by law or applicable stock exchange requirements.

No notes of $100,000 or less can be redeemed in part. Notices of redemption will be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of notes to be redeemed at

Index to Financial Statements

its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the notes or a satisfaction and discharge of the indenture. Notices of redemption may not be conditional.

If any note is to be redeemed in part only, the notice of redemption that relates to that note will state the portion of the principal amount of that note that is to be redeemed. A new note in principal amount equal to the unredeemed portion of the original note will be issued in the name of the holder of notes upon cancellation of the original note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on notes or portions of notes called for redemption.

Open Market Purchases; No Mandatory Redemption or Sinking Fund

Sabine Pass LNG may at any time and from time to time purchase notes in the open market or otherwise. Sabine Pass LNG is not required to make mandatory redemption or sinking fund payments with respect to the notes.

Repurchase at the Option of Holders

Change of Control

If a Change of Control occurs, each holder of notes will have the right to require Sabine Pass LNG to repurchase all or any part (equal to $100,000 and integral multiples of $1,000 in excess thereof) of that holder’s notes pursuant to an offer (a “ Change of Control Offer ”) on the terms set forth in the indenture. In the Change of Control Offer, Sabine Pass LNG will offer payment (a “ Change of Control Payment ”) in cash equal to not less than 101% of the aggregate principal amount of notes repurchased plus accrued and unpaid interest and Additional Interest, if any, to the date of repurchase (the “ Change of Control Payment Date ,” which date will be no earlier than the date of such Change of Control). No later than 30 days following any Change of Control, Sabine Pass LNG will mail a notice to each holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase notes on the Change of Control Payment Date specified in such notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by the indenture and described in such notice. Sabine Pass LNG will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the indenture, or compliance with the Change of Control provisions of the indenture would constitute a violation of any such laws or regulations, Sabine Pass LNG will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the indenture by virtue of such compliance.

On the Change of Control Payment Date, Sabine Pass LNG will, to the extent lawful:

(1)

accept for payment all notes or portions of notes properly tendered pursuant to the Change of Control Offer;

(2)

deposit with the paying agent an amount equal to the Change of Control Payment in respect of all notes or portions of notes properly tendered; and

(3)

deliver or cause to be delivered to the Trustee the notes properly accepted together with an officers’ certificate stating the aggregate principal amount of notes or portions of notes being purchased by Sabine Pass LNG.

The paying agent will promptly mail to each holder of notes properly tendered the Change of Control Payment for such notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book

Index to Financial Statements

entry) to each holder a new note equal in principal amount to any unpurchased portion of the notes surrendered, if any; provided that each such new note will be in a principal amount of $100,000 or an integral multiple of $1,000 in excess thereof.

Sabine Pass LNG will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.

If holders of not less than 95% in aggregate principal amount of the outstanding notes validly tender and do not withdraw such notes in a Change of Control Offer and Sabine Pass LNG, or any third party making a Change of Control Offer in lieu of Sabine Pass LNG as described above, purchases all of the notes validly tendered and not withdrawn by such holders, Sabine Pass LNG will have the right, upon not less than 30 nor more than 60 days’ prior notice, given not more than 30 days following such purchase pursuant to the Change of Control Offer described above, to redeem all notes that remain outstanding following such purchase at a redemption price in cash equal to the applicable Change of Control Payment plus, to the extent not included in the Change of Control Payment, accrued and unpaid interest, if any, and Additional Interest, if any thereon, to the date of redemption.

The provisions described above that require Sabine Pass LNG to make a Change of Control Offer following a Change of Control will be applicable whether or not any other provisions of the indenture are applicable. Except as described above with respect to a Change of Control, the indenture does not contain provisions that permit the holders of the notes to require that Sabine Pass LNG repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction.

Sabine Pass LNG will not be required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a Change of Control Offer made by Sabine Pass LNG and purchases all notes properly tendered and not withdrawn under the Change of Control Offer, or (2) notice of redemption has been given pursuant to the indenture as described above under the caption “—Optional Redemption,” unless and until there is a default in payment of the applicable redemption price.

The definition of Change of Control includes a phrase relating to the direct or indirect sale, transfer, conveyance or other disposition of “all or substantially all” of our properties or assets and its Restricted Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of notes to require us to repurchase such notes as a result of a sale, transfer, conveyance or other disposition of less than all of our assets and our Restricted Subsidiaries taken as a whole to another Person or group may be uncertain.

Asset Sales

Sabine Pass LNG will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:

(1)

Sabine Pass LNG (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale equal to the greater of (i) the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) an amount equal to the invested cost of the assets sold or otherwise disposed of, less depreciation; and

(2)

at least 90% of the consideration therefor received by Sabine Pass LNG or such Restricted Subsidiary is in the form of cash, Cash Equivalents or Replacement Assets or a combination thereof. For purposes of this provision, each of the following will be deemed to be cash:

(a)

any liabilities, as shown on Sabine Pass LNG’s or such Restricted Subsidiary’s most recent consolidated balance sheet (or as would be shown on Sabine Pass LNG’s consolidated balance

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Index to Financial Statements

sheet as of the date of such Asset Sale) of Sabine Pass LNG or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the notes or any Note Guarantee) that are assumed by the transferee of any such assets pursuant to a written novation agreement that releases Sabine Pass LNG or such Restricted Subsidiary from further liability therefor; and

(b)

any securities, notes or other obligations received by Sabine Pass LNG or any such Restricted Subsidiary from such transferee that are converted by Sabine Pass LNG or such Restricted Subsidiary into cash within 90 days after such Asset Sale, to the extent of the cash received in that conversion.

Within 360 days after the receipt of any Net Proceeds from an Asset Sale, Sabine Pass LNG (or the applicable Restricted Subsidiary, as the case may be) may apply an amount equal to such Net Proceeds:

(1)

to repay Senior Debt; or

(2)

to make any capital expenditure or to purchase Replacement Assets (or enter into a binding agreement to make such capital expenditure or to purchase such Replacement Assets; provided that (a) such capital expenditure or purchase is consummated within the later of (x) 360 days after the receipt of the Net Proceeds from the related Asset Sale and (y) 180 days after the date of such binding agreement and (b) if such capital expenditure or purchase is not consummated within the period set forth in subclause (a), the amount not so applied will be deemed to be Excess Proceeds (as defined below)).

Pending the final application of any Net Proceeds, Sabine Pass LNG may reduce revolving credit borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by the indenture.

An amount equal to any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraphs will constitute “Excess Proceeds.” If on any date, the aggregate amount of Excess Proceeds exceeds $25.0 million, then within ten Business Days after such date, Sabine Pass LNG will make an offer (an “ Asset Sale Offer ”) to all holders of notes and all holders of other Indebtedness that is pari passu with the notes containing provisions similar to those set forth in the indenture with respect to offers to purchase or redeem with the proceeds of sales of assets, to purchase the maximum principal amount of notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of principal amount plus accrued and unpaid interest and Additional Interest, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain unapplied after consummation of an Asset Sale Offer, Sabine Pass LNG and its Restricted Subsidiaries may use those Excess Proceeds for any purpose not otherwise prohibited by the indenture. If the aggregate principal amount of notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee will select the notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero.

Notwithstanding the foregoing, the sale, conveyance or other disposition of all or substantially all of the assets of Sabine Pass LNG and its Restricted Subsidiaries, taken as a whole, will be governed by the provisions of the indenture described under the caption “—Repurchase at the Option of Holders—Change of Control” and/or the provisions described under the caption “—Certain Covenants—Merger, Consolidation or Sale of Assets” and not by the provisions of the Asset Sale covenant.

Sabine Pass LNG will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with each repurchase of notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sales provisions of the indenture, or compliance with the Asset Sale provisions of the indenture would constitute a violation of any such laws or regulations, Sabine Pass LNG will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sale provisions of the indenture by virtue of such compliance.

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The future agreements governing Sabine Pass LNG’s other Indebtedness may contain prohibitions of certain events, including events that would constitute a Change of Control or an Asset Sale and including repurchases of or other prepayments in respect of the notes. The exercise by the holders of notes of their right to require Sabine Pass LNG to repurchase the notes upon a Change of Control or an Asset Sale could cause a default under these other agreements, even if the Change of Control or Asset Sale itself does not, due to the financial effect of such repurchases on Sabine Pass LNG. In the event a Change of Control or Asset Sale occurs at a time when Sabine Pass LNG is prohibited from purchasing notes, Sabine Pass LNG could seek the consent of its senior lenders to the purchase of notes or could attempt to refinance the borrowings that contain such prohibition. If Sabine Pass LNG does not obtain a consent or repay those borrowings, Sabine Pass LNG will remain prohibited from purchasing notes. In that case, Sabine Pass LNG’s failure to purchase tendered notes would constitute an Event of Default under the indenture which could, in turn, constitute a default under the other Indebtedness. Finally, Sabine Pass LNG’s ability to pay cash to the holders of notes upon a repurchase may be limited by Sabine Pass LNG’s then existing financial resources. See “Risk Factors—We may not have the ability to raise the funds necessary to finance the change of control offer required by the indenture.”

Events of Loss

After any Event of Loss, Sabine Pass LNG may apply the Net Loss Proceeds from the Event of Loss to the rebuilding, repair, replacement or construction of improvements to the Project, with no obligation to make any purchase of any notes, provided, that with respect to any Event of Loss that results in Net Loss Proceeds equal to or greater than $100.0 million:

(1)

Sabine Pass LNG delivers to the Trustee within 120 days of such Event of Loss a written opinion from a reputable contractor that the Project can be rebuilt, repaired, replaced or constructed and operating within 540 days following such Event of Loss; and

(2)

Sabine Pass LNG delivers to the Collateral Trustee within 120 days of such Event of Loss a certificate from an Authorized Officer certifying that the applicable entity has available from Net Loss Proceeds, cash on hand, binding equity commitments with respect to funds, anticipated insurance proceeds and/or available borrowings under Indebtedness permitted under the indenture to complete the rebuilding, repair, replacement or construction described in clause (1) above and to pay debt service on its Indebtedness during the repair or restoration period.

Any Net Loss Proceeds that are not reinvested (or committed for reinvestment by Sabine Pass LNG) within 540 days following an Event of Loss will be deemed “Excess Loss Proceeds.” Within 15 days following the date on which the aggregate amount of Excess Loss Proceeds exceeds $100.0 million, Sabine Pass LNG will make an offer (an “ Excess Loss Offer ”) to all holders of notes to purchase the maximum principal amount of notes that may be purchased out of the Excess Loss Proceeds. The offer price in any Excess Loss Offer will be equal to 100% of principal amount plus accrued and unpaid interest to, but excluding, the date of purchase, and will be payable in cash. If any Excess Loss Proceeds remain after consummation of an Excess Loss Offer, Sabine Pass LNG may use those Excess Proceeds for any purpose not otherwise prohibited by the indenture. If the aggregate principal amount of notes tendered into such Excess Loss Offer exceeds the amount of Excess Loss Proceeds, the Trustee will select the notes to be purchased on a pro rata basis. Upon completion of each Excess Loss Offer, the amount of Excess Loss Proceeds will be reset at zero.

If any payment date in connection with an Excess Loss Offer is on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such note was registered at the close of business on such record date.

Sabine Pass LNG will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of notes pursuant to an Excess Loss Offer. To the extent that the provisions of any securities laws or regulations conflict with the Excess Loss provisions of the indenture, Sabine Pass LNG will

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Index to Financial Statements

comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Excess Loss provisions of the indenture by virtue of such conflict.

Pending their application, all Net Loss Proceeds will be invested in Cash Equivalents held in an account in which the Collateral Trustee has a perfected security interest for the benefit of the holders of Secured Obligations, subject only to Permitted Liens. Sabine Pass LNG may withdraw funds from the collateral account upon delivery of a certificate of the Authorized Officers that such funds will be used to pay for or reimburse that entity for either (1) the actual cost of a permitted use of Net Loss Proceeds as provided above or (2) the Event of Loss Offer, in each case pursuant to the terms of the Security Documents. Sabine Pass LNG shall grant to the Collateral Trustee, on behalf of the holders, a security interest, subject only to Permitted Liens, on any property or assets rebuilt, repaired, replaced or constructed with such Net Loss Proceeds on the terms set forth in the indenture and the Security Documents.

In the event of an Event of Loss pursuant to clause (3) of the definition of “Event of Loss” with respect to property or assets that have a Fair Market Value (or replacement cost, if greater) in excess of $5.0 million, Sabine Pass LNG will be required to receive consideration at least 90% of which is in the form of cash or Cash Equivalents.

Certain Covenants

Restricted Payments

Sabine Pass LNG will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:

(1)

declare or pay any dividend or make any other payment or distribution on account of Sabine Pass LNG’s or any of its Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving Sabine Pass LNG or any of its Restricted Subsidiaries) or to the direct or indirect holders of Sabine Pass LNG’s or any of its Restricted Subsidiaries’ Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of Sabine Pass LNG) and other than dividends or distributions payable to Sabine Pass LNG or a Restricted Subsidiary of Sabine Pass LNG;

(2)

purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving Sabine Pass LNG) any Equity Interests of Sabine Pass LNG or any direct or indirect Parent of Sabine Pass LNG;

(3)

make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness (excluding any intercompany Indebtedness between or among Sabine Pass LNG and any of its Restricted Subsidiaries), except (a) a payment of interest or principal at the Stated Maturity thereof or (b) the purchase, repurchase or other acquisition of any such Indebtedness in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such purchase, repurchase or other acquisition; or

(4)

make any Restricted Investment

(all such payments and other actions set forth in these clauses (1) through (4) above being collectively referred to as “ Restricted Payments ”),

unless, at the time of and after giving effect to such Restricted Payment:

(1)

no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment; and

(2)

Sabine Pass LNG has successfully achieved Phase 1 Target Completion; and

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(3)

Sabine Pass LNG would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period (or if fewer than four fiscal quarters have elapsed since the achievement of Phase 1 Target Completion, the number of full fiscal quarters that have elapsed), have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test described below under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock” (for the avoidance of doubt, the Restricted Payment itself will not be considered in such pro forma calculation); and

(4)

the Debt Payment Account has on deposit the Required Debt Payment Amount; and

(5)

the DSR Account has on deposit the Operating Period Required Amount.

So long as no Default has occurred and is continuing or would be caused thereby, the preceding provisions will not prohibit:

(1)

the payment of any dividend or the consummation of any irrevocable redemption within 60 days after the date of declaration of the dividend or giving of the redemption notice, as the case may be, if at the date of declaration or notice, the dividend or redemption payment complied with the provisions of the indenture;

(2)

the making of any Restricted Payment in exchange for, or out of the net cash proceeds of (i) the substantially concurrent sale (other than to a Subsidiary of Sabine Pass LNG) of, Equity Interests of Sabine Pass LNG (other than Disqualified Stock) or (ii) from the substantially concurrent contribution (other than by a Subsidiary of Sabine Pass LNG) of capital to Sabine Pass LNG in respect of its Equity Interests (other than Disqualified Stock); provided, that 50% of the net cash proceeds pursuant to clause (i) above that are not retained or expended by Sabine Pass LNG shall be used to make an offer to the holders of the notes and to the holder of other Parity Secured Debt, to purchase the maximum principal amount of notes and such other Parity Secured Debt that may be purchased with such 50% of the net cash proceeds. The offer price for the notes and the Parity Secured Debt will be equal to 100% of principal amount plus accrued and unpaid interest and Additional Interest, if any, to the date of purchase, and will be payable in cash. If any such net cash proceeds remain unapplied after consummation of the offer, Sabine Pass LNG and its Restricted Subsidiaries may use those proceeds for any purpose not otherwise prohibited by the indenture;

(3)

the repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Indebtedness (including the payment of any required premium and any fees and expenses incurred in connection with such repurchase, redemption, defeasance or other acquisition) with the net cash proceeds from a substantially concurrent incurrence of Permitted Refinancing Indebtedness so long as such Permitted Refinancing Indebtedness has a final scheduled maturity date equal or later than the earlier of (x) the final scheduled maturity date of the Subordinated Indebtedness being so redeemed, repurchased, acquired or retired or (y) 360 days following the maturity date of the notes;

(4)

the payment of any dividend (or, in the case of any partnership or limited liability company, any similar distribution) by a Restricted Subsidiary of Sabine Pass LNG to the holders of the Equity Interests (other than Disqualified Stock) of such Restricted Subsidiary; provided that such dividend or similar distribution is paid to all holders of such Equity Interests on a pro rata basis based upon their respective holdings of such Equity Interests;

(5)

the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of Sabine Pass LNG or any Restricted Subsidiary of Sabine Pass LNG held by any of Parent’s or Sabine Pass LNG’s (or any of its Restricted Subsidiaries’) current or former directors or employees; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $1.0 million in any twelve-month period (with unused amounts in any 12-month period being permitted to be carried over into succeeding 12-month periods; subject to a maximum payment of $2.5 million in any twelve-month period); provided, further , that the amounts in any 12-month period may be increased by an amount not to exceed the cash proceeds received by Sabine Pass LNG

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or any of its Restricted Subsidiaries from the sale of Sabine Pass LNG’s Equity Interests (other than Disqualified Stock) or Parent’s Equity Interests to any such directors or employees that occurs after the Issue Date;

(6)

the repurchase, redemption or other acquisition or retirement of Equity Interests deemed to occur upon the exercise or exchange of stock options, warrants or other similar rights to the extent such Equity Interests represent a portion of the exercise or exchange price of those stock options, and the repurchase, redemption or other acquisition or retirement of Equity Interests made in lieu of withholding taxes resulting from the exercise or exchange of stock options, warrants or other similar rights;

(7)

payments to fund the purchase by Sabine Pass LNG of fractional shares arising out of stock dividends, splits or combination or business combinations;

(8)

the declaration and payment of regularly scheduled or accrued dividends to holders of any class or series of Disqualified Stock of Sabine Pass LNG or any Restricted Subsidiary of Sabine Pass LNG issued on or after the date of the indenture in accordance with the Fixed Charge Coverage Ratio test described below under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock”;

(9)

the repayment of the Holdings Credit Agreement in an amount not to exceed $437.0 million, and the payment of any make-whole, break funding, early termination or other prepayment penalties or amounts in connection with such prepayment and the termination of any related Interest Rate Agreement with a portion of the net proceeds received by Sabine Pass LNG from the sale of the initial notes on the Issue Date;

(10)

Permitted Payments to Parent; and

(11)

payments for fees and costs pursuant to the Management Services Agreement, payments to the Operator pursuant to the O&M Agreement, so long as the relevant state or local combined, consolidated or unitary tax return is properly filed that includes Sabine Pass LNG and Parent, payments under the State Tax Sharing Agreement and, without duplication, payments under Section 6.6 of the Partnership Agreement.

Notwithstanding any provision or implication to the contrary, any revenues received by Sabine Pass LNG or a Restricted Subsidiary prior to Phase 1 Target Completion may be distributed upon Sabine Pass LNG fulfilling the conditions set forth above.

The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by Sabine Pass LNG or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The Fair Market Value of any cash Restricted Payment shall be its face amount, and the Fair Market Value of any non-cash Restricted Payment exceeding $15.0 million shall be determined conclusively by two senior officers of Sabine Pass LNG acting in good faith whose conclusions with respect thereto shall be set forth in an officers’ certificate delivered to the Trustee, provided, however , that if the Fair Market Value of any non-cash Restricted Payment exceeds $25.0 million, such Fair Market Value shall be determined conclusively by the Board of Directors of the General Partner and set forth in a board resolution, and a certified copy of such board resolution shall be delivered to the Trustee. For purposes of determining compliance with this covenant, in the event that a Restricted Payment meets the criteria of more than one of the exceptions described in (1) through (11) above or is entitled to be made pursuant to the first paragraph of this covenant, Sabine Pass LNG shall, in its sole discretion, classify such Restricted Payment, or later classify, reclassify or re-divide all or a portion of such Restricted Payment, in any manner that complies with this covenant.

Incurrence of Indebtedness and Issuance of Preferred Stock

Sabine Pass LNG will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or

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Index to Financial Statements

otherwise, with respect to (collectively, “incur,” with “incurrence” having a correlative meaning) any Indebtedness (including Acquired Debt), and Sabine Pass LNG will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however , that Sabine Pass LNG may incur Indebtedness (including Acquired Debt) and issue Disqualified Stock, and Restricted Subsidiaries may incur Indebtedness (including Acquired Debt) and issue preferred stock, if additional equity investments in Sabine Pass LNG are made (other than to redeem or repurchase outstanding Indebtedness), in which case Sabine Pass LNG and any of its Restricted Subsidiaries may incur $1.00 of additional Indebtedness for each $1.00 so contributed and Sabine Pass LNG has received written confirmation from each Credit Rating Agency that no Ratings Decline will occur as a result of the incurrence of such additional Indebtedness.

Notwithstanding the foregoing, the first paragraph of this covenant will not prohibit the incurrence of any of the following (the items of Indebtedness described below in this paragraph being referred to collectively as “ Permitted Debt ”):

(1)

the incurrence by Sabine Pass LNG and the Guarantors of Indebtedness represented by the notes and the related Note Guarantees to be issued on the date of the indenture and the exchange notes and the related Note Guarantees to be issued pursuant to the registration rights agreement;

(2)

the incurrence by Sabine Pass LNG or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge any Indebtedness (other than intercompany Indebtedness) that was permitted by the indenture to be incurred under the first paragraph of this covenant or clauses (1), (2) and (14) of this paragraph;

(3)

the issuance by any of Sabine Pass LNG’s Restricted Subsidiaries to Sabine Pass LNG or to any of its Restricted Subsidiaries of shares of preferred stock; provided, however , that:

(a)

any subsequent issuance or transfer of Equity Interests that results in any such preferred stock being held by a Person other than Sabine Pass LNG or a Restricted Subsidiary of Sabine Pass LNG; and

(b)

any sale or other transfer of any such preferred stock to a Person that is not either Sabine Pass LNG or a Restricted Subsidiary of Sabine Pass LNG,

will be deemed, in each case, to constitute an issuance of such preferred stock by such Restricted Subsidiary that was not permitted by this clause (3);

(4)

the incurrence, assumption or creation of obligations of Sabine Pass LNG or a Restricted Subsidiary pursuant to the Assumption Agreement;

(5)

the incurrence, assumption or creation of obligations of Sabine Pass LNG or a Restricted Subsidiary pursuant to Interest Rate and Currency Hedges;

(6)

the incurrence of a Guarantee by Sabine Pass LNG or any of its Restricted Subsidiaries of Indebtedness of Sabine Pass LNG or a Restricted Subsidiary of Sabine Pass LNG that was permitted to be incurred by another provision of this covenant; provided that if the Indebtedness being guaranteed is Subordinated Indebtedness, then the Guarantee shall be subordinated to the same extent as the contractual subordination applicable to the Indebtedness guaranteed;

(7)

the incurrence by Sabine Pass LNG of Indebtedness in an amount not to exceed $100.0 million in respect of (i) cost overruns of the construction, cool down, commissioning and completion of Phase 1 and Phase 2 and (ii) to finance the restoration of the Project following an Event of Loss;

(8)

the incurrence by Sabine Pass LNG of Indebtedness in respect of working capital in an amount not to exceed $20.0 million (subject to a temporary increase, in an amount not to exceed $75.0 million, such increase to terminate not later than December 31, 2010, to fund the purchase of LNG for cool down of the Project and the entering into by Sabine Pass LNG of any commodity hedging arrangements relating to such LNG);

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Index to Financial Statements

(9)

the incurrence by Sabine Pass LNG or any of its Restricted Subsidiaries of Indebtedness in respect of workers’ compensation claims, self-insurance obligations, bankers’ acceptances, performance bonds, completion bonds, bid bonds, appeal bonds and surety bonds or other similar bonds or obligations, and any Guarantees or letters of credit functioning as or supporting any of the foregoing;

(10)

Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided that such Indebtedness is extinguished within five Business Days of its Incurrence;

(11)

the incurrence by Sabine Pass LNG of Indebtedness to the extent that the net proceeds thereof are promptly deposited to defease or to satisfy and discharge the notes;

(12)

Indebtedness consisting of the financing of insurance premiums in customary amounts consistent with the operations and business of Sabine Pass LNG and its Restricted Subsidiaries in the ordinary course of business;

(13)

Subordinated Indebtedness between or among Sabine Pass LNG and/or any of its Restricted Subsidiaries; and

(14)

the incurrence by Sabine Pass LNG or the Guarantors of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness incurred pursuant to this clause (14), not to exceed $25.0 million.

In addition to Permitted Debt described in clauses (1) through (14) above, Sabine Pass LNG may incur additional Indebtedness (other than Parity Secured Debt) (the “ Additional Indebtedness ”) so long as (i) the Fixed Charge Coverage Ratio for Sabine Pass LNG’s most recently ended four full fiscal quarters (or if fewer than four fiscal quarters have elapsed since the achievement of Phase 1 Target Completion, the number of full fiscal quarters that have elapsed) for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or preferred stock is issued, as the case may be, would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock or preferred stock had been issued, as the case may be, at the beginning of such period and (ii) Sabine Pass LNG has received written confirmation from each Credit Rating Agency that no Ratings Decline will occur as a result of the incurrence of the Additional Indebtedness.

For purposes of determining compliance with this “Incurrence of Indebtedness and Issuance of Preferred Stock” covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (14) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, Sabine Pass LNG will be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this covenant. The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, the reclassification of preferred stock as Indebtedness due to a change in accounting principles, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant; provided, in each such case, that the amount of any such accrual, accretion or payment is included in Fixed Charges of Sabine Pass LNG as accrued. Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that Sabine Pass LNG or any Restricted Subsidiary may incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values.

The amount of any Indebtedness outstanding as of any date will be:

(1)

the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount;

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Index to Financial Statements

(2)

in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of:

(a)

the Fair Market Value of such asset at the date of determination; and

(b)

the amount of the Indebtedness of the other Person; and

(3)

the principal amount of the Indebtedness, in the case of any other Indebtedness.

Liens

Sabine Pass LNG will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien securing Indebtedness on any asset now owned or hereafter acquired, except Permitted Liens.

Dividend and Other Payment Restrictions Affecting Subsidiaries

Sabine Pass LNG will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:

(1)

(x) pay dividends or make any other distributions on its Capital Stock to Sabine Pass LNG or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or (y) pay any indebtedness owed to Sabine Pass LNG or any of its Restricted Subsidiaries;

(2)

make loans or advances to Sabine Pass LNG or any of its Restricted Subsidiaries; or

(3)

sell, lease or transfer any of its properties or assets to Sabine Pass LNG or any of its Restricted Subsidiaries.

However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of:

(1)

agreements or instruments governing existing indebtedness as in effect on the Issue Date, the Assumption Agreement or Settlement Agreement and any amendments, restatements, modifications, increases, renewals, supplements, refundings, replacements or refinancings of those agreements or instruments; provided that the amendments, restatements, modifications, increases, renewals, supplements, refundings, replacements or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements or instruments on the Issue Date;

(2)

the indenture, the notes, the Note Guarantees and the Security Documents;

(3)

applicable law, rule, regulation or order;

(4)

customary non-assignment provisions in contracts and licenses entered into in the ordinary course of business;

(5)

purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clause (3) of the preceding paragraph;

(6)

any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending the sale or other disposition;

(7)

Permitted Debt, including Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced;

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Index to Financial Statements

(8)

Liens permitted to be incurred under the provisions of the covenant described above under the caption “—Liens” that limit the right of the debtor to dispose of the assets subject to such Liens;

(9)

provisions limiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements, security agreements, mortgages, purchase money agreements and other similar agreements or instruments entered into with the approval of the Board of Directors of the General Partner, which limitation is applicable only to the assets that are the subject of such agreements;

(10)

Interest Rate and Currency Hedges permitted from time to time under the indenture; and

(11)

restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business.

Merger, Consolidation or Sale of Assets

Sabine Pass LNG will not, directly or indirectly, consolidate, amalgamate or merge with or into another Person (regardless of whether Sabine Pass LNG is the surviving corporation), convert into another form of entity or continue in another jurisdiction; or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties or assets of Sabine Pass LNG and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person, unless:

(1)

either: (a) Sabine Pass LNG is the surviving entity; or (b) the Person formed by or surviving any such consolidation, amalgamation or merger or resulting from such conversion (if other than Sabine Pass LNG) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a corporation, limited liability company or partnership organized or existing under the laws of the United States, any state of the United States or the District of Columbia;

(2)

the Person formed by or surviving any such conversion, consolidation, amalgamation, or merger (if other than Sabine Pass LNG) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of Sabine Pass LNG under the notes, the indenture and the registration rights agreement and the Security Documents pursuant to agreements reasonably satisfactory to the Trustee;

(3)

immediately after such transaction or transactions, no Default or Event of Default exists; and

(4)

Sabine Pass LNG or the Person formed by or surviving any such consolidation, amalgamation or merger (if other than Sabine Pass LNG), or to which such sale, assignment, transfer, conveyance or other disposition has been made would, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test described above under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock.”

The surviving entity will succeed to, and be substituted for, and may exercise every right and power of, Sabine Pass LNG under the indenture, but, in the case of a lease of all or substantially all of its assets, Sabine Pass LNG will not be released from the obligation to pay the principal of and interest on the notes.

In addition, Sabine Pass LNG will not, directly or indirectly, lease all or substantially all of the properties and assets of it and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to any other Person.

This “Merger, Consolidation or Sale of Assets” covenant will not apply to:

(1)

a merger of Sabine Pass LNG with an Affiliate solely for the purpose of changing the jurisdiction of organization of Sabine Pass LNG to another jurisdiction; or

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Index to Financial Statements

(2)

any consolidation or merger, or any sale, assignment, transfer, conveyance, lease or other disposition of assets between or among Sabine Pass LNG and its Restricted Subsidiaries.

Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve “all or substantially all” of the property or assets of a Person.

Transactions with Affiliates

Sabine Pass LNG will not, and will not permit any of its Restricted Subsidiaries to, enter into any transaction that is otherwise permitted hereunder with or the benefit of an Affiliate (including guarantees and assumptions of obligations of an Affiliate) (each, an “ Affiliate Transaction ”), except:

(1)

to the extent required by applicable law;

(2)

to the extent required or contemplated by the O&M Agreement, the Management Services Agreement, the J&S Cheniere Terminal Use Agreement, the Cheniere Marketing TUA, J&S Cheniere Potential TUA Letter, State Tax Sharing Agreement or the Assumption Agreement;

(3)

upon terms no less favorable to Sabine Pass LNG than would be obtained in a comparable arm’s-length transaction with a Person that is not an Affiliate, or, if no comparable arm’s-length transaction with a Person that is not an Affiliate is available, then on terms that are determined by the Board of Directors of the General Partner to be fair in light of all factors considered by said Board of Directors to be pertinent to Sabine Pass LNG;

(4)

for any Project processing or use agreement with an Affiliate of Sabine Pass LNG; provided that the terms of such agreement provide for the recovery of at least the incremental Operation and Maintenance Expenses associated with operations pursuant to such agreement and Sabine Pass LNG has entered into the required Security Documents; and

(5)

Subordinated Loans between or among Sabine Pass LNG, any of its Restricted Subsidiaries and/or any of their Affiliates.

Prior to entering into any agreement with an Affiliate, Sabine Pass LNG shall deliver to the Collateral Trustee a certificate of an Authorized Officer as to the satisfaction of the applicable condition set forth in clauses (2), (3), (4) and (5) above.

The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:

(1)

any employment agreement, employee benefit plan, officer or director indemnification agreement or any similar arrangement entered into by Sabine Pass LNG or any of its Restricted Subsidiaries in the ordinary course of business and payments pursuant thereto;

(2)

transactions between or among Sabine Pass LNG and/or its Restricted Subsidiaries;

(3)

transactions with a Person (other than an Unrestricted Subsidiary of Sabine Pass LNG) that is an Affiliate of Sabine Pass LNG solely because Sabine Pass LNG owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person;

(4)

payment of reasonable directors’ fees to Persons who are not otherwise Affiliates of Sabine Pass LNG;

(5)

any issuance of Equity Interests (other than Disqualified Stock) of Sabine Pass LNG to Affiliates of Sabine Pass LNG;

(6)

any Permitted Investments or Restricted Payments that do not violate the provisions of the indenture described above under the caption “—Restricted Payments”;

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Index to Financial Statements

(7)

Permitted Payments to Parent; and

(8)

any contracts, agreements or understandings existing as of the Issue Date or disclosed in this prospectus, and any amendments to or replacements of such contracts, agreements or understandings so long as any such amendment or replacement is not more disadvantageous to Sabine Pass LNG or to the holders of the notes in any material respect than the original agreement as in effect on the Issue Date.

Business Activities

Sabine Pass LNG will not, and will not permit any of its Restricted Subsidiaries to, engage in any business other than Permitted Businesses, except to such extent as would not be material to Sabine Pass LNG and its Restricted Subsidiaries taken as a whole.

Additional Note Guarantees

If (a) Sabine Pass LNG or any of its Restricted Subsidiaries acquires or creates another Domestic Subsidiary after the date of the indenture, and (b) that newly acquired or created Domestic Subsidiary is or becomes obligated with respect to any Indebtedness, then such Domestic Subsidiary will become a Guarantor and execute a supplemental indenture and deliver an opinion of counsel satisfactory to the Trustee within 15 business days of the date on which the conditions in both (a) and (b) above were satisfied; provided that any Domestic Restricted Subsidiary that constitutes an Immaterial Subsidiary need not become a Guarantor until such time as it ceases to be an Immaterial Subsidiary.

Designation of Restricted and Unrestricted Subsidiaries

The Board of Directors of the General Partner may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by Sabine Pass LNG and its Restricted Subsidiaries in the Subsidiary designated as Unrestricted will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under the covenant described above under the caption “—Restricted Payments” or under one or more clauses of the definition of Permitted Investments, as determined by Sabine Pass LNG. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.

Any designation of a Subsidiary of Sabine Pass LNG as an Unrestricted Subsidiary will be evidenced to the Trustee by filing with the Trustee a certified copy of a resolution of the Board of Directors of the General Partner giving effect to such designation and an officers’ certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption “—Restricted Payments.” If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of Sabine Pass LNG as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock,” Sabine Pass LNG will be in default of such covenant. The Board of Directors of the General Partner may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary of Sabine Pass LNG; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of Sabine Pass LNG of any outstanding Indebtedness of such Unrestricted Subsidiary, and such designation will only be permitted if (1) such Indebtedness is permitted under the covenant described under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock,” calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation.

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Index to Financial Statements

Limitation on Sale and Leaseback Transactions

Sabine Pass LNG will not, and will not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that Sabine Pass LNG and any of its Restricted Subsidiaries may enter into a sale and leaseback transaction if:

(1)

Sabine Pass LNG or that Restricted Subsidiary, as applicable, could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction under the Fixed Charge Coverage Ratio test described above under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock” and (b) incurred a Lien to secure such Indebtedness pursuant to the covenant described above under the caption “—Liens”;

(2)

the gross cash proceeds of that sale and leaseback transaction are at least equal to the Fair Market Value, as determined in good faith by the Board of Directors of the General Partner and set forth in an officers’ certificate delivered to the Trustee, of the property that is the subject of that sale and leaseback transaction; and

(3)

the transfer of assets in that sale and leaseback transaction is permitted by, and Sabine Pass LNG applies the proceeds of such transaction in compliance with, the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales.”

Advances to Subsidiaries

All advances to Restricted Subsidiaries made by Sabine Pass LNG will be evidenced by intercompany notes in favor of Sabine Pass LNG. These intercompany notes will be pledged pursuant to the pledge agreements as Shared Collateral to secure the notes. Each intercompany note will be payable upon demand and will bear interest at the weighted average interest rate on the notes and will be subordinated in right of payment to all existing Senior Debt of the Restricted Subsidiary to which the loan is made. “Senior Debt” of Subsidiaries for the purposes of the intercompany notes will be defined as all Indebtedness of the Restricted Subsidiaries that is not specifically by its terms made pari passu with or junior to the intercompany notes. A form of intercompany note will be attached as an exhibit to the indenture. Repayments of principal with respect to any intercompany notes will be required to be deposited in the Revenue Account for application in accordance with the provisions set forth under “—Post-Completion Account Flows—Revenue Account” above.

Sabine Pass LNG will not permit any Restricted Subsidiary in respect of which Sabine Pass LNG is a creditor by virtue of an intercompany note to incur any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of such Restricted Subsidiary and senior in any respect in right of payment to any intercompany note.

Payments for Consent

Sabine Pass LNG will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any holder of notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the indenture or the notes unless such consideration is offered to be paid and is paid to all holders of the notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.

Maintenance of Existence

Subject to the rights of Sabine Pass LNG under “—Merger, Consolidation or Sale of Assets,” Sabine Pass LNG shall do all things necessary to maintain: (i) its corporate, limited liability company or partnership, as applicable, existence in its jurisdiction of organization; provided, that the foregoing shall not prohibit conversion into another form of entity or continuation in another jurisdiction and (ii) the power and authority (corporate and otherwise) necessary under the applicable law to own its properties and to carry on the business of the Project.

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Index to Financial Statements

Each of Sabine Pass LNG and the Guarantors shall not dissolve, liquidate, and shall not take any action to amend or modify its corporate constituent or governing documents where such amendment would be adverse in any material respect to the holders of the notes.

Ownership

Sabine Pass LNG will not, and will not permit any of its Restricted Subsidiaries to, and Sabine Pass LNG-LP, LLC and Sabine Pass LNG-GP, Inc. will not, permit either Sabine Pass LNG or any of the Guarantors to issue, sell, transfer or dispose of any Capital Stock of Sabine Pass LNG or any Guarantor, other than to Sabine Pass LNG-LP, LLC and Sabine Pass LNG-GP, Inc., Sabine Pass LNG or one of the Guarantors.

Accounting and Cost Control Systems

Sabine Pass LNG shall maintain, or cause to be maintained, its own management information and cost accounting systems for the Project at all times in accordance with prudent industry practice.

Access

Each of Sabine Pass LNG and its Restricted Subsidiaries shall grant the Collateral Trustee or its designee from time to time, including but not limited to during the pendency of a Default or an Event of Default, reasonable access to all of its books and records, quality control and performance test data, all other data relating to the Project and construction progress and the physical facilities of the Project and an opportunity to discuss accounting matters with Sabine Pass LNG’s independent auditors, provided that all such inspections are conducted during normal business hours in a manner that does not unreasonably disrupt the construction or operation of the Project. The Collateral Trustee shall also have the right to monitor, witness and appraise the construction, testing and operation of the Project. So long as a Default or any Event of Default has occurred and is continuing, the reasonable fees and documented expenses of such persons shall be for the account of Sabine Pass LNG.

Environmental Audits

If the Collateral Trustee reasonably believes that a violation or threat of violation of any environmental law may have occurred that might reasonably be expected to have a Material Adverse Effect, or if a Default or an Event of Default has occurred, Sabine Pass LNG shall, upon receipt of a written communication setting forth the basis for such belief, grant access to and assist any environmental consultants for the purpose of conducting any environmental compliance audits requested by the Collateral Trustee in its reasonable discretion and all reasonable costs associated with any such audits shall be paid by Sabine Pass LNG and the Guarantors.

Preservation of Assets

Each of Sabine Pass LNG and its Restricted Subsidiaries shall maintain its assets in good repair and shall make such repairs and replacements as are required in accordance with prudent industry practice.

Insurance

Each of Sabine Pass LNG and its Restricted Subsidiaries will keep the Project property of an insurable nature and of a character usually insured, insured with financially sound insurers with all risk property and general liability coverage (including deductibles and exclusions) and in such form and amounts as are customary for project facilities of similar type and scale to the Project (including, prior to Phase 1 Final Completion, delay in start-up coverage and, after Phase 1 Final Completion, business interruption). Sabine Pass LNG will cause with limited exceptions, each insurance policy to name the Collateral Trustee on behalf of the secured parties and the secured parties as additional insureds as their interest may appear.

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Index to Financial Statements

Taxes

Each of Sabine Pass LNG and its Restricted Subsidiaries shall (i) file or cause to be filed all tax returns required to be filed by it, and (ii) pay and discharge, before the same shall become delinquent, after giving effect to any applicable extensions, all taxes imposed on it or its property (including interest and penalties) unless such taxes are being contested in good faith and by appropriate proceedings, appropriate reserves are maintained with respect thereto and such proceedings, if adversely determined, could not reasonably be expected to have a Material Adverse Effect. Each of Sabine Pass LNG and its Restricted Subsidiaries shall promptly notify the Collateral Trustee, in reasonable detail, of any material disputes pending between it and any governmental authority relating to taxes.

Compliance with Law

Each of Sabine Pass LNG and its Restricted Subsidiaries shall (i) comply with all applicable laws, rules, regulations and orders of governmental authorities (including without limitation environmental, health and safety, mining, port and railway and native title laws), except where such failure to comply could not reasonably be expected to have a Material Adverse Effect and (ii) notify the Collateral Trustee promptly following the initiation of any proceedings or material disputes with any governmental authority or other parties relating to compliance or noncompliance with any such law, rule, regulation or order.

Safety Precautions

Each of Sabine Pass LNG and its Restricted Subsidiaries shall implement and administer safety, health and environmental procedures for the Project consistent with all applicable environmental, health and safety laws, rules, regulations and orders, including with respect to all contractors and subcontractors, except where the failure to so implement and administer could not reasonably be expected to have a Material Adverse Effect.

Maintenance of Approvals for Transaction Documents

Each of Sabine Pass LNG and its Restricted Subsidiaries shall maintain or cause to be maintained all third-party authorizations that are necessary for (i) the execution, delivery and performance by it of the Material Project Agreements to which it is a party and (ii) the incurrence and guarantee of the notes, as the case may be, in good standing, in full force and effect.

Scope of Work; Engagement of Contractors

Each of Sabine Pass LNG and its Restricted Subsidiaries shall use its commercially reasonable efforts to perform, or cause to be performed, all work and services required or appropriate (as set forth in the Construction Budget and Schedule) in connection with the design, engineering, construction, testing and commencement of operations of Phase 1.

Construction and Completion of the Project

Each of Sabine Pass LNG and its Restricted Subsidiaries shall use its commercially reasonable efforts to cause the Project to be constructed in all material respects in accordance with the Construction Budget and Schedule and to cause Phase 1 Target Completion to occur on or before March 20, 2009.

Construction Reports

Until the occurrence of Phase 1 Target Completion, Sabine Pass LNG will provide a monthly progress report to the Collateral Trustee within 30 days after the end of each month. Sabine Pass LNG will ensure that the monthly progress reports include the following information:

(1)

a comparison of progress in the construction of the Project in the previous month against the Construction Budget and Schedule, as it may be amended from time to time;

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Index to Financial Statements

(2)

a comparison of project construction expenditures against the Construction Budget and Schedule, as it may be amended from time to time, including a description of any material variations or change orders issued;

(3)

any material delays envisaged in the construction of the Project and the reasons for such delay (such as an industrial dispute, shipping delays or weather);

(4)

any relevant material invoices relating to the construction of the Project; and

(5)

any material disputes or defaults under any material construction contracts.

Changes to the Construction Budget and Schedule

Sabine Pass LNG will notify the Collateral Trustee of any change to the Construction Budget and Schedule which will increase the then existing Construction Budget and Schedule by more than $30,000,000. Sabine Pass LNG and the Guarantors may implement a change to the Construction Budget and Schedule provided that: (a) the change relates to the Project, and (b) if following implementation of any change which, together with any other changes made to the Construction Budget and Schedule will result in a cumulative increase of more than $100,000,000 to the Construction Budget and Schedule relating to Phase 1, the Cost to Complete Test will continue to be satisfied. Any time a change in the Construction Budget and Schedule described in clause (b) of the foregoing sentence is proposed to be made, Sabine Pass LNG must provide the Collateral Trustee with a certificate from a Responsible Officer describing in reasonable detail the nature and cost of the proposed change and certifying that the requirements of the preceding sentence are satisfied.

Material Project Agreements

Each of Sabine Pass LNG and its Restricted Subsidiaries shall comply in all material respects with its payment and other material obligations under the Material Project Agreements, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. Sabine Pass LNG and the Guarantors must notify the Collateral Trustee when entering into or terminating any Material Project Agreement and provide a copy of any such contract to the Collateral Trustee. Each of Sabine Pass LNG and its Restricted Subsidiaries shall not agree to any material amendment or termination of any Material Project Agreement to which it is or becomes a party unless (i) a copy of such amendment or termination has been delivered to the Collateral Trustee at least 10 Business Days in advance of the effective date thereof along with an officer’s certificate of a Responsible Officer certifying that the proposed amendment or termination could not reasonably be expected to have a Material Adverse Effect or (ii) Sabine Pass LNG has obtained the consent of a majority of the holders of the notes to such amendment or termination; provided, that without the consent of the holders of a majority of the outstanding principal amount of the notes, Sabine Pass LNG will not: (x) take any action under the Cheniere Marketing TUA that would cause or would enable an Anchor Customer to reduce the monthly reservation fee or operating fee; (y) amend a terminal use agreement with an Anchor Customer to decrease the tenor, reduce the monthly reservation fee or operating fee, amend the force majeure provisions, the taxes and regulatory costs sharing provisions, or the agreement termination provisions in a manner adverse to Sabine Pass LNG, or reduce the aggregate amount of any guarantee in respect of such terminal use agreement; or (z) agree to take, or take, title to LNG or natural gas (other than LNG or natural gas to which Sabine Pass LNG has taken title in connection with cool down or retainage or pursuant to any terminal use or similar agreement as a result of the failure of any customer of Sabine Pass LNG to take redelivery of any natural gas at any delivery point) from any Anchor Customer.

Phase 1 Final Completion

When Sabine Pass LNG believes that Phase 1 Final Completion has been achieved, Sabine Pass LNG must deliver to the Collateral Trustee a certificate of a Responsible Officer of Sabine Pass LNG certifying that Phase 1 Final Completion has been achieved and detailing the basis for that conclusion.

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Operation of the Project

Sabine Pass LNG shall (i) cause the Project to be operated, repaired and maintained at all times in substantial accordance with prudent industry practice and the Material Project Agreements, (ii) maintain or caused to be maintained such spare parts and inventory as are consistent with the Material Project Agreements and prudent industry practice and (iii) maintain or cause to be maintained at the Project site a complete set of plans and specifications for the Project.

Technology

Sabine Pass LNG shall (i) take all such reasonable actions as may be necessary to ensure that it possesses, or has the right to use, all licenses and other rights with respect to technology prior to Project Completion (or at such earlier time as may be required under the circumstances), and (ii) maintain in place all licenses and other rights with respect to technology, in each case to the extent necessary for the development, construction, operation or maintenance of the Project at any time, except where the failure to take such actions or maintain such licenses or rights could not reasonably be expected to have a Material Adverse Effect.

Preservation of Security Interests

Each of Sabine Pass LNG and its Restricted Subsidiaries shall preserve, maintain and perfect the first priority security interests subject to Permitted Liens granted under the Security Documents and preserve and protect the Collateral as set forth in the Security Documents.

Accounts

Sabine Pass LNG shall cause the Project Accounts to be established and maintained at all times in accordance with the indenture, shall maintain no bank accounts other than the Project Accounts and checking, demand deposit or similar accounts with any financial institutions and shall make no transfer, deposit or withdrawal from any Project Account, except in each case as specifically permitted in the indenture.

Credit Rating Agencies

Sabine Pass LNG shall use its commercially reasonable efforts to cause the notes to be rated by at least two Credit Rating Agencies. If one of the two Credit Rating Agencies ceases to be a “nationally recognized statistical rating organization” registered with the SEC or ceases to be in the business of rating securities of the type and nature of the notes, Sabine Pass LNG and the Guarantors may replace the rating received from it with a rating from any other “nationally recognized statistical rating organization” in the business of rating securities of the type and nature of the notes.

Reports

After Sabine Pass LNG becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, then Sabine Pass LNG shall file with the Trustee, and the Trustee shall provide noteholders, within 15 days after it files them with the SEC, copies of its annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that Sabine Pass LNG is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act.

As long as Sabine Pass LNG is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, nor is exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act and the notes are “restricted securities” within the meaning of Rule 144 under the Securities Act, upon the request of a noteholder who is a “qualified institutional buyer” (as defined in Rule 144A) or any owner of a beneficial interest in a note who is a “qualified institutional buyer” (as defined in Rule 144A), Sabine Pass LNG shall promptly

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furnish or cause to be furnished “Rule 144A Information” (as defined herein) to such Noteholder or Beneficial Owner or to a prospective purchaser of such note who is a “qualified institutional buyer” (as defined in Rule 144A) designed by such noteholder or Beneficial Owner who is a “qualified institutional buyer” (as defined in Rule 144A). “Rule 144A Information” shall be such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto).

So long as any of the notes are outstanding, in addition to the requirement to furnish Rule 144A Information as provided in the preceding paragraph, Sabine Pass LNG shall furnish or cause to be furnished to Noteholders and (upon the request thereof delivered to Sabine Pass LNG or the Trustee) to holders of an interest in any Global Note (i) annual consolidated financial statements of Sabine Pass LNG prepared in accordance with GAAP (together with notes thereto and a report thereon by an independent accountant of established national reputation), such statements to be so furnished within 105 days after the end of the fiscal year covered thereby and (ii) unaudited consolidated financial statements of Sabine Pass LNG for each of the first three fiscal quarters of each fiscal year of Sabine Pass LNG and the corresponding quarter and year-to-year period of the prior year prepared in all material respects on a basis consistent with the annual financial statements furnished pursuant to clause (i) of this paragraph, such statements to be so furnished within 60 days after the end of each such quarter.

Events of Default and Remedies

Each of the following is an “Event of Default”:

(1)

default for 30 days in the payment when due of interest on, or Additional Interest, if any, with respect to, the notes;

(2)

default in payment when due of the principal of, or premium, if any, on the notes;

(3)

failure by Sabine Pass LNG to comply with its obligations described under the caption “—Certain Covenants—Merger, Consolidation or Sale of Assets” or to consummate a purchase of notes when required pursuant to the covenants described under the captions “—Repurchase at the Option of Holders—Change of Control” or “—Repurchase at the Option of Holders—Asset Sales;”

(4)

failure by Sabine Pass LNG or any of its Restricted Subsidiaries for 30 days to comply with the provisions described under the captions “—Certain Covenants—Restricted Payments” or “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock” or to comply with the provisions described under the captions “—Repurchase at the Option of Holders—Change of Control” or “—Repurchase at the Option of Holders—Asset Sales” to the extent not described in clause (3) above;

(5)

failure by Sabine Pass LNG or any of its Restricted Subsidiaries for 60 days after notice from the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding notes to comply with any of the other agreements in the indenture, the Security Documents or the notes unless covered by another Event of Default;

(6)

default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by Sabine Pass LNG or any of its Restricted Subsidiaries (or the payment of which is guaranteed by Sabine Pass LNG or any of its Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created after the Issue Date, if that default:

(a)

is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a “ Payment Default ”); or

(b)

results in the acceleration of such Indebtedness prior to its express maturity,

and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which

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has been so accelerated, aggregates $25.0 million or more; but only if such Indebtedness remains unpaid or the acceleration unrescinded;

(7)

any final judgment or decree (to the extent not covered by insurance) for the payment of money in excess of $25.0 million is entered against Sabine Pass LNG or any of its Restricted Subsidiaries and is not paid or discharged, and there is any period of 60 consecutive days following entry of such final judgment or decree during which a stay of enforcement of such final judgment or decree, by reason of pending appeal or otherwise, is not in effect;

(8)

breach by Sabine Pass LNG or any of its Restricted Subsidiaries of any material representation or warranty or agreement in the Security Documents unless remedied within 60 days of Sabine Pass LNG obtaining knowledge of such breach;

(9)

except as permitted by the indenture, any Security Document of the General Partner, the Limited Partner, Sabine Pass LNG or of any Guarantor that is a Significant Subsidiary or any group of Guarantors that, taken together, would constitute a Significant Subsidiary is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect, or any such Pledgor, or any Person acting on behalf of any such Pledgor, denies or disaffirms its obligations under the Security Document to which it is a party or shall cease to grant the holders any of the Collateral or rights purported to be granted thereunder;

(10)

the failure by Sabine Pass LNG or any Guarantor to comply in all material respects with its payment and other material obligations under a Material Project Agreement and within 60days after actual knowledge by Sabine Pass LNG or any Guarantor of such failure to comply, such failure has not been remedied by Sabine Pass LNG or the relevant Guarantor (as applicable) within 60 days or if not capable of cure within 60 days, Sabine Pass LNG or such Guarantor has commenced curing such default within 60 days and diligently pursues such cure; provided such cure is completed within 180 days of such knowledge;

(11)

except as permitted by the indenture, any Note Guarantee of any Guarantor that is a Significant Subsidiary or any group of Guarantors that, taken together, would constitute a Significant Subsidiary is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect, or any such Guarantor, or any Person acting on behalf of any such Guarantor, denies or disaffirms its obligations under its Note Guarantee;

(12)

the Project is abandoned in whole; and

(13)

certain events of bankruptcy or insolvency described in the indenture with respect to Sabine Pass LNG or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary.

The indenture contains a provision providing that in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to Sabine Pass LNG, any Restricted Subsidiary that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding notes will become due and payable immediately without further action or notice. However, the effect of such provision may be limited by applicable laws. If any other Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the then outstanding notes may declare all the notes to be due and payable immediately by notice in writing to Sabine Pass LNG specifying the Event of Default.

Subject to certain limitations, holders of a majority in aggregate principal amount of the then outstanding notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from holders of the notes notice of any continuing Default or Event of Default if it determines that withholding notice is in their interest, except a Default or Event of Default relating to the payment of principal, interest or premium or Additional Interest, if any.

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Subject to the provisions of the indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the indenture at the request or direction of any holders of notes unless such holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium, if any, or interest or Additional Interest, if any, when due, no holder of a note may pursue any remedy with respect to the indenture or the notes unless:

(1)

such holder has previously given the Trustee notice that an Event of Default is continuing;

(2)

holders of at least 25% in aggregate principal amount of the then outstanding notes have requested the Trustee to pursue the remedy;

(3)

such holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense;

(4)

the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity; and

(5)

holders of a majority in aggregate principal amount of the then outstanding notes have not given the Trustee a direction inconsistent with such request within such 60-day period.

The holders of a majority in aggregate principal amount of the then outstanding notes by notice to the Trustee may, on behalf of the holders of all of the notes, rescind an acceleration or waive any existing Default or Event of Default and its consequences under the indenture except a continuing Default or Event of Default in the payment of interest or premium or Additional Interest, if any, on, or the principal of, the notes.

Sabine Pass LNG is required to deliver to the Trustee annually a statement regarding compliance with the indenture. Upon becoming aware of any Default or Event of Default, Sabine Pass LNG is required to deliver to the Trustee a statement specifying such Default or Event of Default.

No Personal Liability of Directors, Officers, Employees and Stockholders

No director, officer, employee, incorporator, member, partner or stockholder of Sabine Pass LNG or any Guarantor (including, without limitation, the General Partner, the Limited Partner and the Parent), as such, will have any liability for any obligations of Sabine Pass LNG or the Guarantors under the notes, the indenture, the Note Guarantees, the Security Documents or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes. The waiver may not be effective to waive liabilities under the federal securities laws.

Legal Defeasance and Covenant Defeasance

Sabine Pass LNG may at any time, at the option of the Board of Directors of its General Partner evidenced by a resolution set forth in an officers’ certificate, elect to have all of its obligations discharged with respect to the outstanding notes and all obligations of the Guarantors discharged with respect to their Note Guarantees (“ Legal Defeasance ”) except for:

(1)

the rights of holders of outstanding notes to receive payments in respect of the principal of, or interest or premium and Additional Interest, if any, on, such notes when such payments are due from the trust referred to below;

(2)

Sabine Pass LNG’s obligations with respect to the notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and money for security payments held in trust;

(3)

the rights, powers, trusts, duties and immunities of the Trustee, and Sabine Pass LNG’s and the Guarantors’ obligations in connection therewith; and

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(4)

the Legal Defeasance and Covenant Defeasance provisions of the indenture.

In addition, Sabine Pass LNG may, at its option and at any time, elect to have the obligations of Sabine Pass LNG and the Guarantors released with respect to certain covenants (including its obligation to make Change of Control Offers and Asset Sale Offers) that are described in the indenture (“ Covenant Defeasance ”) and thereafter any omission to comply with those covenants will not constitute a Default or Event of Default with respect to the notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under “—Events of Default and Remedies” will no longer constitute an Event of Default with respect to the notes.

In order to exercise either Legal Defeasance or Covenant Defeasance:

(1)

Sabine Pass LNG must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the notes, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, or interest and premium and Additional Interest, if any, on, the outstanding notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and Sabine Pass LNG must specify whether the notes are being defeased to such stated date for payment or to a particular redemption date;

(2)

in the case of Legal Defeasance, Sabine Pass LNG has delivered to the Trustee an opinion of counsel reasonably acceptable to the Trustee confirming that (a) Sabine Pass LNG has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel will confirm that, the holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;

(3)

in the case of Covenant Defeasance, Sabine Pass LNG has delivered to the Trustee an opinion of counsel reasonably acceptable to the Trustee confirming that the holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;

(4)

no Default or Event of Default has occurred and is continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) and the deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which Sabine Pass LNG or any Guarantor is a party or by which Sabine Pass LNG or any Guarantor is bound;

(5)

such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the indenture) to which Sabine Pass LNG or any of its Subsidiaries is a party or by which Sabine Pass LNG or any of its Subsidiaries is bound;

(6)

Sabine Pass LNG must deliver to the Trustee an officers’ certificate stating that the deposit was not made by Sabine Pass LNG with the intent of preferring the holders of notes over the other creditors of Sabine Pass LNG with the intent of defeating, hindering, delaying or defrauding creditors of Sabine Pass LNG or others;

(7)

Sabine Pass LNG must deliver to the Trustee an officers’ certificate stating that all conditions precedent set forth in clauses (1) through (6) of this paragraph have been complied with; and

(8)

Sabine Pass LNG must deliver to the Trustee an opinion of counsel (which opinion of counsel may be subject to customary assumptions, qualifications and exclusions), stating that all conditions precedent

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set forth in clauses (2), (3) and (5) of this paragraph have been complied with; provided that the opinion of counsel with respect to clause (5) of this paragraph may be to the knowledge of such counsel.

Amendment, Supplement and Waiver

Except as provided in the next three succeeding paragraphs, the notes or the indenture or the Note Guarantees may be amended or supplemented with the consent of the holders of at least a majority in aggregate principal amount of the notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes), and any existing Default or Event of Default or compliance with any provision of the notes and the indenture or the Note Guarantees may be waived with the consent of the holders of a majority in aggregate principal amount of the then outstanding notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, notes).

Without the consent of each holder of each series of notes affected, an amendment, supplement or waiver may not (with respect to any notes held by a non-consenting holder):

(1)

reduce the principal amount of notes whose holders must consent to an amendment, supplement or waiver;

(2)

reduce the principal of or change the fixed maturity of any note or alter the provisions with respect to the redemption of the notes; provided, however , that any purchase or repurchase of notes, including pursuant to the covenants described above under the caption “—Repurchase at the Option of Holders,” shall not be deemed a redemption of the notes;

(3)

reduce the rate of or change the time for payment of interest, including default interest, on any note;

(4)

waive a Default or Event of Default in the payment of principal of, or interest or premium, or Additional Interest, if any, on the notes (except a rescission of acceleration of the notes by the holders of at least a majority in aggregate principal amount of the then outstanding notes and a waiver of the payment default that resulted from such acceleration);

(5)

make any note payable in money other than that stated in the notes;

(6)

make any change in the provisions of the indenture relating to waivers of past Defaults or the rights of holders of notes to receive payments of principal of, or interest or premium or Additional Interest, if any, on the notes;

(7)

waive a redemption payment with respect to any note; provided, however , that any purchase or repurchase of notes, including pursuant to the covenants described above under the caption “—Repurchase at the Option of Holders,” shall not be deemed a redemption of the notes;

(8)

release any Guarantor from any of its obligations under its Note Guarantee or the indenture, except in accordance with the terms of the indenture; or

(9)

make any change in the preceding amendment and waiver provisions.

Notwithstanding the preceding, without the consent of any holder of notes, Sabine Pass LNG, the Guarantors and the Trustee may amend or supplement the notes and the indenture or the Note Guarantees:

(1)

to cure any ambiguity, defect or inconsistency;

(2)

to provide for uncertificated notes in addition to or in place of certificated notes;

(3)

to provide for the assumption of Sabine Pass LNG’s or a Guarantor’s obligations to holders of notes and Note Guarantees in the case of a merger or consolidation or sale of all or substantially all of Sabine Pass LNG’s or such Guarantor’s assets, as applicable;

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(4)

to effect the release of a Guarantor from its Note Guarantee and the termination of such Note Guarantee, all in accordance with the provisions of the indenture governing such release and termination;

(5)

to make any change that would provide any additional rights or benefits to the holders of notes or that does not adversely affect the legal rights under the indenture of any such holder;

(6)

to comply with requirements of the SEC in order to effect or maintain the qualification of the indenture under the Trust Indenture Act;

(7)

to conform the text of the indenture, the Note Guarantees or the notes to any provision of this Description of Notes to the extent that such provision in this Description of Notes was intended to be a verbatim recitation of a provision of the indenture or the Note Guarantees or the notes;

(8)

to provide for the issuance of additional notes in accordance with the limitations set forth in the indenture as of the date of the indenture;

(9)

to add any Note Guarantee; or

(10)

to provide for a successor Trustee in accordance with the provisions of the indenture.

No amendment or supplement to the provisions of the indenture or either supplemental indenture described under the caption “—Equal and Ratable Sharing of Shared Collateral by Holders of Parity Secured Debt” will:

(1)

be effective unless set forth in a writing signed by the Trustee with the consent of the holders of at least a majority in principal amount of each affected Series of Secured Debt then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, any Series of Secured Debt), voting as a separate class; or

(2)

be effective without the written consent of Sabine Pass LNG.

Any such amendment or supplement that imposes any obligation upon the Collateral Trustee or adversely affects the rights of the Collateral Trustee in its individual capacity will become effective only with the consent of the Collateral Trustee.

Amendment of Security Documents

The collateral trust agreement provides that no amendment or supplement to the provisions of any security document will be effective without the approval of the obligors party thereto and the Collateral Trustee acting as directed by an Act of Required Debtholders, except that:

(1)

any amendment or supplement that has the effect solely of (i) adding or maintaining Shared Collateral, securing additional Secured Debt that was otherwise permitted by the terms of the Secured Debt Documents to be secured by the Shared Collateral or preserving or perfecting the Liens thereon or the rights of the Collateral Trustee therein; (ii) curing any ambiguity, defect or inconsistency; (iii) providing for the assumption of Sabine Pass LNG’s or another Pledgor’s obligations under any Security Document in the case of a merger or consolidation or sale of all or substantially all of such Pledgor’s assets, as applicable; (iv) releasing a Pledgor from a Security Document and the termination of such Security Document, all in accordance with the provisions of the indenture governing such release and termination; (v) making any change that would provide any additional rights or benefits to the holders of notes or the Collateral Trustee or that does not adversely affect the legal rights under the indenture of any such holder or the Collateral Trustee; (vi) conforming the text of the collateral trust agreement or any other Security Document to any provision of this Description of Notes to the extent that such provision in this Description of Notes was intended to be a verbatim recitation of a provision of the collateral trust agreement or such Security Document; (vii) adding any Security Document, will become effective when executed and delivered by the obligors party thereto and the Collateral Trustee as directed by such obligors; and

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(2)

no amendment or supplement that imposes any obligation upon the Collateral Trustee or any Secured Debt Representative in its individual capacity or adversely affects the rights of the Collateral Trustee or any Secured Debt Representative in its individual capacity will become effective without the additional consent of the Collateral Trustee or such Secured Debt Representative, in its individual capacity.

Any amendment or supplement to the provisions of the Security Documents that releases Shared Collateral will be effective only in accordance with the requirements set forth above under the caption “—Release of Security Interests.”

Satisfaction and Discharge

The indenture will be discharged and will cease to be of further effect as to all notes issued thereunder, when:

(1)

either:

(a)

all notes that have been authenticated, except lost, stolen or destroyed notes that have been replaced or paid and notes for whose payment money has been deposited in trust and thereafter repaid to Sabine Pass LNG, have been delivered to the Trustee for cancellation; or

(b)

all notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year and Sabine Pass LNG or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the holders, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the notes not delivered to the Trustee for cancellation for principal, premium and Additional Interest, if any, and accrued interest to the date of maturity or redemption;

(2)

no Default or Event of Default has occurred and is continuing on the date of the deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit);

(3)

such deposit will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the indenture) to which Sabine Pass LNG or any Guarantor is a party or by which Sabine Pass LNG or any Guarantor is bound;

(4)

Sabine Pass LNG or any Guarantor has paid or caused to be paid all sums payable by it under the indenture; and

(5)

Sabine Pass LNG has delivered irrevocable instructions to the Trustee under the indenture to apply the deposited money toward the payment of the notes at maturity or the redemption date, as the case may be.

In addition, Sabine Pass LNG must deliver to the Trustee (a) an officers’ certificate, stating that all conditions precedent set forth in clauses (1) through (5) above have been satisfied, and (b) an opinion of counsel (which opinion of counsel may be subject to customary assumptions and qualifications), stating that all conditions precedent set forth in clauses (3) and (5) above have been satisfied; provided that the opinion of counsel with respect to clause (3) above may be to the knowledge of such counsel.

Governing Law

The indenture, the notes and the Notes Guarantees will be governed by the laws of the State of New York.

Concerning the Trustee

If the Trustee becomes a creditor of Sabine Pass LNG or any Guarantor, the indenture limits the right of the Trustee to obtain payment of claims in certain cases, or to realize on certain property received in respect of any

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Index to Financial Statements

such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as Trustee (if the indenture has been qualified under the Trust Indenture Act) or resign.

The holders of a majority in aggregate principal amount of the then outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The indenture provides that in case an Event of Default occurs and is continuing, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any holder of notes, unless such holder has offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.

Additional Information

Anyone who receives this prospectus may obtain a copy of the indenture and Security Documents without charge by writing to Sabine Pass LNG, L.P., 717 Texas Avenue, Suite 3100, Houston, Texas 77002, USA, Attention: Corporate Secretary.

Book-Entry, Delivery and Form

Except as set forth below, the notes will be issued in registered, global form in minimum denominations of $100,000 and integral multiples of $1,000 in excess of $100,000.

The notes initially will be represented by one or more notes in registered, global form without interest coupons (collectively, the “ Global Notes ”). The Global Notes will be deposited upon issuance with the Trustee as custodian for The Depository Trust Company (“ DTC ”), in New York, New York, and registered in the name of DTC or its nominee, in each case, for credit to an account of a direct or indirect participant in DTC as described below. The Global Notes may also be held through the Euroclear System (“ Euroclear ”) and Clearstream Banking, S.A. (“ Clearstream ”) (as indirect participants in DTC).

Except as set forth below, the Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for definitive notes in registered certificated form (“ Certificated Notes ”) except in the limited circumstances described below. See “—Exchange of Global Notes for Certificated Notes.” Except in the limited circumstances described below, owners of beneficial interests in the Global Notes will not be entitled to receive physical delivery of notes in certificated form. Transfers of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants (including, if applicable, those of Euroclear and Clearstream), which may change from time to time.

Depository Procedures

The following description of the operations and procedures of DTC, Euroclear and Clearstream are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them. Sabine Pass LNG takes no responsibility for these operations and procedures and urges investors to contact the system or their participants directly to discuss these matters.

DTC has advised Sabine Pass LNG that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the “ Participants ”) and to facilitate the clearance and settlement of transactions in those securities between the Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the initial purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to DTC’s system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial

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Index to Financial Statements

relationship with a Participant, either directly or indirectly (collectively, the “ Indirect Participants ”). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants.

DTC has also advised Sabine Pass LNG that, pursuant to procedures established by it:

(1)

upon deposit of the Global Notes, DTC will credit the accounts of the Participants designated by the initial purchasers with portions of the principal amount of the Global Notes; and

(2)

ownership of these interests in the Global Notes will be shown on, and the transfer of ownership of these interests will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interest in the Global Notes).

Owners of interest in the Global Notes who are Participants may hold their interests therein directly through DTC. Owners of interest in the Global Notes who are not Participants may hold their interests therein indirectly through organizations (including Euroclear and Clearstream) which are Participants. Investors in the Regulation S Global Notes must initially hold their interests therein through Euroclear or Clearstream, if they are participants in such systems, or indirectly through organizations that are participants. Euroclear and Clearstream will hold interests in the Global Notes on behalf of their participants through customers’ securities accounts in their respective names on the books of their respective depositories, which are Euroclear Bank S.A./N.V., as operator of Euroclear, and Citibank, N.A., as operator of Clearstream. All interests in a Global Note, including those held through Euroclear or Clearstream, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Clearstream may also be subject to the procedures and requirements of such systems. The laws of some states require that certain Persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such Persons will be limited to that extent. Because DTC can act only on behalf of the Participants, which in turn act on behalf of the Indirect Participants, the ability of a Person having beneficial interests in a Global Note to pledge such interests to Persons that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests.

Except as described below, owners of interests in the Global Notes will not have notes registered in their names, will not receive physical delivery of notes in certificated form and will not be considered the registered owners or “holders” thereof under the indenture for any purpose.

Payments in respect of the principal of, and interest and premium, if any, and Additional Interest, if any, on, a Global Note registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered holder under the indenture. Under the terms of the indenture, Sabine Pass LNG and the Trustee will treat the Persons in whose names the notes, including the Global Notes, are registered as the owners of the notes for the purpose of receiving payments and for all other purposes. Consequently, neither Sabine Pass LNG, the Trustee nor any agent of Sabine Pass LNG or the Trustee has or will have any responsibility or liability for:

(1)

any aspect of DTC’s records or any Participant’s or Indirect Participant’s records relating to or payments made on account of beneficial ownership interest in the Global Notes or for maintaining, supervising or reviewing any of DTC’s records or any Participant’s or Indirect Participant’s records relating to the beneficial ownership interests in the Global Notes; or

(2)

any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants.

DTC has advised Sabine Pass LNG that its current practice, upon receipt of any payment in respect of securities such as the notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date unless DTC has reason to believe that it will not receive payment on such

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Index to Financial Statements

payment date. Each relevant Participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the Beneficial Owners of notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the Trustee or Sabine Pass LNG. Neither Sabine Pass LNG nor the Trustee will be liable for any delay by DTC or any of the Participants or the Indirect Participants in identifying the Beneficial Owners of the notes, and Sabine Pass LNG and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes.

Transfers between the Participants will be effected in accordance with DTC’s procedures, and will be settled in same-day funds, and transfers between participants in Euroclear and Clearstream will be effected in accordance with their respective rules and operating procedures.

Cross-market transfers between the Participants, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected through DTC in accordance with DTC’s rules on behalf of Euroclear or Clearstream, as the case may be, by their respective depositaries; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the depositories for Euroclear or Clearstream.

DTC has advised Sabine Pass LNG that it will take any action permitted to be taken by a holder of notes only at the direction of one or more Participants to whose account DTC has credited the interests in the Global Notes and only in respect of such portion of the aggregate principal amount of the notes as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the notes, DTC reserves the right to exchange the Global Notes for legended notes in certificated form, and to distribute such notes to its Participants.

Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures to facilitate transfers of interests in the Global Notes among participants in DTC, Euroclear and Clearstream, they are under no obligation to perform or to continue to perform such procedures, and may discontinue such procedures at any time. None of Sabine Pass LNG, the Trustee and any of their respective agents will have any responsibility for the performance by DTC, Euroclear or Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations.

Exchange of Global Notes for Certificated Notes

A Global Note is exchangeable for Certificated Notes if:

(1)

DTC (a) notifies Sabine Pass LNG that it is unwilling or unable to continue as depositary for the Global Notes or (b) has ceased to be a clearing agency registered under the Exchange Act and, in either case, Sabine Pass LNG fails to appoint a successor depositary;

(2)

Sabine Pass LNG, at its option, notifies the Trustee in writing that it elects to cause the issuance of the Certificated Notes; or

(3)

there has occurred and is continuing a Default or Event of Default with respect to the notes.

In addition, beneficial interests in a Global Note may be exchanged for Certificated Notes upon prior written notice given to the Trustee by or on behalf of DTC in accordance with the indenture. In all cases, Certificated Notes delivered in exchange for any Global Note or beneficial interests in Global Notes will be registered in the

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names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures).

Same Day Settlement and Payment

Sabine Pass LNG (including the Collateral Trustee in respect of amounts withdrawn from the Accounts to make payments) will make payments in respect of the notes represented by the Global Notes (including principal, premium, if any, interest and Additional Interest, if any) by wire transfer of immediately available funds to the accounts specified by DTC or its nominee. Sabine Pass LNG will make all payments of principal, interest and premium, if any, and Additional Interest, if any, with respect to Certificated Notes by wire transfer of immediately available funds to the accounts specified by the holders of the Certificated Notes or, if no such account is specified, by mailing a check to each such holder’s registered address. The notes represented by the Global Notes are expected to be eligible to trade in The PORTAL ^SM Market and to trade in DTC’s Same-Day Funds Settlement System, and any permitted secondary market trading activity in such notes will, therefore, be required by DTC to be settled in immediately available funds. Sabine Pass LNG expects that secondary trading in any Certificated Notes will also be settled in immediately available funds.

Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a Global Note from a Participant will be credited, and any such crediting will be reported to the relevant Euroclear or Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream) immediately following the settlement date of DTC. DTC has advised Sabine Pass LNG that cash received in Euroclear or Clearstream as a result of sales of interests in a Global Note by or through a Euroclear or Clearstream participant to a Participant will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream following DTC’s settlement date.

Certain Definitions

Set forth below are certain defined terms used in the indenture. Reference is made to the indenture for a full disclosure of all defined terms used therein, as well as any other capitalized terms used herein for which no definition is provided.

“ Acceptable Guarantee ” means an unconditional guarantee, from an entity with long term unsecured and unguaranteed senior debt rated not less than A from S&P and A2 from Moody’s.

“ Acceptable Letter of Credit ” means an irrevocable letter of credit from a bank or trust company with a combined capital and surplus of at least $1,000,000,000 whose long term unsecured and unguaranteed senior debt rated not less than A from S&P and A2 from Moody’s.

“ Acquired Debt ” means, with respect to any specified Person:

(1)

Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; and

(2)

Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.

“ Act of Required Debtholders ” means, as to any matter at any time prior to the Discharge of the Parity Secured Debt, a direction in writing delivered to the Collateral Trustee by or with the written consent of the holders of more than 50% of the sum of:

(a)

the aggregate outstanding principal amount of Parity Secured Debt; and

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Index to Financial Statements

(b)

other than in connection with the exercise of remedies, the aggregate unfunded commitments to extend credit which, when funded, would constitute Parity Secured Debt.

For purposes of this definition, (a) Parity Secured Debt registered in the name of, or beneficially owned by, Sabine Pass LNG or any Affiliate of Sabine Pass LNG (other than notes held by any Person that is an Affiliate of Sabine Pass LNG as of the date of the indenture and that is regulated by any banking or insurance authority) will be deemed not to be outstanding, and (b) votes will be determined in accordance with the provisions of the Collateral Trust Agreement.

“ Additional Interest ” means all liquidated damages then owing pursuant to the registration rights agreement.

“ Affiliate ” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control,” as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. For purposes of this definition, the terms “controlling,” “controlled by” and “under common control with” have correlative meanings. Notwithstanding the foregoing, the definition of “Affiliate” shall not encompass (a) any individual solely by reason of his or her being a director, officer or employee of any Person and (b) the Collateral Trustee or any note holder solely in their capacity as such.

“ Anchor Customer ” means Total LNG USA, Inc., Chevron U.S.A. Inc. and any replacements for Total LNG USA, Inc. or Chevron USA Inc. having (or having a guarantor with) a credit rating of not less than A/A2 and engaged in the international gas, petroleum or LNG business.

“ Applicable Premium ” means, with respect to any note on any redemption date, the greater of:

(1)

1.0% of the principal amount of the note; or

(2)

the excess of:

(a)

the present value at such redemption date of (i) the redemption price of the note plus (ii) all required interest payments due on the note (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over

(b)

the principal amount of the note, if greater.

“ Asset Sale ” means:

(1)

the sale, lease, conveyance or other disposition of any assets or rights; provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of Sabine Pass LNG and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the indenture described above under the caption “—Repurchase at the Option of Holders—Change of Control” and/or the provisions described above under the caption “—Certain Covenants—Merger, Consolidation or Sale of Assets” and not by the provisions of the Asset Sale covenant; and

(2)

the issuance of Equity Interests in any of Sabine Pass LNG’s Restricted Subsidiaries or the sale of Equity Interests in any of its Subsidiaries.

Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:

(1)

any single transaction or series of related transactions that involves assets having a Fair Market Value of less than $5.0 million;

(2)

a transfer of assets between or among Sabine Pass LNG and any of its Restricted Subsidiaries;

(3)

an issuance of Equity Interests by a Restricted Subsidiary of Sabine Pass LNG to Sabine Pass LNG or to any Restricted Subsidiary of Sabine Pass LNG;

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(4)

the sale, lease or other disposition of (a) products, services, inventory or accounts receivable in the ordinary course of business or (b) equipment or other assets pursuant to a program for the maintenance or upgrading of such equipment or assets and the disposition of obsolete equipment, equipment that is damaged or worn out or assets no longer needed in the business of Sabine Pass LNG;

(5)

the sale or other disposition of cash or Cash Equivalents;

(6)

settlement, release, waiver or surrender of contract, tort or other claims in the ordinary course of business or a grant of a Lien not prohibited by the indenture;

(7)

a Restricted Payment that does not violate the covenant described above under the caption “—Certain Covenants—Restricted Payments” or a Permitted Investment; and

(8)

the sale or other disposition of cool down gas and excess retainage gas.

“ Assumption Agreement ” means the agreement for the assumption and adoption by the General Partner, the Limited Partner, Cheniere LNG O&M Services, L.P., Sabine Pass LNG and other Affiliates of Sabine Pass LNG of certain obligations under the Settlement Agreement.

“ Attributable Debt ” in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP; provided, however , that if such sale and leaseback transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of “Capital Lease Obligation.”

“ Authorized Officer ” means a Chief Executive Officer, President, Vice President, Chief Financial Officer, Treasurer or Corporate Secretary of the General Partner.

“ Beneficial Owner ” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular “person” (as that term is used in Section 13(d)(3) of the Exchange Act), such “person” will be deemed to have beneficial ownership of all securities that such “person” has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.

“ Board of Directors ” means:

(1)

with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;

(2)

with respect to a partnership, the Board of Directors of the general partner of the partnership;

(3)

with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and

(4)

with respect to any other Person, the board or committee of such Person serving a similar function.

“ Business Day ” means any day other than a Legal Holiday.

“ Capital Lease Obligation ” means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet prepared in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty.

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Index to Financial Statements

“ Capital Stock ” means:

(1)

in the case of a corporation, corporate stock;

(2)

in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;

(3)

in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and

(4)

any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.

“ Cash Equivalents ” means:

(1)

United States dollars;

(2)

securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than one year from the date of acquisition;

(3)

marketable general obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition thereof, having a credit rating of “A” or better from either S&P or Moody’s;

(4)

certificates of deposit, demand deposit accounts and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers’ acceptances with maturities not exceeding one year and overnight bank deposits, in each case, with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of “B” or better;

(5)

repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clauses (2), (3) and (4) above entered into with any financial institution meeting the qualifications specified in clause (4) above;

(6)

commercial paper or tax exempt obligations having one of the two highest ratings obtainable from Moody’s or S&P and, in each case, maturing within one year after the date of acquisition; and

(7)

money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (6) of this definition or a money market fund or a qualified investment fund (including any such fund for which the Collateral Trustee or any Affiliate thereof acts as an advisor or a manager) given one of the two highest long-term ratings available from S&P or Moody’s.

“ Change of Control ” means the occurrence of any of the following:

(1)

the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation or sale or other transfer of equity of any direct or indirect owner of the General Partner of Sabine Pass LNG), in one transaction or a series of related transactions, of all or substantially all of the properties or assets of the General Partner of Sabine Pass LNG to any “person” (as that term is used in Section 13(d) of the Exchange Act);

(2)

the adoption of a plan relating to the liquidation or dissolution of Sabine Pass LNG; or

(3)

the consummation of any transaction (including, without limitation, any merger or consolidation, but excluding any person (as defined above) becoming the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of Parent or any successor thereof), the result of which is that any

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“person” (as defined above), other than Parent or any successor or subsidiary thereof, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the General Partner, measured by voting power rather than number of shares which occurrence is followed by a Ratings Decline within 90 days thereof.

“ Cheniere Marketing TUA ” means the agreement dated as of the date of the indenture between Cheniere Marketing, Inc. and Sabine Pass LNG.

“ Commission ” or “ SEC ” means the United States Securities and Exchange Commission.

“ Consolidated Cash Flow ” means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication:

(1)

any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent deducted in computing such Consolidated Net Income; plus

(2)

all extraordinary, unusual or non-recurring items of loss or expense to the extent deducted in computing such Consolidated Net Income; plus

(3)

provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus

(4)

the Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus

(5)

depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; plus

(6)

all non-cash charges related to restricted stock and redeemable stock interests granted to officers, directors and employees, to the extent deducted in computing such Consolidated Net Income; minus

(7)

non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with GAAP.

“ Consolidated Net Income ” means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that:

(1)

the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person;

(2)

the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders;

(3)

the cumulative effect of a change in accounting principles will be excluded; and

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Index to Financial Statements

(4)

any non-cash mark-to-market adjustments to assets or liabilities resulting in unrealized gains or losses in respect of Interest Rate and Currency Hedges (including those resulting from the application of SFAS 133) shall be excluded.

“ Construction Account ” has the meaning given to such term under the heading “Project Accounts.”

“ Construction Budget and Schedule ” means the Phase 1 Construction Budget and Schedule and the Phase 2 Construction Budget and Schedule when taken together.

“ Cost to Complete Test ” means that funds available to Sabine Pass LNG in the Project Accounts together with revenues to be received by Sabine Pass LNG prior to Phase 1 Final Completion, binding equity commitments with respect to funds supported by an Acceptable Letter of Credit or Acceptable Guarantees, anticipated insurance proceeds and/or available borrowings under Indebtedness permitted under the indenture, are sufficient to achieve Phase 1 Final Completion and to pay any principal and interest due and payable on any Indebtedness of Sabine Pass LNG and the Guarantors prior to the achievement of Phase 1 Final Completion.

“ Credit Rating Agencies ” means Moody’s, S&P and any other “nationally recognized statistical rating organization” registered with the Commission.

“ Currency Agreement ” means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement as to which such Person is a party or a beneficiary.

“ Debt Payment Account ” has the meaning given to such term under the heading “Project Accounts.”

“ Default ” means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.

“ Disqualified Stock ” means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require Sabine Pass LNG to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that Sabine Pass LNG may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption “—Certain Covenants—Restricted Payments.” The amount of Disqualified Stock deemed to be outstanding at any time for purposes of the indenture will be the maximum amount that Sabine Pass LNG and its Restricted Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends.

“ Domestic Subsidiary ” means any Restricted Subsidiary of Sabine Pass LNG that was formed under the laws of the United States or any state of the United States or the District of Columbia or that guarantees or otherwise provides direct credit support for any Indebtedness of Sabine Pass LNG.

“ DSR Account ” has the meaning given to such term under the heading “Project Accounts.”

“ Equity Interests ” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

“ Equity Offering ” means any issuance or sale of Equity Interests (other than Disqualified Stock) of Sabine Pass LNG to any Person (other than a Restricted Subsidiary of Sabine Pass LNG) or a contribution to the equity capital of Sabine Pass LNG by any Person (other than a Restricted Subsidiary of Sabine Pass LNG).

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Index to Financial Statements

“ Event of Loss ” means, whether in respect of a single event or a series of related events, any of the following:

(1)

any loss, destruction or damage of the Project;

(2)

any actual condemnation, seizure or taking by exercise of the power of eminent domain or otherwise of the Project, or confiscation of the Project or the requisition of the use of the Project in each case by a governmental authority; or

(3)

any settlement in lieu of clause (2) above.

“ Fair Market Value ” means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress or necessity of either party, determined in good faith by the Board of Directors of the General Partner (unless otherwise provided in the indenture).

“ Fixed Charge Coverage Ratio ” means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the “ Calculation Date ”), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period. In the event that Fixed Charges are zero and Consolidated Cash Flow is greater than zero, the Fixed Charge Coverage Ratio will be greater than 2.0 to 1.

In addition, for purposes of calculating the Fixed Charge Coverage Ratio:

(1)

acquisitions and dispositions of business entities or property and assets constituting a division or line of business of any Person that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date will be given pro forma effect as if they had occurred on the first day of the four-quarter reference period, and Consolidated Cash Flow for such reference period will be calculated on a pro forma basis in good faith on a reasonable basis by a responsible financial or accounting Officer of Sabine Pass LNG;

(2)

the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded;

(3)

the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date;

(4)

any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a Restricted Subsidiary at all times during such four-quarter period;

(5)

any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and

(6)

if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months).

133

Index to Financial Statements

“ Fixed Charges ” means, with respect to any specified Person for any period, the sum, without duplication, of:

(1)

Beginning April 1, 2009, the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings, and net of the effect of all payments made or received pursuant to Interest Rate Agreements; plus

(2)

Beginning April 1, 2009, the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; plus

(3)

any interest on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus

(4)

the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of Sabine Pass (other than Disqualified Stock) or to Sabine Pass or a Restricted Subsidiary of Sabine Pass, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, determined on a consolidated basis in accordance with GAAP.

“ GAAP ” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect from time to time.

“ General Partner ” means Sabine Pass LNG-GP, Inc., a Delaware corporation.

“ Government Securities ” means securities that are direct obligations of, or obligations guaranteed by, the United States of America for the timely payment of which its full faith and credit is pledged.

“ Guarantee ” means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise).

“ Guarantors ” means each Subsidiary of Sabine Pass LNG that executes a Note Guarantee in accordance with the provisions of the indenture, and each such Person’s respective successors and assigns, in each case, until the Note Guarantee of such Person has been released in accordance with the provisions of the indenture.

“ Hedging Obligations ” of any Person means the obligations of such Person pursuant to any Interest Rate and Currency Hedges and, in the case of Sabine Pass LNG, commodity hedges relating to the purchase of LNG for cool down of the Project.

“ Holdings Credit Agreement ” means the Credit Agreement, dated as of August 31, 2005, among Cheniere LNG Holdings LLC, the lenders party thereto and Credit Suisse, Cayman Islands Branch, as collateral agent and administrative agent.

134

Index to Financial Statements

“ Immaterial Subsidiary ” means, as of any date, any Restricted Subsidiary whose total assets, as of that date, are less than $1,000,000 and whose total revenues for the most recent 12-month period do not exceed $1,000,000.

“ Indebtedness ” means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent:

(1)

in respect of borrowed money;

(2)

evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);

(3)

in respect of banker’s acceptances;

(4)

representing Capital Lease Obligations or Attributable Debt in respect of sale and leaseback transactions;

(5)

representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; or

(6)

representing any Interest Rate and Currency Hedges or commodity hedges relating to the purchase of LNG for cool down of the Project,

if and to the extent any of the preceding items (other than letters of credit, Attributable Debt and Interest Rate and Currency Hedges and such commodity hedges) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term “Indebtedness” includes (a) all indebtedness of any other Person, of the types described above in clauses (1) through (6), secured by a Lien on any asset of the specified Person (regardless of whether such indebtedness is assumed by the specified Person) and (b) to the extent not otherwise included, the guarantee by the specified Person of any indebtedness of any other Person, of the types described above in clauses (1) through (6).

Notwithstanding the foregoing, the following shall not constitute Indebtedness:

(a)

any indebtedness that has been defeased in accordance with GAAP or defeased pursuant to the deposit of cash or Cash Equivalents (in an amount sufficient to satisfy all obligations relating thereto at maturity or redemption, as applicable, including all payments of interest and premium, if any) in a trust or account created or pledged for the sole benefit of the holders of such indebtedness, and subject to no other Liens, and in accordance with the other applicable terms of the instrument governing such indebtedness;

(b)

any obligation arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided, however , that such obligation is extinguished within five Business Days of its incurrence.

“ Interest Rate Agreement ” means with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary.

“ Interest Rate and Currency Hedges ” of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement.

“ Investments ” means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests

135

Index to Financial Statements

or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If Sabine Pass LNG or any Subsidiary of Sabine Pass LNG sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of Sabine Pass LNG such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of Sabine Pass LNG, Sabine Pass LNG will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of Sabine Pass LNG’s Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption “—Certain Covenants—Restricted Payments.” The acquisition by Sabine Pass LNG or any Subsidiary of Sabine Pass LNG of a Person that holds an Investment in a third Person will be deemed to be an Investment by Sabine Pass LNG or such Subsidiary in such third Person in an amount equal to the Fair Market Value of the Investments held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of the covenant described above under the caption “—Certain Covenants—Restricted Payments.” Except as otherwise provided in the indenture, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value.

“ Issue Date ” means the first date of original issuance of the notes under the indenture.

“ J&S Cheniere Potential TUA Letter ” means the letter agreement dated as of the date of the indenture among Cheniere Marketing, Inc., Cheniere LNG, Inc. and Sabine Pass LNG.

“ J&S Cheniere Terminal Use Agreement ” means any terminal use or similar agreement entered into pursuant to the option agreement dated December 23, 2003 between Cheniere LNG Inc. and J&S Cheniere S.A.

“ Junior Lien ” means a Lien granted by a security document to the Collateral Trustee upon any property of Sabine Pass or any Guarantor that is junior to the Liens securing the Secured Obligations.

“ Junior Lien Debt ” means: Additional Indebtedness that is secured by a Junior Lien but only if on or before the day on which such Indebtedness is incurred by Sabine Pass LNG such Indebtedness is designated by Sabine Pass LNG, in an officer’s certificate by an Authorized Officer delivered to the Collateral Trustee on or before such date, as Junior Lien Debt for the purposes of each of the Junior Lien Documents and the collateral trust agreement.

“ Junior Lien Documents ” means all agreements governing, securing or relating to any Junior Lien Obligations.

“ Junior Lien Obligations ” means the Junior Lien Debt and all other Obligations in respect of Junior Lien Debt.

“ Lease Agreements ” means the agreements between Sabine Pass LNG and any land owner granting a lease of real property situated in Cameron Parish, Louisiana in connection with the Project.

“ Legal Holiday ” means a Saturday, a Sunday or a day on which banking institutions in The City of New York or Houston, Texas or at a place of payment are authorized or required by law, regulation or executive order to remain closed.

“ Lien ” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest.

“ Limited Partner ” means Sabine Pass LNG-LP, LLC, a Delaware limited liability company.

“ LNG ” means liquefied natural gas.

136

Index to Financial Statements

“ Management Services Agreement ” means the agreement dated February 25, 2005 between Sabine Pass LNG and the General Partner for the management, administration, development and operation of the Project and for the management and administration of Sabine Pass LNG, as amended and in effect from time to time.

“ Material Adverse Effect ” means any event or condition which has a material adverse effect on the business or financial condition of Sabine Pass LNG or the ability of Sabine Pass LNG to perform its payment obligations under notes.

“ Material Project Agreements ” means:

(1)

the Phase 1 EPC Contract;

(2)

any terminal use agreement signed with an Anchor Customer (and any guarantee thereof);

(3)

the Management Services Agreement;

(4)

the O&M Agreement;

(5)

each Omnibus Agreement;

(6)

the Lease Agreements; and

(7)

any amendment or replacement of (or guarantee or credit support related to) any of the foregoing, from time to time.

“ Moody’s ” means Moody’s Investors Service, Inc.

“ Net Income ” means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however:

(1)

any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and

(2)

any extraordinary gain or loss, together with any related provision for taxes on such extraordinary gain or loss.

“ Net Loss Proceeds ” means the aggregate cash proceeds received by Sabine Pass LNG or any of its Restricted Subsidiaries in respect of any Event of Loss, including, without limitation, insurance proceeds, condemnation awards or damages awarded by any judgment, net of:

(1)

the direct costs in recovery of such proceeds (including, without limitation, legal, accounting, appraisal and insurance adjuster fees and any relocation expenses incurred as a result thereof);

(2)

amounts required to be and actually applied to the repayment of Indebtedness (other than Indebtedness that is subordinated in right of payment to the notes or the Note Guarantees) permitted under the indenture that is secured by a Permitted Lien on the asset or assets that were the subject of such Event of Loss that ranks prior to the security interest of the Collateral Trustee in those assets; and

(3)

any taxes or tax distributions paid or payable as a result of the receipt of such cash proceeds.

“ Net Proceeds ” means the aggregate cash proceeds received by Sabine Pass LNG or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements.

137

Index to Financial Statements

“ Non-Recourse Debt ” means Indebtedness:

(1)

as to which neither Sabine Pass LNG nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender;

(2)

no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness of Sabine Pass LNG or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its Stated Maturity; and

(3)

as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of Sabine Pass or any of its Restricted Subsidiaries.

“ Note Documents ” means the notes, the indenture, the Note Guarantees and the Security Documents, as amended and in effect from time to time.

“ Note Guarantee ” means the Guarantee by each Guarantor of Sabine Pass LNG’s obligations under the indenture and the notes, executed pursuant to the provisions of the indenture.

“ Obligations ” means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.

“ O&M Agreement ” means the agreement between Sabine Pass LNG and the Operator for the operation of the Project, as amended and in effect from time to time.

“ Omnibus Agreements ” means (a) the Omnibus Agreement dated as of September 2, 2004 between Total LNG USA, Inc. and Sabine Pass LNG and (b) the Omnibus Agreement dated as of November 8, 2004 between Sabine Pass LNG and Chevron U.S.A. Inc., as amended and in effect from time to time.

“ Operating Account ” has the meaning given to such term under the heading “Operating Account.”

“ Operation and Maintenance Expenses ” means, for any period, the sum, computed without duplication, of the following: (a) general and administrative expenses including expense reimbursements payable to the manager pursuant to the Partnership Agreement and for ordinary course fees and costs of the manager pursuant to the Management Services Agreement plus (b) expenses for operating the Project and maintaining it in good repair and operating condition payable during such period, including the ordinary course fees and costs of the Operator payable pursuant to the O&M Agreement plus (c) insurance costs payable during such period plus (d) applicable sales and excise taxes (if any) payable or reimbursable by Sabine Pass LNG during such period plus (e) franchise taxes payable by Sabine Pass LNG during such period plus (f) property taxes payable by Sabine Pass LNG during such period plus (g) any other direct taxes (if any) payable by Sabine Pass LNG during such period plus (h) costs and fees attendant to the obtaining and maintaining in effect the Government Approvals payable during such period plus (i) legal, accounting and other professional fees attendant to any of the foregoing items payable during such period plus (j) all other cash expenses payable by Sabine Pass LNG in the ordinary course of business. Operation and Maintenance Expenses shall exclude, to the extent included above: (i) payments into any of the Project Accounts during such period, (ii) payments of any kind with respect to Restricted Payments during such period, (iii) depreciation for such period, (iv) any capital expenditure including permitted capital expenditures and (v) any payments of any kind with respect to any restoration during such period.

“ Operator ” means Cheniere LNG O&M Services, L.P. or such other person from time to time party to the O&M Agreement as ‘Operator’.

“ Parent ” means Cheniere Energy, Inc., a Delaware corporation.

138

Index to Financial Statements

“ Parity Lien ” means a Lien granted by a Security Document to the Collateral Trustee, at any time, upon any property of Sabine Pass LNG or any Guarantor to secure Parity Secured Debt.

“ Parity Secured Debt ” means the notes issued on the date of the indenture and any other Indebtedness of Sabine Pass LNG (including additional notes), which may be guaranteed by the Guarantors, that is secured equally and ratably with the notes by a Parity Lien that was permitted to be incurred pursuant to clauses (2), (6), (7), (8), (12) and (14) of the definition of Permitted Debt.

“ Partnership Agreement ” means the Fifth Amended and Restated Agreement of Limited Partnership of Sabine Pass, LNG L.P., effective as of the date of the indenture, as amended and in effect from time to time.

“ Permitted Business ” means the construction, operation, expansion, reconstruction, debottlenecking, improvement and maintenance of the Project, and all activity necessary or undertaken in connection with the foregoing.

“ Permitted Investments ” means:

(1)

any Investment in Sabine Pass LNG or in a Restricted Subsidiary of Sabine Pass LNG that is a Guarantor and that is engaged in the Permitted Business;

(2)

any Investment in Cash Equivalents;

(3)

any Investment by Sabine Pass LNG or any Restricted Subsidiary of Sabine Pass LNG in a Person, if as a result of such Investment:

(a)

such Person becomes a Restricted Subsidiary of Sabine Pass LNG; or

(b)

such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, Sabine Pass LNG or a Restricted Subsidiary of Sabine Pass LNG;

(4)

any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales;”

(5)

any Investment in any Person solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of Sabine Pass LNG or any of its Subsidiaries;

(6)

any Investments received in compromise or resolution of (A) obligations of trade creditors or customers that were incurred in the ordinary course of business of Sabine Pass LNG or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (B) litigation, arbitration or other disputes with Persons who are not Affiliates;

(7)

Investments represented by Hedging Obligations;

(8)

advances to or reimbursements of employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business;

(9)

loans or advances to employees made in the ordinary course of business of Sabine Pass or any Restricted Subsidiary of Sabine Pass in an aggregate principal amount not to exceed $2.5 million at any one time outstanding;

(10)

repurchases of the notes;

(11)

advances, deposits and prepayments for purchases of any assets, including any Equity Interests;

(12)

advances to customers or suppliers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable, prepaid expenses or deposits on the balance sheet of Sabine

139

Index to Financial Statements

Pass LNG or its Restricted Subsidiaries and endorsements for collection or deposit arising in the ordinary course of business;

(13)

receivables owing to Sabine Pass LNG or any Restricted Subsidiary created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however , that such trade terms may include such concessionary trade terms as Sabine Pass LNG or any such Restricted Subsidiary deems reasonable under the circumstances;

(14)

Investments received as a result of a foreclosure by Sabine Pass LNG or any of its Restricted Subsidiaries with respect to any secured Investment in default;

(15)

surety and performance bonds and workers’ compensation, utility, lease, tax, performance and similar deposits and prepaid expenses in the ordinary course of business;

(16)

Guarantees of Indebtedness permitted under the covenant contained under the caption “Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock”;

(17)

Investments existing on the Issue Date; and

(18)

other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (18) that are at the time outstanding not to exceed $10.0 million.

“ Permitted Liens ” means:

(1)

Liens in favor of Sabine Pass LNG or any Restricted Subsidiary;

(2)

Liens on property of a Person existing at the time such Person is merged with or into or consolidated with Sabine Pass LNG or any Subsidiary of Sabine Pass LNG; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with Sabine Pass LNG or the Subsidiary;

(3)

Liens on property (including Capital Stock) existing at the time of acquisition of the property by Sabine Pass LNG or any Subsidiary of Sabine Pass LNG; provided that such Liens were in existence prior to, such acquisition, and not incurred in contemplation of, such acquisition;

(4)

bankers’ Liens, rights of setoff and Liens to secure the performance of bids, tenders, trade or governmental contracts, leases, licenses, statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business;

(5)

Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clauses (2), (6), (7), (8), (12) and (14) of the second paragraph of the covenant entitled “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock” covering only the assets acquired with or financed by such Indebtedness;

(6)

Liens existing on the Issue Date;

(7)

Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor;

(8)

Liens imposed by law, such as carriers’, warehousemen’s, landlord’s and mechanics’ Liens, in each case, incurred in the ordinary course of business or incident to the development of the Project or any restoration of the Project following an Event of Loss;

(9)

survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property that were not incurred in connection with Indebtedness and other

140

Index to Financial Statements

encumbrances and imperfections to title that do not in the aggregate materially adversely affect the value of said properties they encumber or materially impair their use in the operation of the business of such Person;

(10)

Liens created for the benefit of (or to secure) the notes (or the Note Guarantees) and the Assumption Agreement;

(11)

Liens to secure any Permitted Refinancing Indebtedness permitted to be incurred under the indenture; provided, however , that:

(a)

the new Lien shall be limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to, such property or proceeds or distributions thereof); and

(b)

the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (x) the outstanding principal amount, or, if greater, committed amount, of the Permitted Refinancing Indebtedness and (y) an amount necessary to pay any fees and expenses, including premiums, related to such renewal, refunding, refinancing, replacement, defeasance or discharge;

(12)

To the extent, in each case, not otherwise resulting in an Event of Default, Liens arising by reason of a judgment, decree or court order and any Liens that are required to protect or enforce any rights in any administrative, arbitration or other court proceedings in the ordinary course of business;

(13)

Liens contained in purchase and sale agreements limiting the transfer of assets pending the closing of the transactions contemplated thereby;

(14)

Liens created in connection with advances or deposits made in connection with the purchase of assets or Equity Interests;

(15)

Liens that may be deemed to exist by virtue of contractual provisions that restrict the ability of Sabine Pass LNG or any of its Subsidiaries from granting or permitting to exist Liens on their respective assets;

(16)

Liens in favor of the Trustee as provided for in the indenture on money or property held or collected by the Trustee in its capacity as Trustee;

(17)

Liens incurred in the ordinary course of business of Sabine Pass LNG or any Subsidiary of Sabine Pass LNG with respect to obligations that do not exceed $10.0 million at any one time outstanding;

(18)

Liens referred to in the title policy currently in effect with respect to the Project site;

(19)

Liens in respect of rights of or granted by owners of oil and gas estates in and to the Project site; and

(20)

Junior Liens.

“ Permitted Payments to Parent ” means, without duplication as to amounts allowed to be distributed under any other provision of the indenture:

(1)

payments to the Parent to permit the Parent to pay reasonable accounting, legal and administrative expenses of the Parent when due, in an aggregate amount not to exceed $1.0 million per calendar year; and

(2)

for any fiscal year or portion thereof (the “ Tax Year ”) of Sabine Pass LNG in which period Sabine Pass LNG is a limited partnership, disregarded entity or other substantially similar pass-through entity for federal and state income tax purposes, distributions to enable the partners of Sabine Pass LNG to make payments of federal, state and local income taxes not covered by the State Tax Sharing Agreement (including quarterly estimated payments thereof) in respect of the taxable income of such partner with respect to Sabine Pass LNG for each such Tax Year (“ Tax Distributions ”) in an aggregate amount equal to the relevant income tax (including any penalties and interest) that Sabine Pass LNG and its Subsidiaries that are treated as pass-through entities for federal and state income tax purposes

141

Index to Financial Statements

(“ Pass-Through Subsidiaries ”) would owe for such Tax Year if Sabine Pass LNG were a corporation subject to federal and state income tax filing a separate tax return or a separate consolidated, combined or unitary return solely with its Pass-Through Subsidiaries, taking into account any carryovers and carrybacks of tax attributes that are generated by and directly allocable to Sabine Pass LNG and its Pass-Through Subsidiaries (such as the applicable net operating losses, tax credits, etc.). In determining the amount of the Tax Distributions, Sabine Pass LNG shall compute its tax liability as if (i) each of Sabine Pass LNG and its Pass-Through Subsidiaries were regular corporate taxpayers, and (ii) Sabine Pass LNG was the common parent corporation during the applicable taxable reporting period. All relevant tax computations shall be made as if Sabine Pass LNG was not related to either the Parent or any of the Parent’s Affiliates. Any Tax Distributions received from Sabine Pass LNG shall be paid to the appropriate taxing authority within 30 days of the receipt of such Tax Distributions.

“ Permitted Refinancing Indebtedness ” means any Indebtedness of Sabine Pass LNG or any of its Restricted Subsidiaries, any Disqualified Stock of Sabine Pass LNG or any preferred stock of any Restricted Subsidiary issued (a) in exchange for, or the net proceeds of which are used to extend, renew, refund, refinance, replace, defease, discharge or otherwise retire for value, in whole or in part, or (b) constituting an amendment, modification or supplement to or a deferral or renewal of ((a) and (b) above, collectively, a “ Refinancing ”), any other Indebtedness of Sabine Pass LNG or any of its Restricted Subsidiaries (other than intercompany Indebtedness), any Disqualified Stock of Sabine Pass LNG or any preferred stock of a Restricted Subsidiary in a principal amount or, in the case of Disqualified Stock of Sabine Pass LNG or preferred stock of a Restricted Subsidiary, liquidation preference, not to exceed (after deduction of reasonable and customary fees and expenses incurred in connection with the Refinancing) the lesser of:

(1)

the principal amount or, in the case of Disqualified Stock or preferred stock, liquidation preference, of the Indebtedness, Disqualified Stock or preferred stock so Refinanced (plus, in the case of Indebtedness, the amount of premium, if any paid in connection therewith); and

(2)

if the Indebtedness being Refinanced was issued with any original issue discount, the accreted value of such Indebtedness (as determined in accordance with GAAP) at the time of such Refinancing.

Notwithstanding the preceding, no Indebtedness, Disqualified Stock or preferred stock will be deemed to be Permitted Refinancing Indebtedness, unless:

(1)

such Indebtedness, Disqualified Stock or preferred stock has a final maturity date or redemption date, as applicable, later than the final maturity date or redemption date, as applicable, of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness, Disqualified Stock or preferred stock being Refinanced;

(2)

if the Indebtedness, Disqualified Stock or preferred stock being Refinanced is contractually subordinated or otherwise junior in right of payment to the notes, such Indebtedness, Disqualified Stock or preferred stock has a final maturity date or redemption date, as applicable, later than the final maturity date or redemption date, as applicable, of, and is contractually subordinated or otherwise junior in right of payment to, the notes, on terms at least as favorable to the holders of notes as those contained in the documentation governing the Indebtedness, Disqualified Stock or preferred stock being Refinanced at the time of the Refinancing; and

(3)

such Indebtedness or Disqualified Stock is incurred or issued by Sabine Pass LNG or such Indebtedness, Disqualified Stock or preferred stock is incurred or issued by the Restricted Subsidiary who is the obligor on the Indebtedness being Refinanced or the issuer of the Disqualified Stock or preferred stock being Refinanced.

“ Person ” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.

“ Phase 1 ” has the meaning given to such term under the heading “Business” above.

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Index to Financial Statements

“ Phase 2 ” has the meaning given to such term under the heading “Business” above.

“ Phase 2 Completion ” means “Final Acceptance” as defined in the Agreement for Engineering, Procurement, Construction and Management of Construction Services of the Sabine Pass LNG Phase 2 Receiving Storage and Regasification Terminal Expansion between Sabine Pass LNG and Bechtel Corporation.

“ Phase 1 Construction Budget and Schedule ” means, until Phase 1 Final Completion, (a) a budget setting forth, on a monthly basis, the timing and amount of all projected payments of Phase 1 Project Costs through the projected date of Phase 1 Final Completion and (b) a schedule setting forth the proposed engineering, procurement, construction and testing milestone schedule for the development of Phase 1 through the projected date of Phase 1 Final Completion, which budget and schedule shall (i) be certified by Sabine Pass LNG as the best reasonable estimate of the information set forth therein as of the Issue Date and (ii) be consistent with the requirements of the Transaction Documents; provided, that in each of clause (a) and (b), such budget and schedule may be modified from time to time so long as such modification is in conformance with the Phase 1 EPC Contract and the other Transaction Documents.

“ Phase 2 Construction Budget and Schedule ” means, until Phase 1 Final Completion, (a) a budget setting forth, on a monthly basis, the timing and amount of all projected payments of Phase 2 Project Costs through the projected date of Phase 1 Final Completion and (b) a schedule setting forth the proposed engineering, procurement, construction and testing milestone schedule for the development of Phase 2 through the projected date of final completion for Phase 2, which budget and schedule shall (i) be certified by Sabine Pass LNG as the best reasonable estimate of the information set forth therein as of the Issue Date and (ii) be consistent with the requirements of the Transaction Documents; provided, that in each of clause (a) and (b), such budget and schedule may be modified from time to time so long as such modification is in conformance with the Phase 2 EPC Arrangements and the other Transaction Documents.

“ Phase 1 Contractor ” means Bechtel Corporation.

“ Phase 2 EPC Arrangements ” means the arrangements for the engineering, procurement and construction of Phase 2 by Sabine Pass LNG with Bechtel Corporation, Remedial Construction Services, L.P., Diamond LNG LLC and Zachry Construction Corporation, respectively, in connection with the construction of Phase 2.

“ Phase 1 EPC Contract ” means the lump sum turnkey agreement for the engineering, procurement and construction of Phase 1 by and between Sabine Pass LNG and the Phase 1 Contractor dated as of December 18, 2004, as amended and in effect from time to time.

“ Phase 1 Final Completion ” has the meaning given to “Final Completion” in the Phase 1 EPC Contract.

“ Phase 1 Target Completion ” has the meaning given to “Target Completion” in the Phase 1 EPC Contract.

“ Phase 1 Project Costs ” means all costs, fees, taxes and expenses incurred by Sabine Pass LNG to complete Phase 1 as contemplated by (and consistent with) the Transaction Documents and Government Approvals.

“ Phase 2 Project Costs ” means all costs, fees, taxes and expenses incurred by Sabine Pass LNG to complete Phase 2 as contemplated by (and consistent with) the Transaction Documents and Government Approvals.

“ Pledgors ” means the General Partner, the Limited Partner, Sabine Pass LNG and each Subsidiary of Sabine Pass LNG that executes a security document in accordance with the provisions of the indenture, and each such Person’s respective successors and assigns, in each case, until the security document of such Person has been released in accordance with the provisions of the indenture.

“ Project ” means the Sabine Pass LNG receiving terminal in Cameron Parish, Louisiana, including associated storage tanks, unloading docks, vaporizers, tugs and related facilities.

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Index to Financial Statements

“ Project Accounts ” has the meaning given to such term under the heading “Project Accounts.”

“ Project Completion ” or “ Completion ” means the Phase 1 Final Completion and Phase 2 Completion, when taken together.

“ Rating Categories ” means:

(1)

with respect to S&P, any of the following categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor categories); and

(2)

with respect to Moody’s, any of the following categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories).

“ Ratings Decline ” means a decrease in the rating of the notes by either Moody’s or S&P by one or more gradations (including gradations within Rating Categories as well as between Rating Categories) from the initial rating on the Issue Date. In determining whether the rating of the Notes has decreased by one or more gradations, gradations within Ratings Categories, namely + or – for S&P, and 1, 2, and 3 for Moody’s, will be taken into account; for example, in the case of S&P, a rating decline either from BB+ to BB or BB to B+ will constitute a decrease of one gradation.

“ Required Debt Payment Amount ” means on any date of determination thereof, the amount equal to (i) the aggregate amount of interest on the notes due on the immediately succeeding interest payment date, multiplied by (ii) the number of months passed since the preceding interest payment date, divided by (iii) six.

“ Replacement Assets ” means (1) non-current assets that will be used or useful in a Permitted Business or (2) substantially all the assets of a Permitted Business or a majority of the Voting Stock of any Person engaged in a Permitted Business that will become on the date of acquisition thereof a Restricted Subsidiary.

“ Restricted Investment ” means an Investment other than a Permitted Investment.

“ Restricted Subsidiary ” of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary.

“ Revenue Account ” has the meaning given to such term under the heading “Project Accounts.”

“ S&P ” means Standard & Poor’s Ratings Group.

“ Secured Debt ” means the Parity Secured Debt.

“ Secured Debt Documents ” means, collectively, the Note Documents, and the indenture or agreement governing each other Series of Secured Debt and all agreements binding on any Obligor related hereto.

“ Secured Debt Representative ” means the Trustee and each other representative of a Series of Secured Debt.

“ Secured Obligations ” means the Parity Secured Debt and the Assumption Agreement.

“ Secured Debt Termination Date ” means the date on which all Secured Debt (including all interest accrued thereon after the commencement of any bankruptcy, insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the applicable Secured Debt Documents, even if such interest is not enforceable, allowable or allowed as a claim in such proceeding) have been paid in full in cash (and/or defeased in accordance with the applicable Secured Debt Documents), all commitments to extend credit under all Secured Debt Documents have terminated or expired and all outstanding letters of credit issued pursuant to any Secured Debt Documents have been cancelled, terminated or cash collateralized.

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Index to Financial Statements

“ Security Documents ” means the collateral trust agreement, the intercreditor agreement, and all security agreements, pledge agreements, collateral assignments, mortgages, deeds of trust, collateral agency agreements, control agreements or other grants or transfers for security executed and delivered by Sabine Pass LNG or any other Pledgor creating (or purporting to create) a Lien upon Shared Collateral in favor of the Collateral Trustee, in each case, as amended, modified, renewed, restated or replaced, in whole or in part, from time to time.

“ Senior Debt ” means:

(1)

all Indebtedness of Sabine Pass LNG or any Guarantor permitted to be incurred under the terms of the indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is subordinated in right of payment to the notes or any Note Guarantee; and

(2)

all Obligations with respect to the items listed in the preceding clause (1).

Notwithstanding anything to the contrary in the preceding, Senior Debt will not include:

(1)

any liability for federal, state, local or other taxes owed or owing by Sabine Pass LNG;

(2)

any intercompany Indebtedness of Sabine Pass LNG or any of its Subsidiaries to Sabine Pass LNG or any of its Affiliates;

(3)

any trade payables;

(4)

the portion of any Indebtedness that is incurred in violation of the indenture; or

(5)

Indebtedness which is classified as non-recourse in accordance with GAAP or any unsecured claim arising in respect thereof by reason of the application of section 1111(b)(1) of the Bankruptcy Code.

“ Series of Secured Debt ” means, severally, the notes and each other issue or series of Parity Secured Debt.

“ Settlement Agreement ” means the Settlement and Purchase Agreement dated as of June 14, 2001 among the Parent, Cheniere FLNG, L.P., Crest Energy L.L.C., Crest Investment Company and Freeport LNG Terminal LLC, as modified by the letter agreement dated February 27, 2003.

“ Shared Collateral ” means all collateral of whatsoever nature purported to be subject to the Lien of any Security Document.

“ Significant Subsidiary ” means any Subsidiary that would be a “significant subsidiary” as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of the indenture.

“ State Tax Sharing Agreement ” means the Tax Sharing Agreement dated as of the date of the indenture between Parent and Sabine Pass LNG, without regard to any amendment after the Issue Date unless approved by the Trustee.

“ Stated Maturity ” means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the date of the indenture, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.

“ Subordinated Indebtedness ” means Indebtedness of Sabine Pass LNG or a Guarantor that is contractually subordinated in right of payment, in any respect (by its terms or the terms of any document or instrument relating thereto), to the notes or the Note Guarantee of such Guarantor, as applicable.

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Index to Financial Statements

“ Subsidiary ” means, with respect to any specified Person:

(1)

any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) to vote in the election of directors, managers or Trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and

(2)

any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).

“ Transaction Documents ” means the Note Documents and the Material Project Agreements.

“ Treasury Rate ” means, as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two business days prior to the redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to the maturity date; provided, however , that if the period from the redemption date to the maturity date, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.

“ Unrestricted Subsidiary ” means any Subsidiary of Sabine Pass LNG that is designated by the Board of Directors of the General Partner as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors, but only to the extent that such Subsidiary:

(1)

has no Indebtedness other than Non-Recourse Debt;

(2)

except as permitted by the covenant described above under the caption “—Certain Covenants—Transactions with Affiliates,” is not party to any agreement, contract, arrangement or understanding with Sabine Pass LNG or any Restricted Subsidiary of Sabine Pass LNG unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to Sabine Pass LNG or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of Sabine Pass LNG;

(3)

is a Person with respect to which neither Sabine Pass LNG nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; and

(4)

has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of Sabine Pass LNG or any of its Restricted Subsidiaries.

“ Voting Stock ” of any specified Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.

“ Weighted Average Life to Maturity ” means, when applied to any Indebtedness at any date, the number of years obtained by dividing:

(1)

the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by

(2)

the then outstanding principal amount of such Indebtedness.

146

Index to Financial Statements

UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following discussion describes the material U.S. federal income tax consequences applicable to the exchange of the notes for initial notes in the exchange offer and of the ownership and disposition of the notes. This discussion is not a complete discussion of all the potential tax consequences that may be relevant to you. This discussion is based upon the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations thereunder, published rulings and court decisions, all as in effect on the date of this document, and all of which are subject to change, possibly on a retroactive basis.

For purposes of this discussion, you are a “U.S. holder” if you are a beneficial owner of notes and you are a “U.S. person” for U.S. federal income tax purposes. You are a “non-U.S. holder” if you are a beneficial owner of notes (other than an entity treated as a partnership for U.S. federal income tax purposes) that is not a U.S. holder. A “U.S. person” is:

•

an individual citizen or resident of the United States;

•

a corporation or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or of any state thereof or the District of Columbia;

•

an estate whose income is subject to U.S. federal income taxation regardless of its source; or

•

a trust if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or a trust that has a valid election in effect under applicable regulations to be treated as a U.S. person.

If a partnership or other entity treated as a partnership for U.S. federal income tax purposes holds the notes, the tax treatment of a partner will generally depend on the status of the partner and on the activities of the partnership. Partners of partnerships holding notes should consult their tax advisors.

This discussion only applies to holders who hold the notes as capital assets. The tax treatment of holders of the notes may vary depending upon their particular situations. Certain holders, including insurance companies, tax exempt organizations, financial institutions, investors in pass-through entities, expatriates, U.S. holders whose functional currency is not the U.S. dollar, taxpayers subject to the alternative minimum tax, broker-dealers and persons holding the notes as part of a “straddle,” “hedge” or “conversion transaction,” may be subject to special rules not discussed below. This discussion does not address any estate, gift, foreign, state or local taxes. We urge you to consult your own tax advisors regarding the particular U.S. federal income tax consequences to you of holding and disposing of notes, any tax consequences that may arise under the laws of any relevant foreign, state, local, or other taxing jurisdiction or under any applicable tax treaty, as well as possible effects of changes in federal or other tax laws.

The Exchange Offer

The exchange of notes for initial notes pursuant to the exchange offer will not be a taxable transaction for U.S. federal income tax purposes. Holders will not recognize any taxable gain or loss as a result of the exchange offer and will have the same tax basis and holding period in the notes as they had in the initial notes immediately before the exchange.

U.S. Holders

The following is a summary of the material U.S. federal income tax consequences that will generally apply to you if you are a U.S. holder of the notes. Material consequences to non-U.S. holders of the notes are described under “Non-U.S. Holders” below.

147

Index to Financial Statements

Payments of Interest

Interest on a note generally will be includable in your income as ordinary income at the time the interest is either received or accrued in accordance with your regular method of accounting for U.S. federal income tax purposes. Special rules governing the treatment of discount and premium are discussed below.

Market Discount

If you purchase a note for an amount that is less than its issue price, subject to a de minimis exception, you will be treated as having purchased the note at a “market discount.” In that case, you will be required to treat any payment on, or any gain realized on the sale, exchange, or other disposition of, the note as ordinary income to the extent of the lesser of (i) the amount of such payment or realized gain or (ii) the market discount accrued on the note while held by you and not previously included in income. You also may be required to defer the deduction of all or a portion of any interest paid or accrued on indebtedness incurred or maintained to purchase or carry the note. Alternatively, you may elect (with respect to the note and all your other market discount obligations) to include market discount in income currently as it accrues. Market discount is considered to accrue ratably during the period from the date of acquisition to the maturity date of the note, unless you elect to accrue market discount on the basis of a constant interest rate. Amounts includible in income as market discount are generally treated as ordinary interest income.

Premium

If you purchase a note for an amount that is greater than the sum of all principal amounts payable on the note after your purchase date, you will be treated as having purchased the note with “amortizable bond premium” equal in amount to that excess. You may elect (with respect to the note and all your other obligations with amortizable bond premium) to amortize such premium using a constant yield method over the remaining term of the note and may offset interest income otherwise required to be included in respect to the note during any taxable year by the amortized amount of such excess for the taxable year.

Sale, Exchange, or Other Disposition of the Notes

Upon a sale, exchange, retirement or other taxable disposition of a note, you generally will recognize gain or loss equal to the difference between the amount received upon the sale, exchange, retirement or other taxable disposition (less any amount attributable to accrued interest which will be taxable as ordinary income, if not previously taken into gross income) and your adjusted tax basis in the note at that time.

Subject to the application of the market discount rules described above, gain or loss realized on the sale, taxable exchange, redemption, retirement or other taxable disposition of a note generally will be capital gain or loss, and will be long-term capital gain or loss if, at the time of sale, exchange, retirement or other taxable disposition, the note has been held for more than one year. Under current law, long-term capital gains of certain non-corporate holders are generally taxed at lower rates than items of ordinary income. The deductibility of capital losses is subject to limitations.

Information Reporting and Backup Withholding

In general, information reporting will apply to certain payments of interest on the notes and to the proceeds from the sale or other disposition of a note unless you are an exempt recipient. Additionally, a backup withholding tax (currently at a rate of 28%) will apply to such payments if you fail to provide a correct taxpayer identification number or certification of exempt status or fail to report full dividend and interest income or otherwise fail to comply with applicable requirements of the backup withholding rules.

Backup withholding is not an additional tax. If backup withholding applies to you, you may use the amounts withheld as a refund or credit against your U.S. federal income tax liability, as long as you timely provide specific information to the IRS.

148

Index to Financial Statements

Non-U.S. Holders

The following is a general discussion of the material U.S. federal income tax consequences that will generally apply to you if you are a non-U.S. holder of the notes.

Payments of Interest

Payments of interest on a note that is not effectively connected with a U.S. trade or business will not be subject to U.S. federal income tax and withholding of U.S. federal income tax will not be required on that payment if you:

•

do not actually or constructively, directly or indirectly, own 10% or more of our capital or profits interests;

•

are not a controlled foreign corporation with respect to which we are a related person;

•

are not a bank receiving interest on certain loans entered into in the ordinary course of business within the meaning of the Internal Revenue Code; and

•

either (1) you certify to us, our payment agent, or the person who would otherwise be required to withhold U.S. federal income tax, on IRS Form W-8BEN or an applicable substitute form, under penalties of perjury, that you are not a U.S. person and provide your name and address, (2) a securities clearing organization, bank or other financial institution that holds customers’ securities in the ordinary course of its trade or business and holds the notes on your behalf certifies to us or our payment agent under penalties of perjury that it, or the financial institution between it and you, has received from you a statement, under penalties of perjury, that you are not a U.S. person and provides us or our payment agent with a copy of such statement, or (3) you hold your notes directly through a “qualified intermediary” and certain other conditions are satisfied.

If you do not satisfy the preceding requirements, your interest on a note that is not effectively connected with a U.S. trade or business would generally be subject to U.S. withholding tax at a flat rate of 30% unless that rate is reduced or eliminated pursuant to an applicable tax treaty (provided specific certification requirements are met).

United States Trade or Business

If you are engaged in a trade or business in the United States, and if interest on a note or gain from a disposition of a note is effectively connected with the conduct of that trade or business and, in the case of an applicable tax treaty, is attributable to a permanent establishment or fixed base you maintain in the United States, you will be subject to regular U.S. federal income tax on the interest or gain in the same manner as if you were a U.S. person. If interest received with respect to the notes is taxable in that manner, it may be exempt from withholding tax. In order to establish such an exemption from U.S. withholding tax, you may provide to us, our payment agent or the person who would otherwise be required to withhold U.S. federal income tax, a properly completed and executed IRS Form W-8ECI or applicable substitute form. In addition to regular U.S. federal income tax, if you are a corporation, you may be subject to a U.S. branch profits tax.

Sale, Exchange, and Other Disposition of the Notes

You generally will not be subject to U.S. federal income tax or withholding tax with respect to gain recognized on a sale, exchange, retirement or other taxable disposition of a note unless:

•

the gain is effectively connected with your conduct of a trade or business within the United States, and, in the case of an applicable tax treaty, is attributable to a permanent establishment or fixed base you maintain in the United States; or

•

if you are an individual, you are present in the United States for 183 or more days in the taxable year of the disposition and certain other requirements are met.

149

Index to Financial Statements

Information Reporting and Backup Withholding

Payments to you of interest on a note, and amounts withheld from such payments, if any, generally will be required to be reported to the IRS and to you. United States backup withholding tax generally will not apply to payments of interest and principal on a note to you if the statement described in “Non-U.S. Holders—Payments of Interest” is duly provided by you or you otherwise establish an exemption, provided that we do not have actual knowledge or reason to know that you are a U.S. person.

The payments of the proceeds of the disposition of notes to or through the U.S. office of a broker will be subject to information reporting and backup withholding unless you properly certify under penalties of perjury as to your non-U.S. status and specific other conditions are met or you otherwise establish an exemption. The proceeds of a disposition effected outside the United States by you of notes to or through a foreign office of a broker generally will not be subject to backup withholding or information reporting. However, if that broker is a U.S. person, a controlled foreign corporation for U.S. tax purposes, a foreign person 50% or more of whose gross income from all sources for certain periods is effectively connected with a trade or business in the United States, or a foreign partnership that is engaged in the conduct of a trade or business in the United States or that has one or more partners that are U.S. persons who in the aggregate hold more than 50% of the income or capital interests in the partnership, information reporting requirements will apply unless that broker has documentary evidence in its files of your non-U.S. status and has no actual knowledge to the contrary or unless you otherwise establish an exemption.

You are urged to consult your tax advisors regarding the application of information reporting and backup withholding to your particular situation, the availability of an exemption therefrom, and the procedure for obtaining such an exemption, if available. Any amounts withheld from a payment to you under the backup withholding rules will be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund, provided you timely furnish the required information to the IRS.

150

Index to Financial Statements

PLAN OF DISTRIBUTION

Each broker-dealer that receives notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of notes received in exchange for initial notes where such initial notes were acquired as a result of market-making activities or other trading activities. We have agreed that, for not less than 90 days after the consummation of the exchange offer, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until [ ], all dealers effecting transactions in the notes may be required to deliver a prospectus.

We will not receive any proceeds from any sale of notes by broker-dealers. Notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such notes. Any broker-dealer that resells notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such notes may be deemed to be an “underwriter” within the meaning of the Securities Act and any profit on any such resale of notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The enclosed letter of transmittal states that, by acknowledging that it will deliver and be delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act.

For a period of 90 days after the consummation of the exchange offer, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer (including the reasonable expenses of one counsel for the holders of the notes) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act.

Following completion of the exchange offer, we may, in our sole discretion, commence one or more additional exchange offers to holders of initial notes who did not exchange their initial notes for notes in the exchange offer on terms which may differ from those contained in this prospectus and the enclosed letter of transmittal. This prospectus, as it may be amended or supplemented from time to time, may be used by us in connection with any additional exchange offers. These additional exchange offers may take place from time to time until all outstanding initial notes have been exchanged for notes, subject to the terms and conditions in the prospectus and letter of transmittal distributed by us in connection with these additional exchange offers.

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Index to Financial Statements

LEGAL MATTERS

The validity of the issuance of the notes covered by this prospectus will be passed upon for us by Andrews Kurth LLP, Houston, Texas.

EXPERTS

The financial statements of Sabine Pass LNG, L.P. as of and for the years ended December 31, 2005 and 2004, and for the period from October 20, 2003 (inception) to December 31, 2003 and from October 20, 2003 (inception) to December 31, 2005 included in this prospectus, have been audited by UHY LLP, an independent registered public accounting firm, as set forth in their report thereon included therein. Such financial statements are included in this prospectus upon such report given on the authority of such firm as experts in accounting and auditing.

INDEPENDENT ENGINEER

Stone & Webster Management Consultants Inc. has prepared the Independent Engineer’s report that is included as Appendix A to this prospectus. The Independent Engineer’s report should be read in its entirety for complete information with respect to the subjects and issues discussed therein. As stated in the Independent Engineer’s report, the Independent Engineer has made a number of assumptions in reaching its conclusions, which are set forth therein, and has used the sources of information described therein. The Independent Engineer believes that the use of such information and assumptions is reasonable for the purposes of the Independent Engineer’s report. The Independent Engineer’s report has been included in this prospectus in reliance upon the conclusions therein and upon the Independent Engineer’s experience in the review of the design, development, construction and operation of projects similar to our LNG receiving terminal.

AVAILABLE INFORMATION

In connection with the commencement of the exchange offer, we will file with the SEC, to the extent such filings are accepted by the SEC, the annual reports, quarterly reports and other documents that we would be required to file if we were subject to the reporting requirements of the Exchange Act. We will also provide copies of such reports or other documents to the trustee for forwarding to the holders of the notes as described in “Description of Notes—Reports.”

Any materials filed with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site ( http://www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. We expect that any materials filed by us with the SEC will be filed electronically.

152

Index to Financial Statements

INDEX TO FINANCIAL STATEMENTS


		Page
AUDITED FINANCIAL STATEMENTS OF SABINE PASS LNG, L.P.:
Report of Independent Registered Public Accounting Firm		F-2
Balance Sheets as of December 31, 2005 and 2004		F-3
Statements of Operations for the years ended December 31, 2005 and 2004, and the period from October 20, 2003 (date of inception) to December 31, 2003 and the period from October 20, 2003 (date of inception) to December 31, 2005		F-4
Statements of Partners’ Capital (Deficit) at December 31, 2003, 2004 and 2005		F-5
Statements of Cash Flows for the years ended December 31, 2005 and 2004, the period from October 20, 2003 (date of inception) to December 31, 2003 and the period from October 20, 2003 (date of inception) to December 31, 2005		F-6
Notes to Financial Statements		F-7

INTERIM FINANCIAL STATEMENTS OF SABINE PASS LNG, L.P.:
Balance Sheet as of September 30, 2006 (unaudited) and December 31, 2005		F-16
Statements of Operations for the nine months ended September 30, 2006 and 2005 and the period from October 20, 2003 (date of inception) to September 30, 2006 (unaudited)		F-17
Statements of Partners’ Capital (Deficit) as of December 31, 2003, 2004, 2005 and September 30, 2006 (unaudited)		F-18
Statements of Cash Flows for the nine months ended September 30, 2006 and 2005 and the period from October 20, 2003 (date of inception) to September 30, 2006 (unaudited)		F-19
Notes to Financial Statements (unaudited)		F-20

F-1

Index to Financial Statements

Report of Independent Registered Public Accounting Firm

To the Partners of

Sabine Pass LNG, L.P.

Houston, Texas

We have audited the accompanying balance sheets of Sabine Pass LNG, L.P. (a development stage limited partnership, the “Partnership”) as of December 31, 2005 and 2004, and the related statements of operations, partners’ capital (deficit) and cash flows for the years then ended, and for the periods from October 20, 2003 (date of inception) to December 31, 2003 and from October 20, 2003 (date of inception) to December 31, 2005. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sabine Pass LNG, L.P. as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended, and for the periods from October 20, 2003 (date of inception) to December 31, 2003 and from October 20, 2003 (date of inception) to December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

/s/ UHY LLP

Houston, Texas

October 5, 2006

F-2

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

BALANCE SHEETS


	December 31,
	2005		2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	—	$	21,822,032
Restricted cash and cash equivalents		8,871,148		—
Advance to EPC contactor		8,086,700		—
Advances to affiliate		241,916		—
Short-term unrealized derivative asset		423,211		—
Prepaid expenses		415,583		—
Other		4,750		23,259

TOTAL CURRENT ASSETS		18,043,308		21,845,291
PROPERTY, PLANT AND EQUIPMENT, NET		270,739,878		211,590
DEBT ISSUANCE COSTS, NET		18,496,739		1,245,951
LNG INTANGIBLE ASSETS		17,920		12,920
LONG-TERM DERIVATIVE ASSETS		1,837,209		—

TOTAL ASSETS	$	309,135,054	$	23,315,752


LIABILITIES AND PARTNERS’ CAPITAL (DEFICIT)
CURRENT LIABILITIES
Accounts payable	$	—	$	207,320
Accrued liabilities		44,402,904		1,108,043
Accrued liabilities to affiliate		435,000		—

TOTAL CURRENT LIABILITIES		44,837,904		1,315,363
DEFERRED REVENUES		40,000,000		22,000,000
LONG-TERM DEBT—RELATED PARTY		37,376,851		—
INTEREST PAYABLE—RELATED PARTY		119,918		—
PAYABLE TO AFFILIATE		—		7,417,617
DISTRIBUTION PAYABLE		—		10,000,000
PARTNERS’ CAPITAL (DEFICIT)
Partners’ capital (deficit), including deficit accumulated during development stage of $11,672,117 and $7,417,228 at December 31, 2005 and 2004, respectively		184,986,152		(17,417,228	)
Accumulated other comprehensive income		1,814,229		—

	$	186,800,381	$	(17,417,228	)

TOTAL LIABILITIES AND PARTNERS’ CAPITAL (DEFICIT)	$	309,135,054	$	23,315,752

See notes to financial statements.

F-3

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

STATEMENTS OF OPERATIONS


	Year Ended December 31,						Period from October 20, 2003 (Date of Inception) to December 31, 2003			Period from October 20, 2003 (Date of Inception) to December 31, 2005
	2005			2004
REVENUES	$	—		$	—		$	—		$	—
EXPENSES
Legal		203,248			1,434,011			587,756			2,225,015
Professional		280,488			567,853			152,019			1,000,360
Technical consulting		—			2,579,235			1,971,416			4,550,651
Public relations		65,356			25,836			7,500			98,692
Travel and entertainment		45,441			34,475			15,521			95,437
Other		9,333			40,765			29,234			79,332
Depreciation expense		12,635			—			—			12,635
Overhead charge		4,094,015			—			—			4,094,015

TOTAL EXPENSES		4,710,516			4,682,175			2,763,446			12,156,137

LOSS FROM OPERATIONS		(4,710,516	)		(4,682,175	)		(2,763,446	)		(12,156,137	)

OTHER INCOME
Interest Income		112,701			28,393			—			141,094
Derivative gain, net		342,926			—			—			342,926

TOTAL OTHER INCOME		455,627			28,393			—			484,020

NET LOSS	$	(4,254,889	)	$	(4,653,782	)	$	(2,763,446	)	$	(11,672,117	)

See notes to financial statements.

F-4

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

STATEMENTS OF PARTNERS’ CAPITAL (DEFICIT)


	General Partner		Limited Partner			Accumulated Other Comprehensive Income		Total Partners’ Capital (Deficit)
	Sabine Pass LNG-GP, Inc.		Sabine Pass LNG-LP, LLC			Accumulated Other Comprehensive Income		Total Partners’ Capital (Deficit)
Balance at October 20, 2003 (inception)	$	—	$	—		$	—	$	—
Comprehensive loss:
Net loss		—		(2,763,446	)		—		(2,763,446	)

Total comprehensive loss									(2,763,446	)

Balance at December 31, 2003		—		(2,763,446	)		—		(2,763,446	)
Distributions		—		(10,000,000	)		—		(10,000,000	)
Comprehensive loss:
Net loss		—		(4,653,782	)		—		(4,653,782	)

Total comprehensive loss									(4,653,782	)

Balance at December 31, 2004		—		(17,417,228	)		—		(17,417,228	)
Capital contributions		—		196,658,269			—		196,658,269
Rescinded distribution		—		10,000,000			—		10,000,000
Comprehensive loss:
Change in fair value of derivative instrument		—		—			1,814,229		1,814,229
Net loss		—		(4,254,889	)		—		(4,254,889	)

Total comprehensive loss									(2,440,660	)

Balance at December 31, 2005	$	—	$	184,986,152		$	1,814,229	$	186,800,381

See notes to financial statements.

F-5

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

STATEMENTS OF CASH FLOWS


	Year Ended December 31,						Period from October 20, 2003 (Date of Inception) to December 31, 2003			Period from October 20, 2003 (Date of Inception) to December 31, 2005
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(4,254,889	)	$	(4,653,782	)	$	(2,763,446	)	$	(11,672,117	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		12,635			—			—			12,635
Non-cash derivative gain		(361,918	)		—			—			(361,918	)
Changes in operating assets and liabilities:
Prepaid expenses		(415,583	)		—			—			(415,583	)
Accounts payable		(207,320	)		207,320			—			—
Accrued liabilities—affiliate		435,000			—			—			435,000
Accrued liabilities		398,224			1,108,043			—			1,506,267
Accrued interest payable—related party		119,918			—			—			119,918
Deferred revenues		18,000,000			22,000,000			—			40,000,000
Payable to affiliate		(7,417,617	)		4,553,501			2,864,116			—
Other		18,509			(23,259	)		—			(4,750	)

NET CASH PROVIDED BY OPERATING ACTIVITIES		6,326,959			23,191,823			100,670			29,619,452
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to EPC contractor, net of transfers to construction-in-progress		(8,086,700	)		—			—			(8,086,700	)
Advances to affiliate		(241,916	)		—			—			(241,916	)
Investment in restricted cash and cash equivalents		(8,871,148	)		—			—			(8,871,148	)
LNG terminal construction-in-progress		(229,072,577	)		—			—			(229,072,577	)
Purchase of LNG site options		—			(115,590	)		(96,000	)		(211,590	)
Purchase of LNG intangible assets		(5,000	)		(8,250	)		(4,670	)		(17,920	)
Purchase of fixed assets		(59,269	)		—			—			(59,269	)

NET CASH USED IN INVESTING ACTIVITIES		(246,336,610	)		(123,840	)		(100,670	)		(246,561,120	)
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issuance costs		(15,847,501	)		(1,245,951	)		—			(17,093,452	)
Proceeds from subordinated note—related party		37,376,851			—			—			37,376,851
Partner contributions		196,658,269			—			—			196,658,269

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		218,187,619			(1,245,951	)		—			216,941,668

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(21,822,032	)		21,822,032			—			—
CASH AND CASH EQUIVALENTS—beginning of year		21,822,032			—			—			—

CASH AND CASH EQUIVALENTS—end of year	$	—		$	21,822,032		$	—		$	—

NON-CASH INVESTING AND FINANCING ACTIVITIES
Distribution payable	$	(10,000,000	)	$	10,000,000		$	—		$	—

Construction-in-progress and debt issuance additions funded with accrued liabilities	$	42,812,364		$	—		$	—		$	42,812,364

See notes to financial statements.

F-6

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS

NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations : Sabine Pass LNG, L.P. (the “Partnership”) is a Delaware limited partnership formed with one general partner, Sabine Pass LNG-GP, Inc. (“Sabine Pass GP”), a Cheniere Energy Inc. (“Cheniere”) indirect, wholly-owned subsidiary, and one limited partner, Sabine Pass LNG-LP, LLC (“Sabine Pass LNG-LP”), which owns 100% of the Partnership and is an indirect, wholly-owned subsidiary of Cheniere. The Partnership is in the development stage, and the purpose of this limited partnership is to construct a liquefied natural gas (“LNG”) receiving and regasification terminal in western Cameron Parish, Louisiana on the Sabine Pass Channel (the “Facility”). After construction is completed, the Partnership will own and operate the Facility.

Cash and Cash Equivalents : The Partnership considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

LNG Site Related Costs : LNG site related costs include costs related to options to lease land that is used for the Partnership’s LNG receiving terminal. Such costs are capitalized and are amortized on a straight-line basis over their estimated useful lives.

LNG Intangible Assets : LNG intangible assets include the costs of certain permits for the Facility. Amortization will begin when the Facility is operational and will be calculated on the straight-line method over the estimated useful life of the Facility.

Debt Issuance Costs : Debt issuance costs consist primarily of fees directly associated with arranging project debt financing related to the Partnership’s LNG receiving terminal currently under construction. These costs are capitalized and are amortized to interest expense over the term of the related debt facility.

Revenue Recognition : LNG regasification capacity fees are recognized as revenue over the term of the respective terminal use agreements (“TUAs”). Advance capacity reservation fees are initially deferred.

Income Taxes : The Partnership is not subject to federal income taxes, as the partners are taxed individually on their proportionate share of the Partnership’s earnings. Accordingly, no provision or liability for federal income taxes is included in the accompanying financial statements.

Under the terms of the Sabine Pass Credit Facility (see Note J), beginning with the quarter that the Partnership begins commercial operations, the Partnership will generally be allowed to make quarterly cash distributions to the limited partner equal to the amount that would be due as quarterly estimated tax payments in respect of the federal and state income and franchise tax liability that would have accrued if the Partnership were a separate corporation that was subject to federal and state income and franchise taxes. There were no estimated tax cash distributions made during the calendar year ended December 31, 2005.

Concentration of Credit Risk : Financial instruments that potentially subject the Partnership to a concentration of credit risk consist principally of cash and cash equivalents, and restricted cash. The Partnership maintains cash balances at financial institutions, which may at times be in excess of federally insured levels. The Partnership has not incurred losses related to these balances to date.

Property, Plant and Equipment : Property, plant and equipment are recorded at cost. Expenditures for construction activities, major renewals and betterments are capitalized, while expenditures for maintenance and repairs and general and administrative activities are charged to expense as incurred. Interest costs incurred on debt obtained for the construction of property, plant and equipment are capitalized as construction-in-progress

F-7

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS—(Continued)

over the life of the project or related debt, whichever is shorter. Depreciation of computer and office equipment, computer software, leasehold improvements and vehicles is computed using the straight-line method over estimated useful lives of the assets, which range from two to ten years. Upon retirement or other disposition of property, plant and equipment, the cost and related accumulated depreciation are removed from the account and the resulting gains or losses are recorded in operations.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-lived Assets , management periodically reviews for impairment of property, plant and equipment, whenever events or changes in circumstances have indicated that the carry amount of property, plant and equipment might not be recoverable. No such impairment was recorded for the years ended December 31, 2005 or 2004.

Cash Flow Hedges : The Partnership uses cash flow hedges to limit its exposure to variability in expected future cash flows (in its case, the variability of floating interest rate exposure). The hedged item (the underlying risk) is generally unrecognized (i.e., not recorded on the balance sheet prior to settlement), and any changes in the fair value, therefore, will not be recorded within earnings. Conceptually, if a cash flow hedge is effective, this means that a variable, such as a movement in interest rates, has been effectively fixed so that any fluctuations will have no net result on either cash flows or earnings. Therefore, if the changes in fair value of the hedged item are not recorded in earnings, then the changes in fair value of the hedging instrument (the derivative) must also be excluded from the income statement or else a one-sided net impact on earnings will be reported, despite the fact that the establishment of the effective hedge results in no net economic impact. To prevent such a scenario from occurring, SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended , requires that the fair value of a derivative instrument designated as a cash flow hedge be recorded as an asset or liability on the balance sheet, but with the offset reported as part of other comprehensive income, to the extent that the hedge is effective. Any ineffective portion will be reflected in earnings.

Use of Estimates : The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates and assumptions.

New Accounting Pronouncements : In October 2005, the Financial Accounting Standards Board (“FASB”) issued FSP 13-1, Accounting for Rental Costs Incurred During a Construction Period , to address the accounting for rental costs associated with operating leases that are incurred during a construction period. FSP 13-1 requires rental costs associated with ground or building operating leases that are incurred during a construction period to be recognized as rental expense. FSP 13-1 is effective in fiscal years beginning after December 15, 2005. Accordingly, the Partnership will adopt the new standard effective January 1, 2006. As of December 31, 2005, the Partnership had capitalized $1,501,277 in rental costs related to its Facility site lease. The Partnership will begin expensing these rental costs effective January 1, 2006.

NOTE B—DEVELOPMENT STAGE OPERATIONS

The Partnership was formed on October 20, 2003. Operations to date have been devoted to pre-construction and construction activities. Although the Partnership has obtained Federal Energy Regulatory Commission (“FERC”) approval to commence construction of the Facility, closed on a project financing agreement, and began construction on the Facility in March 2005, the ultimate profitability of the Partnership will depend on, among other factors, the successful completion of construction of the Facility and its placement into operation, which is not expected until approximately 2008.

F-8

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS—(Continued)

NOTE C—RESTRICTED CASH AND CASH EQUIVALENTS

In February 2005, the Partnership entered into an $822,000,000 credit facility (the “Sabine Pass Credit Facility”), with an initial syndicate of 47 financial institutions. Société Générale serves as the administrative agent and HSBC Bank USA, National Association (“HSBC”) serves as collateral agent (see Note J). Under the terms and conditions of the Sabine Pass Credit Facility, all cash held by the Partnership is controlled by the collateral agent. These funds can only be released by the collateral agent upon receipt of satisfactory documentation that the Facility’s initial phase (“Phase 1”) project costs are bona fide expenditures and are permitted under the terms of the Sabine Pass Credit Facility. The Sabine Pass Credit Facility does not permit the Partnership to hold any cash or cash equivalents outside of the accounts established under the agreement. Because these cash accounts are controlled by the collateral agent, the Partnership’s cash balance of $8,871,148 held in these accounts as of December 31, 2005 was classified as restricted on the accompanying balance sheet.

NOTE D—ADVANCES TO EPC CONTRACTOR

In December 2004, the Partnership entered into a lump-sum turnkey engineering, procurement and construction (“EPC”) contract with Bechtel Corporation (“Bechtel”) to construct Phase 1 of the Facility. Under the EPC contract, the Partnership is required to make a 5% advance payment to Bechtel upon issuance of the final notice to proceed (“NTP”) related to the construction of Phase 1. A payment of $32,346,800 was made to Bechtel in March 2005 when the NTP was issued and that amount was classified as a current asset. In accordance with the payment schedule included in the EPC contract, $2,695,567 per month is being reclassified to construction-in-progress over a twelve-month period. As of December 31, 2005, the remaining balance of the advance was $8,086,700.

NOTE E—PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is comprised of LNG terminal construction-in-progress expenditures, LNG site and related costs and fixed assets, as follows:


	December 31,
	2005			2004
LNG TERMINAL COSTS
LNG terminal construction-in-progress	$	270,488,707		$	—
LNG site and related costs, net		204,537			211,590

Total LNG terminal costs		270,693,244			211,590

FIXED ASSETS
Computer and office equipment		3,958			—
Computer software		19,698			—
Leasehold improvements		10,000			—
Vehicles		25,613			—
Accumulated depreciation		(12,635	)		—

Total fixed assets, net		46,634			—

PROPERTY, PLANT AND EQUIPMENT, NET	$	270,739,878		$	211,590

In February 2005, Phase 1 of the Facility satisfied the criteria for capitalization. Accordingly, costs associated with the construction of Phase 1 of the Facility have been capitalized as construction-in-progress since

F-9

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS—(Continued)

that time. Depreciation expense related to the Partnership’s fixed assets totaled $12,635, $0, and $0 for the years ended December 31, 2005, 2004, and the period from October 20, 2003 (date of inception) to December 31, 2003, respectively.

NOTE F—DEBT ISSUANCE COSTS

As of December 31, 2005 and 2004, the Partnership had capitalized $18,496,739 and $1,245,951, respectively (net of accumulated amortization of $1,679,213 and $0, respectively), of costs directly associated with the arrangement of the Sabine Pass Credit Facility. The debt issuance costs are amortized over a period of ten years, the term of the Sabine Pass Credit Facility. Although no borrowings were outstanding as of December 31, 2005 or 2004, the amortization of the debt issuance cost is recorded to interest expense and subsequently capitalized as construction-in-progress during the construction period of the Sabine Pass LNG receiving terminal. For the years ended December 31, 2005, 2004, and the period from October 20, 2003 (date of inception) to December 31, 2003, the amount amortized and capitalized was $1,679,213, $0, and $0, respectively.

NOTE G—DERIVATIVE INSTRUMENTS

Interest Rate Derivative Instruments

In connection with the closing of the Sabine Pass Credit Facility in February 2005, the Partnership entered into swap agreements (“Swaps”) with HSBC and Société Générale. Under the terms of the Swaps, the Partnership will be able to hedge against rising interest rates, to a certain extent, with respect to its drawings under the Sabine Pass Credit Facility, up to a maximum amount of $700,000,000. The Swaps have the effect of fixing the LIBOR component of the interest rate payable under the Sabine Pass Credit Facility with respect to hedged drawings under the Sabine Pass Credit Facility up to a maximum of $700,000,000 at 4.49% from July 25, 2005 through March 25, 2009 and at 4.98% from March 26, 2009 through March 25, 2012. The final termination date of the Swaps will be March 25, 2012.

Accounting for Hedges

SFAS No. 133 , as amended and interpreted by other related accounting literature, establishes accounting and reporting standards for derivative instruments. Under SFAS No. 133, the Partnership is required to record derivatives on their balance sheet as either an asset or liability measured at their fair value, unless exempted from derivative treatment under the normal purchase and normal sale exception. Changes in the fair value of derivatives are recognized currently in earnings unless specific hedge criteria are met. These criteria require that the derivative is determined to be effective as a hedge and that it is formally documented and designated as a hedge.

The Partnership has determined that the Swaps qualify as cash flow hedges within the meaning of SFAS No. 133 and have designated them as such. At inception, the Partnership determined the hedging relationship of the Swaps and the underlying debt to be highly effective. The Partnership will continue to assess the hedge effectiveness of the Swaps on a quarterly basis in accordance with the provisions of SFAS No. 133.

SFAS No. 133 provides that the effective portion of the gain or loss on a derivative instrument designated and qualifying as a cash flow hedging instrument be reported as a component of other comprehensive income (“OCI”) and be reclassified into earnings in the same period during which the hedged forecasted transaction affects earnings. The remaining gain or loss on the derivative instrument, if any, must be recognized currently in earnings. For the year ended December 31, 2005, the Partnership recognized net derivative gains of $342,926 into earnings. If the forecasted transaction is no longer probable of occurring, the associated gain or loss recorded in OCI is recognized currently in earnings.

F-10

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS—(Continued)

Summary of Derivative Values

The following table reflects the amounts that were recorded as assets and liabilities as of December 31, 2005 for the Partnership’s derivative instruments:


Current derivative assets	$	423,211
Long-term derivative assets		1,837,209

Total derivative assets		2,260,420
Current derivative liabilities (1)		84,273

Total derivative liabilities		84,273

Net derivative assets	$	2,176,147

(1)	Included in accrued liabilities on the balance sheet.

Below is a reconciliation of the net derivative assets to the Partnership’s accumulated OCI as of December 31, 2005:


Net derivative assets	$	2,176,147
Net derivative gains recognized into earnings		(342,926	)
Cash settled derivative losses during the period		(18,992	)

Accumulated other comprehensive income	$	1,814,229

For the year ended December 31, 2005, the Partnership settled derivative contracts that resulted in $103,265 of net realized derivative losses. The maximum length of time over which the Partnership has hedged its exposure to the variability in future cash flows for forecasted transactions is seven years under the Swaps. As of December 31, 2005, $548,037 of accumulated net deferred gains on the Swaps, currently included in OCI, was expected to be reclassified to earnings during the next twelve months, assuming no change in the LIBOR forward curve at December 31, 2005. The actual amounts that will be reclassified will likely vary based on the probability that interest rates will, in fact, change. Therefore, the Partnership is unable to predict what the actual reclassification from OCI to earnings (positive or negative) will be for the next twelve months.

NOTE H—ACCRUED LIABILITIES

Accrued liabilities consisted of the following:


	December 31,
	2005		2004
LNG terminal construction costs	$	39,729,865	$	—
Interest and related debt fees		4,639,523		—
Professional and legal services		33,516		933,006
Affiliate		435,000		—
Other		—		175,037

	$	44,837,904	$	1,108,043

F-11

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS—(Continued)

NOTE I—DEFERRED REVENUES

In November 2004, Total LNG USA, Inc. (“Total”) paid the Partnership a nonrefundable advance capacity reservation fee of $10,000,000 in connection with the reservation of approximately 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 was paid by Total to the Partnership in April 2005. The advance capacity reservation fee payments will be amortized over a 10-year period after operations commence as a reduction of Total’s regasification capacity fee under its TUA. As a result, the Partnership records the advance capacity reservation payments that it receives, although non-refundable, as deferred revenue to be amortized to income over the corresponding 10-year period.

In November 2004, the Partnership also entered into a TUA to provide Chevron USA, Inc. (“Chevron USA”), with approximately 700 MMcf/d of LNG regasification capacity at the Partnership’s LNG receiving terminal. In December 2005, Chevron USA exercised its option to increase its reserved capacity by approximately 300 MMcf/d to approximately 1.0 Bcf/d and paid the Partnership an additional $3,000,000 advance capacity reservation fee. As of December 31, 2005, Chevron USA had made advance capacity reservation fee payments to the Partnership totaling $20,000,000, with $12,000,000 paid in 2004 and $8,000,000 paid in 2005. These capacity reservation fee payments will be amortized over a 10-year period as a reduction of Chevron USA’s regasification capacity fee under the TUA. As a result, the Partnership records the advance capacity reservation payments that it receives, although non-refundable, as deferred revenue to be amortized to income over the corresponding 10-year period.

As of December 31, 2005 and 2004, the Partnership had recorded $40,000,000 and $22,000,000, respectively, as deferred revenue related to advance capacity reservation fee payments.

NOTE J—LONG-TERM DEBT

In February 2005, the Partnership entered into the $822,000,000 Sabine Pass Credit Facility with an initial syndicate of 47 financial institutions. Société Générale serves as the administrative agent and HSBC serves as collateral agent. The Sabine Pass Credit Facility will be used to fund a substantial majority of the costs of constructing and placing into operation Phase 1 of the Partnerships’ LNG receiving terminal. Unless the Partnership decides to terminate availability earlier, the Sabine Pass Credit Facility will be available until no later than April 1, 2009, after which time any unutilized portion of the Sabine Pass Credit Facility will be permanently canceled. Before the Partnership could make an initial borrowing under the Sabine Pass Credit Facility, it was required to provide evidence that it had funded the first $233,715,000 of project costs through equity contributions, cash on-hand and other means. As of December 31, 2005, this requirement had been met.

As of December 31, 2005, there were no borrowings outstanding under the Sabine Pass Credit Facility. Borrowings under the Sabine Pass Credit Facility bear interest at a variable rate equal to LIBOR plus the applicable margin. The applicable margin varies from 1.25% to 1.625% during the term of the Sabine Pass Credit Facility. The Sabine Pass Credit Facility provides for a commitment fee of 0.50% per annum on the daily committed, undrawn portion of the facility. Annual administrative fees must also be paid to the administrative and collateral agents.

The principal of loans made under the Sabine Pass Credit Facility must be repaid in semiannual installments commencing six months after the later of (i) the date that substantial completion of the project occurs under the EPC agreement and (ii) the commercial start date under the Total TUA. The Partnership may specify an earlier date to commence repayment upon satisfaction of certain conditions. In any event, payments under the Sabine

F-12

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS—(Continued)

Pass Credit Facility must commence no later than October 1, 2009, and all obligations under the Sabine Pass Credit Facility mature and must be fully repaid by February 25, 2015.

The Sabine Pass Credit Facility contains customary conditions precedent to the initial borrowing and any subsequent borrowings, as well as customary affirmative and negative covenants. The Partnership was in compliance, in all material respects, with these covenants at December 31, 2005. The Partnership has obtained, and may in the future seek, consents, waivers and amendments to the Sabine Pass Credit Facility documents. The obligations of the Partnership under the Sabine Pass Credit Facility are secured by all of the Partnership’s personal property, including the Total and Chevron USA TUAs.

In connection with the closing of the Sabine Pass Credit Facility, the Partnership entered into Swaps with HSBC and Société Générale. Under the terms of the Swaps, the Partnership will be able to hedge against rising interest rates, to a certain extent, with respect to its drawings under the Sabine Pass Credit Facility, up to a maximum amount of $700,000,000. The Swaps have the effect of fixing the LIBOR component of the interest rate payable under the Sabine Pass Credit Facility with respect to hedged drawings under the Sabine Pass Credit Facility, up to a maximum of $700,000,000 at 4.49% from July 25, 2005 to March 25, 2009, and at 4.98% from March 26, 2009 through March 25, 2012. The final termination date of the Swaps is March 25, 2012 (see Note G).

During the construction period, all interest costs, including amortization of related debt issuance costs and commitment fees, will be capitalized as part of the total cost of Phase 1 of the Partnership’s LNG receiving terminal. As of December 31, 2005, $5,322,547 in commitment fees and amortization of debt issuance costs had been capitalized and included in LNG terminal construction-in-progress.

In November 2005, to fund expenditures related to the Partnership’s LNG receiving terminal, the Partnership entered into a subordinated promissory note with an affiliate, Cheniere LNG Financial Services, Inc., that bears interest at LIBOR plus a 3.00% margin and terminates on June 30, 2015. As of December 31, 2005, the unpaid principal balance of the subordinated promissory note was $37,376,851. The entire principal is due and payable to Cheniere LNG Financial Services on June 30, 2015.

NOTE K—RELATED PARTY TRANSACTIONS

As of December 31, 2005 and 2004, the Partnership had $241,916 and $0, respectively, of advances to affiliates.

During 2005, the Partnership paid a management fee of $435,000 per month to affiliates totaling $4,094,015 for the year ended December 31, 2005, which is included as an overhead charge within the accompanying statement of operations. As of December 31, 2005 and 2004, the Partnership had $435,000 and $0, respectively, of accrued liabilities to an affiliate related to such management fees.

From October 20, 2003 (Date of Inception) through December 31, 2004, the Partnership’s activities were 100% funded by wholly-owned subsidiaries of Cheniere. During 2005, financing was obtained through a third party (see Note J). As of December 31, 2005 and 2004, the Partnership owed Cheniere $0 and $7,417,617, respectively. On November 10, 2004, the Partnership declared a distribution to Sabine Pass LNG-LP Interests, LLC in the amount of $10,000,000. This amount was subsequently reversed in 2005, as the distribution was rescinded and not paid out. In February 2005, Cheniere LNG-LP Interests, LLC formed Sabine Pass LNG-LP, LLC and contributed the limited partnership interest in the Partnership to such entity.

F-13

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS—(Continued)

NOTE L—COMMITMENTS AND CONTINGENCIES

LNG Site Leases

In January 2005, the Partnership exercised its options and entered into three land leases for the Facility site. The leases have an initial term of 30 years, with options to renew for six 10-year extensions. In February 2005, two of the three leases were amended, thereby increasing the total acreage under lease to 853 acres and increasing the annual lease payments to $1,501,000. For 2005, these payments were capitalized as part of the construction cost of the Facility; however, beginning in 2006, these lease payments have been expensed as required by FSP 13-1.

LNG Commitments

The Partnership has entered into TUAs with Total and Chevron USA to provide berthing for LNG tankers and for the unloading, storage and regasification of LNG at the Facility.

EPC Agreement

In December 2004, the Partnership entered into a lump-sum turnkey EPC agreement with Bechtel pursuant to which Bechtel is providing services for the engineering, procurement and construction of Phase 1 of the Facility. In December 2004, a limited notice to proceed, was issued and accepted by Bechtel, at which time Bechtel was required to promptly commence performance of certain off-site engineering and preparatory work under the EPC agreement. In early April 2005, a final NTP was issued, and Bechtel commenced all other aspects of work under the EPC agreement. The Partnership agreed to pay Bechtel a contract price of $646,936,000 plus certain reimbursable costs. This contract price is subject to adjustment for changes in certain commodity prices, contingencies, change orders and other items. Payments under the EPC agreement will be made in accordance with the payment schedule set forth in the EPC agreement. The contract price and payment schedule, including milestones, may be amended only by change order. Bechtel will be liable to the Partnership for certain delays in achieving substantial completion, minimum acceptance criteria and performance guarantees. Bechtel will be entitled to a scheduled bonus of $12,000,000, or a lesser amount in certain cases, if on or before April 3, 2008, Bechtel completes construction sufficient to achieve, among other requirements specified in the EPC agreement, a sendout rate of at least 2.0 Bcf/d for a minimum sustained test period of 24 hours. Bechtel will be entitled to receive an additional bonus of up to $67,000 per day (up to a maximum of $6,000,000) for each day that commercial operation is achieved prior to April 1, 2008. As of February 28, 2006, change orders for $64,844,608 had been approved, increasing the total contract price to $711,780,608. The Partnership anticipates additional change orders intended to mitigate ongoing effects of the 2005 hurricanes that would increase the contract price by an amount not to exceed $50,000,000. The Partnership expects to submit any such change orders to its lenders by May 3, 2006 for approval under the Sabine Pass Credit Facility.

Legal Proceedings

The Partnership may in the future be involved as a party to various legal proceedings, which are incidental to the ordinary course of business. The Partnership 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 December 31, 2005, there were no threatened or pending legal matters that would have a material impact on the Partnership’s results of operations, financial position or cash flows.

F-14

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS—(Continued)

NOTE M—SUBSEQUENT EVENTS

In July 2006, the Partnership closed a $1.5 billion Amended and Restated Credit Agreement with Société Générale, HSBC Bank, USA and other lenders named therein that will mature on July 1, 2015 (“Amended Sabine Pass Credit Facility”). The Amended Sabine Pass Credit Facility amends and restates the Partnership’s $822,000,000 Sabine Pass Credit Facility due February 2015, and will be available for draws to pay project costs incurred during construction of Sabine Pass LNG’s receiving terminal.

In connection with the closing of the Amended Sabine Pass Credit Facility, the Partnership entered into additional interest rate swap agreements with HSBC Bank USA and Société Générale. The new swap agreements, along with similar agreements entered into in connection with the closing of the original Sabine Pass Credit Facility in February 2005, have the combined effect of fixing the LIBOR component of the interest rate payable on borrowings up to a maximum of $1.25 billion at a blended rate of 5.26% from July 25, 2006 through July 1, 2015.

In July 2006, the Partnership repaid the subordinated promissory note and accrued interest payable to its parent company Cheniere LNG Financial Services, Inc. with borrowings from the $1.5 billion Amended and Restated Credit Agreement.

At December 31, 2005, there were no borrowings outstanding under the Sabine Pass Credit Facility; however, as of September 30, 2006, $351,500,000 had been drawn under the Amended Sabine Pass Credit Facility.

In July 2006, the Partnership entered into contracts with Bechtel Corporation, Zachry Construction Corporation and Diamond LNG LLC (a subsidiary of Mitsubishi Heavy Industries Ltd.) and Remedial Construction Services, L.P. in connection with a 1.4 billion cubic feet per day expansion at the Sabine Pass LNG receiving terminal.

F-15

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

BALANCE SHEET


	September 30, 2006			December 31, 2005
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	—		$	—
Restricted cash and cash equivalents		10,837,165			8,871,148
Accounts receivable		281,946			—
Advance to EPC contractor		2,732,528			8,086,700
Advances to affiliate		302,327			241,916
Short-term derivative asset		2,546,884			423,211
Prepaid expenses		436,309			415,583
Other		31,291			4,750

TOTAL CURRENT ASSETS		17,168,450			18,043,308
PROPERTY, PLANT AND EQUIPMENT, NET		563,937,734			270,739,878
DEBT ISSUANCE COSTS, NET		25,928,606			18,496,739
LNG INTANGIBLE ASSETS		17,920			17,920
LONG-TERM DERIVATIVE ASSET		—			1,837,209
ADVANCES UNDER LONG-TERM CONTRACTS		4,880,110			—
OTHER		1,892,096			—

TOTAL ASSETS	$	613,824,916		$	309,135,054

LIABILITIES AND PARTNERS’ CAPITAL
CURRENT LIABILITIES
Accounts payable	$	6,532,250		$	—
Accrued liabilities		35,568,895			44,402,904
Accrued liabilities to affiliate		435,000			435,000

TOTAL CURRENT LIABILITIES		42,536,145			44,837,904
DEFERRED REVENUES		40,000,000			40,000,000
LONG-TERM DEBT		351,500,000			—
LONG-TERM DERIVATIVE LIABILITY		19,376,298			—
LONG-TERM DEBT—RELATED PARTY		—			37,376,851
INTEREST PAYABLE—RELATED PARTY		—			119,918
OTHER NON-CURRENT LIABILITIES		550,587			—
PARTNERS’ CAPITAL
Partners’ capital, including deficit accumulated during development stage of $20,951,344 and $11,672,117 at September 30, 2006 and December 31, 2005, respectively		176,487,309			184,986,152
Accumulated other comprehensive income (loss)		(16,625,423	)		1,814,229

		159,861,886			186,800,381

TOTAL LIABILITIES AND PARTNERS’ CAPITAL	$	613,824,916		$	309,135,054

See notes to interim financial statements.

F-16

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

STATEMENTS OF OPERATIONS


	For the Nine Months Ended September 30,						Period from October 20, 2003 (Date of Inception) to September 30,
	2006			2005			2006
	(unaudited)			(unaudited)			(unaudited)
REVENUES	$	—		$	—		$	—
EXPENSES
Legal		1,655			203,793			2,226,670
Professional		556,536			246,050			1,556,896
Technical consulting		25,909			—			4,576,560
Public relations		9,438			65,416			108,130
Land site rental		1,144,596			—			1,144,596
Travel and entertainment		54,134			18,752			149,571
Depreciation expense		35,260			7,466			47,895
Overhead charge		2,972,361			2,858,063			7,066,376
Phase 2 development reimbursement		4,526,826			—			4,526,826
Other		64,992			5,651			144,324

TOTAL EXPENSES		9,391,707			3,405,191			21,547,844

LOSS FROM OPERATIONS		(9,391,707	)		(3,405,191	)		(21,547,844	)
OTHER INCOME
Interest income		156,212			103,955			297,306
Derivative gain (loss), net		(43,732	)		(21,161	)		299,194

TOTAL OTHER INCOME		112,480			82,794			596,500

NET LOSS	$	(9,279,227	)	$	(3,322,397	)	$	(20,951,344	)

See notes to interim financial statements.

F-17

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

STATEMENTS OF PARTNERS’ CAPITAL (DEFICIT)


	General Partner		Limited Partner			Accumulated Other Comprehensive Income (Loss)			Total Partners’ Capital (Deficit)
	Sabine Pass LNG-GP, Inc.		Sabine Pass LNG-LP, LLC			Accumulated Other Comprehensive Income (Loss)			Total Partners’ Capital (Deficit)
Balance at October 20, 2003 (inception)	$	—	$	—		$	—		$	—
Comprehensive loss:
Net loss		—		(2,763,446	)		—			(2,763,446	)

Total comprehensive loss										(2,763,446	)

Balance at December 31, 2003		—		(2,763,446	)		—			(2,763,446	)
Distributions		—		(10,000,000	)		—			(10,000,000	)
Comprehensive loss:
Net loss		—		(4,653,782	)		—			(4,653,782	)

Total comprehensive loss										(4,653,782	)

Balance at December 31, 2004		—		(17,417,228	)		—			(17,417,228	)
Capital contributions		—		196,658,269			—			196,658,269
Rescinded distribution		—		10,000,000			—			10,000,000
Comprehensive loss:
Change in fair value of derivative instrument		—		—			1,814,229			1,814,229
Net loss		—		(4,254,889	)		—			(4,254,889	)

Total comprehensive loss										(2,440,660	)

Balance at December 31, 2005		—		184,986,152			1,814,229			186,800,381
Capital contributions (unaudited)		—		780,384			—			780,384
Comprehensive loss (unaudited):
Change in fair value of derivative instrument (unaudited)		—		—			(18,439,652	)		(18,439,652	)
Net loss (unaudited)		—		(9,279,227	)		—			(9,279,227	)

Total comprehensive loss (unaudited)										(27,718,879	)

Balance at September 30, 2006 (unaudited)	$	—	$	176,487,309		$	(16,625,423	)	$	159,861,886

See notes to interim financial statements.

F-18

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

STATEMENTS OF CASH FLOWS


	For the Nine Months Ended September 30,						Period from October 20, 2003 (Date of Inception) to September 30,
	2006			2005			2006
	(unaudited)			(unaudited)			(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(9,279,227	)	$	(3,322,397	)	$	(20,951,344	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation		35,260			7,466			47,895
Non-cash derivative gain		368,236			2,169			6,318
Change in operating assets and liabilities:
Prepaid expenses		(20,726	)		(420,833	)		(436,309	)
Accounts payable and accrued liabilities		2,809,881			(1,103,146	)		4,316,148
Accrued liabilities—affiliate		—			435,000			435,000
Deferred revenues		—			15,000,000			40,000,000
Payable to affiliate		—			(7,417,617	)		—
Other		(146,459	)		23,259			(31,291	)

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(6,233,035	)		3,203,901			23,386,417
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to EPC contractor, net of transfers to construction-in-progress		—			(16,173,400	)		—
Advances to affiliate		(60,411	)		(297,271	)		(302,327	)
Investment in restricted cash and cash equivalents		(1,966,017	)		—			(10,837,165	)
LNG terminal construction-in-progress		(287,482,740	)		(164,462,914	)		(524,642,017	)
Advances under long-term contracts		(4,880,110	)		—			(4,880,110	)
Other assets		(1,892,096	)		—			(1,892,096	)
Purchase of LNG site options		—			—			(211,590	)
Purchase of fixed and LNG intangible assets		(101,849	)		(64,270	)		(179,038	)

NET CASH USED IN INVESTING ACTIVITIES		(296,383,223	)		(180,997,855	)		(542,944,343	)
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issuance costs		(11,506,891	)		(15,847,501	)		(28,600,343	)
Proceeds from subordinated note—related party		—			—			37,376,851
Repayment of subordinated note—related party		(37,376,851	)		—			(37,376,851	)
Proceeds from Sabine Pass Facility		351,500,000			—			351,500,000
Partner contributions		—			171,849,782			196,658,269

NET CASH PROVIDED BY FINANCING ACTIVITIES		302,616,258			156,002,281			519,557,926

NET DECREASE IN CASH AND CASH EQUIVALENTS		—			(21,791,673	)		—
CASH AND CASH EQUIVALENTS—beginning of period		—			21,822,032			—

CASH AND CASH EQUIVALENTS—end of period	$	—		$	30,359		$	—

NON-CASH INVESTING AND FINANCING ACTIVITIES
Distribution payable	$	—		$	(10,000,000	)	$	(10,000,000	)

Limited partner contribution	$	780,384		$	—		$	780,384

See notes to interim financial statements.

F-19

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

NOTE A – BASIS OF PRESENTATION

The accompanying unaudited financial statements of Sabine Pass LNG, L.P. have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). Interim results are not necessarily indicative of results to be expected for the full fiscal year ending December 31, 2006.

NOTE B – DEVELOPMENT STAGE OPERATIONS

Sabine Pass LNG, L.P. (“the Partnership”) was formed on October 20, 2003. Operations to date have been devoted to preconstruction and construction activities. Although the Partnership has obtained Federal Energy Regulatory Commission (“FERC”) approval to commence the construction of a liquefied natural gas (“LNG”) receiving terminal in Western Cameron Parrish, Louisiana on the Sabine Pass Channel (the “LNG Receiving Terminal”), closed on project financing agreements, and began construction on the LNG Receiving Terminal in March 2005, the ultimate profitability of the Partnership will depend on, among other factors, the successful completion of the construction of the LNG Receiving Terminal and its placement into operation, which is not expected until approximately 2008.

NOTE C – RESTRICTED CASH AND CASH EQUIVALENTS

In July 2006, the Partnership entered into a $1.5 billion amended and restated credit facility (the “Amended Sabine Pass Credit Facility”) to fund Phase 1 and Phase 2 – Stage 1 expansion (see Note G – Long-Term Debt). Under the terms and conditions of the Amended Sabine Pass Credit Facility, all cash held by the Partnership is controlled by the collateral agent. These funds can only be released by the collateral agent upon receipt of satisfactory documentation that the LNG Receiving Terminal project costs are bona fide expenditures and are permitted under the terms of the Amended Sabine Pass Credit Facility. The Amended Sabine Pass Credit Facility does not permit the Partnership to hold any cash or cash equivalents outside of the accounts established under the agreement. Because these cash accounts are controlled by the collateral agent, the Partnership’s cash balance of $10,837,165 held in these accounts as of September 30, 2006 is classified as restricted on the Balance Sheet.

NOTE D – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is comprised of LNG terminal construction-in-progress expenditures, LNG site and related costs and fixed assets, as follows:


	September 30, 2006			December 31, 2005
	(unaudited)
LNG TERMINAL COSTS
LNG terminal construction-in-progress	$	563,625,264		$	270,488,707
LNG site and related costs, net		199,247			204,537

Total LNG terminal costs		563,824,511			270,693,244
FIXED ASSETS
Computer and office equipment		19,244			3,958
Computer software		33,331			19,698
Leasehold improvements		10,000			10,000
Vehicles		98,543			25,613
Accumulated depreciation		(47,895	)		(12,635	)

Total fixed assets, net		113,223			46,634

PROPERTY, PLANT AND EQUIPMENT, NET	$	563,937,734		$	270,739,878

F-20

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

NOTE E – DERIVATIVE INSTRUMENTS

Interest Rate Derivative Instruments

In connection with the closing of the $822,000,000 credit facility (the “Sabine Pass Credit Facility”) in February 2005 with an initial syndicate of 47 financial institutions, the Partnership entered into swap agreements (“Swaps”) with HSBC and Société Générale. Under the terms of the Swaps, the Partnership will be able to hedge against rising interest rates, to a certain extent, with respect to its drawings under the Sabine Pass Credit Facility, up to a maximum amount of $700,000,000. The Swaps have the effect of fixing the LIBOR component of the interest rate payable under the Sabine Pass Credit Facility with respect to hedged drawings under the Sabine Pass Credit Facility up to a maximum of $700,000,000 at 4.49% from July 25, 2005 through March 25, 2009 and at 4.98% from March 26, 2009 through March 25, 2012. The final termination date of the Swaps is March 25, 2012.

In connection with the closing of the Amended Sabine Pass Credit Facility in July 2006, the Partnership entered into additional interest rate swap agreements with HSBC Bank, USA and Société Générale. The new swap agreements, along with the original Swaps, have the combined effect of fixing the LIBOR component of the interest rate payable on borrowings up to a maximum of $1.25 billion at a blended rate of 5.26% from July 25, 2006 through July 1, 2015 (collectively, the “Sabine Pass Swaps”).

Accounting for Hedges

Statement of Financial Accounting Standard (“SFAS”) No. 133 , Accounting for Derivative Instruments and Hedging Activities , as amended, establishes accounting and reporting standards for derivative instruments. Under SFAS No. 133, the Partnership is required to record derivatives on its balance sheet as either an asset or liability measured at their fair value, unless exempted from derivative treatment under the normal purchase and normal sale exception. Changes in the fair value of derivatives are recognized currently in earnings unless specific hedge criteria are met.

These criteria require that the derivative is determined to be effective as a hedge and that it is formally documented and designated as a hedge.

The Partnership has determined that the Sabine Pass Swaps qualify as cash flow hedges within the meaning of SFAS No. 133 and has designated them as such. At inception, the Partnership determined the hedging relationship of the Sabine Pass Swaps and the underlying debt to be highly effective. The Partnership will continue to assess the hedge effectiveness of the Sabine Pass Swaps on a quarterly basis in accordance with the provisions of SFAS No. 133.

SFAS No. 133 provides that the effective portion of the gain or loss on a derivative instrument designated and qualifying as a cash flow hedging instrument be reported as a component of other comprehensive income (“OCI”), and be reclassified into earnings in the same period during which the hedged forecasted transaction affects earnings. The remaining gain or loss on the derivative instrument, if any, must be recognized currently in earnings. For the nine months ended September 30, 2006 and 2005, the Partnership recognized net derivative losses of $43,732 and $21,161 into earnings, respectively. If the forecasted transaction is no longer probable of occurring, the associated gain or loss recorded in OCI is recognized currently in earnings.

F-21

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

Below is a reconciliation of the net derivative liability to the Partnership’s accumulated OCI as of September 30, 2006:


Net derivative liability	$	(16,548,046	)
Effective non-cash items		(49,210	)
Ineffective non-cash items		(28,167	)

Accumulated OCI	$	(16,625,423	)

The maximum length of time over which the Partnership has hedged its exposure to the variability in future cash flows for forecasted transactions is seven years under the Sabine Pass Swaps. As of September 30, 2006, $2,750,875 of accumulated net deferred gains on the Sabine Pass Swaps, currently included in OCI, was expected to be reclassified to earnings during the next twelve months, assuming no change in the LIBOR forward curve at September 30, 2006. The actual amounts that will be reclassified will likely vary based on the probability that interest rates will, in fact, change. Therefore, the Partnership is unable to predict what the actual reclassification from OCI to earnings (positive or negative) will be for the next twelve months.

NOTE F – ACCRUED LIABILITIES

Accrued liabilities consisted of the following:


	September 30, 2006		December 31, 2005
	(unaudited)
LNG terminal construction costs	$	30,399,459	$	39,729,865
Interest and related debt fees		4,498,271		4,639,523
Debt issuance cost		671,165		—
Professional and legal services		—		33,516
Affiliate		435,000		435,000

	$	36,003,895	$	44,837,904

NOTE G – LONG-TERM DEBT

In February 2005, the Partnership entered into an $822,000,000 Sabine Pass Credit Facility with an initial syndicate of 47 financial institutions. Société Générale serves as the administrative agent and HSBC Bank, USA serves as collateral agent. This Sabine Pass Credit Facility was subsequently amended and restated in July 2006. The Amended Sabine Pass Credit Facility increased the amount of loans available to the Partnership from $822,000,000 to $1.5 billion to finance Phase 1 and the Phase 2 – Stage 1 expansion of the Partnership’s Sabine Pass LNG receiving terminal.

Principal amounts owed under the Amended Sabine Pass Credit Facility must be repaid in semi-annual installments commencing upon the earlier of six months following the term conversion date (as defined in the Amended Sabine Pass Credit Facility) or such earlier date as we may specify upon satisfaction of certain conditions on or before October 1, 2009. Scheduled amortization during the repayment period will be based upon a 19-year mortgage style semi-annual amortization profile with a balloon payment due on the final maturity date, July 1, 2015.

F-22

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

Borrowings under the Amended Sabine Pass Credit Facility bear interest at a variable rate equal to LIBOR plus the applicable margin. The applicable margin varies from 0.875% to 1.125% during the term of the Amended Sabine Pass Credit Facility. Interest is calculated on the unpaid principal amount outstanding and is payable semi-annually in arrears. A commitment fee of 0.50% per annum on the daily, undrawn portion of the lenders’ commitments is required. Administrative fees must also be paid annually to the agent and the collateral agent.

The collateral agent holds all of our funds and other investments in certain collateral accounts in the Partnership’s name but under the exclusive control of the collateral agent.

The Amended Sabine Pass Credit Facility contains customary conditions precedent to any borrowings, as well as customary affirmative and negative covenants. The Partnership was in compliance, in all material respects, with these covenants at September 30, 2006 and December 31, 2005. The Partnership has obtained, and may in the future seek, consents, waivers and amendments to the Amended Sabine Pass Credit Facility documents. The obligations of the Partnership under the Amended Sabine Pass Credit Facility are secured by all of the Partnership’s personal property, including the TUAs with Total LNG USA, Inc. (“Total”) and Chevron USA, Inc. (“Chevron”).

During the construction period, all interest costs, including amortization of related debt issuance costs and commitment fees, will be capitalized as part of the total cost of Phase 1 and Phase 2 of the Partnership’s Sabine Pass LNG receiving terminal. As of September 30, 2006 and December 31, 2005, $15,884,000 and $5,323,000, respectively, in commitment fees, interest costs, impact of interest rate swaps and amortization of debt issuance costs had been capitalized and included in LNG terminal construction-in-progress.

NOTE H – RELATED PARTY TRANSACTIONS

As of September 30, 2006 and December 31, 2005, the Partnership had $302,327 and $241,916, respectively, of advances to affiliates.

In August 2006, the Partnership reimbursed an affiliate for certain previously incurred costs directly related to Phase 2 – Stage 1 of the Sabine Pass LNG receiving terminal. These costs, which amount to $14,851,928, were reimbursed in connection with the Amended Sabine Pass Credit Facility. The Partnership accounted for these reimbursed costs consistent with how the affiliated company recorded these costs, which was consistent with the Partnership’s accounting policy related to accounting for LNG activities. The reimbursed costs were recorded by the Partnership as a $4,526,826 Phase 2 development reimbursement expense on the Statement of Operations, $6,436,806 as an addition to LNG terminal construction-in-process, $3,659,566 as advances under long-term contracts on the Balance Sheet. In addition to the August reimbursement, Sabine Pass LNG-LP, LLC, the limited partner of the Partnership, contributed $780,384 to the Partnership for additional Phase 2 – Stage 1 costs.

During 2005 and the first nine months of 2006, the Partnership paid a management fee of $435,000 per month to affiliated parties totaling $4,350,000 for the year ended December 31, 2005 and $3,915,000 for the nine months ended September 30, 2006, which is included as an overhead charge within the accompanying statement of operations net of amount capitalized. As of September 30, 2006 and December 31, 2005, the Partnership had $435,000 and $435,000, respectively, of accrued liabilities to affiliates related to these management fees.

From October 20, 2003 (Date of Inception) through December 31, 2004, the Partnership’s activities were 100% funded by wholly-owned subsidiaries of Cheniere Energy, Inc. (“Cheniere”).

F-23

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

NOTE I – INCOME TAXES

The Partnership is not subject to federal income taxes as the partners are taxed individually on their proportionate share of the Partnership’s earnings. Accordingly, no provision or liability for federal income taxes is included in the accompanying financial statements.

NOTE J – COMMITMENTS AND CONTINGENCIES

LNG Site Leases

In January 2005, the Partnership exercised its options and entered into three land leases for the LNG Receiving Terminal site. The leases have an initial term of 30 years, with options to renew for six 10-year extensions. In February 2005, two of the three leases were amended, thereby increasing the total acreage under lease to 853 acres and increasing the annual lease payments to $1,501,000. For 2005, these payments were capitalized as part of the construction cost of the LNG Receiving Terminal; however, beginning January 2006, these lease payments were expensed as required by FSP 13-1.

LNG Agreements

In July 2006, the Partnership entered into an engineering, procurement, construction and management (“EPCM”) Agreement for Phase 2 – Stage 1 with Bechtel Corporation (“Bechtel”) for engineering, procurement, construction and management of construction services in connection with the Partnership’s 1.4 billion cubic feet per day expansion at its LNG Receiving Terminal. Cash payments are made into an account that is controlled by Bechtel for payment to vendors that perform work on-site. The account is used to facilitate payments for costs that will be incurred in the future. Under the terms of the EPCM agreement, Bechtel will be paid on a cost reimbursable basis, plus a fixed fee in the amount of $18,500,000. A discretionary bonus may be paid to Bechtel at the Partnership’s sole discretion upon completion of Phase 2 – Stage 1.

In July 2006, the Partnership entered into an engineering, procurement, and construction (“EPC”) LNG Unit Rate Soil Improvement Contract with Remedial Construction Services, L.P. (“Remedial”) for engineering, procurement, and construction of soil improvement work. Work includes, but is not limited to, design, surveying, estimating, procurement and transportation of materials, equipment, labor, supervision and construction activities necessary to satisfactorily complete work on the Phase 2 – Stage 1 site. The estimated total contract price is $28,500,000. A 10% initial payment of $2,847,002 was made to Remedial in August 2006 and is classified under “Advances under long-term contracts” on the Balance Sheet. Additional progress payments will be paid based on quantities of work performed at unit rates, minus 10% retainage that will be paid upon final completion as well as any credits and early payment discounts applicable.

In July 2006, the Partnership entered into an EPC LNG Tank Contract with Diamond LNG LLC (“Diamond”) and Zachry Construction Corporation (“Zachry” and collectively with Diamond, the “Tank Contractor”) for the construction of two Phase 2 – Stage 1 tanks. In addition, the Partnership has the option (to be elected on or before March 31, 2007) for the Tank Contractor to engineer, procure and construct a sixth tank, with the cost and completion date to be agreed upon if the option is elected. The estimated total contract price for the two Phase 2 – Stage 1 tanks is $54,679,844 and $84,406,449 for Diamond and Zachry, respectively. Initial payments of $2,628,839 and $3,808,002 were made to Diamond and Zachry, respectively, in August 2006. Additional milestone payments of work incurred, minus a 5% retainage that will be paid upon final completion, will be based on a lump-sum, fixed price, subject to adjustments based on fluctuations in the cost of labor and materials.

F-24

Index to Financial Statements

SABINE PASS LNG, L.P.

(DEVELOPMENT STAGE LIMITED PARTNERSHIP)

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

Legal Proceedings

The Partnership may in the future be involved as a party to various legal proceedings, which are incidental to the ordinary course of business. The Partnership 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, 2006 and December 31, 2005, there were no threatened or pending legal matters that would have a material impact on the Partnership’s results of operations, financial position or cash flows.

NOTE K – SUBSEQUENT EVENTS

As of October 25, 2006, $383,400,000 had been drawn under the Amended Sabine Pass Credit Facility.

F-25

Index to Financial Statements

Exhibit 99.2

LOGO

Index to Financial Statements

LEGAL NOTICE

This document was prepared by Stone & Webster Management Consultants, Inc. (“Stone & Webster Consultants”) solely for the benefit of Cheniere Energy Inc. (“Cheniere”). Neither Stone & Webster Consultants, Cheniere nor their parent corporations or affiliates, nor any person acting in their behalf (a) makes any warranty, expressed or implied, with respect to the use of any information or methods disclosed in this document; or (b) assumes any liability with respect to the use of any information or methods disclosed in this document.

Any recipient of this document, by their acceptance or use of this document, releases Stone & Webster Consultants, Cheniere, their parent corporations and affiliates from any liability for direct, indirect, consequential, or special loss or damage whether arising in contract, warranty, express or implied, tort or otherwise, and irrespective of fault, negligence, and strict liability.

E-MAIL NOTICE

E-mail copies of this report are not official unless authenticated and signed by Stone & Webster Consultants and are not to be modified in any manner without Stone & Webster Consultants’ expressed written consent.

Index to Financial Statements

NOMENCLATURE


ACI		American Concrete Institute
AISC		American Institute of Steel Construction
ANSI		American National Standards Institute
API		American Petroleum Institute
AQCR		Air Quality Control Region
ASCE		American Society of Civil Engineers
ASME		American Society of Mechanical Engineers
ASNT		American Society for Non-Destructive Testing
ASTM		American Society for Testing and Materials
AWS		American Welding Society
BACT		Best Available Control Technology
bcf		Billion Cubic Feet
bscfd		Billion Standard Cubic Feet per Day
Btu		British Thermal Unit
bpd		Barrels per Day
CAER		Community Awareness and Emergency Response
CATOX		Catalytic Oxidation Units
CO		Carbon Monoxide
COE		Corp of Engineers
CPI		Corrugated Plate Interceptor
CFR		Code of Federal Regulations
DCS		Distributed Control System
DSCR		Debt Service Coverage Ratio
DLE		Dry Low Emissions
DOT		Department of Transportation
DSAW		Double Submerged-Arc Welded
EPA		Environmental Protection Agency
EPC		Engineering, Procurement and Construction
FAA		Federal Aviation Administration
FEED		Front End Engineering Design
FERC		Federal Energy Regulatory Commission
FWS		Fish and Wildlife Service
HAZOP		Hazards and Operability
hp		Horsepower
IBC		International Building Code
IDC		Interest During Construction
IEC		International Electrotechnical Commission
IEEE		Institute of Electrical and Electronic Engineers
IMO		International Maritime Organization
IRR		Internal Rate of Return
ISA		Instrument Society of America
ISO		International Standards Organization
ITS		Interruptible Transportation Service
JV		Joint Venture
kV		Kilovolt
kW		Kilowatt
LDEQ		Louisiana Department of Environmental Quality
LNG		Liquefied Natural Gas
LS		Lump Sum

N-1

Index to Financial Statements


MMscfd		Million Standard Cubic Feet per Day
MP		Mile Post
MSS		Manufacturer Standardization Society
MW		Megawatt
NAAQS		National Ambient Air Quality Standards
NACE		National Association of Corrosion Engineers
NDE		Non-Destructive Examination
NEMA		National Electric Manufacturers Association
NFPA		National Fire Protection Association
NOx		Nitrogen Oxides
NOI		Notice of Intent
NOT		Notice of Termination
NPV		Net Present Value
O&M		Operations and Maintenance
OBE		Operating Basis Earthquake
OC		Operations Center
OCIMF		Oil Companies International Marine Forum
OSHA		Occupational Safety and Health Administration
OSRP		Oil Spill Response Plan
P&I		Protection and Indemnity
PLC		Programmable Logic Controller
PO		Purchase Order
PPE		Personal Protective Equipment
PSD		Prevention of Significant Deterioration
psia		pounds per square inch (absolute)
psig		pounds per square inch (gauge)
QA		Quality Assurance
QC		Quality Control
RAM		Reliability, Availability and Maintainability
SCR		Selective Catalytic Reduction
SIGTTO		Society of International Gas Tanker and Terminal Operations
SPCC		Spill Prevention and Containment Control
SQG		Small Quantity Generator
SSE		Safe Shutdown Earthquake
SSPC		Steel Structures Painting Council
TEMA		Tubular Exchanger Manufacturers’ Association
USCG		United States Coast Guard
V		Volt
VOC		Volatile Organic Compounds

N-2

Index to Financial Statements

TABLE OF CONTENTS

Independent Engineer’s Report

Sabine Pass LNG Terminal


1.0	Background	A-1

2.0	Summary of Risks	A-2

3.0	Project Description	A-8

4.0	Project Status	A-10

5.0	Project Implementation	A-10

6.0	Construction Budget	A-13

7.0	Construction Schedule	A-13

8.0	Environmental Risks	A-14

9.0	Operations and Maintenance Programs	A-14

10.0	Contracts	A-16

11.0	Conclusions	A-17

Index to Financial Statements

INDEPENDENT ENGINEER’S REPORT

1.0

BACKGROUND

Cheniere Energy, Inc., the Sponsor, is based in Houston, Texas, USA. It originally established a fully owned subsidiary, Sabine Pass LNG, L.P. (“Sabine”) to develop, own and operate the Sabine Pass LNG Terminal Project (“Project”). The Project is located alongside the navigable Sabine River Channel in Cameron Parrish, Louisiana, directly across the river from Sabine Pass, Texas. It comprises a receiving and regasification terminal that will receive, store, and vaporize imported liquefied natural gas (“LNG”). Vaporized natural gas will be exported via natural gas pipeline to U.S. consumers. The Project will operate as a tolling terminal, processing LNG on behalf of two initial Terminal Use Agreement (“TUA”) Customers, Total LNG USA, Inc. and Chevron USA, Inc., who will own the imported LNG and the exported natural gas. The two TUA Customers have each reserved a LNG import and a regasification export capacity of approximately 1,000 million standard cubic feet of gas per day (“MMscfd”). A third TUA Customer, Cheniere Marketing, Inc. (“Cheniere”) has reserved a maximum capacity of approximately 2,000 MMscfd. At this time Cheniere has not yet executed a LNG Off-take Agreement with any LNG liquefaction facility to secure an LNG supply to process through the Project. The terminal was originally designed to import sufficient LNG to produce a maximum peak natural gas export capacity of approximately 2,600 MMscfd. This is termed the Phase I Project. In mid-2006, the Phase 2 Stage I Expansion Project (the “Phase 2 Project”) was implemented. Upon completion, this will increase the maximum peak export capacity to approximately 4,000 MMscfd.

The Phase 1 Project is being implemented under a lump sum turnkey EPC Contract by Bechtel Corporation, (“Bechtel” or the “EPC Contractor”). Principal subcontractors include Mitsubishi Heavy Industries Ltd. (“MHI”) with Matrix Services (jointly “MHI/Matrix”) for the LNG tanks, Weeks Marine Inc. (“Weeks”) for the marine terminal, and Remedial Construction Services, L.P. (“Recon”) for site preparation and soil improvement. Bechtel is also the general EPC Contractor for Phase 2 under a reimbursable form of contract. In addition, Bechtel is providing construction management services to assist Sabine with managing the other principal fixed-price Phase 2 EPC Contractors, a joint venture of Diamond LNG (an MHI company) and Zachry (“Diamond/Zachry”) for the two additional LNG Tanks, and Recon for site preparation and soil improvement.

The U.S. Federal Energy Regulatory Commission (“FERC”) issued approval for the Phase 1 Project on December 21, 2004. Limited Notice to Proceed was issued under the Phase 1 EPC Contract on January 4, 2005. Subsequently, the full Notice to Proceed was issued on April 4, 2005. The Guaranteed Substantial Completion Date was originally September 2, 2008; however, a hurricane Force Majeure Change Order has revised the date to December 20, 2008. Full utilization of the terminal by the two TUA Customers is to commence by April 1, 2009 for Total and by July 1, 2009 for Chevron.

In July 2005 Sabine submitted a permit application to FERC for the Sabine Pass LNG Terminal Phase 2 Expansion Project. Approval was granted on June 15, 2006. Stage 1 of the Phase 2 Expansion Project will increase the peak terminal throughput capacity by 1,400 MMscfd to the ultimate peak capacity of 4,000 MMscfd. Change orders were issued during the construction of the Phase 1 Project to provide tie-ins and other pre-investment work necessary to minimize potential construction and operations interferences to Phase 1 activities during the execution of the Phase 2 Expansion Project. Cheniere undertook a substantial engineering effort and committed pre-investment expenditure to identify and mitigate potential interferences by Phase 2 on the timely completion and operation of Phase 1. In Stone & Webster Consultants’ opinion, the Phase 2 Stage 1 Expansion of Sabine Pass poses negligible risk to the timely completion and operation of the Phase 1 Project.

A-1

Index to Financial Statements

INDEPENDENT ENGINEER’S REPORT—(Continued)

Aerial View from the North

LOGO

Stone & Webster Management Consultants, Inc. (“Stone & Webster Consultants”) was retained by Cheniere Energy, Inc. to conduct an independent technical assessment of the Project on behalf of the potential investors. Stone & Webster Consultants’ independent technical review report (“Report”), including the observations and conclusions presented herein, is based on, among other things, our review of the available technical, performance, schedule and cost data, visits to terminal site, and interviews with Cheniere personnel. The Report presents our findings and conclusions regarding the following:

•

Plant design and technology;

•

Project execution plans and implementation schedule;

•

Capital costs;

•

Expected plant performance and operating parameters;

•

Operations and maintenance programs and budgets; and

•

Environmental permitting and regulatory issues.

2.0

SUMMARY OF RISKS

As indicated above, the Terminal is being implemented in two phases under different contracting strategies. The primary revenue for the Project is derived from the Total and Chevron TUAs. Accordingly, Stone & Webster Consultants has considered areas where there is perceived technical risk to the implementation of the Phase 1 Project and areas where the Phase 2 Expansion Project and its operation could impact the Phase I Project. Particular focus has been placed on circumstances where the risk component could materially impact the projected cash flows. Tables 2.0-1 and 2.0-2 present a summary of our assessment of these risks.

A-2

Index to Financial Statements

INDEPENDENT ENGINEER’S REPORT—(Continued)

Table 2.0-1

Phase 1 Project Risks


Risk Component		Comment
LNG Supply Low Risk		This is a Terminal User obligation under the terms of the TUAs with Total and Chevron.

Technology Low Risk		In general, the Project is using established and suitable technology for the Project. Stone & Webster Consultants is of the opinion that the process facilities to be installed at the terminal are robust and should provide for a long and useful service life. Likewise Stone & Webster Consultants confirms that there are no unusual risks regarding the technology proposed for LNG receipt, LNG storage, or regasification.

Scale Up Low Risk		In Stone & Webster Consultants’ opinion, there is no scale-up risk associated with the Project. All major equipment is proven at the proposed size and capacity levels. Furthermore, the combined LNG export capacity of the two initial TUA Customers is 2,000 MMscfd versus a nameplate export rating of 2,600 MMscfd, thus providing ample excess capacity to service the two primary TUAs.

Environmental Issues Low Risk		Stone & Webster Consultants’ review has not identified any environmental issues that would have an undue effect upon either the Project construction schedule or budget, and compliance with local, state and federal requirements will result in full compliance with the Equator Principles.

Regulatory Issues Low Risk		The Sponsor has identified the appropriate permits and other regulatory approvals required for this Project, including the LNG carrier transit, berths and unloading facilities; the LNG storage and regasification units; power generation; and other infrastructure and auxiliary facilities. In Stone & Webster Consultants’ opinion, the Sponsor is making satisfactory progress towards obtaining the requisite approvals in a timely manner that supports the proposed construction schedule. Total and Chevron will jointly, but separately apply for a send-out pipeline permit to export their gas from the Terminal. On December 21, 2004, FERC issued the Order Granting Authorization under Section 3 of the Natural Gas Act (“FERC Order”) to Sabine Pass LNG, L.P., authorizing Sabine to construct an LNG terminal and send-out pipeline. The Louisiana LDEQ has issued Sabine a PSD air emissions permit. Sabine received its final construction permit from the U.S. Army Corps of Engineers.

Contracting Strategy and Project Execution Low to Medium Risk		The EPC Contractor is Bechtel Corporation, a skilled and experienced contractor with a long proven track record in the engineering, procurement and construction of energy-related projects, including LNG liquefaction and regasification facilities. The LNG storage tanks will be subcontracted to a consortium of MHI and Matrix Services. The marine terminal and associated dredging have been subcontracted to Weeks Marine, an experienced and reputable marine contractor. Site preparation and pile installation has been subcontracted to Recon, a skilled and experienced civil engineering contractor. In Stone & Webster Consultants’ opinion, each of these firms has the requisite experience and capability to undertake the assigned role for the implementation of the Project.

A-3

Index to Financial Statements

INDEPENDENT ENGINEER’S REPORT—(Continued)


		Sabine does not have sufficient permanent in-house personnel to properly and fully staff the Project Management Team, during Project execution. Therefore the Sponsor will hire temporary contract personnel and consultants to fill the open PMT positions. This organizational structure is typical for projects of this size and complexity, even by well-established major oil and gas corporations, due to previous downsizing. The PMT personnel have not previously worked together as a team and therefore have gone through a learning curve period.

Capital Cost Low to Medium Risk		The EPC Contract portion of the Phase 1 Project cost is being implemented under a LSTK contract with Bechtel. In our opinion, the Owner’s Costs properly reflect the responsibilities and risks carried by the Owner. The Total Phase 1 Project Costs is currently budgeted to fall in the range of US$900 to US$950 million. Stone & Webster Consultants has reviewed the detailed build-up of both the EPC Contract Cost and the Owner’s Costs. In our opinion, based upon our benchmarking of this Capital Expenditure (“CAPEX”) against that of comparable projects, the budget is reasonable.

Operating Cost Low Risk		Operations, maintenance and contract labor costs total US$10.0 million per annum. Other fixed operating costs amount to US$15.1 million per annum in the aggregate. Apportioned Cheniere G&A costs carried by the Project add $8.3 million, and the GE power generation maintenance expenses add a further US$3.2 million, bringing the total annual (Phase 1) O&M costs for year 2010 to US$36.6 million. Based on Stone & Webster Consultants’ experience with similar LNG receiving and regasification terminals world-wide, these O&M expenses fall well within industry benchmarks for similar facilities. Based upon the benchmark comparison, the O&M Budget estimate is reasonable. Moreover, the OPEX reimbursement provisions provided by the two primary TUAs cover any reasonable overage above the current O&M cost estimate.

Operating Performance Low Risk		In Stone & Webster Consultants’ opinion, the proposed facilities pose no unusual operating risks for a facility of this nature. The Sponsor has not commissioned a Reliability, Availability, and Maintainability (“RAM”) Analysis for the Project, but the expected availability of the individual tandem vaporization units is expected to be approximately 96 percent. Based on Stone & Webster Consultants’ experience, the re-gasification and export availability for all sixteen of the Phase 1 vaporizers should be approximately 81.5 percent. This means at least thirteen vaporizers should be fully available at all times. This results in a minimum continuous export availability of approximately 2,340 MMscfd versus the export capacity under the two primary TUAs of 2,000 MMscfd. The required export capacity of 2,000 MMscfd is equivalent to 90,500 cubic meters per day of LNG in liquid form. The available Phase 1 LNG storage capacity is 480,000 cubic meters, resulting in a storage-to-export ratio of 5.3:1 The industry norm is approximately 4:1, so the terminal has ample storage capacity to service the two primary TUAs.

A-4

Index to Financial Statements

INDEPENDENT ENGINEER’S REPORT—(Continued)


Operating Performance Low Risk		The required LNG reception quantity including retainage is approximately 90,500 cubic meters per day, which can be supplied on average by one 140,000 cubic meter LNG carrier every 36 hours. Given the availability of two independent unloading berths, Stone & Webster Consultants has no significant concerns regarding LNG receiving capacity, even accounting for unavailability due to inclement weather.

Interfaces Low to Medium Risk		The respective Customers of the Terminal are responsible for providing pipeline interconnections between the Terminal and the existing export natural gas pipeline grid connections. The main export line should be approximately 16 miles long to the principal connections tie-in points. Marine support facilities, e.g., tugs and line handling boats are the responsibility of the Terminal Users; however, Sabine will assist in securing and managing these services. Drinking water will be supplied in bottled form by local suppliers. Utility water will be provided via pipeline from a local supplier. Power will be supplied internally by three LM2500+ simple-cycle gas turbine-driven generators. Only two of the turbines are required for the export capacity required by the two primary TUAs. There will be no external power supply.

Geography Low to Medium Risk		Meteorological conditions for the site and the Gulf of Mexico are well understood. The site is within the hurricane belt. The design applies appropriate criteria to mitigate the impact of hurricanes.

Table 2.0-2

Phase 2 Stage 1 Expansion


Risk Component		Comment
Supply Low Risk		The Bond financing does not rely on cashflow generated from the Phase 2 Stage 1 Expansion. A third TUA has been executed with another Cheniere affiliate, Cheniere Marketing, Inc, but per Stone &Webster Consultants’ understanding, Cheniere has not yet contracted with any LNG liquefaction facility to supply Cheniere with LNG for processing through the Terminal.

Technology Low Risk		The Expansion Project is using proven technology for the tanks and vaporizers. The LNG Berths are being extended using open cell bulkhead technology to accommodate LNG carriers larger than 250,000 cubic meters. Open cell technology has been demonstrated to be effective in over 140 projects in Alaska and the Contiguous 48 States.

Scale Up Low Risk		The Project is using established equipment sizes. Equipment is identical to that used for Phase 1.

Regulatory Issues Low Risk		The Project is governed by established federal, state and local regulations. FERC issued its Authorization Order for the Phase 2 Expansion Project on June 15, 2006.

A-5

Index to Financial Statements

INDEPENDENT ENGINEER’S REPORT—(Continued)


Environmental Issues Low Risk		Stone & Webster Consultants’ review did not identify any environmental issues that would have an adverse effect on the Project cost, schedule or operation.

Equator Principles Issues Low Risk		The EA complies with the requirements of the Equator Principles. In Stone & Webster Consultants’ opinion, compliance with State and Federal requirements will result in full compliance with the Equator Principles.

Impact of Expansion on Phase 1 Low Risk		There are no unmanageable potential impacts or conflicts between Phase 1 and the Phase 2 Stage 1 Expansion Project. The Phase 2 Stage 1 expansion can be constructed, commissioned and operated without detriment to the Phase 1 facilities. Significant care has been given to ensuring that the Phase 2 Stage 1 Expansion of Sabine Pass poses negligible risk to the timely completion and operation of the Phase 1 Project.

Contracting Strategy and Project Execution Low to Medium Risk		In general, Sabine has opted to contract with the same contractors and principal suppliers as used for the Phase 1 Project. Bechtel serves as the main EPCCm Contractor, Diamond-Zachry for the construction of the two new LNG storage tanks, and Recon for soils remediation. In Stone & Webster Consultants’ opinion, each of these firms has the requisite experience and capability to undertake the assigned role for the implementation of the Project. In addition, Stone & Webster Consultants confirms that this contracting strategy should minimize any conflict between like contractors on the two phases of the Project. Sabine has selected a cost-reimbursable contracting philosophy for the majority of the Phase 2 Expansion Project that is designed to maximize its flexibility. A lump sum contract has been selected for the LNG tanks albeit with a labor escalation clause. Material costs were fixed following execution of the contract. These tanks are essentially identical to the three Phase 1 tanks. Zachry rather than Matrix is partnering with Diamond as the tank constructor. In Stone & Webster Consultants’ opinion, the contracting strategy is designed to ensure that the Phase 2 Stage 1 Expansion Project poses negligible risk to the timely completion and operation of the Phase 1 Project. Sabine has established a dedicated Project Management Team. Sabine will also use Bureau Veritas and other contract personnel, term contract personnel, and possibly personnel from other EPC contractors to supplement the Project Management Team. These positions will be filled as needed as the Project execution progresses. This organizational structure is typical for projects of this size and complexity, even by well-established major oil and gas corporations, due to previous downsizing. However, these PMT personnel have not previously worked together and will require a learning curve period before the team can efficiently and effectively oversee the various EPC Contractors and facilitate resolution of the detailed technical and execution queries that inevitably arise during execution of such a Project. This represents a medium risk to the Sponsors rather than to Sabine’s debt holders.

A-6

Index to Financial Statements

INDEPENDENT ENGINEER’S REPORT—(Continued)


Project Schedule Low Risk		Completion of the Phase-2 Expansion is not schedule-critical for Sabine’s debt holders. The 36-month schedule for Phase 2 is challenging but achievable.

Capital Cost Low to Medium Risk		The EPC Contract portion of the Phase 2 Project cost is being implemented under a reimbursable EPCCm contract with Bechtel and under fixed-price EPC Contracts with other contractors. In our opinion, the Owner’s Costs properly reflect the responsibilities and risks carried by the Owner. The Total Phase 2 Stage 1 Project Cost is currently budgeted to fall in the range of US$500 to US$550 million. Stone & Webster Consultants has reviewed the detailed build-up of both the EPC Contract Cost and the Owner’s Costs. In our opinion, based upon our benchmarking of this Capital Expenditure (“CAPEX”) against that of comparable projects, including the Phase 1 Project, the budget is reasonable.

Operating Cost Low to Medium Risk		Operations, maintenance and contract labor costs total US$10.0 million per annum. Other fixed operating costs amount to US$15.8 million per annum in the aggregate. Apportioned Cheniere G&A costs carried by the Project add $8.3 million, and the GE power generation maintenance expenses add a further US$4.6 million, bringing the total annual (Phase 1) O&M costs for year 2010 to US$38.7 million, a US$2.1 million increase over Phase 1. Note: fuel for regasification is provided by the Terminal Users.

Interface with Existing Infrastructure Low Risk		Tie-ins to the existing Phase 1 Project have been provided to minimize/eliminate tie-in issues. Expansion of the LNG Berths to accommodate larger LNG carriers is not on the critical path. It will be undertaken before mid-2007 and will not impact operation of the berths during Phase 1.

Interface with Existing Infrastructure Low Risk		Total and Chevron have contracted with the proposed Kinder Morgan LP (“KMLP”) pipeline for the transportation of their natural gas. Sabine will have unhindered access to the Cheniere Sabine Pass Pipeline, L.P. (“CSPP”) pipeline for export of gas from the facilities to service the Cheniere LNG Marketing TUA and for Phase 1 commissioning and performance testing, which will occur before the KMLP is commissioned.

Logistics Low to Medium Risk		The Expansion site has been provided with separate ingress and egress and separate laydown areas from the Phase 1 Project. The Phase 1 Project and Phase 2 Expansion Project will share use of the common Construction Dock. Detailed planning will facilitate coordination of the use of this facility, but Phase 1 will always have priority access. A dedicated crane and crew will be provided at the Construction Dock to expedite access to all parties. The Phase 1 Project is proving to be a preferred work location for local craft labor due to the duration of the combined Projects. The time-lag between phases should facilitate Bechtel Home Office and construction labor moving from Phase 1 to the Phase 2 Project.

Geography Medium Risk		The site is located on the US Gulf coast in an area that is prone to hurricanes. The Phase 1 Project was affected by Hurricane Katrina and Rita during 2005. Primary risk pertains to the construction period when facilities are incomplete.

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Index to Financial Statements

INDEPENDENT ENGINEER’S REPORT—(Continued)

3.0

PROJECT DESCRIPTION

3.1

Site

The Sabine Pass LNG plant site is situated on an area once utilized by the U.S. Army Corps of Engineers as a depository for Sabine/Neches Waterway dredging spoils; hence the soils at the site require substantial remediation and enhancement.

3.2

Facilities

The Phase 1 Project consists of the following principal components:

•

Marine receiving terminal capable of unloading two LNG carriers simultaneously. The marine terminal consists of two LNG carrier unloading docks, each capable of unloading an LNG carrier with cargo capacity in the range from 87,600 cubic meters to 250,000 cubic meters of LNG. The Sponsor anticipates that a 250,000 cubic meter LNG carrier will have a draft of 39.4 feet. The US Coast Guard (the “USCG”) states that the shipping channel is currently maintained at 40 feet of depth which is adequate to accommodate current LNG carriers, which have a maximum draft of approximately 37.4 feet. However, recent soundings tabulated by NOAA and data contained in the Vessel Maneuvering Simulation Study indicate channel depths of 42 feet, and that areas of the pass channel have depths of 45 feet. Sponsor will dredge the berth/terminal area to a depth of 45 feet below mean low water line plus two feet of over dredge. The deeper depth of the berths will permit Sabine to better monitor the rate of sedimentation accumulation to better plan future dredging operations.;

•

Three 160,000 cubic meter single containment LNG storage tanks. Each tank is designed for a working tank volume of 160,000 cubic meters, or approximately 1,006,400 barrels. This type of tank comprises an inner LNG containment tank fabricated from nine-percent nickel steel, suitable for the cryogenic storage temperature of approximately (-)260°F. The inner tank is then surrounded by an outer carbon steel tank, which retains the perlite insulation material, which is poured into the annular area between the two tank walls. Each LNG storage tank is enclosed within an individual earthen dike or berm designed to contain 110 percent of the maximum tank volume in the event of a tank rupture. In the U.S., this diked volume is a requirement of federal regulation 49CFR193, which is followed rigorously by the Federal Energy Regulatory Commission (“FERC”);

•

LNG circulation system to keep unloading systems cold between LNG shipments;

•

LNG tank and LNG carrier vapor handling systems ;

•

Storage tank boil-off gas compressors and re-condenser systems;

•

Three LNG in-tank transfer pumps in each tank. The sendout pumps will be multi-stage, seal-less vertical centrifugal pumps, with the entire pump and motor submerged in, in accordance with accepted industry practice;

•

Sixteen LNG high pressure export pumps submerged in a pumpout vessel supplied with the pump and Submerged Combustion Vaporizers (“SCV”). Each SCV is designed with an absorbed heat duty of approximately 116.0 MMBtu per hour, a well-proven capacity level. Vaporizers are essentially self-contained package units, complete with fully integrated burner management systems and safety interlocks. The SCV package also includes the electric motor-driven combustion air blower, which compresses air up to the submerged combustion pressure. SCVs are robust units, currently employed in approximately 75 percent of the world’s LNG regasification terminals, and thus represent very little risk;

•

Natural gas metering stations and export pipeline header;

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Index to Financial Statements

INDEPENDENT ENGINEER’S REPORT—(Continued)

•

Electric power generation and distribution. This comprises three LM 2500+ aeroderivative gas turbine driven generator sets, which are well-proven in the industry:

•

Utilities, infrastructure, and support facilities.

The Phase 1 marine terminal consists of two LNG carrier unloading docks, each capable of unloading LNG carriers of between 87,600 cubic meters and 250,000 cubic meters of LNG storage capacity.

Phase 2 comprises the addition of:

•

Modifications to the original berth design by adding approximately 100 feet of additional clearance at the stern of docked LNG carriers by replacing the rock rip-rap covered, sloped underwater shore with vertical bulkhead constructed using open cell technology developed and patented by PND Incorporated (“PND”), headquartered in Anchorage, Alaska.

•

eight tandem vaporization units, each consisting of a high pressure send-out pump coupled to a SCV designed to vaporize approximately 180 MMscfd;

•

two additional 160,000 cubic meter LNG storage tanks;

•

a fourth GE (LM-2500+) gas turbine power generation unit;

•

a partial Ambient Air Vaporizer (“AAV”) train, consisting of 11 cells, to serve as a pilot testing facility. The use of AAV technology has potential operating cost reduction benefits in the summer months. A full AAV train comprises 33 cells and has a design vaporization capacity of 180 MMscfd.

•

a new Auxiliary Control Building;

•

a new electric power Substation;

•

a fourth instrument and utility air compression unit;

•

additional utilities and infrastructure facilities to support the overall expansion program;

•

additional tie-ins and other pre-investment work required to minimize potential construction and operations interferences due to the addition of the subsequent Phase 2 expansion stages.

3.3

Operation

Pumps onboard a LNG carrier are used to unload LNG and transfer it to the storage tanks. As the LNG enters a storage tank, vapor in the tank is displaced. This cold vapor is returned to the LNG carrier to replace the equal volume of unloaded LNG and maintain constant pressure in both the tank and the carrier. This vapor is returned to the carrier via cryogenic blowers. Similarly, between LNG deliveries, a small amount of LNG will be circulated from the storage tanks through the carrier unloading lines to keep them at cryogenic unloading temperature. LNG is pumped from each storage tank by in-tank submerged transfer pumps. These discharge LNG from the tank at approximately 85 psig. Excess tank vapor is compressed to 85 psig. Vapor re-condensers then condense and re-absorb the compressed vapor into the pressurized LNG pumped from the tanks. Multi-stage export pumps boost the pressure of the LNG to 1550 psig. This high-pressure LNG is fed to submerged combustion vaporizers (“SCV”). Each pump feeds one SCV. A total of sixteen pump/vaporizer tandem sets are provided under Phase 1, each with a design export capacity of approximately 180 MMscfd. Achieved capacity depends on the LNG composition. A small amount of the vaporized export gas, less than two percent of the total capacity, will be consumed internally as fuel gas for the terminal. Export gas will be routed through a metering station into the main export pipeline header, which is connected to numerous natural gas distribution pipelines. All export pipeline infrastructure downstream of the metering station is to be supplied by others.

The Phase 1 Sabine Pass LNG Terminal will generate its own electric power from two operating General Electric (LM-2500+) gas turbine-driven generators plus one spare unit. Maximum expected power consumption

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Index to Financial Statements

INDEPENDENT ENGINEER’S REPORT—(Continued)

is approximately 50 MW, compared to an installed capacity of 75 MW. Under Phase 2 a fourth LM-2500+ turbine-generator unit will be added. At the maximum peak export capacity of 4,000 MMscfd, three of the four generators will be required for full Terminal operations, with the fourth unit available as a stand-by spare.

4.0

PROJECT STATUS

4.1

Phase 1

Stone & Webster Consultants’ understanding on the current status of the Project is based on our review of the September 2006 Monthly Progress Report issued by Bechtel. Cumulative aggregate progress of the Phase 1 Project through the end of September 2006 was 60.1 percent compared to with planned progress of 62.5 percent. The Project has two near parallel critical paths, one relating to the LNG Tanks which has zero float and the other relating to the power generation facilities which has nine days float. Progress on these two critical paths is such that Bechtel is expected to achieve the Target Bonus Date of April 3, 2008, which corresponds to completion of the main terminal and two of the three LNG Tanks and to a demonstrated export capacity of 2,000 MMscfd. The scheduled Substantial Completion Date which corresponds to completion of the entire terminal and demonstration of the maximum peak export capacity of 2,730 MMscfd, is currently scheduled for November 8, 2008, versus the revised Guaranteed Substantial Completion Date of December 20, 2008. Therefore, the Project is currently proceeding in accordance with the Construction Budget and Schedule.

At the end of September 2006, engineering progress was 95.0 percent versus the baseline plan of 96.0 percent. Procurement progress was 79.0 percent versus the plan of 80.0 percent. Construction progress was reported as 47.7 percent versus the plan of 50.9 percent.

However, the impacts of the 2005 hurricane season on both the LNG Tank and the marine terminal subcontractors have not been integrated into the schedule. Similarly, the impact of the re-design of the marine terminal bulkheads, has not yet been integrated into the baseline construction progress curves. Therefore, some of this apparent progress deficiency will be reduced once that integration occurs. The Target Bonus Completion Date still remains as April 3, 2008, albeit with zero days of float. The Guaranteed Substantial Completion Date has 34 days of positive float, indicating a great deal of comfort in meeting this required completion date.

4.2

Phase 2 Stage 1

The Phase 2 Project is currently undergoing soil stabilization and enhancement, and other contractors are mobililizing for home office engineering and procurement. The early construction management team has also mobilized to the site to oversee Recon’s Phase 2 work. The overall Project Control Schedule has not yet been finalized so baseline progress curves have not yet been developed.

5.0

PROJECT IMPLEMENTATION

5.1

Codes and Standards

In the Project documentation, the Sponsor required that all Project facilities are to be specified, engineered, procured, constructed, operated and maintained in accordance with all applicable Federal and state regulations and accepted industry practices and guidelines. The primary requirements for this federally regulated Project are mandated by the United States Federal Energy Regulatory Commission (“FERC”), which principally refer to 49 CFR 193 and NFPA 59A. These regulations are further augmented by the International Maritime Organization, Society of International Gas Tanker & Terminal Operators Ltd. (“SIGTTO”), and other applicable industry standards and codes which are required and incorporated by reference in the regulations and documents promulgated by these entities. The industry guideline adopted by SIGTTO is specifically referenced in the two Terminal Use Agreements (“TUA”) between Sabine Pass LNG, L.P and the Project’s anchor Customers, Total

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Index to Financial Statements

INDEPENDENT ENGINEER’S REPORT—(Continued)

LNG USA, Inc. and Chevron USA Inc. Equipment provided under both Phase 1 and Phase 2 incorporates the latest technology updates with respect to high efficiency performance and low emissions. Thus the Project will represent little risk from an equipment performance and reliability perspective. Based on the foregoing requirements, in Stone & Webster Consultants’ opinion, the design is consistent with that of similar facilities within the United States and abroad and should result in an LNG terminal facility capable of fulfilling the commitments made under the TUAs.

5.2

Phase 1 Contracting Strategy

Cheniere contracted Bechtel to undertake the FEED for the Project. It pre-selected MHI/Matrix as the LNG Tank Subcontractor, Weeks Marine as the Marine Subcontractor, and Recon as the Soils Improvement Subcontractor. In addition, Cheniere limited bidding and negotiation on certain long-lead equipment to one or two vendors, including T-Thermal for the submerged combustion vaporizers, IHI for the boil-off gas compressor, and FMC and Connex SVT for the unloading arms. It then negotiated with Bechtel on an open-book estimate basis to provide a lump sum price for turnkey EPC Contract for the Project. Stone & Webster confirms that the selected subcontractors and equipment suppliers have the expertise and experience to perform the specified work or provide the equipment.

5.3

Phase 2 Contracting Strategy

Sponsor provided the following draft contracts and agreements for our review and comment:

•

Reimbursable Bechtel EPCCm Contract,;

•

Fixed Price Diamond/Zachry EPC LNG Tank Contract;

•

Unit Rate Recon EPC Contract for Soils Improvement;

All of these contracts were subsequently executed on July 21, 2006.

In addition, we reviewed the executed Willbros/CSPC EPC Contract for Cheniere Sabine Pass Pipeline Project, dated February 1, 2006.

Sabine executed a reimbursable EPCCm Contract with Bechtel that will provide engineering, procurement and construction management services together with direct hire construction services for those activities not provided by other contractors.

The reimbursable form of contract requires additional diligence and oversight by Sabine, especially when Phase 1 and Phase 2 work is being undertaken concurrently by the same contractor but paid under different compensation arrangements. Sabine issued its “Notice to Proceed” to Bechtel on July 26, 2006.

The Phase 1 scope of work is proceeding under a fixed price, lump-sum turn key contract format. In contrast, the Phase 2 Project is being executed using a combination of individual reimbursable or unit rate contracts between Sabine and selected contractors and a reimbursable time and material contract with Bechtel responsible for all work not directly contracted by Sabine including detailed engineering, procurement and construction services. Bechtel will also serve as Sabine’s overall Construction Manager, in overseeing all contractors for the Phase 2 Expansion project. Under this arrangement Sabine retains total responsibility for risks associated with project scope and also assumes the risk for cost increases associated with labor productivity.

In Stone & Webster Consultants’ opinion, Sabine has selected a contracting scheme that facilitates and complements its goal to minimize any interference between Phase 1 and Phase 2 activities. The contracting basis pays cognizance to the change in the EPC contracting environment over the past two years, in particular

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Index to Financial Statements

INDEPENDENT ENGINEER’S REPORT—(Continued)

reluctance to lump sum bid EPC contracts on the US Gulf Coast. Moreover, the contracting strategy pays cognizance to the protection afforded under the Phase 1 lump sum contract by utilizing the same key contractors and vendors. The contracts reflect generally acceptable provisions and terms that do not impinge upon Phase 1. Overall, the contracting strategy provides Sabine with flexibility should it be necessary to change the mode or order in which the work is completed.

5.4

Foundations

The Sabine Pass LNG plant site is situated on an area once utilized by the U.S. Army Corps of Engineers as a depository for Sabine River Channel dredging spoils. Dredged soils in the tank areas have been stabilized to a depth of 12 feet below grade. All foundations for major equipment and structures, including the LNG storage tanks, LNG process equipment, pipe racks and marine terminal equipment, are piled. Project specifications required field testing of at least four piles per tank that support the LNG storage tank foundation. Final pile design for the tank foundation piles was determined from these test results.

5.5

Implications of Phase 2 on the Phase 1 Project

Management and co-ordination of the Phase 1 Project and the Phase 2 Stage 1 Expansion Project present challenges that can be met by careful early planning and diligent attention to execution. Accordingly, Sabine and Bechtel have developed procedures and execution plans that address potential interferences or conflicts between the two projects. The potential adverse effect of the Phase 2 Expansion on the Phase 1 Project is mitigated substantially by the one-year lag between the two Project schedules. Essentially all Phase 1 engineering, procurement, and initial construction activities will be completed before those for Phase 2 commence. Sabine has performed a comprehensive scheduling analysis of the common utilization of the full-time crew and crane at the Construction Dock. This analysis indicates no unmanageable conflicts. Sabine represents that it will provide an experienced and adequately staffed Project Management Team and supporting Owner’s Engineer personnel to properly oversee Bechtel and the other Expansion Project contractors. Sabine and Bechtel will provide a user-friendly, logic-linked Critical Path Method (“CPM”) control schedule as quickly as practical to allow detailed planning especially of tie-ins to the Phase 1 facilities, as well as common use of the Construction Dock and public access roads by all parties, including the two export pipeline projects. Stone & Webster Consultants confirms that this is consistent with good industry practice.

Sabine and Bechtel have implemented enhanced compensation programs to attract and retain skilled construction craft labor for both Projects. Should competition with outside projects drawing on the same labor resource create overall labor shortages at the Sabine site, Phase 1 will have absolute priority to available labor resources. Sabine plans to hire extra operations personnel on a term-contract basis to satisfy operations requirements of both Phases. The term-contract personnel will be released upon achievement of full operational status for the entire expanded facility. Total and Chevron have contracted to use the proposed KMLP pipeline for the transportation of their natural gas, thus completely freeing up the CSPP pipeline for unhindered access by Sabine for commissioning, performance testing of both Phase 1 and Phase 2, and for normal operation of the Phase 2 Stage 1 facilities in servicing the Cheniere TUA export volumes.

Given these scenarios and the overall Phase 2 Stage 1 Project Execution Plan, in Stone & Webster Consultants’ opinion, there are no unmanageable potential impacts, interferences or conflicts between the Phase 1 Project and the Phase 2 Stage 1 Expansion Project in terms of engineering, procurement, construction, commissioning, and performance testing, nor in terms of the achievement and continuation of normal operational status.

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Index to Financial Statements

INDEPENDENT ENGINEER’S REPORT—(Continued)

6.0

CONSTRUCTION BUDGET

6.1

Phase 1 Budget

The EPC Contract portion of the Phase 1 Project cost is being implemented under a LSTK contract with Bechtel. In our opinion, the Owner’s Costs properly reflect the responsibilities and risks carried by the Owner. The Total Phase 1 Project Costs is currently budgeted to fall in the range of US$900 to US$950 million. Stone & Webster Consultants has reviewed the detailed build-up of both the EPC Contract Cost and the Owner’s Costs. In our opinion, based upon our benchmarking of this CAPEX budget against comparable projects, the budget is reasonable.

6.2

Phase 2 Budget

The EPC Contract portion of the Phase 2 Project cost is being implemented under a reimbursable EPCCm contract with Bechtel and under fixed-price EPC Contracts with other contractors. In our opinion, the Owner’s Costs properly reflect the responsibilities and risks carried by the Owner. The Total Phase 2 Stage 1 Project Cost is currently budgeted to fall in the range of US$500 to US$550 million. Stone & Webster Consultants has reviewed the detailed build-up of both the EPC Contract Cost and the Owner’s Costs. In our opinion, based upon our benchmarking of this CAPEX budget against comparable projects, including the Phase 1 Project, the budget is reasonable.

7.0

CONSTRUCTION SCHEDULE

7.1

Phase 1

The Force Majeure impacts from the hurricanes, resulting in extension of the Guaranteed Substantial Completion Date from September 2, 2008 to December 20, 2008, have been incorporated into the updated Level III CPM Schedule. The revised key contractual Project Milestone dates are summarized below in Table 7.1-1.

Bechtel’s primary critical path runs through the LNG Storage tanks, with RFCD of LNG Tank 2 scheduled for March 23, 2008, with zero float. A near parallel secondary critical path runs through startup of the power generation facilities, which is scheduled for September 27, 2007. This activity currently has nine days of positive float. This means that the actual startup of these facilities can still slip 9 working days without impacting achievement of the Target Bonus Date. Timely startup of the power generation facilities is integral to Bechtel being able to pre-commission and commission the entire terminal. The scheduled Target Bonus Date of April 3, 2008 is currently indicated as having zero days of float, as this is the reference point for the Schedule. However, in Stone & Webster Consultants opinion, field construction is being undertaken in a well-managed and proactive manner. Once engineering and procurement constraints are removed, Stone & Webster Consultants expects construction management to generate float and achieve the Target Bonus Date of April 3, 2008.

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Index to Financial Statements

INDEPENDENT ENGINEER’S REPORT—(Continued)

Table 7.1-1

Scheduled Key Milestone Dates


Milestone Description	EPC Contract Basis	Early Finish	Late Finish
FERC Approval	Condition Precedent	Dec 21, 2004	Completed
Limited Notice to Proceed (LNTP)	On or Before Jan 4, 2005	Jan 4, 2005	Completed
Notice to Proceed (NTP)	Min 90 days after LNTP	April 4, 2005	Completed
Approved Perf. Test Procedures	By 24 Months after NTP	April 4, 2007	April 4, 2007
Submit Target Bonus Test Procedures		Jan. 7, 2008	Jan. 18, 2008
Ready For Cool Down System #1	Terminal plus Tank No.1	Feb 18, 2008	Feb 28, 2008
Ready For Cool Down System #2	LNG Tank No.2	March 21, 2008	March 25, 2008
Target Bonus Date (2000 MMscfd)	1095 days after NTP	April 3, 2008	April 3, 2008
Ready For Cool Down System #3	LNG Tank No.3	July 1, 2008	Sept. 5, 2008
Ready For Performance Testing		July 18, 2008	July 18, 2008
Substantial Completion		Sept 2, 2008	Nov. 8, 2008
Guaranteed Substantial Completion	1355 days after NTP	Nov. 8, 2008	Dec. 20, 2008
Final Completion (EPC Contract)	Max 90 days after SC	Dec. 10, 2008	Feb. 12, 2009
Total TUA Commences	Total TUA Agreement	April 1, 2009	April 1, 2009
Chevron TUA Commences	Chevron TUA	July 1, 2009	July 1, 2009

7.2

Phase 2

Start-up and commissioning of the Phase 2 Expansion facilities are scheduled for the second quarter of 2009 based on an overall construction duration of 36 months from an Effective Date of late July 2006. While this duration would be considered overly optimistic for a new grass-roots facility, in Stone & Webster Consultants opinion, it is aggressive but achievable for the Phase 2 Stage 1 Expansion Project, recognizing that the commercial negotiations and design for the major equipment has already been concluded. This notwithstanding, the construction period for the LNG tanks does not contain excessive float and is not overly generous. Sabine and Bechtel will develop a rigorous, logic-linked, Critical Path Method (“CPM”) control schedule within 120 days after NTP. The CPM schedule will allow detailed planning of tie-ins to the Phase 1 facilities and evaluation of access to the site by all parties, including the two export pipeline projects.

8.0

ENVIRONMENTAL RISKS

Stone & Webster Consultants has reviewed the environmental and regulatory information provided to us by Sabine pertaining to the Phase 2 Expansion, most of which is contained in Sabine’s FERC application. FERC has issued its permit to construct the Phase 2 Expansion. In Stone & Webster Consultants’ opinion, Sabine should be able to obtain the requisite supplementary permits and other regulatory authorizations for the Phase 2 Expansion Project without significant impacts upon either the Phase 1 Project or to the Phase 2 Expansion Project costs or schedule. The expanded facilities will comply with the Equator Principles.

9.0

OPERATIONS & MAINTENANCE PROGRAMS

9.1

Expanded Terminal O&M Costs

During the Phase 2 due diligence, Stone & Webster Consultants and Sabine mutually agreed on an operations and maintenance budget for the expanded, Phase 1 plus Phase 2 LNG Terminal, which is summarized in Table 9.1-1. These O&M Expenses were duplicated in the original due diligence Financial Models. The entries reflect those costs and expenses expected during the first full TUA Contract Year of operations, 2010.

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Index to Financial Statements

INDEPENDENT ENGINEER’S REPORT—(Continued)

Table 9.1-1

LNG Terminal O&M Expenses

Contract Year 2010


O&M Expense Description	2,000 MMscfd US$ Million	4,000 MMscfd US$ Million
Operations, Maintenance & Contract Labor Costs	10.0	10.0
Other Fixed Operations and Maintenance Costs	14.5	15.2
Subtotal Fixed O&M Costs	24.5	25.2
Fixed Opex Contingency Allowance @ 2.5 percent	0.6	0.6
Total Annual Fixed O&M Costs	25.1	25.8
Annual G&A Costs (Sabine Management & O&M Agreements)	8.3	8.3
Annual GE Power Generation Long-term Maintenance Expenses	3.2	4.6
Total Operations & Maintenance Expenses for Year 2010	36.6	38.7

9.2

Terminal Operational Issues

Based upon all information available, Lanier, an outside marine consultant, concluded in its Marine Traffic Study that the infrastructure of the Sabine-Neches Waterway, coupled with projected staffing increases by the Sabine Pilots Association, would be adequate to handle all of the ship traffic increases projected over the next ten years, including the addition of the three new LNG terminals currently planned by other developers along the Sabine-Neches Waterway. Stone & Webster Consultants concurs with this assessment.

The Phase 1 due diligence effort and the two primary TUAs were based on the assumption that Sabine would receive LNG deliveries by carriers averaging 140,000 cubic meters in size. In Stone & Webster Consultants’ opinion, an average unloading time of 30 hours per LNG carrier is sufficient. This unloading time is supported by shipping simulation study results obtained from software provided to Sabine by an outside shipping consultant. This unloading time results in a total unloading time of 14,160 hours shared between the two berths, which in turn results in 2,880 hours of slack time between the two berths. This is quite reasonable, assuming the average LNG carrier size is 140,000 cubic meters. However, the bulk of the current LNG carrier fleet ranges between 125,000 and 140,000 cubic meters in size. Assuming half of the deliveries were to arrive by 125,000 cubic meter carriers and half by 140,000 carriers, the total number of deliveries would be approximately 500. Assuming the same unloading time of 30 hours each results in a cumulative unloading time of 15,000 hours. The available slack time for this scenario would be 2,040 hours for a utilization percentage of 88 percent, which is also acceptable. Therefore, in Stone & Webster Consultants’ opinion, the marine unloading facilities as currently designed are more than adequate to support the 2,000 MMscfd of capacity held by the two primary TUA Customers. The facilities also appear to be adequate to support the Sabine Pass LNG Terminal expansion to its peak export capacity 4,000 MMscfd, given that a number of recently ordered LNG carriers are around the 250,000 cubic meter capacity for which the marine terminal is designed.

Sabine’s plan calls for up to fifteen of the pump/vaporizer tandem units to operate at peak capacity, with at least one unit remaining idle as a spare. However, only twelve SCVs are required to meet the combined average demand of the two primary TUA Customers, or 2,000 MMscfd.

In Stone & Webster Consultant’s opinion, one single spare vaporization tandem unit is insufficient to claim a continuous vaporization capacity of 4,000 MMscfd of gas for the expanded facilities. Sabine has not yet commissioned a comprehensive RAM analysis to determine the expected overall availability of the expanded facilities. Therefore Stone & Webster Consultants determined its own estimate of the availability of the expanded facilities to be a sustained export capacity of approximately 3,500 to 3,600 MMscfd, corresponding to 20 of 24

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Index to Financial Statements

INDEPENDENT ENGINEER’S REPORT—(Continued)

installed SCVs in operation. Therefore, in Stone & Webster Consultants’ opinion, Sabine will be able to demonstrate the necessary performance level to service the two primary TUA Customers.

Stone & Webster Consultants is of the opinion that the addition of the fourth power generation unit will cover the power consumption requirements of the Phase 2 Stage 1 Expansion Project, such that three units will cover operations with the fourth unit as a stand-by spare. In Stone & Webster Consultants’ opinion, the proposed power generation facilities for the Phase 2 Expansion Project will provide a reliable system that will meet all potential Project performance expectations.

The responsibility for providing pipeline interconnections between the terminal and the existing export natural gas pipeline grid system rests solely with each of the respective Customers of the Sabine Pass LNG Terminal. CSPP has received FERC authorization to construct the CSPP pipeline with an authorized capacity of 2,600 MMscfd. However, Total and Chevron both have indicated that they instead plan to export gas via a new KMLP pipeline, and they are responsible for ensuring that the KMLP will be operational when the two primary TUAs commence operations. CSPP has executed a contract with Willbros Group, Inc. to have the CSPP installed and ready for service by September 30, 2007. The scheduled Target Bonus Date for the Phase 1 Sabine Pass LNG Terminal Project is April 3, 2008, so the CSPP should be available to the Project in sufficient time for commissioning and testing under the Bechtel EPC Contract for EPC Contract completion and testing of the Phase 1 Project.

Stone & Webster Consultants has reviewed the proposed OPEX for the combined Phase 1 and Phase 2 Stage 1 facilities. In our opinion, a reasonable level of OPEX has been established by Sabine for the expanded terminal.

10.0

CONTRACTS

10.1

TUAs

Stone & Webster Consultants has reviewed the Total and Chevron TUAs that form the financial foundation of the Project, the respective executed TUA-associated Omnibus Agreements and the executed EPC Contract for Phase 1, dated December 18, 2004.

Under each of the TUAs, the fees to be paid to Sabine include a Fixed Component Fee, set at US$0.28 per MMBtu of LNG received and is fixed for the 20-year term of the TUA. The FOC Component Fee, designed to partially reimburse Sabine for fixed operating costs, is set initially at US$0.04 per MMBtu, but it is subject to escalation according to the U.S. Consumer Price Index. Also, Sabine is entitled to 2.0 percent of the LNG received for internal terminal energy consumption, primarily for vaporizer and power generation fuel. Stone & Webster Consultants confirms that this should be ample to cover the anticipated consumption. All third-party marine terminal expenses (tug boats and line service boats, etc.) can be passed through 100 percent to the Customers, and the Customers are also obligated to pay a portion of the terminal taxes in addition to the fixed fees. Overall, in Stone & Webster Consultants’ opinion, the TUA fee structure is favorable to the Sponsor, in that payment is due in general terms regardless of terminal throughput, with little risk in terms of Force Majeure and Termination. .

An Omnibus Agreement forms an addendum to each TUA, and provides in each case for early payments, termed Capacity Reservation Fees, of the Fixed Component of the Reservation Fee. These provisions call for Total and Chevron to make US$20.0 million payments to the Sponsor that will be recouped through a monthly reduction in the Fixed Component Fee equal to US$166,667 per month (US$2 million per annum for each) for the first ten years of primary TUA operations.

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Index to Financial Statements

INDEPENDENT ENGINEER’S REPORT—(Continued)

10.2

Phase 1 EPC Contract

Stone & Webster Consultants reviewed the executed EPC Contract, including the Attachments and Schedules. In our opinion, the EPC Contract generally conforms to the structure, format, and content of basic engineering, procurement and construction contracts utilized for the design and construction of facilities of this type.

The Contract stipulates a payment retention of five percent of each payment due to the Contractor. These funds are surrendered to the Contractor upon achievement of Substantial Completion. Similarly, the Contractor must maintain a Letter of Credit (“LOC”), valued at ten percent of the Contract Price. Upon achievement of Substantial Completion, the value is reduced to five percent, and the LOC is retired completely at the end of the Defects Correction Period, which ends eighteen months following Substantial Completion. These provisions, in general, provide favorable protection against EPC Contractor non-performance during the construction and warranty periods.

As noted previously, the current EPC Contract schedule is based on a 44-month duration, which Stone & Webster Consultants considered to be reasonable. Most schedules for similar facilities range from 37 to 45 months. Even though the Contract provides for Delay Liquidated Damages of up to 10 percent of the Contract Price, robust for a facility of this type, Stone & Webster Consultants sees little likelihood that Delay Liquidated Damages will require enforcement. Performance Liquidated Damages are specified with a maximum liability of up to 10 percent of the Contract Price for Sendout Rate Performance deficiency and up to two percent for Ship Unloading Time deficiency. The aggregate Performance Liquidated Damages are limited to 10 percent. Thus the Contactor is obligated for a maximum Liquidated Damages liability of 20 percent of the Contract Price.

Total Phase 1 EPC Contract maximum liability is limited to 30 percent; however, the Contractor is obligated for much higher liability in the requirement to demonstrate operational capability of all facilities prior to formal Performance Testing, all of which, taken together, constitute favorable protection. Overall, Stone & Webster considers that the terms of the EPC Contract are reasonable and properly place the responsibility for the timely completion and technical performance of the Project on the general EPC Contractor.

11.0

CONCLUSIONS

In Stone & Webster Consultants’ opinion:

•

The Phase 1 Project is technically viable;

•

The Phase 1 Project Budget is reasonable;

•

The Phase 1 Schedule is reasonable;

•

The Phase 1 Project has been approved by FERC, indicating compliance with environmental regulations and that environmental risks are low;

•

The Phase 1 Project contracting strategy is reasonable and minimizes the strain on a start-up company;

•

The Phase 1 EPC contract provides a suitable basis for contracting the required services;

•

The Phase 1 Project will provide ample availability to service the required 2,000 MMscfd export capacity requirements of the two primary TUA customers;

•

The Phase 2 Stage 1 Expansion of Sabine Pass poses negligible risk to the timely completion and operation of the Phase 1 Project;

•

The Phase 2 Stage 1 Expansion is technically feasible and viable;

•

The Phase 2 Stage 1 Budget is reasonable and generally consistent with that for the Phase 1 Project;

A-17

Index to Financial Statements

INDEPENDENT ENGINEER’S REPORT—(Continued)

•

The Phase 2 Stage 1 Schedule is reasonable;

•

The Phase 2 Project has been approved by FERC, indicating compliance with environmental regulations and that environmental risks are low;

•

The Phase 2 Stage 1 Project contracting strategy provides the Company with maximum flexibility in Phase 2 Project execution;

•

The Phase 2 Stage 1 construction contracts provide a suitable basis for contracting the required services without impinging on the Phase 1 Project interests;

•

The Phase 2 Stage 1 Project will in effect increase the overall export capacity to a maximum peak rate of 4,000 MMscfd and a long-term sustainable capacity of at least 3,500 MMscfd.

A-18

Index to Financial Statements

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers

Section 17-108 of the Delaware Revised Limited Partnership Act empowers a Delaware limited partnership to indemnify and hold harmless any partner or other person from and against all claims and demands whatsoever. The fifth amended and restated agreement of limited partnership of Sabine Pass LNG, L.P. provides that Sabine Pass LNG, L.P. will exculpate and indemnify (including advancement of all defense expenses in the event of threatened or asserted claims) its general partner, Sabine Pass LNG-GP, Inc. (and any affiliate, officer, director, partner, employee, trustee and agent of the general partner) to the fullest extent permitted by law; provided, however, that Sabine Pass LNG, L.P. shall not exculpate or indemnify the general partner for conduct constituting gross negligence or willful misconduct.

Item 21. Exhibit and Financial Statement Schedules

(a) Exhibits


Exhibit No.		Description
1.1		Purchase Agreement, dated as of November 1, 2006, by and between Sabine Pass LNG, L.P. and Credit Suisse Securities (USA) LLC, as representative of the several initial purchasers (incorporated by reference to Exhibit 4.1 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 3, 2006).

3.1*		Certificate of Limited Partnership of Sabine Pass LNG, L.P.

3.2*		Fifth Amended and Restated Agreement of Limited Partnership of Sabine Pass LNG, L.P., dated November 9, 2006.

4.1		Indenture, dated as of November 9, 2006, by and between Sabine Pass LNG, L.P., as issuer, and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.1 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

4.2		Registration Rights Agreement, dated as of November 9, 2006, by and among Sabine Pass LNG, L.P. and Credit Suisse Securities (USA) LLC, as representative of the several initial purchasers (incorporated by reference to Exhibit 4.4 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

4.3		Form of 7 ¹ / 4 % Senior Secured Note due 2013 (included as Exhibit A1 to Exhibit 4.1 above).

4.4		Form of 7 ¹ / 2 % Senior Secured Note due 2016 (included as Exhibit A1 to Exhibit 4.1 above).

4.5*		Form of general partner interest certificate.

4.6*		Form of limited partner interest certificate.

5.1*		Opinion of Andrews Kurth LLP regarding the validity of the notes.

10.1		Collateral Trust Agreement, dated November 9, 2006, by and among Sabine Pass LNG, L.P., The Bank of New York, as collateral trustee, Sabine Pass LNG-GP, Inc. and Sabine Pass LNG-LP, LLC (incorporated by reference to Exhibit 10.1 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

10.2		Amended and Restated Parity Lien Security Agreement, dated November 9, 2006, by and between Sabine Pass LNG, L.P. and The Bank of New York, as collateral trustee (incorporated by reference to Exhibit 10.2 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

II-1

Index to Financial Statements


Exhibit No.		Description
10.3		Third Amended and Restated Multiple Indebtedness Mortgage, Assignment of Rents and Leases and Security Agreement, dated November 9, 2006, between the Sabine Pass LNG, L.P. and The Bank of New York, as collateral trustee (incorporated by reference to Exhibit 10.3 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

10.4		Amended and Restated Parity Lien Pledge Agreement, dated November 9, 2006, by and among Sabine Pass LNG, L.P., Sabine Pass LNG-GP, Inc., Sabine Pass LNG-LP, LLC and The Bank of New York, as collateral trustee (incorporated by reference to Exhibit 10.4 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

10.5		Security Deposit Agreement, dated November 9, 2006, by and among Sabine Pass LNG, L.P., The Bank of New York, as collateral trustee, and The Bank of New York, as depositary agent (incorporated by reference to Exhibit 10.5 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

10.6		State Tax Sharing Agreement, dated November 9, 2006, by and between Cheniere Energy, Inc. and Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.9 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

10.7		Amended and Restated Terminal Use Agreement, dated November 9, 2006, by and between Cheniere Marketing, Inc. and Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.6 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

10.8		Guarantee Agreement, dated as of November 9, 2006, by Cheniere Energy, Inc. in favor of Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.7 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

10.9		Letter Agreement, dated November 9, 2006, by and among Cheniere Marketing, Inc., Cheniere LNG, Inc. and Sabine Pass LNG, L.P. in favor of Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.8 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

10.10		LNG Terminal Use Agreement, dated November 8, 2004, by and between Chevron U.S.A. Inc. and Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.4 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on November 15, 2004).

10.11		Omnibus Agreement, dated November 8, 2004, by and between Chevron U.S.A. Inc. and Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.5 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on November 15, 2004).

10.12*		Guaranty Agreement, dated as of December 15, 2004, from ChevronTexaco Corporation to Sabine Pass LNG, L.P.

10.13		LNG Terminal Use Agreement, dated September 2, 2004, by and between Total LNG USA, Inc. and Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.1 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on November 15, 2004).

10.14		Amendment of LNG Terminal Use Agreement, dated January 24, 2005, by and between Total LNG USA, Inc. and Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.40 to Cheniere Energy, Inc.’s Annual Report on Form 10-K (SEC File No. 001-16383), filed on March 10, 2005).

10.15		Omnibus Agreement, dated September 2, 2004, by and between Total LNG USA, Inc. and Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.2 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on November 15, 2004).

II-2

Index to Financial Statements


Exhibit No.		Description
10.16		Guaranty, dated as of November 9, 2004, by Total S.A. in favor of Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.3 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on November 15, 2004).

10.17		Operation and Maintenance Agreement, dated February 25, 2005, between Sabine Pass LNG, L.P. and Cheniere LNG O&M Services, L.P. (incorporated by reference to Exhibit 10.5 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on March 2, 2005).

10.18		Management Services Agreement, dated February 25, 2005, between Sabine Pass LNG-GP, Inc. and Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.6 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on March 2, 2005).

10.19		Lump Sum Turnkey Engineering, Procurement and Construction Agreement, dated December 18, 2004, between Sabine Pass LNG, L.P. and Bechtel Corporation (incorporated by reference to Exhibit 10.1 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on December 20, 2004).

10.20		Change Orders 1 through 27 to Lump Sum Turnkey Engineering, Procurement and Construction Agreement dated December 18, 2004 between Sabine Pass LNG, L.P. and Bechtel Corporation (incorporated by reference to Exhibit 10.15 to Cheniere Energy, Inc.’s Annual Report on Form 10-K (SEC File No. 001-16383), filed on March 3, 2006).

10.21		Change Orders 28, 29 and 31 to Lump Sum Turnkey Engineering, Procurement and Construction Agreement dated December 18, 2004 between Sabine Pass LNG, L.P. and Bechtel Corporation (incorporated by reference to Exhibit 10.4 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on May 5, 2006).

10.22		Change Orders 30, 32 and 33 to Lump Sum Turnkey Engineering, Procurement and Construction Agreement dated December 18, 2004 between Sabine Pass LNG, L.P. and Bechtel Corporation (incorporated by reference to Exhibit 10.10 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on August 4, 2006).

10.23		Change Orders 34, 35, 36, 37 and 38 to Lump Sum Turnkey Engineering, Procurement and Construction Agreement dated December 18, 2004, between Sabine Pass LNG, L.P. and Bechtel Corporation (incorporated by reference to Exhibit 10.1 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on November 6, 2006).

10.24		Agreement for Engineering, Procurement, Construction and Management of Construction Services for the Sabine Phase 2 Receiving, Storage and Regasification Terminal Expansion, dated July 21, 2006, between Sabine Pass LNG, L.P. and Bechtel Corporation (incorporated by reference to Exhibit 10.7 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on August 4, 2006).

10.25		Change Order 1 to Agreement for Engineering, Procurement, Construction and Management of Construction Services for the Sabine Phase 2 Receiving, Storage and Regasification Terminal Expansion, dated July 21, 2006, between Sabine Pass LNG, L.P. and Bechtel Corporation (incorporated by reference to Exhibit 10.2 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on November 6, 2006).

10.26		Engineer, Procure and Construct (EPC) LNG Tank Contract, dated July 21, 2006, among Sabine Pass LNG, L.P., Zachry Construction Corporation and Diamond LNG LLC (incorporated by reference to Exhibit 10.8 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on August 4, 2006).

II-3

Index to Financial Statements


Exhibit No.		Description
10.27		Engineer, Procure and Construct (EPC) LNG Unit Rate Soil Contract, dated July 21, 2006, between Sabine Pass LNG, L.P. and Remedial Construction Services, L.P. (incorporated by reference to Exhibit 10.9 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on August 4, 2006).

12.1*		Statement regarding computation of ratio of earnings to fixed charges for the period from October 20, 2003 (inception) to December 31, 2003, for the years ended December 31, 2004 and 2005, for the period from October 20, 2003 (inception) to December 31, 2005, for the nine months ended September 30, 2005 and 2006 and for the period from October 20, 2003 (inception) to September 30, 2006.

23.1*		Consent of UHY LLP.

23.2*		Consent of Andrews Kurth LLP (included in Exhibit 5.1).

23.3*		Consent of Stone & Webster Management Consultants, Inc.

24.1		Powers of Attorney (included in signature pages).

25.1*		Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of The Bank of New York, to act as trustee under the Indenture.

10.28*		Amendment to LNG Terminal Use Agreement.

99.1*		Form of Letter of Transmittal.

99.2*		Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.

99.3*		Form of Notice of Guaranteed Delivery.

99.4*		Form of Letter to Registered Holders and DTC Participants.

99.5*		Instructions to Registered Holder or DTC Participant.

99.6*		Form of Letter to Clients.

*	Filed herewith

Item 22. Undertakings

The undersigned Registrant hereby undertakes:

(1)

To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i)

To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii)

To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

(iii)

To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

II-4

Index to Financial Statements

(2)

That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3)

To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

II-5

Index to Financial Statements

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on November 22, 2006.


SABINE PASS LNG, L.P.

By:		Sabine Pass LNG-GP, Inc., its general partner

By:		/s/ D ON A. T URKLESON
Name:		Don A. Turkleson
Title:		Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Don A. Turkleson and Stanley C. Horton and each of them severally, his true and lawful attorney or attorneys-in-fact and agents, with full power to act with or without the others and with full power of substitution and resubstitution, to execute in his name, place and stead, in any and all capacities, any or all amendments (including pre-effective and post-effective amendments) to this Registration Statement and any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and each of them, full power and authority to do and perform in the name of on behalf of the undersigned, in any and all capacities, each and every act and thing necessary or desirable to be done in and about the premises, to all intents and purposes and as fully as they might or could do in person, hereby ratifying, approving and confirming all that said attorneys-in-fact and agents or their substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons on behalf of the general partner of the Registrant in the capacities and on the dates indicated.


Signature	Title	Date
/s/ C HARIF S OUKI Charif Souki	Director	November 22, 2006

/s/ S TANLEY C. H ORTON Stanley C. Horton	Chief Executive Officer and Director (Principal Executive Officer)	November 22, 2006

/s/ D ON A. T URKLESON Don A. Turkleson	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	November 22, 2006

/s/ V ICTOR D UVA Victor Duva	Director	November 22, 2006

II-6

Index to Financial Statements

EXHIBIT INDEX


Exhibit No.		Description
1.1		Purchase Agreement, dated as of November 1, 2006, by and between Sabine Pass LNG, L.P. and Credit Suisse Securities (USA) LLC, as representative of the several initial purchasers (incorporated by reference to Exhibit 4.1 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 3, 2006).

3.1*		Certificate of Limited Partnership of Sabine Pass LNG, L.P.

3.2*		Fifth Amended and Restated Agreement of Limited Partnership of Sabine Pass LNG, L.P., dated November 9, 2006.

4.1		Indenture, dated as of November 9, 2006, by and between Sabine Pass LNG, L.P., as issuer, and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.1 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

4.2		Registration Rights Agreement, dated as of November 9, 2006, by and among Sabine Pass LNG, L.P. and Credit Suisse Securities (USA) LLC, as representative of the several initial purchasers (incorporated by reference to Exhibit 4.4 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

4.3		Form of 7 ¹ / 4 % Senior Secured Note due 2013 (included as Exhibit A1 to Exhibit 4.1 above).

4.4		Form of 7 ¹ / 2 % Senior Secured Note due 2016 (included as Exhibit A1 to Exhibit 4.1 above).

4.5*		Form of general partner interest certificate.

4.6*		Form of limited partner interest certificate.

5.1*		Opinion of Andrews Kurth LLP regarding the validity of the notes.

10.1		Collateral Trust Agreement, dated November 9, 2006, by and among Sabine Pass LNG, L.P., The Bank of New York, as collateral trustee, Sabine Pass LNG-GP, Inc. and Sabine Pass LNG-LP, LLC (incorporated by reference to Exhibit 10.1 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

10.2		Amended and Restated Parity Lien Security Agreement, dated November 9, 2006, by and between Sabine Pass LNG, L.P. and The Bank of New York, as collateral trustee (incorporated by reference to Exhibit 10.2 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

10.3		Third Amended and Restated Multiple Indebtedness Mortgage, Assignment of Rents and Leases and Security Agreement, dated November 9, 2006, between the Sabine Pass LNG, L.P. and The Bank of New York, as collateral trustee (incorporated by reference to Exhibit 10.3 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

10.4		Amended and Restated Parity Lien Pledge Agreement, dated November 9, 2006, by and among Sabine Pass LNG, L.P., Sabine Pass LNG-GP, Inc., Sabine Pass LNG-LP, LLC and The Bank of New York, as collateral trustee (incorporated by reference to Exhibit 10.4 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

10.5		Security Deposit Agreement, dated November 9, 2006, by and among Sabine Pass LNG, L.P., The Bank of New York, as collateral trustee, and The Bank of New York, as depositary agent (incorporated by reference to Exhibit 10.5 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

10.6		State Tax Sharing Agreement, dated November 9, 2006, by and between Cheniere Energy, Inc. and Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.9 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

Index to Financial Statements


Exhibit No.		Description
10.7		Amended and Restated Terminal Use Agreement, dated November 9, 2006, by and between Cheniere Marketing, Inc. and Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.6 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

10.8		Guarantee Agreement, dated as of November 9, 2006, by Cheniere Energy, Inc. in favor of Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.7 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

10.9		Letter Agreement, dated November 9, 2006, by and among Cheniere Marketing, Inc., Cheniere LNG, Inc. and Sabine Pass LNG, L.P. in favor of Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.8 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on November 16, 2006).

10.10		LNG Terminal Use Agreement, dated November 8, 2004, by and between Chevron U.S.A. Inc. and Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.4 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on November 15, 2004).

10.11		Omnibus Agreement, dated November 8, 2004, by and between Chevron U.S.A. Inc. and Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.5 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on November 15, 2004).

10.12*		Guaranty Agreement, dated as of December 15, 2004, from ChevronTexaco Corporation to Sabine Pass LNG, L.P.

10.13		LNG Terminal Use Agreement, dated September 2, 2004, by and between Total LNG USA, Inc. and Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.1 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on November 15, 2004).

10.14		Amendment of LNG Terminal Use Agreement, dated January 24, 2005, by and between Total LNG USA, Inc. and Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.40 to Cheniere Energy, Inc.’s Annual Report on Form 10-K (SEC File No. 001-16383), filed on March 10, 2005).

10.15		Omnibus Agreement, dated September 2, 2004, by and between Total LNG USA, Inc. and Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.2 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on November 15, 2004).

10.16		Guaranty, dated as of November 9, 2004, by Total S.A. in favor of Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.3 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on November 15, 2004).

10.17		Operation and Maintenance Agreement, dated February 25, 2005, between Sabine Pass LNG, L.P. and Cheniere LNG O&M Services, L.P. (incorporated by reference to Exhibit 10.5 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on March 2, 2005).

10.18		Management Services Agreement, dated February 25, 2005, between Sabine Pass LNG-GP, Inc. and Sabine Pass LNG, L.P. (incorporated by reference to Exhibit 10.6 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on March 2, 2005).

10.19		Lump Sum Turnkey Engineering, Procurement and Construction Agreement, dated December 18, 2004, between Sabine Pass LNG, L.P. and Bechtel Corporation (incorporated by reference to Exhibit 10.1 to Cheniere Energy, Inc.’s Current Report on Form 8-K (SEC File No. 001-16383), filed on December 20, 2004).

10.20		Change Orders 1 through 27 to Lump Sum Turnkey Engineering, Procurement and Construction Agreement dated December 18, 2004 between Sabine Pass LNG, L.P. and Bechtel Corporation (incorporated by reference to Exhibit 10.15 to Cheniere Energy, Inc.’s Annual Report on Form 10-K (SEC File No. 001-16383), filed on March 3, 2006).

Index to Financial Statements


Exhibit No.		Description
10.21		Change Orders 28, 29 and 31 to Lump Sum Turnkey Engineering, Procurement and Construction Agreement dated December 18, 2004 between Sabine Pass LNG, L.P. and Bechtel Corporation (incorporated by reference to Exhibit 10.4 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on May 5, 2006).

10.22		Change Orders 30, 32 and 33 to Lump Sum Turnkey Engineering, Procurement and Construction Agreement dated December 18, 2004 between Sabine Pass LNG, L.P. and Bechtel Corporation (incorporated by reference to Exhibit 10.10 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on August 4, 2006).

10.23		Change Orders 34, 35, 36, 37 and 38 to Lump Sum Turnkey Engineering, Procurement and Construction Agreement dated December 18, 2004, between Sabine Pass LNG, L.P. and Bechtel Corporation (incorporated by reference to Exhibit 10.1 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on November 6, 2006).

10.24		Agreement for Engineering, Procurement, Construction and Management of Construction Services for the Sabine Phase 2 Receiving, Storage and Regasification Terminal Expansion, dated July 21, 2006, between Sabine Pass LNG, L.P. and Bechtel Corporation (incorporated by reference to Exhibit 10.7 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on August 4, 2006).

10.25		Change Order 1 to Agreement for Engineering, Procurement, Construction and Management of Construction Services for the Sabine Phase 2 Receiving, Storage and Regasification Terminal Expansion, dated July 21, 2006, between Sabine Pass LNG, L.P. and Bechtel Corporation (incorporated by reference to Exhibit 10.2 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on November 6, 2006).

10.26		Engineer, Procure and Construct (EPC) LNG Tank Contract, dated July 21, 2006, among Sabine Pass LNG, L.P., Zachry Construction Corporation and Diamond LNG LLC (incorporated by reference to Exhibit 10.8 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on August 4, 2006).

10.27		Engineer, Procure and Construct (EPC) LNG Unit Rate Soil Contract, dated July 21, 2006, between Sabine Pass LNG, L.P. and Remedial Construction Services, L.P. (incorporated by reference to Exhibit 10.9 to Cheniere Energy, Inc.’s Quarterly Report on Form 10-Q (SEC File No. 001-16383), filed on August 4, 2006).

10.28*		Amendment to LNG Terminal Use Agreement.

12.1*		Statement regarding computation of ratio of earnings to fixed charges for the period from October 20, 2003 (inception) to December 31, 2003, for the years ended December 31, 2004 and 2005, for the period from October 20, 2003 (inception) to December 31, 2005, for the nine months ended September 30, 2005 and 2006 and for the period from October 20, 2003 (inception) to September 30, 2006.

23.1*		Consent of UHY LLP.

23.2*		Consent of Andrews Kurth LLP (included in Exhibit 5.1).

23.3*		Consent of Stone & Webster Management Consultants, Inc.

24.1		Powers of Attorney (included in signature pages).

25.1*		Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of The Bank of New York, to act as trustee under the Indenture.

99.1*		Form of Letter of Transmittal.

99.2*		Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.

99.3*		Form of Notice of Guaranteed Delivery.

99.4*		Form of Letter to Registered Holders and DTC Participants.

99.5*		Instructions to Registered Holder or DTC Participant.

99.6*		Form of Letter to Clients.

*	Filed herewith

Exhibit 3.1

CERTIFICATE OF

LIMITED PARTNERSHIP

SABINE PASS LNG, L.P.

This Certificate of Limited Partnership of Sabine Pass LNG, L.P. (the “Partnership”) is being executed by the undersigned for the purpose of forming a limited partnership pursuant to the Delaware Revised Uniform Limited Partnership Act.

1. The name of the Partnership is: Sabine Pass LNG, L.P.

2. The address of the Registered Office of the Partnership in Delaware is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808. The Partnership’s Registered Agent at that address is Corporation Service Company.

3. The name and business address of the General Partner is:

Sabine Pass LNG-GP, Inc.

333 Clay Street, Suite 3400

Houston, Texas 77002

In Witness Whereof, the undersigned, constituting the General Partner of the Partnership, has caused this Certificate of Limited Partnership to be duly executed as of the 20 ^th day of October, 2003.


SABINE PASS LNG-GP, INC.

By:		/s/ Don A. Turkleson
Name:		Don A. Turkleson
Title:		Secretary and Treasurer

Exhibit 3.2

FIFTH AMENDED AND RESTATED

AGREEMENT

LIMITED PARTNERSHIP

SABINE PASS LNG, L.P.

TABLE OF CONTENTS


		Page
ARTICLE I Organization Matters		2
1.1	Formation of the Partnership	2
1.2	Single Purpose Entity Requirements	2
1.3	Name	5
1.4	Principal Place of Business	5
1.5	Filings	5
1.6	Power of Attorney	6
1.7	Term	6
1.8	Partner Information	6
1.9	Property; Partition; Nature of Interest	7
1.10	Effect of Bankruptcy, Death or Incompetency of a Partner	7
ARTICLE II Definitions		7
ARTICLE III Capital Contributions		11
3.1	General Partner’s Capital Contribution	11
3.2	Limited Partners’ Capital Contributions	11
3.3	Loans by Partners	11
3.4	No Other Contributions	11
3.5	Return of Capital Contributions	11
3.6	Capital Accounts	11
3.7	Interest	11
ARTICLE IV Allocations and Distributions		12
4.1	Allocations	12
4.2	Special Tax Allocations	12
4.3	Tax Distributions	13
4.4	Distributions	14
4.5	Transfer of Units	14
4.6	Amounts Withheld	14
ARTICLE V Accounting and Financial Matters		14
5.1	Fiscal Year	14
5.2	Accounting Elections	14
5.3	Tax Controversies	15
5.4	Preparation of Tax Returns	15
5.5	Books and Records	15
5.6	Access to Books and Records	15
ARTICLE VI Rights and Obligations of General Partner		16
6.1	Exclusive Authority	16
6.2	General Authority	16
6.3	Employment of Agents and Employees	16
6.4	Officers	16
6.5	Independent Activities	17
6.6	Expenses of the Partnership	17

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ARTICLE VII Rights and Obligations of Limited Partners		17
7.1	No Participation in Management	17
7.2	Rights of Limited Partner	18
ARTICLE VIII Transfer of Units		18
8.1	Transfers by General Partner	18
8.2	Transfers by Limited Partners	18
8.3	Permitted Cash Sales by Limited Partners	19
8.4	Effective Date of Transfer	20
8.5	Invalid Transfer	20
8.6	Distributions to Assignee	20
8.7	Federal Law Disclosure and Limitations	21
8.8	Admission of Successor General Partner; No Dissolution or Termination	21
ARTICLE IX Removal of General Partner		21
9.1	Removal of General Partner	21
9.2	Selection of Successor General Partner	21
ARTICLE X Dissolution, Liquidation and Termination		22
10.1	Dissolution and Termination	22
10.2	Winding Up and Termination	22
10.3	Termination	23
10.4	Indemnification	23
ARTICLE XI General Provisions		23
11.1	Scope	23
11.2	Governing Law	23
11.3	Binding Effect	23
11.4	Gender	23
11.5	Headings	24
11.6	Violation	24
11.7	Indemnification	24
11.8	Severability	24
11.9	Counterparts	24
11.10	Waiver of Right to Partition	24
11.11	Dispute Resolution	25
11.12	Amendments	25
11.13	Interests	26

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THE SECURITIES REPRESENTED BY THIS INSTRUMENT OR DOCUMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED AT ANY TIME WHATSOEVER, EXCEPT UPON DELIVERY TO THE PARTNERSHIP OF AN OPINION OF COUNSEL SATISFACTORY TO THE GENERAL PARTNER OF THE PARTNERSHIP THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER OR THE SUBMISSION TO THE GENERAL PARTNER OF THE PARTNERSHIP OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO THE GENERAL PARTNER TO THE EFFECT THAT ANY SUCH TRANSFER OR SALE WILL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED THEREUNDER.

FIFTH AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP

SABINE PASS LNG, L.P.

The original Agreement of Limited Partnership of Sabine Pass LNG, L.P. (the “ Partnership ”) was entered into as of October 20, 2003 (the “ Effective Date ”), by and between Sabine Pass LNG-GP, Inc., a Delaware corporation, as the General Partner, and Cheniere LNG, Inc., a Delaware corporation, as a Limited Partner (the “ Original Limited Partner ”). Effective as of February 18, 2004, the General Partner and the Original Limited Partner adopted the Amended and Restated Agreement of Limited Partnership. Effective as of October 26, 2004, (a) the Original Limited Partner, with the consent of the General Partner, transferred all of its Units (as hereafter defined) to Sabine Pass LNG-LP Interests, LLC (the “ First Successor Limited Partner ”), and (b) the General Partner and the First Successor Limited Partner adopted the Second Amended and Restated Agreement of Limited Partnership (the “ Second Amended Agreement ”), which was also executed by the Original Limited Partner. Effective as of November 15, 2004, the First Successor Limited Partner merged with and into Cheniere LNG-LP Interests, LLC, a Delaware limited liability company (the “ Second Successor Limited Partner ”), pursuant to which the Second Successor Limited Partner succeeded to all of the First Successor Limited Partner’s rights and obligations, and the General Partner and the Second Successor Limited Partner adopted the Third Amended and Restated Agreement of Limited Partnership (the “ Third Amended Agreement ”). Effective as of February 24, 2005, (x) the Second Successor Limited Partner, with the consent of the General Partner, transferred all of its Units to Sabine Pass LNG-LP, LLC, a Delaware limited liability company (the “ Current Limited Partner ”), (y) the Current Limited Partner was admitted as a Limited Partner of the Partnership, and (z) the General Partner and the Current Limited Partner adopted the Fourth Amended and Restated Agreement of Limited Partnership (the “ Fourth Amended Agreement ”). The General Partner and the Current Limited Partner adopted this Fifth Amended and Restated Agreement of Limited Partnership, which amends and restates in its entirety the Agreement effective on November 9, 2006 concurrently with the execution and delivery of the Indenture and following

the payment in full of all indebtedness outstanding under (i) that certain Credit Agreement, dated August 31, 2005, among Cheniere LNG Holdings, LLC, the initial lenders named therein, and Credit Suisse, Cayman Islands Branch and (ii) that certain First Amended and Restated Credit Agreement, dated July 21, 2006, among the Partnership, Société Générale, HSBC Bank USA, National Association and the lenders named therein (the “ Effective Time ”).

ARTICLE I

Organization Matters

1.1 Formation of the Partnership . The Partners desire to form and have formed a limited partnership pursuant to the provisions of the Partnership Act. This Agreement constitutes the partnership agreement of such Partnership, effective upon the date of filing of the Partnership’s Certificate of Limited Partnership with the office of the Secretary of State of the State of Delaware. Except as expressly provided herein to the contrary, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Partnership Act.

1.2 Single Purpose Entity Requirements . Notwithstanding any other provision contained in this Agreement, the Partners shall comply with the following single purpose entity requirements (“ Single Purpose Entity Requirements ”) in order to maintain the Partnership’s status as a separate entity and to avoid any confusion or potential consolidation with any Affiliate.

(a) Limited Purpose . So long as any obligation under the Note Documents is outstanding, the sole purpose of the Partnership shall be limited to developing, building, owning and operating a liquified natural gas receiving and regasification facility in Cameron Parish, Louisiana (the “ Project ”), and in connection therewith, all activities ancillary, incidental and related thereto that may be performed by a limited partnership organized under the Partnership Act including, without limitation:

(i) entering into and performing the Partnership’s obligations under the Note Documents;

(ii) assuming and adopting all of the obligations required to be adopted by the Partnership with respect to Cheniere and CXY Corporation (n/k/a Cheniere FLNG, L.P.) under the Crest Settlement Agreement (the “ Crest Obligation ”);

(iii) entering into, or acquiring rights under, agreements in connection with any of the foregoing activities, including without limitation the Partnership Documents and any and all other agreements for the construction, commissioning and operation of the Project;

(iv) all activities required or permitted by the Indenture and the Note Documents; and

(v) to engage in any lawful act or activity and to exercise any powers permitted to limited partnerships organized under the laws of the State of

Delaware that are related or incidental to and necessary, convenient or advisable for the accomplishment of the above-mentioned purposes.

(b) Limitations on Indebtedness, Actions . Notwithstanding anything to the contrary in this Agreement or in any other document governing the formation, management or operation of the Partnership, so long as any obligation under the Note Documents is outstanding the Partnership shall not :

(i) guarantee any obligation of any Person, including any Affiliate, or become obligated for the debts of any other Person or hold out its credit as being available to pay the obligations of any other Person (other than the Crest Obligation);

(ii) engage, directly or indirectly, in any business other than as required or permitted to be performed under Section 1.2 of this Agreement;

(iii) incur, create or assume any indebtedness or liabilities other than (A) the Obligations, (B) the Crest Obligation and (C) indebtedness and liabilities incurred by the Partnership that are permitted under the Note Documents;

(iv) make or permit to remain outstanding any loan or advance to, or own or acquire any stock or securities of, any Person, except that the Partnership may invest in those investments permitted under the Note Documents;

(v) to the fullest extent permitted by law, engage in any dissolution or liquidation, or (except as permitted under the Note Documents) any consolidation, merger, sale or other transfer of any of its assets outside the ordinary course of the Partnership’s business;

(vi) buy or hold evidence of indebtedness issued by any other Person (other than cash or investment-grade securities or as otherwise permitted under the Note Documents);

(vii) own any asset or property other than the Project and incidental personal and real property necessary for the ownership or operation of the Project and interests in any subsidiaries permitted under the Note Documents;

(viii) take any Material Action without the unanimous written approval of the entire board of directors of the General Partner, including the Independent Director; or

(ix) amend, modify or otherwise change this Agreement with respect to the Single Purpose Entity Requirements or Sections 1.9 or 1.10 hereof.

(c) Separateness Covenants . In the conduct of the Partnership’s operations since its organization and so long as any obligation under the Note Documents is outstanding, the Partnership (and the General Partner on behalf of the Partnership) has observed and will continue to observe the following covenants:

(i) maintain books and records and bank accounts separate from those of any other Person;

(ii) maintain its assets in such a manner that it is not costly or difficult to segregate, identify or ascertain such assets;

(iii) comply with all organizational formalities necessary to maintain its separate existence;

(iv) hold itself out to creditors and the public as a legal entity separate and distinct from any other entity;

(v) maintain separate financial statements, showing its assets and liabilities separate and apart from those of any other Person and not have its assets listed on any financial statement of any other Person; except that the Partnership’s assets may be included in consolidated financial statements of its Affiliates so long as appropriate notation is made on such consolidated financial statements to indicate the separateness of the Partnership from such Affiliate and to disclose the separate nature of the Partnership’s indebtedness;

(vi) prepare and file its own tax returns separate from those of any Person to the extent required by applicable law, and pay any taxes required to be paid by applicable law;

(vii) allocate and charge fairly and reasonably any common employee or overhead shared with Affiliates;

(viii) except as permitted by the Note Documents, not enter into any transaction with Affiliates except on an arm’s-length basis on terms which are no less favorable than would be available in comparable transactions with unaffiliated third parties (or, if no comparable transactions with unaffiliated third parties would be available, then on terms that are determined by the board of directors of the General Partner to be fair in light of all factors considered by such board of directors to be pertinent to the Partnership), and pursuant to written, enforceable agreements;

(ix) conduct its own business in its own name, and use separate stationery, invoices and checks;

(x) not commingle its assets or funds with those of any other Person;

(xi) not assume, guarantee or pay the debts or obligations of any other Person (other than the Crest Obligation);

(xii) correct any known misunderstanding as to its separate identity;

(xiii) not permit any Affiliate to guarantee or pay its obligations (other than (i) pledges by its Partners of their interests in the Partnership and other

guarantees and indemnities set forth in the Note Documents and (ii) with respect to the Crest Obligation);

(xiv) pay its liabilities and expenses out of and to the extent of its own funds;

(xv) maintain a sufficient number of employees or engaged independent contractors in light of its contemplated business purpose and pay the salaries of its own employees, if any, only from the Partnership’s own funds;

(xvi) maintain adequate capital in light of its contemplated business purpose, transactions and liabilities; provided , however , that the foregoing shall not require any Partner to make additional capital contributions to the Partnership; and

(xvii) cause the officers, directors, employees, agents and other representatives of the General Partner or the Partnership to act at all times with respect to the Partnership consistently and in furtherance of the foregoing and in the best interests of the Partnership except to the extent required or permitted by the Note Documents.

Failure of the Partnership, or the General Partner on behalf of the Partnership, to comply with any of the foregoing covenants or any other covenants contained in this Agreement shall not affect the status of the Partnership as a separate legal entity.

(d) Independent Director . As long as any obligation under the Note Documents is outstanding, the General Partner at all times shall have at least one Independent Director. To the fullest extent permitted by law, the Independent Director shall consider only the interests of the Partnership and its creditors in acting or otherwise voting on any Material Action. No resignation or removal of an Independent Director, and no appointment of a successor Independent Director, shall be effective until such successor shall have accepted his or her appointment as an Independent Director by a written instrument. In the event of a vacancy in the position of Independent Director, the General Partner shall, as soon as practicable, appoint a successor Independent Director.

1.3 Name . The name of the Partnership is “Sabine Pass LNG, L.P.” The General Partner will comply or cause the Partnership to comply with all applicable laws and other requirements relating to fictitious or assumed names.

1.4 Principal Place of Business . The principal office and place of business of the Partnership and the General Partner’s offices shall be 717 Texas Avenue, Suite 3100, Houston, Texas 77002, or such other place within or outside the State of Delaware, as the General Partner may from time to time determine. If the General Partner moves the Partnership’s offices, it shall file any certificates required under the Partnership Act and notify all other Partners of such change.

1.5 Filings . The General Partner shall, or shall cause the Partnership to, execute, swear to, acknowledge, deliver, file or record in public offices and publish all such certificates,

notices, statements or other instruments, and take all such other actions, as may be required by law for the formation, reformation, qualification, registration, operation or continuation of the Partnership in any jurisdiction, to maintain the limited liability of the Limited Partners, to preserve the Partnership’s status as a partnership for tax purposes or otherwise to comply with applicable law. Upon request of the General Partner, each of the Limited Partners shall promptly execute all such certificates and other documents as may be necessary, in the judgment of the General Partner, in order for the General Partner to accomplish all such executions, swearings to, acknowledgments, deliveries, filings, recordings in public offices, publishings and other acts.

1.6 Power of Attorney . Each Limited Partner hereby irrevocably makes, constitutes and appoints the General Partner, with full power of substitution and resubstitution, as the true and lawful agent and attorney-in-fact of such Limited Partner, with full power and authority in the name, place and stead of such Limited Partner to execute, swear to, acknowledge, deliver, file or record in public offices and publish: (a) all certificates and other instruments (including counterparts thereof) that the General Partner deems necessary or appropriate to reflect any amendment, change or modification of or supplement to this Agreement in accordance with the terms of this Agreement; (b) all certificates and other instruments and all amendments thereto that the General Partner deems appropriate or necessary to form, qualify or continue the Partnership in the State of Delaware or any jurisdiction, to maintain the limited liability of the Limited Partners, to preserve the Partnership’s status as a partnership for tax purposes or otherwise to comply with applicable law; (c) all conveyances and other instruments or documents that the General Partner deems appropriate or necessary to reflect: (i) the transfers or assignments of interests in, to or under this Agreement or the Partnership; (ii) the dissolution, liquidation and termination of the Partnership, or (iii) the distribution of assets of the Partnership pursuant to the terms of this Agreement; and (d) any other instruments required by law or as may be deemed necessary or appropriate by the General Partner to carry out the provisions of this Agreement.

The power of attorney granted herein is hereby declared irrevocable and a power coupled with an interest, shall survive the death, disability, bankruptcy, dissolution or other termination of each Limited Partner and shall extend to and be binding upon each Limited Partner’s heirs, beneficiaries, executors, administrators, legal representatives, successors, assigns and vendees. Each Limited Partner hereby agrees to be bound by any representations made by the agent and attorney-in-fact acting in good faith pursuant to such power of attorney, and each Limited Partner hereby waives any and all defenses that may be available to contest, negate, or disaffirm any action of the agent and attorney-in-fact taken under such power of attorney.

1.7 Term . The term for which the Partnership is to exist as a limited partnership is from the date of first filing of the Certificate of Limited Partnership with the office of the Secretary of State of the State of Delaware through and until the termination of the Partnership in accordance with any provision of Article X .

1.8 Partner Information . The General Partner shall cause to be attached hereto as Exhibit C and updated from time to time a list showing the then current names and addresses of the Partners and the numbers of Units held by each.

1.9 Property; Partition; Nature of Interest .

(a) All property owned by the Partnership shall be owned by the Partnership as an entity and, insofar as permitted by applicable law, no Partner shall have any ownership interest in any Partnership property in its individual name or right, and each Partner’s ownership interest in the Partnership shall be personal property for all purposes.

(b) To the fullest extent permitted by law, each Partner and any additional Partner admitted to the Partnership hereby irrevocably waives any right or power that such Person might have to cause the Partnership or any of its assets to be partitioned, to cause the appointment of a receiver for all or any portion of the assets of the Partnership, to compel any sale of all or any portion of the assets of the Partnership pursuant to any applicable law or to file a complaint or to institute any proceeding at law or in equity to cause the dissolution, liquidation, winding up or termination of the Partnership. The Partners shall not have any interest in any specific assets of the Partnership, and the Partners shall not have the status of a creditor with respect to any distribution pursuant to this Agreement. The interest of the Partners in the Partnership is personal property.

1.10 Effect of Bankruptcy, Death or Incompetency of a Partner . The bankruptcy, death, dissolution, liquidation, termination or adjudication of incompetency of a Partner shall not cause the termination or dissolution of the Partnership and the business of the Partnership shall continue. Upon any such occurrence, the trustee, receiver, personal representative, executor, administrator, committee, guardian or conservator of such Partner shall have all the rights of such Partner for the purpose of settling or managing its estate or property, subject to satisfying conditions precedent to the admission of such assignee as a substitute Partner. The transfer by such trustee, receiver, executor, administrator, committee, guardian or conservator of any interest in the Partnership shall be subject to all of the restrictions, hereunder to which such transfer would have been subject if such transfer had been made by such bankrupt, deceased, dissolved, liquidated, terminated or incompetent Partner.

ARTICLE II

Definitions

Whenever used in this Agreement, the following terms shall have the meanings assigned to them herein:

Acceptance Notice . See Section 8.3(a) .

Affiliate . When used with reference to a specific Person: (i) any Person directly or indirectly owning, controlling or holding the power to vote ten percent (10%) or more of any class of the voting securities of the specified Person; (ii) any Person that directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with the specified Person; or (iii) any person that is an officer or director of, general partner in, or manager or trustee of, or serves in a similar capacity with respect to, the specified Person or of which the specified Person is an officer or director, general partner, manager or trustee, or with respect to which the specified Person serves in a similar capacity.

Agreement . This Agreement of Limited Partnership of Sabine Pass LNG, L.P., as originally executed and as amended, supplemented, modified or further restated from time to time, as the context requires.

Assignee . A Person to whom Units have been transferred by a Limited Partner in a manner expressly permitted under this Agreement, and who thereby shall have an interest in the Partnership equivalent to that of a Limited Partner, but (i) limited to the rights and obligations appurtenant to such Units to share in the allocations and distributions, including liquidating distributions, of the Partnership, and (ii) otherwise subject to the limitations under this Agreement and the Partnership Act on the rights of an Assignee who has not been admitted as a Limited Partner.

Capital Account . See Section 3.6 .

Capital Contribution . The total amount or assets contributed to the Partnership by all Partners or any class of Partners or any one Partner, as the case may be.

Carrying Value . (a) With respect to property contributed to the Partnership, the fair market value of such property at the time of contribution reduced (but not below zero) by all depreciation, depletion (computed as a separate item of deduction), amortization and cost recovery deductions charged to the Partners’ Capital Accounts, (b) with respect to any property whose value is adjusted pursuant to Section 3.6, the adjusted value of such property reduced (but not below zero) by all depreciation and cost recovery deductions charged to the Partners’ Capital Accounts and (c) with respect to any other Partnership property, the adjusted basis of such property for federal income tax purposes, all as of the time of determination.

Cash Available for Distribution . With respect to any calendar quarter, all Partnership cash, demand deposits and short-term marketable securities on hand as of the last day of such calendar quarter, after payment of all fees, debt service, and operating costs of the Partnership, and less such reserves as the General Partner, in its sole discretion, shall deem reasonable to retain in order to provide for the operation of the Partnership’s business.

Certificate of Limited Partnership . The Certificate of Limited Partnership filed by the Partnership with the Secretary of State of the State of Delaware as originally executed and as amended or further restated from time to time, as the context requires.

Cheniere . Cheniere Energy, Inc., a Delaware corporation.

Code . The Internal Revenue Code of 1986, as amended and in effect from time to time.

Crest Obligation . See Section 1.2(a) .

Crest Settlement Agreement . The Settlement and Purchase Agreement, dated as of June 14, 2001, by and among Cheniere, CXY Corporation, Crest Energy, L.L.C., Crest Investment Company and Freeport LNG Terminal, LLC.

Effective Date . The date as of which this Agreement was first entered into.

FERC . The Federal Energy Regulatory Commission.

General Partner . Sabine Pass LNG-GP, Inc., a Delaware corporation and any successor thereto selected pursuant to Section 9.2 .

Governmental Entity . Any United States (federal, state or local) or foreign government, governmental authority, regulatory or administrative agency, governmental commission, court or tribunal (or any department, bureau or division thereof).

Governmental Permits . All franchises, approvals, authorizations, permits, licenses, easements, registrations, qualifications, leases, variances and similar rights required by the Partnership, as the case may be, from any Governmental Entity for the Project.

Guarantors . Has the meaning ascribed to such term in the Indenture.

Indenture . The Indenture, dated as of November 9, 2006, between the Partnership and The Bank of New York, as trustee, as amended, supplemented or modified from time to time.

Independent Director . Has the meaning ascribed to such term in the General Partner’s organizational documents.

Initial Notice . See Section 8.3(a) .

Interest Rate . The rate per annum equal to the lesser of (i) the prime rate as quoted in the money rates section of The Wall Street Journal, plus two percent (2%) and (ii) the maximum rate permitted by applicable law.

Limited Partner . Each Person who acquires Limited Partner Units and is admitted to the Partnership as a Limited Partner pursuant to this Agreement. All references in this Agreement to a majority or specified percentage of the Limited Partners shall mean Limited Partners holding more than fifty percent (50%) or such specified percentage, respectively, of the aggregate number of Units then held by Limited Partners.

Material Action . To file any insolvency or reorganization case or proceeding, to institute proceedings to have the Partnership be adjudicated bankrupt or insolvent, to institute proceedings under any applicable insolvency law, to seek any relief under any law relating to relief from debts or the protection of debtors, to consent to the filing or institution of bankruptcy or insolvency proceedings against the Partnership, to file a petition seeking, or consent to, reorganization or relief with respect to the Partnership under any applicable federal or state law relating to bankruptcy or insolvency, to seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian, or any similar official of or for the Partnership or a substantial part of its property, to make any assignment for the benefit of creditors of the Partnership, to admit in writing the Partnership’s inability to pay its debts generally as they become due, or to take action in furtherance of any of the foregoing.

Note Documents . Has the meaning ascribed to such term in the Indenture.

Notice to Partners . See Section 8.3(a) .

Obligations . Has the meaning ascribed to such term in the Indenture.

Partner . Each of the General Partner and the Limited Partners.

Partnership . Sabine Pass LNG, L.P.

Partnership Act . The Delaware Revised Uniform Limited Partnership Act, as amended and in effect from time to time.

Partnership Documents . The Assumption Agreement, J&S Cheniere Potential TUA Letter, J&S Cheniere Terminal Use Agreement, State Tax Sharing Agreement and Material Project Agreements, each as defined in the Indenture.

Person . Any individual, general or limited partnership, corporation, limited liability company, executor, administrator or estate, association, trustee or trust, or other entity.

Project . See Section 1.2(a) .

Regulations . The final, temporary or proposed income tax regulations promulgated by the United States Department of the Treasury, as amended and in effect from time to time.

Securities Act . The Securities Act of 1933, as amended and in effect from time to time.

Selling Limited Partner . See Section 8.3(a) .

Sharing Ratio . The aggregate number of Units held by a Partner divided by the aggregate number of Units held by all the Partners.

Substituted Limited Partner . A Person who is admitted as a Limited Partner to the Partnership in place of and with all the rights of a Limited Partner pursuant to Section 8.3(a) , in such Person’s capacity as a Limited Partner of the Partnership.

Tax Distribution . See Section 4.3 .

Taxable Income . The net income of the Partnership for federal income tax purposes.

Taxable Loss . The net loss of the Partnership for federal income tax purposes.

Unit . A unit of interest of a Partner in the Partnership with a Sharing Ratio of one percent (1%).

ARTICLE III

Capital Contributions

3.1 General Partner’s Capital Contribution . As of the Effective Date, the General Partner contributed to the Partnership the assets set forth on Exhibit A and received the number of Units set forth next to its name on Exhibit C .

3.2 Limited Partners’ Capital Contributions . As of the Effective Date, the Original Limited Partner contributed to the Partnership the assets set forth on Exhibit B and received 100 Units, which were transferred to the First Successor Limited Partner (as set forth in the Second Amended Agreement); thereafter such Units were succeeded to by the Second Successor Limited Partner (as set forth in the Third Amended Agreement); and thereafter such Units were transferred to the Current Limited Partner (as set forth in the Fourth Amended Agreement and on Exhibit C hereto).

3.3 Loans by Partners . No Partner has any obligation to lend or advance any funds to the Partnership under any circumstances. Notwithstanding anything contained in this Agreement to the contrary, loans made by any Partner to the Partnership and any repayment thereof shall only be permitted to the extent provided under the Indenture. If any Partner shall advance funds to the Partnership, such Partner shall receive interest in an amount equal to the Interest Rate on the balance of such loan outstanding from time to time. Notwithstanding anything contained in this Agreement to the contrary, all loans made by a Partner to the Partnership, together with accrued interest thereon, shall be paid in full before any distributions are made to the Partners.

3.4 No Other Contributions . No Partner shall have any obligation or right to make any contribution to the Partnership except as provided in Sections 3.1 and 3.2 unless all Partners otherwise agree.

3.5 Return of Capital Contributions . No Partner shall be entitled to have its Capital Contribution returned except in accordance with the express provisions of this Agreement.

3.6 Capital Accounts . A separate Capital Account will be established for each Partner. Each Partner’s Capital Account shall be determined and maintained in accordance with Regulation § 1.704-1(b)(2)(iv) as interpreted by the General Partner. The General Partner shall have complete discretion to make those determinations, valuations, adjustments and allocations with respect to each Partner’s Capital Account as it deems appropriate so that the allocations made pursuant to this Agreement will have substantial economic effect as such term is used in Regulation § 1.704-1(b).

3.7 Interest . No interest shall be paid by the Partners or the Partnership on any capital contributed to the Partnership by the Partners. As provided in Section 3.3 , interest will be paid on any loan from any Partner to the Partnership.

ARTICLE IV

Allocations and Distributions

4.1 Allocations .

(a) Taxable Loss shall be allocated in proportion to the Partner’s positive capital account balances. If no Partner has a positive capital account balance, any remaining Taxable Loss shall be allocated to the General Partner.

(b) Taxable Income shall be allocated as follows:

(i) First, in the event that the General Partner’s capital account balance is negative, to the General Partner in an amount necessary to increase its capital account balance to zero.

(ii) Second, to the Partners to the extent and in the proportion they were allocated Taxable Loss under Section 4.1(a) that has not been restored pursuant to Section 4.1(b)(i) .

(iii) Third, to the Partners in proportion to their respective Sharing Ratios.

4.2 Special Tax Allocations .

(a) Minimum Gain Chargeback . Notwithstanding Section 4.1 , if there is a net decrease in Partnership minimum gain (as defined in Regulation § 1.704-2(b)(2)) during any Partnership taxable year, each Partner shall be specifically allocated, before any other allocation is made, items of income and gain for such year (and, if necessary, subsequent years) equal to such Partner’s share of the net decrease in minimum gain (determined in accordance with Regulation § 1.704-2(g)). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to Partners. This provision shall be applied so that it will constitute a “minimum gain chargeback” within the meaning of Regulation § 1.704-2(f).

(b) Partner Minimum Gain Chargeback . Notwithstanding Section 4.1 , if there is a net decrease in Partner nonrecourse debt minimum gain (as defined in Regulation § 1.704-2(i)(2)) during any Partnership taxable year, each Partner with a share of that Partner nonrecourse debt minimum gain (determined under Regulation § 1.704-2(i)(5)) as of the beginning of the year shall be specifically allocated, before any other allocation is made, items of income and gain for such year (and if necessary, subsequent years) equal to that Partner’s share of the net decrease in the Partner’s nonrecourse debt minimum gain. Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to the Partners. This provision shall be applied so that it will constitute a “chargeback of Partner nonrecourse debt minimum gain” as prescribed by Regulation § 1.704-2(i)(4).

(c) Deficit Account Chargeback and Qualified Income . If any Partner has an adjusted capital account deficit (as defined in Regulation § 1.704-1(b)(2)(ii)(d)) at the

end of any year, including an adjusted capital account deficit for such Partner caused or increased by an adjustment, allocation or distribution described in Regulation § 1.704-1(b)(2)(ii)(d)(4), (5) or (6), such Partner shall be allocated items of income and gain (consisting of a pro rata portion of each item of Partnership income, including gross income and gain) in an amount and manner sufficient to eliminate such Adjusted Capital Account Deficit as quickly as possible. This Section 4.2(c) is intended to constitute a “qualified income offset” pursuant to Regulation § 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

(d) Partner Nonrecourse Deductions . Notwithstanding Section 4.1 , any Partner nonrecourse deductions (as defined in Regulation § 1.704-2(i)(1)) for any taxable year shall be specifically allocated to the Partner who bears the economic risk of loss with respect to the Partner nonrecourse debt to which such deductions are attributable in accordance with Regulation § 1.704-2(i)(1).

(e) Curative Allocations . If items of income, gain, loss or deduction are allocated under Section 4.2(a) , (b) , (c) or (d) , to the extent possible the allocation of any remaining items of income, gain, loss or deduction shall be allocated such that the net amount allocated to each Partner will be the same amount that would have been allocated if no items of income gain, loss or deduction had been allocated under Section 4.2(a) , (b) , (c) or (d) . Allocations shall be made hereunder only to the extent consistent with the economic arrangement between the Partners and shall be made in a manner that is likely to minimize the economic distortions.

(f) Tax Allocations . Notwithstanding any provisions contained herein to the contrary, solely for federal (and applicable state and local) income tax purposes, items of income, depreciation, gain or loss with respect to property contributed or deemed contributed to the Partnership by a Partner shall be allocated so as to take into account the variation between the Partnership’s tax basis in such contributed property and its Carrying Value. Such allocation shall be made in accordance with the provisions of Treasury Regulations Section 1.704-3(d).

4.3 Tax Distributions . To the extent funds are available to the Partnership, each April 11, June 11, September 11 and December 11 (or if any of such days is not a business day, on the next business day thereafter) the Partnership shall distribute to each Partner or its Assignee (i) pro rata in accordance with the ratio that a Partner’s share of positive taxable income for the prior quarter bears to the sum of the total positive taxable income amount of all Partners having positive federal taxable income from the Partnership for such prior quarter, the amount that would be due as a quarterly estimated payment in respect of federal and state income tax liability that would have accrued for the applicable quarter if the Partnership were a corporation subject to federal and state income tax (determined without regard to any federal or state estimated income tax payment safe-harbors based on either the current or prior year’s projected or actual federal or state tax liability) plus any increase or decrease in the federal and state income tax liability of a prior annual reporting period or periods as such amounts are adjusted upon the filing of the related federal and/or state income tax returns or as otherwise finalized through audit or by agreement with the appropriate taxing authorities; and (ii) pro rata in accordance with the Partners’ relative Sharing Ratios, one quarter of the projected annual

amount that would be due in respect of the projected annual state franchise tax liability that would have accrued for the applicable quarter if the Partnership were a corporation subject to state franchise tax plus any increase or decrease in the hypothetical state franchise tax liability of a prior annual reporting period or periods as such amounts are adjusted upon the filing of the related federal or state tax returns or as otherwise finalized through audit or agreement with the appropriate state taxing authorities (each a “ Tax Distribution ”).

4.4 Distributions . Distributions shall be made every calendar quarter as set forth in this Section 4.4, and in addition at such times as the General Partner may determine, in each case if, in the General Partner’s opinion, there is sufficient cash in the Partnership to make a distribution. Within 30 days after the last day of each calendar quarter, the General Partner shall determine the amount of Cash Available for Distribution with respect to such quarter, and except for Tax Distributions, which shall be made pursuant to Section 4.3 , and distributions made in liquidation of the Partnership pursuant to Section 10.2 , shall distribute the Cash Available for Distribution to the Partners in proportion to their Sharing Ratios.

4.5 Transfer of Units . If during a year Units are transferred or new Units issued, allocations among the Partners shall be made in accordance with their interests in the Partnership from time to time during such year in accordance with Section 706 of the Code using the closing-of-the-books method.

4.6 Amounts Withheld . All amount withheld pursuant to the Code or any provision of any state or local tax law with respect to any payment, distribution, or allocation to the Partnership, the General Partner or the Limited Partners shall be treated as amounts distributed to the General Partner and the Limited Partners pursuant to this Article IV for all purposes under this Agreement. The General Partner is authorized to withhold from distributions, or with respect to allocations, to the General Partner and Limited Partners and to pay over to any federal, state or local government any amounts required to be so withheld pursuant to the Code or any provisions of any other federal, state or local law, and shall allocate such amounts to the General Partner and Limited Partners with respect to which such amount was withheld.

ARTICLE V

Accounting and Financial Matters

5.1 Fiscal Year . The fiscal year of the Partnership shall be the calendar year.

5.2 Accounting Elections . The Partnership shall keep its books in accordance with the following:

(a) In the event of the transfer of any or all of a Limited Partner’s Units as described in Section 743 of the Code or if a distribution of Partnership property as described in Section 734 of the Code occurs, the General Partner shall, on request by notice from any Partner, file on behalf of the Partnership an election in accordance with applicable Regulations to cause the basis of the Partnership property to be adjusted for federal income tax purposes as provided in Sections 734, 743 and 754 of the Code.

(b) The Partnership shall elect: (i) to deduct expenses incurred in organizing the Partnership ratably over the shortest period provided in Section 709 of the Code and

(ii) to deduct qualified start-up expenditures over the shortest period provided in Section 195 of the Code.

(c) No election may or shall be made by the Partnership or any Partner or Assignee to be excluded from the application of any of the provisions of Subchapter K, Chapter 1 of Subtitle A of the Code, or any similar provisions of state tax laws.

5.3 Tax Controversies . The General Partner is designated as the “tax matters partner” (as defined in the Code) and is authorized, empowered and required to represent the Partnership (at the Partnership’s expense) in connection with all examinations of the Partnership’s affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Partnership funds for professional services and costs associated therewith. The Partners and their Assignees agree to cooperate with the General Partner and to do or refrain from doing any or all things reasonably required by the General Partner to conduct such proceedings. The General Partner is authorized to make such filings with the Internal Revenue Service as may be required to designate the General Partner as the tax matters partner.

5.4 Preparation of Tax Returns . The General Partner shall cause the Partnership to file federal and state partnership returns of income and all other tax returns required to be filed by the Partnership for each calendar year or part thereof. The General Partner shall cause each Limited Partner or its Assignee to be furnished with information relating to the Partnership necessary for preparing such Limited Partner’s or Assignee’s income tax returns for the preceding year. A copy of the Partnership’s federal and state partnership returns of income will be available to the Limited Partner and its Assignees upon written request. If the Limited Partner or its Assignee intends to report its share of any Partnership tax item in a manner inconsistent with the Partnership’s reporting of such item, such Limited Partner or its Assignee shall notify the Partnership in writing at least twenty (20) days prior to the filing of any statement with the Internal Revenue Service in which such inconsistent position is reported.

5.5 Books and Records . The General Partner shall keep or cause to be kept full, accurate, complete and proper books and accounts of all operations of the Partnership in accordance with the requirements of the Partnership Act and the accounting principles set forth in Regulation § 1.704-1(b). The General Partner shall maintain a list showing the names and addresses of all of the Partners and each Partner’s Units. Such books and records of the Partnership shall be kept at the Partnership’s principal place of business. Copies of this Agreement and the Certificate of Limited Partnership and copies of the Partnership’s income tax returns will be provided without charge to any Limited Partner or its representative or Assignee upon written request.

5.6 Access to Books and Records . The General Partner shall make the books and records of the Partnership available to any Limited Partner during business hours upon reasonable notice. Each Limited Partner agrees not to disclose to third parties any information included in such books and records that is determined to be confidential by the General Partner except as may be required by law.

ARTICLE VI

Rights and Obligations of General Partner

6.1 Exclusive Authority . The General Partner is exclusively authorized and directed to manage and control the assets and business of the Partnership. The General Partner is hereby granted the right, power and authority to do on behalf of the Partnership all lawful things that, in such General Partner’s judgment, are necessary, proper or desirable to carry out the business of the Partnership, including, without limitation, the right, power and authority: (a) to incur all expenditures; (b) to employ and dismiss from employment any and all employees, agents, independent contractors, brokers, attorneys and accountants; (c) to acquire, hold, lease, sell or otherwise deal with all or any portion of any Partnership property for any Partnership purpose; (d) to arbitrate, settle or defend any claim by, against or involving the Partnership; (e) to borrow money on behalf of the Partnership and use as security therefor all or any part of any Partnership property; (f) to vote shares held by the Partnership; (g) to procure and maintain insurance; (h) to do any and all of the foregoing at such price or amount and upon such terms as the General Partner deems proper; and (i) to execute, acknowledge, swear to and deliver any and all instruments to effectuate any and all of the foregoing. Any and all lawful acts heretofore taken by the General Partner that are permitted under this Section 6.1 are hereby ratified and confirmed by the Partners as the acts and deeds of the Partnership. Notwithstanding anything herein to the contrary, during the period that Obligations shall be outstanding under any Note Document, the Partners will not cause the Partnership directly to take any action that (subject to any notice or grace periods set forth therein) is in breach of any covenant or agreement of the Partnership set forth in any Note Document.

6.2 General Authority . Persons dealing with the Partnership are entitled to rely conclusively on the power and authority of the General Partner as set forth in this Agreement. In no event shall any person dealing with the General Partner or its representatives with respect to any business or property of the Partnership be obligated to ascertain that the terms of this Agreement have been complied with, or be obligated to inquire into the necessity or expedience of any act or action of the General Partner or its representatives; and every contract, agreement, deed, mortgage, security agreement, promissory note or other instrument or document executed by the General Partner or its representatives with respect to any business or property of the Partnership shall be conclusive evidence in favor of any and every person relying thereon or claiming thereunder that (a) at the time of the execution and/or delivery thereof, this Agreement was in full force and effect, (b) the instrument or document was duly executed in accordance with the terms and provisions of this Agreement and is binding upon the Partnership, and (c) the General Partner was duly authorized and empowered to execute and deliver any and every such instrument or document for and on behalf of the Partnership.

6.3 Employment of Agents and Employees . Nothing in this Agreement shall preclude the future employment of any Partner, agent, third party or Affiliate to manage or provide other services in respect to the Partnership’s properties or business subject to the control of the General Partner.

6.4 Officers . The General Partner may, from time to time, designate one or more persons to be officers of the Partnership. Any officers so designated shall have such title and authority and perform such duties as the General Partner may, from time to time, designate.

Unless the General Partner decides otherwise, if the title is one commonly used for officers of a business corporation, the assignment of such title shall constitute the delegation to such officer of the authority and duties that are normally associated with that office, subject to any specific delegation of authority and duties made to such officer by the General Partner. Each officer shall hold office until his successor shall be duly designated and shall qualify or until his death or until he shall resign or shall have been removed. The salaries or other compensation, if any, of the officers and agents of the Partnership shall be fixed from time to time by the General Partner. Any officer may resign as such at any time. Any officer may be removed as such, with or without cause, by the General Partner at any time. Designation of an officer shall not, in and of itself, create contract rights.

6.5 Independent Activities .

(a) The General Partner shall be required to devote such time to the affairs of the Partnership as the General Partner determines in its sole discretion may be necessary to manage and operate the Partnership, and the General Partner shall not serve any other Person or enterprise in any capacity.

(b) Each Limited Partner (acting on its own behalf) and any of their respective Affiliates may, notwithstanding this Agreement, engage in whatever activities they choose, whether the same are competitive with the Partnership or otherwise, without having or incurring any obligation to offer any interest in such activities to the Partnership or any Partner and neither this Agreement nor any activity undertaken pursuant hereto shall prevent any Partner from engaging in such activities, or require any Partner to permit the Partnership or any Partner to participate in any such activities, and as a material part of the consideration for the execution of this Agreement by each Partner, each Partner hereby waives, relinquishes, and renounces any such right or claim of participation.

6.6 Expenses of the Partnership . All expenses properly incurred by the Partnership, including expenses relating to services performed by accountants, shall be billed directly to and paid by the Partnership. Reasonable third-party expenses incurred by the General Partner in connection with the formation or administration of the Partnership shall be reimbursed to the General Partner by the Partnership upon presentation of an invoice therefor including, without limitation (i) legal, accounting and other third-party professional fees and expenses; (ii) expenses directly connected with the investigation, negotiation, acquisition, valuation, disposition and ownership of the Partnership property; and (iii) travel and related expenses attributable to the performance of its services.

ARTICLE VII

Rights and Obligations of Limited Partners

7.1 No Participation in Management . No Limited Partner shall take part in the management or control of the Partnership’s business nor shall any Limited Partner transact any business in the Partnership’s name or have the power to sign documents for or otherwise to bind the Partnership; provided , however , that no Limited Partner shall be deemed to be taking part in the management or control of the Partnership’s business or otherwise taking any action

prohibited by this Section 7.1 as a result of such Limited Partner’s taking any action (a) permitted by Section 7.2 or (b) otherwise listed in Section 17-303 of the Partnership Act (or any successor provision) as activities that are not considered to constitute a Limited Partner’s participating in the control of the Partnership’s business.

7.2 Rights of Limited Partner . Each of the Limited Partners shall have the right to:

(a) vote in respect of the removal of the General Partner and the election of one or more successor General Partners under Article IX or in respect of any proposed amendment of this Agreement pursuant to Section 11.12 ;

(b) inspect and copy during regular business hours at such Limited Partner’s expense, any of the Partnership books and records;

(c) receive copies of this Agreement, the Certificate of Limited Partnership, all amendments thereto, and the Partnership’s federal, state, and local information or income tax returns;

(d) have on demand true and full information of all things affecting the Partnership and a formal accounting of Partnership affairs; and

(e) apply for dissolution and winding up by decree of court if it is not reasonably practicable to carry on the business of the Partnership in conformity with this Agreement.

A Limited Partner shall have the right, on demand, to obtain from the Partnership, without cost, a list of the names, addresses and interests of all Limited Partners. A Limited Partner shall not disclose to third parties any information included in the Partnership’s books and records, except as required by law.

ARTICLE VIII

Transfer of Units

8.1 Transfers by General Partner . The General Partner may not sell, exchange, encumber, pledge, gift, distribute, assign or transfer all or any portion of its Units without the consent of all of the Limited Partners; provided , however , that the General Partner may transfer such Units to a successor General Partner in the event of a removal effectuated pursuant to Section 9.1 .

8.2 Transfers by Limited Partners . No Limited Partner may sell, exchange, encumber, pledge, gift, distribute, assign or transfer all or any part of its Units except (i) with the consent of the General Partner, (ii) to Affiliate entities that are under 100% common control with the transferring Limited Partner (in which case the transferring Limited Partner will be and remain liable for any and all obligations of the transferee Affiliate) and (iii) in cash sales pursuant to and as provided in Section 8.3 .

8.3 Permitted Cash Sales by Limited Partners .

(a) Any Limited Partner desiring to sell all or part of such Limited Partner’s Units (the “ Selling Limited Partner ”) may do so only pursuant to a bona fide cash offer and shall promptly give notice (the “ Initial Notice ”) to the General Partner stating that the Selling Limited Partner has a bona fide cash offer for the purchase of such Limited Partner’s Units and further stating the name and address of the prospective purchaser (who must be ready, willing and able to purchase), the purchase price, and all other terms of the offer. A bona fide cash offer shall be an all-cash offer that, upon acceptance by the offeree, would give rise to a binding obligation of the offeror to purchase and a binding obligation of the offeree to sell the Units subject only to the rights created under this Section 8.3(a) . Delivery of an Initial Notice shall constitute the irrevocable offer of the Selling Limited Partner to sell its Units to the Partnership and the Limited Partners hereunder on the same terms and conditions communicated in the Initial Notice. The Partnership shall have the first right for a period of 15 days after receipt of the Initial Notice from the Selling Limited Partner within which to elect to purchase all or a portion of the Units of the Selling Limited Partner. In the event that the Partnership determines, in its absolute discretion, not to purchase all or a portion of the Units of the Selling Limited Partner, the General Partner shall notify the remaining Limited Partners (the “ Notice to Partners ”) of the failure of the Partnership to exercise its right not later than 15 days after receiving the Initial Notice. The remaining Limited Partners shall have the second and subsequent right for a period of 15 days after the sending of the Notice to Partners from the General Partner within which to elect to purchase the Units not being purchased by the Partnership, on a pro rata basis in accordance with their respective Sharing Ratios or as such Limited Partners may otherwise agree among themselves. The Selling Limited Partner shall not be bound to sell any portion of the Units identified in the Initial Notice to the Partnership or to any Limited Partner unless all of such Units shall be accepted for purchase and purchased by the Partnership or the remaining Limited Partners in accordance with this Section 8.3(a) . If the Partnership and the remaining Limited Partners elect to purchase all of the Units identified in the Initial Notice, the Partnership and the remaining Limited Partners shall provide notice (the “ Acceptance Notice ”) to the Selling Limited Partner within 30 days after the receipt by the General Partner of the Initial Notice informing the Selling Limited Partner as to the exercise of such option and setting a date for closing the purchase, such date to be not less than ten nor more than 30 days after mailing of the Acceptance Notice. If the Partnership and the remaining Limited Partners do not exercise their rights of first refusal within 30 days after the receipt by the General Partner of the Initial Notice, the Selling Limited Partner shall have a further 30 days during which it may, subject to Section 8.3(b) , sell its Units pursuant to the third party’s bona fide cash offer. The Selling Limited Partner must sell its Units pursuant to the bona fide cash offer and on the same terms and conditions and for the same price as was communicated to the General Partner in the Initial Notice. If the sale is not completed within such further 30-day period, the Initial Notice shall be deemed to have expired and a new notice and offer shall be required before the Selling Limited Partner may make any disposition of its Units.

(b) In the event that the Partnership and the remaining Limited Partners do not exercise their rights of first refusal as provided in Section 8.3(a) and the third party

desires to purchase the Selling Limited Partner’s Units within the time period and on the terms required by Section 8.3(a) , such Units may be so transferred, but only if: (i) the transferee gives written notice to the General Partner; (ii) the transferee executes an instrument reasonably satisfactory to the General Partner accepting and adopting the provisions, representations and agreements of a Limited Partner set forth in this Agreement and representing such facts (which representations shall be true) as the General Partner may deem necessary or advisable to assure that neither the Partnership nor any Partner or Assignee would be liable or subject to any requirement to make any registration of any security under the Securities Act, or applicable state securities laws or any rule or regulation promulgated thereunder; (iii) the transferor or transferee delivers an opinion of counsel in form and content satisfactory to the General Partner to the effect that such transfer is exempt from the registration requirements of the Securities Act, applicable state securities laws or any rule or regulation promulgated thereunder; and (iv) the General Partner shall be satisfied that (A) such transfer would not adversely affect the status of the Partnership as a partnership under the Code, (B) such transfer would not cause the Partnership to be treated as a “publicly traded partnership” within the meaning of Section 7704(b) of the Code, (C) such transfer would not cause the Partnership or the General Partner to be in violation of any applicable state or federal securities law, (D) such transfer would not cause the Partnership to be an “investment company” under the Investment Company Act of 1940, and (E) neither the proposed transferor nor the transferee is, or upon consummation of the transfer would be, in default in the full and punctual payment and performance of any obligations or liabilities to the Partnership. The General Partner may in its absolute discretion waive the condition in clause (iv)(B) of the preceding sentence in connection with an offer made on substantially equivalent terms to all Limited Partners or Assignees. A transferee pursuant to a transfer permitted by this Section 8.3(b) shall be an Assignee.

(c) No Assignee of a Limited Partner’s Units shall have the right to become a Substituted Limited Partner unless: (i) the General Partner consents to such substitution, which consent may be given or withheld in the General Partner’s sole and absolute discretion, and (ii) such Assignee executes an instrument reasonably satisfactory to the General Partner accepting the terms and provisions of this Agreement.

8.4 Effective Date of Transfer . Each transfer shall become effective as of the date agreed to by the General Partner and the parties to such transfer or, in the absence of such agreement, as of the first day of the calendar month following the calendar month during which the General Partner approves such transfer and receives a copy of the instrument of assignment and all such certificates and documents that the General Partner may request.

8.5 Invalid Transfer . Any transfer of a Unit that is in violation of this Article VIII shall be null and void, and the Partnership shall not recognize the same for the purposes of making distributions with respect to such Unit.

8.6 Distributions to Assignee . The Partnership shall, after the effective date of any transfer, thereafter pay all further distributions or profits or other compensation by way of income, or return of capital, on account of the Units so transferred, to the Assignee from such time as such Units are transferred to the name of the transferee on the Partnership’s books in

accordance with the above provisions. In the absence of written notice to the General Partner of the transfer of any Units, the General Partner may assume that no transfer has occurred.

8.7 Federal Law Disclosure and Limitations . The interests of the Partners in the Partnership have not, nor will be, registered under federal or state securities laws. Units may not be offered for sale, sold, pledged or otherwise transferred unless so registered, or unless an exemption from registration exists. The availability of any exemption from registration must be established by an opinion of counsel, whose opinion must be satisfactory to the General Partner.

8.8 Admission of Successor General Partner; No Dissolution or Termination . Any successor General Partner selected pursuant to Section 9.2 shall be admitted to the Partnership as the General Partner. So long as any obligation under the Note Documents is outstanding, the organizational documents of any such successor General Partner shall contain the same separateness provisions (or equivalent provisions if such entity is not a corporation) contained in Article THIRD of the General Partner’s Amended and Restated Certificate of Incorporation. Admission of any such successor General Partner shall be effective immediately prior to the removal of the predecessor General Partner pursuant to Article IX . The removal of the General Partner from the Partnership pursuant to Article IX shall be effective immediately after the successor General Partner has been admitted to the Partnership as provided in the immediately preceding sentence. Upon the removal of the General Partner and selection of a successor General Partner as provided in Article IX , the Partnership, if there was no remaining General Partner, shall be reconstituted and the successor General Partner shall continue the business and operations of the Partnership without winding up and ceasing the business and operations of the Partnership, and without causing any dissolution of the Partnership or terminating the Partnership for any purpose.

ARTICLE IX

Removal of General Partner

9.1 Removal of General Partner . The General Partner may be removed upon the affirmative vote of a majority of the Units held by the Limited Partners. Any such action by the Limited Partners for removal of the General Partner shall be subject to (i) payment of the value of the removed General Partner’s Capital Account and (ii) the election of a successor General Partner as provided in Section 9.2 . Such removal shall be effective subsequent to the admission of the successor General Partner pursuant to Section 8.8. The right of the Limited Partners to remove the General Partner pursuant to this Section 9.1 shall not exist or be exercised unless the Partnership has received an opinion of counsel that the removal of such General Partner and the selection of a successor General Partner would not result in the loss of limited liability of the Limited Partners or cause the Partnership to be treated as an association taxable as a corporation for federal income tax purposes.

9.2 Selection of Successor General Partner . In the event that a General Partner shall cease to be a General Partner under this Article IX , then one or more successor General Partners may be elected by affirmative vote of a majority of the Units held by the Limited Partners. If the Limited Partners fail to select a successor General Partner, then the Partnership shall be deemed dissolved as provided in Section 10.1(b) and the provisions of Section 10.2 shall apply.

ARTICLE X

Dissolution, Liquidation and Termination

10.1 Dissolution and Termination . The death, incompetency, bankruptcy, insolvency or dissolution of a Limited Partner shall not dissolve the Partnership; the estate of a deceased or incompetent Limited Partner shall not have the right to withdraw such Limited Partner’s Capital Contribution to the Partnership prior to the liquidation of the Partnership. The Partnership shall be dissolved only upon the happening of any one of the following events:

(a) the entry of a decree of judicial dissolution under Section 17-802 of the Partnership Act, provided , that during the period that Obligations shall be outstanding under any Note Document, no Partner shall apply for such a decree of dissolution; or

(b) any other act or event which results in the dissolution of a limited partnership under the Partnership Act.

During the period that Obligations shall be outstanding under any Note Document, the Partners will not vote or consent to the dissolution, termination or winding up of the Partnership.

10.2 Winding Up and Termination .

(a) Upon the dissolution of the Partnership, no further business shall be conducted, except for such actions as shall be necessary for the winding up of the affairs of the Partnership and the distribution of its assets pursuant to the provisions of this Section 10.2 . The General Partner shall act as liquidating trustee, or may appoint in writing one or more other Persons to act as liquidating trustee or trustees, and such trustee or trustees shall have full authority to wind up the affairs of the Partnership and to make final distribution as provided herein.

(b) As determined by the liquidating trustee, Partnership property shall be sold or distributed in-kind. Upon an in-kind distribution of Partnership property, each Partner’s Capital Account shall be adjusted as if such property had been sold at such fair market value and gains and losses realized thereby had been allocated to the Partners in accordance with Article IV hereof. Liquidation distributions shall be made to the Partners in accordance with their Capital Account balances after giving effect to such adjustment and all other allocations of Taxable Income or Taxable Loss for the year in which such liquidating distributions are made.

(c) The liquidating trustee or trustees shall comply with this Agreement and all requirements of the Partnership Act and other applicable law pertaining to the winding up of a limited partnership.

(d) The Limited Partners shall look solely to the assets of the Partnership for the return of their Capital Contributions, and if the Partnership property remaining after the payment or discharge of the debts and liabilities of the Partnership is insufficient to return their Capital Contributions, they shall have no recourse against any General Partner or any other Person for that purpose.

10.3 Termination . Upon the completion of the liquidation of the Partnership and the distribution of all Partnership funds, the Partnership shall terminate and the General Partner (or the liquidating trustee or trustees, as the case may be) shall (and are hereby given the authority to) execute and record all documents required to effectuate the dissolution and termination of the Partnership.

10.4 Indemnification . Each liquidating trustee or trustees (and each officer, director, shareholder, agent, representative, contractor, adviser, appraiser, partner or employee thereof) shall not be liable for, and shall be indemnified and held harmless by the Partnership from and against, all demands, liabilities, causes of action, costs and damages of any nature whatsoever arising out of or incidental to the taking of any action authorized under this Article X whether or not arising out of the negligence of the liquidating trustee or trustees (or any officer, director, shareholder, agent, representative, contractor, adviser, appraiser, partner or employee thereof), provided , however , that the liquidating trustee or trustees (or any officer, director, shareholder, agent, representative, contractor, adviser, appraiser, partner or employee thereof) shall not be exculpated and shall not be entitled to indemnification hereunder where the claim or issue arose out of (a) a matter entirely unrelated to acting under the provisions hereof, (b) the gross negligence, bad faith or willful misconduct of the liquidating trustee or trustees (or any officer, director, shareholder, agent, representative, contractor, adviser, appraiser, partner or employee thereof seeking indemnity hereunder), or (c) the breach by the liquidating trustee or trustees of obligations under this Article X. The exculpation and indemnification rights herein contained shall be cumulative of, and in addition to, any and all other rights, remedies and resources to which the liquidating trustee or trustees (or any officer, director, shareholder, agent, representative, contractor, adviser, appraiser, partner or employee thereof) shall be entitled at law or in equity. THE EXCULPATION AND INDEMNIFICATION CONTAINED IN THIS SECTION IS INTENDED TO EXPRESSLY INDEMNIFY THE LIQUIDATING TRUSTEE OR TRUSTEES FOR DEMANDS, LIABILITIES, CAUSES OF ACTION, COSTS AND DAMAGES RESULTING FROM ITS NEGLIGENT ACTS OR OMISSIONS, SUBJECT TO THE TERMS OF THIS SECTION.

ARTICLE XI

General Provisions

11.1 Scope . This Agreement constitutes the entire understanding of the Partners with respect to the Partnership.

11.2 Governing Law . This Agreement is governed by and shall be construed and enforced in accordance with the laws of the State of Delaware.

11.3 Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the Partners, their heirs, beneficiaries, executors, administrators, legal representatives, successors and assigns.

11.4 Gender . Pronouns of any gender used herein shall include the other gender and the neuter, and the singular and the plural shall each include the other.

11.5 Headings . The headings in this Agreement are intended for convenience and identification only, are in no way intended to describe, interpret, define, or limit the scope, extent or intent of this Agreement or any provision hereof and shall be disregarded in the construction and enforcement of this Agreement.

11.6 Violation . The failure of any party to seek redress for a violation of or to insist upon the strict performance of any covenant or condition of this Agreement shall not prevent a subsequent act, that would have originally constituted a violation, from having the effect of an original violation. The rights and remedies provided by this Agreement are cumulative and the use of any one right or remedy by any party shall not preclude or waive its right to use any or all other remedies. Such rights and remedies are given in addition to any other rights or remedies the parties may have by law, statute, ordinance or otherwise.

11.7 Indemnification . Pursuant to and in accordance with the procedures of the Partnership Act, the Partnership shall exculpate and indemnify (including advancement of all defense expenses in the event of threatened or asserted claims) (i) the General Partner (and any Affiliate, officer, director, partner, employee, trustee and agent of the General Partner) of the Partnership, (ii) a Limited Partner of the Partnership, (iii) an employee of the Partnership, (iv) an agent of the Partnership, and (v) Persons who are or were serving at the request of the Partnership as a representative of another enterprise, in each case to the fullest extent that such exculpation or indemnification may be provided for in a limited partnership agreement and authorized by the Partnership Act; provided , however , that the Partnership shall not exculpate or indemnify any party for conduct constituting gross negligence or willful misconduct by the indemnified party. The exculpation and indemnification provided by this Agreement, and the Partnership Act shall not be deemed exclusive of any other rights to which those seeking exculpation or indemnification may be entitled under any other statute or at common law and shall continue as to such Person’s heirs, beneficiaries, executors, administrators, legal representatives, successors and assigns. THE EXCULPATION AND INDEMNIFICATION CONTAINED IN THIS SECTION IS INTENDED TO EXPRESSLY INDEMNIFY THE APPLICABLE PARTY FOR DEMANDS, LIABILITIES, CAUSES OF ACTION, COSTS AND DAMAGES RESULTING FROM ITS NEGLIGENT ACTS OR OMISSIONS, SUBJECT TO THE TERMS OF THIS SECTION.

11.8 Severability . Every provision of this Agreement is intended to be severable. If any term or provision is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remainder hereof.

11.9 Counterparts . This Agreement or any amendment hereto may be executed in any number of counterparts with the same effect as if all parties hereto had all signed the same document. All counterparts shall be construed together and shall constitute one agreement.

11.10 Waiver of Right to Partition . Each Person who now or hereafter is a party hereto or who has any right herein or hereunder irrevocably waives during the term of the Partnership any right to maintain any action for partition with respect to Partnership property.

11.11 Dispute Resolution .

(a) Any controversy or claim arising out of or relating to this Agreement or the management of the Partnership shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The arbitration shall be conducted by a single arbitrator. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. §§ 1-16, and judgment upon the award entered by the arbitrator may be entered by any court having jurisdiction thereof. The location of the arbitration and all proceedings in connection therewith shall be in Houston, Texas unless otherwise agreed by the parties. As to any dispute, controversy or claim that under the terms hereof is made subject to arbitration, no suit at law or in equity based on such dispute, controversy or claim shall be instituted by either party hereto, other than to compel arbitration proceedings or enforce the award of the arbitrators.

(b) The arbitrator shall (unless the arbitrator otherwise determines) consider the time value of money in determining any awards and may grant any relief deemed by the arbitrator to be just and reasonable and within the scope of this Agreement, including, without limitation specific performance; provided , however , that the arbitrator may not award punitive damages, and the parties hereby irrevocably waive any claims to punitive damages. The compensation for the service of the arbitrator and any expenses incurred shall be paid by the Partnership.

11.12 Amendments .

(a) Subject to Section 1.2(b) hereof, this Agreement may be amended upon the approval of such amendment by 66-2/3% of the total Units held by the Partners, provided that the General Partner may propose technical amendments to this Agreement that (1) have no significant adverse effect on the rights, interests, liabilities, duties, or required contributions of any Partner, (2) add to the representation, duties, obligations of the General Partner or to surrender any right or power granted to the General Partner for the benefit of the Limited Partners, or (3) are deemed necessary in the judgment of the General Partner (A) to satisfy any requirements, conditions, or guidelines contained in any ruling of the Internal Revenue Service, regulation promulgated by the United States Department of Treasury, or court decision dealing with the allocation for federal income tax purposes of items of Partnership income, gain, loss, deduction, or credit or the status of the Partnership as a partnership for tax purposes, (B) to satisfy any requirement, condition or guideline contained in any state or federal securities law, or (C) for the effective operation of the Partnership; and any such amendments shall be deemed adopted without any further action by the General Partner or any vote, consent or other action of the Limited Partners upon the notification to the Limited Partners of the adoption of such amendment.

(b) Notwithstanding this Section 11.12 hereof,

(i) This Agreement shall not be amended without the consent of each Partner adversely affected if such amendment would (A) convert a Limited Partner’s interest in the Partnership into a General Partner’s interest, (B) modify

the limited liability of a Limited Partner, or (C) alter the interest of such Partner in profits, losses, other items, or any Partnership distributions, other than pursuant to the terms of this Agreement; and

(ii) This Agreement shall not be amended without the consent of all Partners if such amendment would (A) change the form of the Partnership to a general partnership; (B) cause the Partnership to be classified, for Federal income tax purposes, as a Person other than a partnership; or (C) amend this Section 11.12 .

11.13 Interests . The Partnership hereby irrevocably elects that all general and limited partnership interests in the Partnership shall be securities governed by Article 8 of the Uniform Commercial Code as in effect in the State of Delaware and each other applicable jurisdiction. Any certificate evidencing a partnership interest in the Partnership shall bear the following legend: “This certificate evidences an interest in Sabine Pass LNG, L.P. and shall be a security governed by Article 8 of the Uniform Commercial Code as in effect in the State of Delaware and, to the extent permitted by applicable law, Article 8 of the Uniform Commercial Code of each other applicable jurisdiction.” This provision shall not be amended, and any purported amendment to this provision shall be null and void and of no force or effect.

(Signature page follows)

IN WITNESS WHEREOF, the undersigned have executed this Fifth Amended and Restated Agreement of Limited Partnership as of the Effective Time.


GENERAL PARTNER:	SABINE PASS LNG-GP, INC.

	By:	/s/ Graham A. McArthur
	Name:	Graham A. McArthur
	Title:	Treasurer

	Address:
	717 Texas Avenue, Suite 3100
	Houston, Texas 77002

CURRENT LIMITED PARTNER:	SABINE PASS LNG-LP, LLC

	By:	/s/ Graham A. McArthur
	Name:	Graham A. McArthur
	Title:	Treasurer

	Address:
	2215-B Renaissance Drive, Suite 5
	Las Vegas, Nevada 89119

EXHIBIT A

GENERAL PARTNER’S CONTRIBUTION

None.

A-1

EXHIBIT B

ORIGINAL LIMITED PARTNER’S CONTRIBUTION

The Original Limited Partner and its Affiliates contributed and assigned (as applicable) to the Partnership as of the Effective Date, free and clear of all liens, all right, title and interest of the Original Limited Partner and its Affiliates in and to all assets relating to the Project (collectively, the “ Contributed Assets ”), including without limitation, the following:

(i) All contracts, agreements, commitments, warranties, guaranties, and other instruments, oral or written, in effect as of the Effective Date with respect to the Project, including, without limitation, any capacity reservation or capacity option agreements or memorandums of understanding regarding the use of the Project;

(ii) All Governmental Permits, consents, authorizations, waivers, licenses, permits and approvals from any Person relating to the Project obtained by the Original Limited Partner and its Affiliates prior to the Effective Date;

(iii) All research, development and know-how relating to the Project, including, without limitation, any market studies, terminal studies, feasibility studies, environmental assessments, safety and permitting assessments, legal and FERC permitting developments or filings, pipeline and permitting assessments, engineering reports and marine and site designs;

(iv) All prepaid expenses, advances and deposits relating to the Project;

(v) Copies of all books and records relating the Project; and

(vi) All goodwill associated with the Project.

B-1

EXHIBIT C

UPDATED AS OF THE EFFECTIVE TIME


GENERAL PARTNER:		Units

Sabine Pass LNG-GP, Inc.		0
Address :
717 Texas Avenue, Suite 3100
Houston, Texas 77002

CURRENT LIMITED PARTNER:

Sabine Pass LNG-LP, LLC		100
Address :
2215-B Renaissance Drive, Suite 5
Las Vegas, Nevada 89119

C-1

LOGO

Exhibit 4.5

Sabine Pass LNG, L.P.

Certificate Representing General Partner Interest

In accordance with the provisions of the Fifth Amended and Restated Agreement of Limited Partnership of Sabine Pass LNG, L.P., as supplemented or restated from time to time (the “Partnership Agreement”), Sabine Pass LNG, L.P., a Delaware limited partnership (the “Partnership”), hereby certifies that (the “Holder”) is the registered owner of a general partner interest in the Partnership (the “General Partner Interest”) transferable on the books of the Partnership, in person or by duly authorized attorney, only in accordance with the terms of the Partnership Agreement. The rights, preferences and limitations of the General Partner Interest are set forth in, and this Certificate and the General Partner Interest represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Partnership Agreement. Copies of the Partnership Agreement are on file at, and will be furnished without charge on delivery of written request to the Partnership at, the principal office of the Partnership located at 717 Texas Avenue, Suite 3100, Houston, Texas 77002.

The Holder, by accepting this Certificate, is deemed to have (i) requested admission as, and agreed to become, the general partner of the Partnership and to have agreed to comply with and be bound by and to have executed the Partnership Agreement and (ii) represented and warranted that the Holder has all right, power and authority and, if an individual, the capacity necessary to enter into the Partnership Agreement.

Sabine Pass LNG, L.P.

By: Sabine Pass LNG-GP, Inc., its General Partner

Dated:

By:

Name:

Title:

This certificate evidences an interest in Sabine Pass LNG, L.P. and shall be a security governed by Article 8 of the Uniform Commercial Code as in effect in the State of Delaware and, to the extent permitted by applicable law, Article 8 of the Uniform Commercial Code of each other applicable jurisdiction.

RESTRICTIONS ON THE ASSIGNMENT OR OTHER DISPOSITION OF THE GENERAL PARTNER INTEREST EVIDENCED BY THIS CERTIFICATE ARE SET FORTH ON THE REVERSE SIDE HEREOF.

LOGO

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED AT ANY TIME WHATSOEVER, EXCEPT UPON DELIVERY TO THE PARTNERSHIP OF AN OPINION OF COUNSEL SATISFACTORY TO THE GENERAL PARTNER OF THE PARTNERSHIP THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER OR THE SUBMISSION TO THE GENERAL PARTNER OF THE PARTNERSHIP OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO THE GENERAL PARTNER TO THE EFFECT THAT ANY SUCH TRANSFER OR SALE WILL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED THEREUNDER.

SABINE PASS LNG, L.P.

CERTIFICATE FOR

G ENERAL P ARTNER I NTEREST

D ATED :

LOGO

Exhibit 4.6

Sabine Pass LNG, L.P.

Certificate Representing Limited Partner Interest

In accordance with the provisions of the Fifth Amended and Restated Agreement of Limited Partnership of Sabine Pass LNG, L.P., as supplemented or restated from time to time (the “Partnership Agreement”), Sabine Pass LNG, L.P., a Delaware limited partnership (the “Partnership”), hereby certifies that (the “Holder”) is the registered owner of ( ) units of limited partner interest in the Partnership (the “Limited Partner Interest”) transferable on the books of the Partnership, in person or by duly authorized attorney, only in accordance with the terms of the Partnership Agreement. The rights, preferences and limitations of the Limited Partner Interest are set forth in, and this Certificate and the Limited Partner Interest represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Partnership Agreement. Copies of the Partnership Agreement are on file at, and will be furnished without charge on delivery of written request to the Partnership at, the principal office of the Partnership located at 717 Texas Avenue, Suite 3100, Houston, Texas 77002.

The Holder, by accepting this Certificate, is deemed to have (i) requested admission as, and agreed to become, a Limited Partner and to have agreed to comply with and be bound by and to have executed the Partnership Agreement and (ii) represented and warranted that the Holder has all right, power and authority and, if an individual, the capacity necessary to enter into the Partnership Agreement.

Sabine Pass LNG, L.P.

By: Sabine Pass LNG-GP, Inc., its General Partner

Dated:

By:

Name:

Title

RESTRICTIONS ON THE ASSIGNMENT OR OTHER DISPOSITION OF THE LIMITED PARTNER INTEREST EVIDENCED BY THIS CERTIFICATE ARE SET FORTH ON THE REVERSE SIDE HEREOF.

LOGO

SABINE PASS LNG, L.P.

CERTIICATE FOR

L IMITED P ARTNER I NTEREST

D ATED :

Exhibit 5.1

LOGO

November 22, 2006

Sabine Pass LNG, L.P.

717 Texas Avenue, Suite 3100

Houston, Texas 77002

Re: Sabine Pass LNG, L.P. Registration Statement On Form S-4

Gentlemen:

We have acted as special counsel to Sabine Pass LNG, L.P., a Delaware limited partnership (the “ Issuer ”), in connection with the public offering of an aggregate principal amount of up to $550,000,000 of the Issuer’s 7 ¹ / 4 % Senior Secured Notes due 2013 (the “ 2013 Exchange Notes ”) and an aggregate principal amount of up to $1,482,000,000 of the Issuer’s 7 ¹ / 2 % Senior Secured Notes due 2016 (the “ 2016 Exchange Notes ” and collectively with the 2013 Exchange Notes, the “ Exchange Notes ”). The Exchange Notes are to be issued under an Indenture dated as of November 9, 2006 (the “ Indenture ”), between the Issuer and The Bank of New York, as trustee (the “ Trustee ”), pursuant to an exchange offer (the “ Exchange Offer ”) by the Issuer in exchange for like principal amounts of the Issuer’s issued and outstanding 7 ¹ / 4 % Senior Secured Notes due 2013 (the “ 2013 Outstanding Notes ”) and 7 ¹ / 2 % Senior Secured Notes due 2016 (the “ 2016 Outstanding Notes ” and collectively with the 2013 Outstanding Notes, the “ Outstanding Notes ”), respectively, as contemplated by the Registration Rights Agreement dated as of November 9, 2006 (the “ Registration Rights Agreement ”), by and between the Issuer and Credit Suisse Securities (USA) LLC, acting on behalf of itself and as the representative of the initial purchasers of the Outstanding Notes.

This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended (the “ Securities Act ”).

In connection with this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of:

(a) the registration statement on Form S-4 of the Issuer, filed with the Securities and Exchange Commission (the “ SEC ”) to register the Exchange Notes (the “ Registration Statement ”);

(b) the Registration Rights Agreement;

LOGO

Sabine Pass LNG, L.P.

November 22, 2006

Page 2

(d) the Certificate of Limited Partnership of the Issuer, certified by the Secretary of State of the State of Delaware as in effect on October 26, 2006, and certified by the Secretary of Sabine Pass LNG-GP, Inc., a Delaware corporation and the Issuer’s general partner (“ Sabine Pass GP ”), as in effect on each of the date of the adoption of the resolutions specified in paragraph (h) below, the date of the Indenture and the date hereof;

(e) the (i) Fourth Amended and Restated Agreement of Limited Partnership of the Issuer, certified by the Secretary of Sabine Pass GP as in effect on the date of the adoption of the resolutions specified in paragraph (h) below; and (ii) Fifth Amended and Restated Agreement of Limited Partnership of the Issuer, certified by the Secretary of Sabine Pass GP as in effect on each of the date of the Indenture and the date hereof;

(f) the (i) Certificate of Incorporation of Sabine Pass GP, certified by the Secretary of State of the State of Delaware as in effect on October 26, 2006, and certified by the Secretary of Sabine Pass GP as in effect on the date of the adoption of the resolutions specified in paragraph (h) below; and (ii) Amended and Restated Certificate of Incorporation of Sabine Pass GP, certified by the Secretary of State of the State of Delaware as in effect on November 21, 2006, and certified by the Secretary of Sabine Pass GP as in effect on each of the date of the Indenture and the date hereof;

(g) the Bylaws of Sabine Pass GP, certified by the Secretary of Sabine Pass GP as in effect on each of the date of the adoption of the resolutions specified in paragraph (h), the date of the Indenture and the date hereof;

(h) resolutions of the Board of Directors of Sabine Pass GP dated November 1, 2006, certified by the Secretary of Sabine Pass GP;

(i) the Form T-1 of the Trustee filed as an exhibit to the Registration Statement; and

(j) the form of the Exchange Notes.

We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such records of the Issuer and such agreements, certificates of public officials, certificates of officers or other representatives of the Issuer and others, and such other documents, certificates and records as we have deemed necessary or appropriate as a basis for the opinions set forth herein.

In our examination, we have assumed (i) the legal capacity of all natural persons, (ii) the genuineness of all signatures, (iii) the authenticity of all documents submitted to us as originals, (iv) the conformity to original documents of all documents submitted to us as certified, conformed or photostatic copies, (v) the authenticity of the originals of such latter documents and (vi) that the Registration Statement, and any amendments thereto (including post-effective amendments), will have become effective and the Exchange Notes will be issued in compliance with applicable federal and state securities laws and in the manner described in the Registration Statement. In making our examination of executed documents or documents to be executed, we

Sabine Pass LNG, L.P.

November 22, 2006

Page 3

have assumed that the parties thereto, other than the Issuer, had or will have the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by such parties, other than the Issuer, of such documents and, except as set forth below, the validity and binding effect on such parties. As to any facts material to the opinions expressed herein which we have not independently established or verified, we have relied upon statements and representations of officers and other representatives of the Issuer and others.

We express no opinion other than as to (i) the laws of the State of New York that are normally applicable to transactions of the type contemplated by the Exchange Offer and the Exchange Notes, (ii) the General Corporation Law of the State of Delaware, and (iii) the Delaware Revised Uniform Limited Partnership Act.

Based upon and subject to the foregoing and the limitations, qualifications, exceptions and assumptions set forth herein, we are of the opinion that, when the Exchange Notes (in the forms examined by us) have been duly executed by the Issuer and authenticated by the Trustee in accordance with the terms of the Indenture and have been delivered upon consummation of the Exchange Offer against receipt of Outstanding Notes surrendered in exchange therefor in accordance with the terms of the Exchange Offer, the Registration Rights Agreement and the Indenture, the Exchange Notes will constitute valid and legally binding obligations of the Issuer.

Our opinions expressed above are subject to applicable bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfer or conveyance), reorganization, moratorium and other similar laws affecting creditors’ rights generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law), including, without limitation, (a) the possible unavailability of specific performance, injunctive relief or any other equitable remedy and (b) concepts of materiality, reasonableness, good faith and fair dealing. Furthermore, (a) we express no opinion regarding the validity or effect of any provision relating to severability or separability, purporting to establish any obligation of any party as absolute or unconditional regardless of the occurrence or non-occurrence or existence or non-existence of any event or other state of facts or purporting to limit the use of the Indenture in interpreting any other indenture, loan or debt agreement or vice versa, and (b) certain of the waivers included in the Indenture relating to the guaranties by the guarantors that may become party thereto may be unenforceable in whole or in part.

In rendering the opinion set forth above, we have assumed that the execution and delivery by the Issuer of the Indenture and the Exchange Notes and the performance by the Issuer of its obligations under the Indenture and the Exchange Notes, did not, do not and will not violate or constitute a default under any agreement or instrument to which the Issuer or its properties is subject.

Sabine Pass LNG, L.P.

November 22, 2006

Page 4

We hereby consent to the filing of this opinion with the SEC as an exhibit to the Registration Statement. We also consent to the reference to our firm under the caption “Legal Matters” in the Registration Statement. In giving this consent, we do not thereby admit that we are included in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the SEC. This opinion is expressed as of the date hereof, and we disclaim any undertaking to advise you of any subsequent changes in the facts stated or assumed herein or of any subsequent changes in applicable law.

Very truly yours,

/s/ Andrews Kurth LLP

Exhibit 10.12

GUARANTY AGREEMENT

From

CHEVRONTEXACO CORPORATION

SABINE PASS LNG, L.P.

GUARANTY AGREEMENT

THIS GUARANTY AGREEMENT, is made and entered into as of December 15, 2004, 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 November 8, 2004 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 Subsidiary’s 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 December 15, 2004, 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 Subsidiary’s 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 November 8, 2004, 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.

-2-

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 ChevronTexaco’s 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 &K dated July 29, 2004, July 30, 2004 and October 29, 2004 filed with the Securities and Exchange Commission (collectively, the “ ChevronTexaco Reports ”). ChevronTexaco’s 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.

-3-

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 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 (1) failure of consideration supporting the TUA, (ii) the Company’s 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 32. 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,

-4-

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 respect to any sums owing by the ChevronTexaco Subsidiary or any other liability of the ChevronTexaco Subsidiary to Sabine Pass;

(ii) 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 Pass’s favor by the dispute resolution procedures of Article 20 of the TUA may be raised by the Guarantor and no care 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

-5-

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 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.

-6-

For all purposes of this Guaranty Agreement, a notice or communication will be deemed effective:

-7-

(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 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.

-8-

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.

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.


CHEVRONTEXACO CORPORATION

By:		/s/ John D. Gass
		John D. Gass
		Vice President

-9-


	Andie Setters
	Vice President - IMBD
	ChevronTexaco Global Gas
Tel 713-752-4775	1111 Bagby Street
Fax 713-752 3110	Houston, TX 77002

		ChevronTexaco

December 13, 2004

HAND DELIVERED

Mr. Keith M Meyer

President

Saline Pass LNG, L P

717 Texas Ave., Suite 3100

Houston, TX 77002

Re Terminal Use Agreement

Dear Keith

In accordance with Section 3.3 of the Terminal Use Age between Chevron U S.A. Inc. (“CUSA”) and Sabine Pass LNG. LP C Sabine] CUSA hereby notifies Sabine that as of this date it has satisfied the Management Condition Precedent in the TUA and is waiving the Equity Condition Precedent Consequently, the TUA is now fully effective as to CUSA. As we’ve said before, we look forward to a long and constructive relationship with Sabine

Sincerely,

Audie Setters

cc B. Haub

D. Stevenson

EXHIBIT 10.28

AMENDMENT TO LNG TERMINAL USE AGREEMENT

This AMENDMENT TO LNG TERMINAL USE AGREEMENT (this “Amendment” ) dated as of this 1st day of December 2005 is made by and between CHEVRON USA, INC. , a company incorporated under the laws of Pennsylvania with an office at 1500 Louisiana 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, U.S.A. 77002 ( “SABINE” ).

RECITALS

WHEREAS , SABINE and Customer are parties to that certain LNG Terminal Use Agreement dated November 8, 2004 (the “Agreement” ) under which SABINE will provide LNG terminalling services to Customer at the Sabine Pass Facility;

WHEREAS , the Parties have entered into that certain Omnibus Agreement (the “Omnibus Agreement” ) dated November 8, 2004, which, in Clause 4.1, provides for certain options related to Customer’s Maximum LNG Reception Quantity and Gas Redelivery Rate; and

WHEREAS , SABINE and Customer desire to amend the Agreement to reflect Customer’s exercise of the option in Clause 4.1(b) of the Omnibus Agreement;

NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Parties, SABINE and Customer hereby agree as follows:

A.	Definitions . Capitalized terms used in this Amendment and not otherwise defined or amended herein have the respective meanings given to them in the Agreement.

B.	Amendment of Clause B.1 . Clause B.1 is hereby amended by replacing “ 282,761,850 MMBTUs ” with “ 403,945,500 MMBTUs .”

C.	Amendment of Clause B.2 . Clause B.2 is hereby amended by replacing “ 759,000 MMBTUs ” with “ 1,085,000 MMBTUs .”

D.	Amendment of Clause C . Clause C is hereby deleted and replaced in its entirety with the following:

Fees

“Each month during the Initial Term, the fees to be paid under this Agreement shall consist of the following:

the “Reservation Fee” equal to $9,425,395;

an “Operating Fee” equal to $1,346,485, which 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; and

“Retainage” equal to two percent (2%) of the LNG delivered at the Receipt Point for Customer’s account. Included in such Retainage is fuel, including fuel for self-generated power or Gas unavoidably lost;”

E.	Amendment of Section 3.1(b) . Section 3.1(b) is hereby amended by adding at the end:

“(iii)

Storage of Gas . Customer is entitled to receive LNG storage capacity up to a maximum storage quantity of four (4) billion Standard Cubic Feet.”

F.	Amendment of Section 4.2 . The final paragraph of Section 4.2 is hereby amended by replacing “ twenty eight percent (28%) ” with “ forty percent (40%) .”

G.	Amendment of Section 18.1(a)(ii) .

Section 18.1(a)(ii)a is hereby amended by replacing “ 141,380,925 MMBTUs ” with “ 191,625,000 MMBTUs .”

Section 18.1(a)(ii)b is hereby amended by replacing “ twelve (12) Cargoes ” with “ fifteen (15) Cargoes. ”

Section 18.1(a)(ii)c is hereby amended by replacing “ thirty seven (37) Cargoes ” with “ fifty (50) Cargoes .”

Entire Agreement, Omnibus Agreement . This Amendment 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 execution hereof. The Parties acknowledge that execution of this Amendment constitutes the full exercise of the option granted to Customer in Clause 4.1 of the Omnibus Agreement and this Amendment grants all of the respective rights and obligations contemplated by Clause 4.1 of the Omnibus Agreement.

I.	Counterpart Execution . This Amendment may be executed in any number of counterparts and each such counterpart shall be deemed an original for all purposes.

IN WITNESS WHEREOF , each Party has caused this Amendment to be duly executed and signed by its duly authorized officer as of the above date.


SABINE PASS LNG, L.P.

By:	Sabine Pass LNG-GP, Inc., its General Partner

By:	/s/ Charif Souki
Name:		Charif Souki
Title:		Chairman


CHEVRON USA, INC.

By:	/s/ John D. Gass
Name:		John D. Gass
Title:		President

Exhibit 12.1

Ratio of Earnings to Fixed Charges

(Dollars in thousands)

Period from
October 20, 2003
(inception) to
December 31, 2003

Year ended
December 31,

Period from
October 20, 2003
(inception) to
December 31, 2005

Nine months
ended
September 30,

Period from
October 20, 2003
(inception) to
September 30, 2006

2004

2005

2006

Ratio of earnings to fixed charges(1)

—

As a result of reported losses, earnings were inadequate to cover fixed charges, thereby resulting in a coverage deficiency of $2.8 million for the period from October 20, 2003 (inception) to December 31, 2003, $4.7 million and $11.4 million for the years ended December 31, 2004 and 2005, respectively, $18.8 million for the period from October 20, 2003 (inception) to December 31, 2005, $7.1 million and $19.9 million for the nine months ended September 30, 2005 and 2006, respectively, and $38.7 million for the period from October 20, 2003 (inception) to September 30, 2006.

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in this Registration Statement on Form S-4 of Sabine Pass LNG, L.P. of our report dated October 5, 2006, relating to the financial statements of Sabine Pass LNG, L.P., which appears in such Registration Statement. We also consent to the references to us under the heading “Experts” in such Registration Statement.

/s/ UHY LLP

UHY LLP

Houston, Texas

November 22, 2006

Exhibit 23.3

CONSENT OF INDEPENDENT ENGINEER

We hereby consent to the incorporation by reference in the Registration Statement on Form S-4 of Sabine Pass LNG, L.P. of our Independent Technical Review Report dated October 21, 2006 relating to the Sabine Pass LNG terminal, which appears in such Registration Statement. We also consent to our name in the form and context in which they appear in such Registration Statement.

/s/ Susan Garven

Stone & Webster Management Consultants, Inc.

Houston, Texas

November 22, 2006

Exhibit 25.1

FORM T-1

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

STATEMENT OF ELIGIBILITY

UNDER THE TRUST INDENTURE ACT OF 1939 OF A

CORPORATION DESIGNATED TO ACT AS TRUSTEE

CHECK IF AN APPLICATION TO DETERMINE

ELIGIBILITY OF A TRUSTEE PURSUANT TO

SECTION 305(b)(2) ¨

THE BANK OF NEW YORK

(Exact name of trustee as specified in its charter)


New York		13-5160382
(Jurisdiction of incorporation or organization if not a U.S. national bank)		(I.R.S. Employer Identification Number)

One Wall Street, New York, N.Y.		10286
(Address of principal executive offices)		(Zip code)

The Bank of New York

Corporate Trust Operations

101 Barclay Street-7 East

New York, NY 10286

Tel: (212) 815-3738

(Name, address and telephone number of agent for service)

Sabine Pass LNG, L.P.

(Exact name of obligor as specified in its charter)

(See attached pages for additional obligors)


Delaware		20-0466069
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

717 Texas Avenue, Suite 3100 Houston, TX		77022
(Address of principal executive offices)		(Zip code)

7 ¹ / 4 % Senior Secured Notes due 2013

Guarantees of the 7 ¹ / 4 % Senior Secured Notes due 2013

7 ¹ / 2 % Senior Secured Notes due 2016

Guarantees of the 7 ¹ / 2 % Senior Secured Notes due 2016

(Title of the indenture securities)

1. General information. Furnish the following information as to the Trustee:

(a)

Name and address of each examining or supervising authority to which it is subject.


Name		Address
Superintendent of Banks of the State of New York		2 Rector Street New York, N.Y. 10006 and Albany, N.Y. 12203

Federal Reserve Bank of New York		33 Liberty Plaza, New York, N.Y. 10045

Federal Deposit Insurance Corporation		Washington, D.C. 20429

New York Clearing House Association		New York, N. Y. 10005

(b)

Whether it is authorized to exercise corporate trust powers.

Yes.

2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation.

None.

3. List of Exhibits.

Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 (the “Act”) and 17 C.F.R. 229.10(d).

A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to

Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.)

None

A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.)

None

The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)

A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority.

None

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 20 ^th day of November 20, 2006


		THE BANK OF NEW YORK

		By:		/s/ ROBERT A. MASSIMILLO
		Name:		ROBERT A. MASSIMILLO
		Title:		VICE PRESIDENT

CORPORATE TRUST

OFFICIAL SIGNING AUTHORITY

Pursuant to Article 6, Section 6.2 and Section 6.3 of the By-Laws of The Bank of New York, I hereby confirm the signing authority noted next to the following individuals:

CORPORATE GROUP


NAME	TITLE	SIGNING AUTHORITY
Robert L. Griffin	Managing Director	Section 6.2
Loretta A. Lundberg	Managing Director	Section 6.2
Douglas J. Maclnnes	Managing Director	Section 6.2

David Ayerdis	Vice President	Section 6.3 AC1JN
Geovannl Barris	Vice President	Section 6.3 AC3JN
Barbara Bevelaqua	Vice President	Section 6.3 AC3JN
Thomas J. Bogen	Vice President	Section 6.3 AC1JN
Van K. Brown	Vice President	Section 6.3 AC1JN
Stephen M. Bruce	Vice President	Section 6.3 AC3JN
Gary S. Bush	Vice President	Section 6.3 AC3JN
Cheryl Clarke	Vice President	Section 6.3 AC3JN
Betty Cocozza	Vice President	Section 6.3 AC3JN
Sharon N. Coker	Vice President	Section 6.3 AC1JN
Martin Feig	Vice President	Section 6.3 AC3JN
Jack Fruchtman	Vice President	Section 6.2
John M. Guiliano	Vice President	Section 6.3 AC1JN
Thomas Hacker	Vice President	Section 6.3 AC3JN
Stuart Kratter	Vice President	Section 6.3 AC3JN
Mary LaGumina	Vice President	Section 6.3 AC3JN
Noraida Lauro	Vice President	Section 6.3 AC1JN
Courtney F. Loncke	Vice President	Section 6.3 AC3JN
Carlos R. Luciano	Vice President	Section 6.3 AC3JN
Robert A. Massimillo	Vice President	Section 6.3 AC3JN
Glenn G. McKeever	Vice President	Section 6.3 AC3JN
Kenneth Racioppo	Vice President	Section 6.3 AC3JN
Remo J. Reale	Vice President	Section 6.3 AC3JN
Robert W. Rich	Vice President	Section 6.3 AC1JN
Ciro J. Russo	Vice President	Section 6.3 AC3JN
Ming Ryan	Vice President	Section 6.3 AC1JN
Julie D. Salovitch-Miller	Vice President	Section 6.3 AC3JN
Christine Singer	Vice President	Section 6.3 AC1JN
Jennifer J. Valenti	Vice President	Section 6.3 AC1JN
Louis P. Young	Vice President	Section 6.3 AC3JN

CORPORATE GROUP


NAME	TITLE	SIGNING AUTHORITY
Pierre Boutros	Assistant Vice President	Section 6.3 AC1JN
Chrislle DeNatale	Assistant Vice President	Section 6.3 AC3JN
Joseph S. Denno	Assistant Vice President	Section 6.3 AC3JN
Mike T. Diep	Assistant Vice President	Section 6.3 AC3JN
Franca M. Ferrera	Assistant Vice President	Section 6.3 AC2JN
Jeremy F. Finkelstein	Assistant Vice President	Section 6.3 AC1JN
Kwame J. Gordon-Martin	Assistant Vice President	Section 6.3 AC3JN
Beata Hrynlewicka	Assistant Vice President	Section 6.3 AC3JN
Michael L. Jamison	Assistant Vice President	Section 6.3 AC3JN
George R. Johnson	Assistant Vice President	Section 6.3 AC3JN
Edgar R. Lago	Assistant Vice President	Section 6.3 AC3JN
Joseph A. Lloret	Assistant Vice President	Section 6.3 AC3JN
Matthew G. Louis	Assistant Vice President	Section 6.3 AC3JN
Alexander Pabon	Assistant Vice President	Section 6.3 AC3JN
Kevin O. Pennant	Assistant Vice President	Section 6.3 AC3JN
Dimitra Petroutsas	Assistant Vice President	Section 6.3 AC3JN
Rosemary Phillips	Assistant Vice President	Section 6.3 AC3JN
Stacey Poindexter	Assistant Vice President	Section 6.3 AC3JN
Melissa J. Quan-Soon	Assistant Vice President	Section 6.3 AC3JN
Odell D. Romeo	Assistant Vice President	Section 6.3 AC3JN

Sharon Bershaw	Assistant Treasurer	Section 6.3 AC3JN
Lori Ann Ciraolo	Assistant Treasurer	Section 6.3 AC3JN
Vito Faruolo	Assistant Treasurer	Section 6.3 AC2JN
Colette R. Genlile	Assistant Treasurer	Section 6.3 AC3JN
Ilona A. Kandarova	Assistant Treasurer	Section 6.3 AC3JN
Garfield G. Matthews	Assistant Treasurer	Section 6.3 AC3JN
Darrel X. Thompson	Assistant Treasurer	Section 6.3 AC3JN
Donny K. Tong	Assistant Treasurer	Section 6.3 AC3JN
Karen Vaporean	Assistant Treasurer	Section 6.3 AC3JN
Paul Zhang	Assistant Treasurer	Section 6.3 AC3JN

STRUCTURED PRODUCTS


NAME	TITLE	SIGNING AUTHORITY
Douglas J. Magnolia	Managing Director	Section 6.2
Mauro Palladino	Managing Director	Section 6.2
Patrick J. Tadie	Managing Director	Section 6.2

Courtney Bartholomew	Vice President	Section 6.3 AC1JN
John Bobko	Vice President	Section 6.3 AC1JN
Christina H. Chang	Vice President	Section 6.3 AC3JN
Sonal Mehta	Vice President	Section 6.3 AC3JN
Glenn Mitchell	Vice President	Section 6 .3 AC1JN
Diane Pickett	Vice President	Section 6.3 AC1JN
Franco Talavera	Vice President	Section 6.2
Scott Tepper	Vice President	Section 6.3 AC1JN
Thomas B. Zakrzewski	Vice President	Section 6.3 AC3JN

Catherine Cerilles	Assistant Vice President	Section 6.3 AC3JN
Suhrita (Pinky) Das	Assistant Vice President	Section 6.3 AC3J
Cirino Emanuele	Assistant Vice President	Section 6.3 AC3JN
Ira Nydick	Assistant Vice President	Section 6.3 AC3JN
Marion E. O'Connor	Assistant Vice President	Section 6.3 AC3JN
Maria Tokarz	Assistant Vice President	Section 6.3 AC3JN
Priya Varadan	Assistant Vice President	Section 6.3 AC3JN
Antonio Vayas	Assistant Vice President	Section 6.3 AC3JN

AnnMario Cassano	Assistant Treasurer	Section 6.3 AC3JN
Kelly Crosson	Assistant Treasurer	Section 6.3 AC3JN
Amanda Froede	Assistant Treasurer	Section 6.3 AC3J
Raymond V. Garafola	Assistant Treasurer	Section 6.3 AC3JN
Catherine Murray	Assistant Treasurer	Section 6.3 AC3JN
Stacey Pellicano	Assistant Treasurer	Section 6.3 AC3JN
Mu Jen Wu	Assistant Treasurer	Section 6.3 AC3JN
Mervyn Yan	Assistant Treasurer	Section 6.3 AC3JN

GLOBAL


NAME	TITLE	SIGNING AUTHORITY
Steven M. Hodgetts	Managing Director	Section 6.2
Samir Pandiri	Managing Director	Section 6.2
Elizabeth DaSilva	Managing Director	Section 6.2

Robert Bice	Vice President	Section 6.3 AC1JN
Trevor R. Blewer	Vice President	Section 6.3 AC1JN
Janie K. Choi	Vice President	Section 6.3 AC1JN
Rouba F. Farah	Vice President	Section 6.3 AC1JN
Peter A. Howard	Vice President	Section 6.3 AC2
Ritu Khanna	Vice President	Section 6.3 AC1J
Jocelyn M. Lynch	Vice President	Section 6.2
Vanessa Mack	Vice President	Section 6.3 AC3JN
Natalie Pesce	Vice President	Section 6.3 AC3JN
Paul V. Pereira	Vice President	Section 6.3 AC1JN
Kathleen G. Russell	Vice President	Section 6.3 AC1JN
Laura M. Shields	Vice President	Section 6.2
Michael J.S. Thomson	Vice President	Section 6.2
Breige Tinnelly	Vice President	Section 6.3 AC1JN
Paul D. Wilden	Vice President	Section 6.2
Daniel Wynne	Vice President	Section 6.3 AC1JN

Rashna Ahmed	Assistant Vice President	Section 6.2
Paul A. Bashford	Assistant Vice President	Section 6.3 AC1JN
Haig Bezian	Assistant Vice President	Section 6.3 AC2JN
Kenneth Cheong	Assistant Vice President	Section 6.3 AC1JN
Joseph M. Costantino	Assistant Vice President	Section 6.3 AC2JN
Graeme Cumming	Assistant Vice President	Section 6.3 B1 C2 E F 11
Helena Durr	Assistant Vice President	Section 6.3 AC1JN
Esther Fong	Assistant Vice President	Section 6.3 AC1JN
Charlotte Fricker	Assistant Vice President	Section 6.3 AC1JN
Hernan Lopez	Assistant Vice President	Section 6.3 AC3JN
Peter Malcolm	Assistant Vice President	Section 6.3 AC1JN
Catherine Murray	Assistant Vice President	Section 6.3 AC3JN
Dario J. Parente	Assistant Vice President	Section 6.3 AC1JN
Luis Perez	Assistant Vice President	Section 6.3 AC3JN
Patricia Phillips-Coward	Assistant Vice President	Section 6.3 AC3JN
Timothy Porter	Assistant Vice President	Section 6.3 AC1JN
Emma Wilkes	Assistant Vice President	Section 6.3 AC1JN
Yvonne Yap	Assistant Vice President	Section 6.3 AC1JN

Ijeoma Achara	Assistant Treasurer	Section 6.3 AC1JN
Lena Aminova	Assistant Treasurer	Section 6.3 AC3JN
Clare Brazier	Assistant Treasurer	Section 6.3 AC1JN
Christopher Curti	Assistant Treasurer	Section 6.3 AC1JN
Henry J. Dobbin	Assistant Treasurer	Section 6.3 AC4N
Daniel T. Giles	Assistant Treasurer	Section 6.3 C2 E F 11 12
David Rocco	Assistant Treasurer	Section 6.3 AC3JN
Lici Zhu	Assistant Treasurer	Section 6.3 AC3JN

MUNICIPAL


NAME	TITLE	SIGNING AUTHORITY
Thomas E. Pajusi	Vice President	Section 6.3 AC1
Pasquale Santivasci	Vice President	Section 6.2

Richard H. Babb	Vice President	Section 6.3 AC1J
Cynthia J. Chaney	Vice President	Section 6.3 AC3JN
Maria Elsen	Vice President	Section 6.3 AC2J
Gerard F. Facendola	Vice President	Section 6.3 AC1JN
Lisa A. Geary	Vice President	Section 6.3 AC3J
Christopher J. Grell	Vice President	Section 6.3 AC2J
Andrea Harris	Vice President	Section 6.3 AC2J
Michael C. Hieb	Vice President	Section 6.3 AC2J
Sharon H. Jaffe-Goser	Vice President	Section 6.3 AC2J
Barbara Kaczmar	Vice President	Section 6.3 AC2JN
Kalliopo E. Kateris	Vice President	Section 6.3 AC2JN
William G. Keenan	Vice President	Section 6.3 AC2JN
Glenn J. Kunak	Vice President	Section 6.3 AC3J
Joseph M. Lawlor	Vice President	Section 6.3 AC3J
Deirdre M. Lewis	Vice President	Section 6.3 AC3J
Joseph Mate	Vice President	Section 6.3 AC2J
David J. O’Brien	Vice President	Section 6.3 AC2J
Robert Peschier	Vice President	Section 6.3 AC2J
Thomas J. Provenzano	Vice President	Section 6.3 AC1JN
Susan Pszonek	Vice President	Section 6.3 AC2J
Kenneth Ring	Vice President	Section 6.3 AC2J
Richard Rolandelli	Vice President	Section 6.3 AC2J
Michael Sabatino	Vice President	Section 6.3 AC1J
Debra A. Schwalb	Vice President	Section 6.3 AC1JN
Thomas W. Simons	Vice President	Section 6.3 AC1J
Deborah Todak	Vice President	Section 6.3 AC2J
Steven V. Vaccarello	Vice President	Section 6.3 AC2J
Thomas Vlahakis	Vice President	Section 6.3 AC2J
H. William Weber	Vice President	Section 6.3 AC2J
Craig S. Wenzler	Vice President	Section 6.3 AC2J
Michael C. White	Vice President	Section 6.3 AC2J

Naresh Bhangoo	Assistant Vice President	Section 6.3 AC3J
Alex T. Chang	Assistant Vice President	Section 6.3 AC3J
Mark DiGiacomo	Assistant Vice President	Section 6.3 AC3J
Paolo Ippolito	Assistant Vice President	Section 6.3 AC3J
Joann LaBarbera	Assistant Vice President	Section 6.3 AC3J
Marie LaDolcetta	Assistant Vice President	Section 6.3 AC3J
Miriam Moraca	Assistant Vice President	Section 6.3 AC3J
Christopher W. Palermo	Assistant Vice President	Section 6.3 AC3J
Mary Ann Reilly	Assistant Vice President	Section 6.3 AC3J
Michael L. Shelton	Assistant Vice President	Section 6.3 AC3J
Edward Souter	Assistant Vice President	Section 6.3 AC3J

MUNICIPAL


NAME	TITLE	SIGNING AUTHORITY
Linda Corbo	Assistant Treasurer	Section 6.3 AC3JN
Deborah Dumis	Assistant Treasurer	Section 6.3 AC3JN
Rosemary Melendez	Assistant Treasurer	Section 6.3 AC3J
Marcelly Segro	Assistant Treasurer	Section 6.3 AC3JN

/s/ Karen B. Peetz

Karen B. Peetz

Senior Executive Vice President

/s/ Brian G. Rogan

Brian G. Rogan

Senior Executive Vice President

SIGNING AUTHORITIES

Extracts from By-Laws

THE BANK OF NEW YORK

ARTICLE VI

As amended through May 13, 2003

SECTION 6.1 Real Property

Real property owned by the Bank in its own right shall not be deeded, conveyed, mortgaged, assigned or transferred except when duly authorized by a resolution of the Board. The Board may from time-to-time authorize officers to deed, convey, mortgage, assign or transfer real property owned by the Bank in its own right with such maximum values as the Board may fix in its authorizing resolution.

SECTION 6.2 Senior Signing Powers

Subject to the exception provided in Section 6.1, the Chairman, the President, any Vice Chairman of the Board, any Senior Executive Vice President and any Executive Vice President is authorized to accept, endorse, execute or sign any document, instrument or paper in the name of, or on behalf of, the Bank in all transactions arising out of, or in connection with, the normal course of the Bank’s business or in any fiduciary, representative or agency capacity and, when required, to affix the seal of the Bank thereto. In such instances as in the judgment of the Chairman, the President, any Vice Chairman of the Board, any Senior Executive Vice President or any Executive Vice President may be proper and desirable, any one of said officers may authorize in writing from time-to-time any other officer to have the powers set forth in this section applicable only to the performance or discharge of the duties of such officer within his or her particular division or function. Any officer of the Bank authorized in or pursuant to Section 6.3 to have any of the powers set forth therein, other than the officer signing pursuant to this Section 6.2, is authorized to attest to the seal of the Bank on any documents requiring such seal.

SECTION 6.3 Limited Signing Powers

Subject to the exception provided in Section 6.1, in such instances as in the judgment of the Chairman, the President, any Vice Chairman of the Board, any Senior Executive Vice President, or any Executive Vice President may be proper and desirable, any one of said officers may authorize in writing from time-to-time any other officer, employee or individual to have the limited signing powers or limited power to affix the seal of the Bank to specified classes of documents set forth in a resolution of the Board applicable only to the performance or discharge of the duties of such officer, employee or individual within his or her division or function.

SECTION 6.4 Powers of Attorney

All powers of attorney on behalf of the Bank shall be executed by any officer of the Bank jointly with the Chairman of the Board, the President, any Vice Chairman, any Senior Executive Vice President, any Executive Vice President, any Senior Vice President or any Managing Director, provided that the execution by such Senior Vice President or Managing Director of said Power of Attorney shall be applicable only to the performance or discharge of the duties of such officer within his or her particular division or function. Any such power of attorney may, however, be executed by any officer or officers or person or persons who may be specifically authorized to execute the same by the Board of Directors and, at foreign branches only, by any two officers provided one of such officers is the Branch Manager.

SECTION 6.5 Auditor

The Auditor or any officer designated by the Auditor is authorized to certify in the name of, or on behalf of the Bank, in its own right or in a fiduciary or representative capacity, as to the accuracy and completeness of any account, schedule of assets, or other document, instrument or paper requiring such certification.

SIGNING AUTHORITY RESOLUTION

Pursuant to Section 6.3 of the By-laws

RESOLVED, that, pursuant to Section 6.3 of the By-laws of The Bank of New York, authority be, and hereby is, granted to the Chairman, the President, any Vice Chairman of the Board, any Senior Executive Vice President, or any Executive Vice President, in such instances as in the judgment of any one of said officers may be proper and desirable, to authorize in writing from time-to-time any other officer, employee or individual to have the limited signing authority set forth in any one or more of the following paragraphs applicable only to the performance or discharge of the duties of such officer, employee or individual within his or her division or function:

(A) All signing authority set forth in paragraphs (B) through (I) below except Level C which must be specifically designated.

(Bl) Individuals authorized to accept, endorse, execute or sign any bill receivable; certification; contract, document or other instrument evidencing, embodying a commitment with respect to, or reflecting the terms or conditions of, a loan or an extension of credit by the Bank; note; and document, instrument or paper of any type, including stock and bond powers, required for purchasing, selling, transferring, exchanging or otherwise disposing of or dealing in foreign currency, derivatives or any form of securities, including options and futures thereon; in each case in transactions arising out of, or in connection with, the normal course of the Bank’s business.

(B2) Individuals authorized to endorse, execute or sign any certification; disclosure notice required by law; document, instrument or paper of any type required for judicial, regulatory or administrative proceedings or filings; and legal opinions.

(Cl) Authority to accept, endorse, execute or sign or effect the issuance of any cashiers, certified or other official check; draft; order for payment of money; check certification; receipt; certificate of deposit; money transfer wire; and internal transfers resulting in a change of beneficial ownership; in each case, in excess of $100,000,000 with single authorization for all transactions.

(C2) Authority to accept, endorse, execute or sign or effect the issuance of any cashiers, certified or other official check: draft; order for payment of money; check certification; receipt; certificate of deposit; money transfer wire; and internal transfers resulting in a change of beneficial ownership; in each case, in excess of $100,000,000*.

(C3) Authority to accept, endorse, execute or sign or effect the issuance of any cashiers, certified or other official check; draft; order for payment of money; check certification; receipt; certificate of deposit; money transfer wire; and internal transfers resulting in a change of beneficial ownership; in each case, in an amount up to $100,000,000.

(C4) Authority to accept, endorse, execute or sign or effect the issuance of any cashiers, certified or other official check; draft; order for payment of money; check certification; receipt; certificate of deposit; money transfer wire; and internal transfers resulting in a change of beneficial ownership; in each case, in an amount up to $10,000,000.

(C5) Authority to accept, endorse, execute or sign or effect the issuance of any cashiers, certified or other official check; draft; order for payment of money; check certification; receipt; certificate of deposit; money transfer wire; and internal transfers resulting in a change of beneficial ownership; in each case, in an amount up to $5,000,000.

(C6) Authority to accept, endorse, execute or sign or effect the issuance of any cashiers, certified or other official check; draft; order for payment of money; check certification; receipt; certificate of deposit; money transfer wire; and internal transfers resulting in a change of beneficial ownership; in each case, in an amount up to $1,000,000.

(C7) Authority to accept, endorse, execute or sign or effect the issuance of any cashiers, certified or other official check; draft; order for payment of money; check certification; receipt; certificate of deposit; money transfer wire; and internal transfers resulting in a change of beneficial ownership; in each case, in an amount up to $250,000.

(C8) Authority to accept, endorse, execute or sign or effect the issuance of any cashiers, certified or other official check; draft; order for payment of money; check certification; receipt; certificate of deposit; money transfer wire; and internal transfers resulting in a change of beneficial ownership; in each case, in an amount up to $50,000.

(C9) Authority to accept, endorse, execute or sign or effect the issuance of any cashiers, certified or other official check; draft; order for payment of money; check certification; receipt; certificate of deposit; money transfer wire; and internal transfers resulting in a change of beneficial ownership; in each case, in an amount up to $5,000.

Dual authorization is required by any combination of senior officer and/or Sector Head approved designee for non-exempt transactions. Single authorization required for exempt transactions.

(D1) Authority to accept, endorse, execute or sign any contract obligating the Bank for the payment of money or the provision of services in an amount up to $1,000,000.

(D2) Authority to accept, endorse, execute or sign any contract obligating the Bank for the payment of money or the provision of services in an amount up to $250,000.

(D3) Authority to accept, endorse, execute or sign any contract obligating the Bank for the payment of money or the provision of services in an amount up to $50,000.

(D4) Authority to accept, endorse, execute or sign any contract obligating the Bank for the payment of money or the provision of services in an amount up to $5,000.

(E) Authority to accept, endorse, execute or sign any guarantee of signature to assignments of stocks, bonds or other instruments; certification required for transfers and deliveries of stocks, bonds or other instruments; and document, instrument or paper of any type required in connection with any Individual Retirement Acccount or Keogh Plan or similar plan.

(F) Authority to accept, endorse, execute or sign any certificate of authentication as bond, unit investment trust or debenture trustee and on behalf of the Bank as registrar and transfer agent.

(G) Authority to accept, endorse, execute or sign any bankers acceptance; letter of credit; and bill of lading.

(H) Authority to accept, endorse, execute or sign any document, instrument or paper of any type required in connection with the ownership, management or transfer of real or personal property held by the Bank in trust or in connection with any transaction with respect to which the Bank is acting in any fiduciary, representative or agency capacity, including the acceptance of such fiduciary, representative or agency account.

(I1) Authority to effect the external movement of free delivery of securities and internal transfers resulting in changes of beneficial ownership.

(I2) Authority to effect the movement of securities versus payment at market or contract value.

(J) Authority to either sign on behalf of the Bank or to affix the seal of the Bank to any of the following classes of documents: Trust Indentures, Escrow Agreements, Pooling and Servicing Agreements, Collateral Agency Agreements, Custody Agreements, Trustee’s Deeds, Executor’s Deeds, Personal Representative’s Deeds, Other Real Estate Deeds for property not owned by the Bank in its own right, Corporate Resolutions, Mortgage Satisfactions, Mortgage Assignments, Trust Agreements, Loan Agreements, Trust and Estate Accountings, Probate Petitions, responsive pleadings in litigated matters and Petitions in Probate Court with respect to Accountings, Contracts for providing customers with Bank products or services.

(N) Individuals authorized to accept, endorse, execute or sign internal transactions only, (i.e., general ledger tickets); does not include the authority to authorize external money movements, internal money movements or internal free deliveries that result in changes of beneficial ownership.

RESOLVED, that any signing authority granted pursuant to this resolution may be rescinded by the Chairman, the President, any Vice Chairman of the Board, any Senior Executive Vice President, or any Executive Vice President and such signing authority shall terminate without the necessity of any further action when the person having such authority leaves the employ of the Company.

Corpre: RevArticle6

EXHIBIT 7

Consolidated Report of Condition of

THE BANK OF NEW YORK

of One Wall Street, New York, N.Y. 10286

And Foreign and Domestic Subsidiaries,

a member of the Federal Reserve System, at the close of business June 30, 2006, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.


		Dollar Amounts In Thousands
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin		3,372,000
Interest-bearing balances		11,005,000
Securities:
Held-to-maturity securities		2,269,000
Available-for-sale securities		23,124,000
Federal funds sold and securities purchased under agreements to resell Federal funds sold in domestic offices		490,000
Securities purchased under agreements to resell		252,000
Loans and lease financing receivables:
Loans and leases held for sale		0
Loans and leases, net of unearned income		36,722,000
LESS: Allowance for loan and lease losses		414,000
Loans and leases, net of unearned income and allowance		36,308,000
Trading assets		5,770,000
Premises and fixed assets (including capitalized leases)		848,000
Other real estate owned		0
Investments in unconsolidated subsidiaries and associated companies		302,000
Not applicable
Intangible assets:
Goodwill		2,177,000
Other intangible assets		750,000
Other assets		7,196,000


Total assets		93,863,000

LIABILITIES
Deposits:
In domestic offices		40,014,000
Noninterest-bearing		21,153,000
Interest-bearing		18,861,000
In foreign offices, Edge and Agreement subsidiaries, and IBFs		31,312,000
Noninterest-bearing		286,000
Interest-bearing		31,026,000
Federal funds purchased and securities sold under agreements to repurchase Federal funds purchased in domestic offices		839,000
Securities sold under agreements to repurchase		396,000
Trading liabilities		3,045,000
Other borrowed money:
(includes mortgage indebtedness and obligations under capitalized leases)		1,670,000
Not applicable
Not applicable
Subordinated notes and debentures		1,955,000
Other liabilities		6,011,000

Total liabilities		85,242,000

Minority interest in consolidated subsidiaries		150,000

EQUITY CAPITAL
Perpetual preferred stock and related surplus		0
Common stock		1,135,000
Surplus (exclude all surplus related to preferred stock)		2,112,000
Retained earnings		5,444,000
Accumulated other comprehensive income		-220,000
Other equity capital components		0
Total equity capital		8,471,000

Total liabilities, minority interest, and equity capital		93,863,000

I, Thomas J. Mastro, Executive Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition is true and correct to the best of my knowledge and belief.

Thomas J. Mastro,

Executive Vice President and Comptroller

We, the undersigned directors, attest to the correctness of this statement of resources and liabilities. We declare that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the instructions and is true and correct.

Thomas A. Renyi

Gerald L. Hassell

]

Directors

EXHIBIT 99.1

LETTER OF TRANSMITTAL

SABINE PASS LNG, L.P.

O FFER TO E XCHANGE I TS

7 ¹ / 4 % S ENIOR S ECURED N OTES D UE 2013, I SSUED ON N OVEMBER 9, 2006

FOR 7 ¹ / 4 % S ENIOR S ECURED N OTES D UE 2013

T HAT H AVE B EEN R EGISTERED UNDER THE S ECURITIES A CT OF 1933

AND ITS

7 ¹ / 2 % S ENIOR S ECURED N OTES D UE 2016, I SSUED ON N OVEMBER 9, 2006

FOR 7 ¹ / 2 % S ENIOR S ECURED N OTES D UE 2016

T HAT H AVE B EEN R EGISTERED UNDER THE S ECURITIES A CT OF 1933

PURSUANT TO THE PROSPECTUS

DATED [ ]

THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,

NEW YORK CITY TIME, ON [ ] UNLESS THE OFFER IS EXTENDED

Deliver to The Bank of New York

(the “Exchange Agent”)


By Hand Delivery, Overnight Delivery or Regular Mail		By Facsimile Transmission (for Eligible Institutions Only):
The Bank of New York Corporate Trust Operations 101 Barclay Street, 7 East New York, New York 10286 Attention: Mrs. Evangeline R. Gonzales		(212) 298-1915 Attention: Mrs. Evangeline R. Gonzales
		To confirm by telephone or for information:
		(212) 815-3738

Delivery of this Letter of Transmittal to an address or transmission hereof to a facsimile number other than those set forth above will not constitute a valid delivery.

The undersigned hereby acknowledges receipt of the Prospectus dated [ ] (the “ Prospectus ”) of Sabine Pass LNG, L.P. (the “ Company “) and this Letter of Transmittal, which together constitute the Company’s offer (the “ Exchange Offer “) to exchange an aggregate principal amount of up to $550,000,000 of its 7 ¹ / 4 % Senior Secured Notes due 2013 (the “ 2013 Exchange Notes ”) for a like principal amount of its outstanding unregistered 7 ¹ / 4 % Senior Secured Notes due 2013 (the “ 2013 Outstanding Notes ”) and an aggregate principal amount of up to $1,482,000,000 of its 7 ¹ / 2 % Senior Secured Notes due 2016 (the “ 2016 Exchange Notes ” and collectively with the 2013 Exchange Notes, the “ Exchange Notes ”) for a like principal amount of its outstanding unregistered 7 ¹ / 2 % Senior Secured Notes due 2016 (the “ 2016 Outstanding Notes ” and collectively with the 2013 Outstanding Notes, the “ Outstanding Notes ”). The terms of the Exchange Notes to be issued are substantially identical to the Outstanding Notes, except that (1) the Exchange Notes have been registered under the Securities Act of 1933, as amended (the “ Securities Act ”), pursuant to a Registration Statement of which the Prospectus is a part, (2) the Exchange Notes will not be subject to transfer restrictions applicable to the Outstanding Notes, and (3) provisions providing for an increase in the stated interest rate on the Outstanding Notes will be eliminated after completion of the Exchange Offer. The term “ Expiration Date ” shall mean 5:00 p.m., New York City time, on [ ] unless the Company, in its sole discretion, extends the duration of the Exchange Offer. Capitalized terms used but not defined herein have the respective meanings given to them in the Prospectus.

PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING IT. YOU MUST FOLLOW THE INSTRUCTIONS BEGINNING ON PAGE 7.

List below the Outstanding Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, the Certificate or Registration Numbers and Principal Amounts should be listed on a separately signed schedule affixed hereto.

Box 1


DESCRIPTION OF 2013 OUTSTANDING NOTES TENDERED HEREBY
Name(s) and Address(es) of Registered Holder(s) Exactly as Name(s) Appear(s) on Outstanding Notes (Please fill in)	Certificate or Registration Number*	Aggregate Principal Amount Represented by Outstanding Notes	Principal Amount Tendered **





	Total
* Need not be completed by book-entry holders ** Unless otherwise indicated, the holder will be deemed to have tendered the full aggregate principal amount represented by such Outstanding Notes. All tenders must be in integral multiples of $1,000.


DESCRIPTION OF 2016 OUTSTANDING NOTES TENDERED HEREBY
Name(s) and Address(es) of Registered Holder(s) Exactly as Name(s) Appear(s) on Outstanding Notes (Please fill in)	Certificate or Registration Number*	Aggregate Principal Amount Represented by Outstanding Notes	Principal Amount Tendered **





	Total
* Need not be completed by book-entry holders ** Unless otherwise indicated, the holder will be deemed to have tendered the full aggregate principal amount represented by such Outstanding Notes. All tenders must be in integral multiples of $1,000.

The term “Holder” means any person in whose name Outstanding Notes are registered on the books of the Company or whose name appears on a DTC security position listing as an owner of the Outstanding Notes or any other person who has obtained a properly completed bond power from a registered Holder of Outstanding Notes.

This Letter of Transmittal is to be used if the Holder desires to tender Outstanding Notes (i) by delivery of certificates representing such Outstanding Notes or by book-entry transfer to an account maintained by the Exchange Agent at The Depository Trust Company (“ DTC ”), according to the procedures set forth in the Prospectus under the caption “The Exchange Offer—Procedures for Tendering” unless an agent’s message is transmitted in lieu of the Letter of Transmittal or (ii) according to the guaranteed delivery procedures set forth in the Prospectus under the caption “The Exchange Offer—Procedures for Tendering—Guaranteed Delivery.”

The Holder must complete, execute and deliver this Letter of Transmittal to indicate the action such Holder desires to take with respect to the Exchange Offer. Holders who wish to tender their Outstanding Notes must complete this Letter of Transmittal in its entirety.

¨	CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A BOOK ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:

Name of Tendering Institution

Account Number

Transaction Code Number

Holders who desire to tender Outstanding Notes and who cannot comply with the procedures for tender set forth in the Prospectus under the caption “The Exchange Offer—Procedures for Tendering” on a timely basis or whose Outstanding Notes are not immediately available must tender their Outstanding Notes according to the guaranteed delivery procedures set forth in the Prospectus under the caption “The Exchange Offer—Procedures for Tendering—Guaranteed Delivery.”

¨	CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:

Name(s) of Registered Holder(s)

Date of Execution of Notice of Guaranteed Delivery

Name of Eligible Institution that Guaranteed Delivery

If delivered by book-entry transfer:

Account Number

Transaction Code Number

¨	CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OUTSTANDING NOTES ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER SET FORTH ABOVE.

¨	CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.

Name

Address

Address (continued)

Area Code and Telephone Number

If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Outstanding Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act.

Box 2

Box 3

SPECIAL REGISTRATION INSTRUCTIONS

(See Instruction 5)

To be completed ONLY if the Exchange Notes are to be issued in the name of someone other than the undersigned.

Issue or deposit Exchange Notes to:

Name(s):

Account No. (if Applicable):

Address:

Area Code and Telephone Number:

Tax Identification or

Social Security Number:

DTC Account Number:

(PLEASE PRINT OR TYPE)

SPECIAL DELIVERY INSTRUCTIONS

(See Instruction 5)

To be completed ONLY if Exchange Notes are to be sent to someone other than the undersigned, or to the undersigned at an address other than that shown under “Description of Notes Tendered Hereby.”

Mail Exchange Notes to:

Name(s):

Address:

Area Code and Telephone Number:

Tax Identification or

Social Security Number:

Is this a permanent address change?

(check one box)

¨ Yes ¨ No

(PLEASE PRINT OR TYPE)

SIGNATURES MUST BE PROVIDED BELOW

PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

Ladies and Gentlemen:

I, the undersigned, hereby tender to the Company the principal amount of the Outstanding Notes indicated above. I hereby exchange, assign and transfer to the Company all right, title and interest in and to such Outstanding Notes, including all rights to accrued and unpaid interest thereon as of the Expiration Date. I hereby irrevocably constitute and appoint the Exchange Agent my true and lawful agent and attorney-in-fact (with full knowledge that the Exchange Agent is also acting as the agent of the Company in connection with the Exchange Offer) with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest) and full power and authority to assign, transfer and exchange the Outstanding Notes, including, but not limited to, the power and authority to: (i) deliver Certificates for Outstanding Notes together with all accompanying evidence of transfer and authenticity to, or upon the order of, the Company, upon receipt by the Exchange Agent, as the undersigned’s agent, of the Exchange Notes to be issued in exchange for such Outstanding Notes, (ii) present Certificates for such Outstanding Notes for transfer, and to transfer the Outstanding Notes on the books of the Company, and (iii) receive for the account of the Company all benefits and otherwise exercise all rights of beneficial ownership of such Outstanding Notes, all in accordance with the terms and conditions of the Exchange Offer. I fully understand that the Exchange Agent is acting as the agent of the Company in connection with the Exchange Offer. I represent and warrant that I have full power and authority to tender, assign and transfer the Outstanding Notes and to acquire Exchange Notes in exchange therefor. I represent that the Company, upon accepting the Outstanding Notes for exchange, will acquire good and unencumbered title to the Outstanding Notes, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims.

I further represent that (i) I am not an “affiliate” of the Company, (ii) the Exchange Notes are being obtained in the ordinary course of business of the person receiving such Exchange Notes, whether or not I am such person, and (iii) neither I nor any such other person receiving the Exchange Notes is engaged or intends to engage in, or has an arrangement or understanding with any person to participate in, the distribution of such Exchange Notes. If I am or such other person is a broker-dealer who is receiving the Exchange Notes for its own account in exchange for Outstanding Notes that were acquired as a result of market-making or other trading activities, I acknowledge that I or such other person will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. However, by so acknowledging or by delivering a prospectus, I will not be deemed to admit that I am an “underwriter” within the meaning of the Securities Act. If I am or any such other person is participating in the exchange offer for the purpose of distributing the Exchange Notes, we acknowledge that (i) we cannot rely on the position of the staff of the Securities and Exchange Commission enunciated in Exxon Capital Holdings Corporation (available April 13, 1989), Morgan Stanley & Co., Inc. (available June 5, 1991) or similar no-action letters regarding exchange offers and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction and (ii) we may incur liability under the Securities Act if we fail to comply with such requirements, liability from which we are not indemnified by the Company. If I am or any such other person is an affiliate (as defined under Rule 405 of the Securities Act) of the Company, I understand and acknowledge that I or such other person may not offer for resale, resell or otherwise transfer such Exchange Notes without registering them under the Securities Act or without an exemption therefrom.

I also warrant that I will, upon request, execute and deliver any additional documents deemed necessary or desirable by the Exchange Agent or the Company to complete the exchange, assignment and transfer of tendered Outstanding Notes. I further agree that the Company’s acceptance of any tendered Outstanding Notes and its issuance of Exchange Notes in exchange therefor shall constitute performance in full by the Company of its obligations under the Registration Rights Agreement. The Company shall have no further obligations or liabilities thereunder for the registration of the Outstanding Notes or the Exchange Notes.

The Exchange Offer is subject to certain conditions set forth in the Prospectus under the caption “The Exchange Offer—Conditions to the Exchange Offer.” I recognize that the Company may not be required to exchange the Outstanding Notes tendered hereby under certain circumstances. In such event, the Outstanding Notes tendered hereby but not exchanged will be returned to me promptly after the Expiration Date.

The authority I am hereby conferring or have agreed to confer shall survive my death or incapacity. My obligations under this Letter of Transmittal shall be binding upon my heirs, personal representatives, successors and assigns.

Unless otherwise indicated in the box entitled “Special Registration Instructions” or the box entitled “Special Delivery Instructions” in this Letter of Transmittal, certificates for all Exchange Notes delivered in exchange for the Outstanding Notes tendered hereby, and for any Outstanding Notes tendered hereby but not exchanged, will be registered in my name and returned to me or, in the case of a book-entry transfer of Outstanding Notes, will be credited to the account indicated above at DTC. If an Exchange Note is to be issued or mailed to a person other than me, or to me at an address different from the address shown on this Letter of Transmittal, I will complete Box 2 and/or Box 3 on this Letter of Transmittal.

I UNDERSTAND THAT IF I AM SURRENDERING OUTSTANDING NOTES AND HAVE COMPLETED EITHER THE BOX ENTITLED “SPECIAL REGISTRATION INSTRUCTIONS” OR THE BOX ENTITLED “SPECIAL DELIVERY INSTRUCTIONS” IN THIS LETTER OF TRANSMITTAL, THE SIGNATURE(S) ON THIS LETTER OF TRANSMITTAL MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION (PER INSTRUCTION 4 OF THIS LETTER OF TRANSMITTAL).

Box 4

REGISTERED HOLDERS OF OUTSTANDING NOTES

PLEASE SIGN HERE

(In Addition, Complete Substitute Form W-9 Below)

(Signature(s) of Registered Holder(s) or Authorized Signatory)

Must be signed by registered holder(s) exactly as name(s) appear(s) on the Outstanding Notes or on a security position listing as the owner of the Outstanding Notes or by person(s) authorized to become registered holder(s) by properly completed bond powers transmitted herewith. If signature is by attorney-in-fact, trustee, executor, administrator, guardian, officer of a corporation or other person acting in fiduciary capacity, please provide the following information (PLEASE PRINT OR TYPE):

Name and Capacity (full title):

Address (including zip code):

Area Code and Telephone No.: ( )

Tax Identification or Social Security No.:

Dated:

SIGNATURE GUARANTEE (If required—see Instruction 4)

Authorized Signature:

(Signature of Representative of Signature Guarantor)

Name and Title:

Name of Firm:

Address (including zip code):

Area Code and Telephone Number: ( )

INSTRUCTIONS TO LETTER OF TRANSMITTAL

(Forming part of the terms and conditions of the Exchange Offer)

1. Delivery of this Letter of Transmittal and Certificates for Tendered Outstanding Notes. All certificates representing Outstanding Notes or any confirmation of a book-entry transfer to the Exchange Agent’s account at DTC, as well as a properly completed and duly executed copy or facsimile of this Letter of Transmittal, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at any of its addresses set forth herein prior to the Expiration Date.

THE HOLDER ASSUMES THE RISK ASSOCIATED WITH THE DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OUTSTANDING NOTES, AND ANY OTHER REQUIRED DOCUMENTS. EXCEPT AS OTHERWISE PROVIDED BELOW, DELIVERY WILL BE DEEMED MADE ONLY WHEN THE EXCHANGE AGENT HAS ACTUALLY RECEIVED THE APPLICABLE ITEMS. IF SUCH DELIVERY IS BY MAIL, IT IS SUGGESTED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, BE USED. DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH HEREIN, OR TRANSMISSION TO A FACSIMILE NUMBER OTHER THAN THE ONES SET FORTH HEREIN, WILL NOT CONSTITUTE A VALID DELIVERY.

No alternative, conditional, irregular or contingent tenders will be accepted. All tendering Holders, by execution of this Letter of Transmittal (or facsimile thereof), shall waive any right to receive notice of the acceptance of the Outstanding Notes for exchange.

2. Guaranteed Delivery Procedures. Holders who desire to tender Outstanding Notes for exchange, but who cannot comply with the procedures for tendering on a timely basis set forth in the Prospectus under the caption “The Exchange Offer—Procedures for Tendering” or whose Outstanding Notes are not immediately available may tender in one of the following two ways:

(1) (a) The tender is made through a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., through a commercial bank or trust company having an office or correspondent in the United States or through an “eligible guarantor institution” within the meaning of Rule 17Ad-15 under the Exchange Act (an “ Eligible Institution ”);

(b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) (i) setting forth the name and address of the Holder, the registration or certificate number(s) of the Outstanding Notes tendered and the principal amount of such Outstanding Notes, (ii) stating that the tender is being made thereby, and (iii) guaranteeing that, within three business days after the Expiration Date, the Letter of Transmittal (or facsimile thereof), together with the certificates representing the Outstanding Notes, or a book-entry confirmation, and any other required documents, will be deposited by the Eligible Institution with the Exchange Agent; and

(c) such properly completed and executed Letter of Transmittal (or facsimile thereof), as well as duly executed certificates representing all tendered Outstanding Notes in proper form for transfer, or a book-entry confirmation, and all other required documents are received by the Exchange Agent within three business days after the Expiration Date;

(2) (a) Prior to the Expiration Date, the Exchange Agent receives an agent’s message from DTC stating that DTC has received an express acknowledgment from the participant in DTC tendering the Outstanding Notes that they have received and agree to be bound by the Notice of Guaranteed Delivery; and

(b) the Exchange Agent receives, within three business days after the Expiration Date, either (1) a book-entry confirmation, including an agent’s message, transmitted via DTC’s Automated Tender Offer Program, or (2) a properly completed and executed letter of transmittal or facsimile thereof, together with the certificate(s) representing all tendered Outstanding Notes in proper form for transfer, or a book-entry confirmation, and all other required documents.

Upon request, the Exchange Agent will send a Notice of Guaranteed Delivery to a Holder who wishes to tender Outstanding Notes according to the guaranteed delivery procedures set forth above. Such Holder must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery prior to the Expiration Date. Failure to complete the guaranteed delivery procedures outlined above will not, of itself, affect the validity or effect a revocation of any properly completed and executed Letter of Transmittal properly completed and executed by a Holder who attempted to use the guaranteed delivery procedures.

3. Partial Tenders; Withdrawal. A Holder who tenders less than the entire principal amount of Outstanding Notes evidenced by a submitted certificate should fill in the principal amount tendered in the column entitled “Principal Amount Tendered” of the box entitled “Description of Notes Tendered Hereby” on page 2 of this Letter of Transmittal. A newly-issued Outstanding Note for that portion of the principal amount not tendered will be sent to such Holder after the Expiration Date. All Outstanding Notes delivered to the Exchange Agent will be deemed to have been tendered in full unless otherwise indicated. Tenders of Outstanding Notes will be accepted only in initial amounts of $100,000 and integral multiples of $1,000 thereof.

A Holder may withdraw a tender of Outstanding Notes at any time prior to the Expiration Date. Thereafter, tenders of Outstanding Notes are irrevocable. A Holder must follow the guidelines set forth in the Prospectus under the caption “The Exchange Offer—Withdrawal Rights” to effectuate a valid withdrawal. Any Outstanding Notes that have been tendered but not accepted for exchange will be returned to the Holder thereof without cost to such Holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer.

4. Signature on this Letter of Transmittal; Written Instruments and Endorsements; Guarantee of Signatures. If this Letter of Transmittal is signed by the registered Holder(s) of the Outstanding Notes, the signature must correspond with the name(s) as written on the face of the certificates without alteration or enlargement. If this Letter of Transmittal is signed by a participant in the book-entry transfer facility, the signature must correspond with the name as it appears on the security position listing as the holder of the Outstanding Notes.

If there are two or more joint owners of record of Outstanding Notes, they must all sign this Letter of Transmittal.

If a number of Outstanding Notes registered in different names are tendered, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal as there are different registrations of Outstanding Notes.

Signatures on this Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution unless the Outstanding Notes are tendered (i) by a registered Holder who has not completed the box entitled “Special Registration Instructions” or “Special Delivery Instructions” on the Letter of Transmittal or (ii) for the account of an Eligible Institution.

If this Letter of Transmittal is signed by the registered Holder of Outstanding Notes (which term, for the purposes described herein, shall include a participant in the book-entry transfer facility whose name appears on a security listing as the holder of the Outstanding Notes) listed and tendered hereby, no endorsements of the tendered Outstanding Notes or separate written instruments of transfer or exchange are required. In any other case, the registered Holder (or acting Holder) must either properly endorse the Outstanding Notes or properly transmit completed bond powers with this Letter of Transmittal (in either case, executed exactly as the name(s) of the registered Holder(s) appear(s) on the Outstanding Notes, and, with respect to a participant in the book-entry transfer facility whose name appears on a security position listing as the owner of Outstanding Notes, exactly as the name of the participant appears on such security position listing), with the signature on the Outstanding Notes or bond power guaranteed by an Eligible Institution (except where the Outstanding Notes are tendered for the account of an Eligible Institution).

If this Letter of Transmittal, any certificates or separate written instruments of transfer or exchange are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others

acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority so to act must be submitted.

5. Special Registration and Delivery Instructions. Holders should indicate, in the applicable box, the name (or account at the book-entry transfer facility) in which and address to which the Exchange Notes are to be issued (or deposited) if different from the names and addresses or accounts of the person signing this Letter of Transmittal. In the case of issuance in a different name, the employer identification number or social security number of the person named must also be indicated and the Holder should complete the applicable box on page 4 of this Letter of Transmittal.

If no instructions are given, the Exchange Notes will be issued in the name of and sent to the current Holder of the Outstanding Notes or deposited at such Holder’s account at the book-entry transfer facility.

6. Transfer Taxes. The Company shall pay all transfer taxes, if any, applicable to the transfer and exchange of Outstanding Notes to it or its order pursuant to the Exchange Offer. If a transfer tax is imposed for any other reason other than the transfer and exchange of Outstanding Notes to the Company or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered Holder or any other person) will be payable by the tendering Holder. If satisfactory evidence of payment of such taxes or exception therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering Holder.

Except as provided in this Instruction 6 of this Letter of Transmittal, it will not be necessary for transfer stamps to be affixed to the Outstanding Notes listed herein.

7. Waiver of Conditions. The Company reserves the absolute right to waive, in whole or in part, any of the conditions to the Exchange Offer set forth in the Prospectus.

8. Mutilated, Lost, Stolen or Destroyed Notes. Any Holder whose Outstanding Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above for further instructions.

9. Requests for Assistance or Additional Copies. Questions relating to the procedure for tendering as well as requests for additional copies of the Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent at the address and telephone number(s) set forth above. In addition, all questions relating to the Exchange Offer, as well as requests for assistance or additional copies of the Prospectus and this Letter of Transmittal, may be directed to the Company at 717 Texas Avenue, Suite 3100, Houston, Texas 77002, Attention: Investor Relations, Telephone: (713) 265-0208.

10. Validity and Form. The Company will determine in its sole discretion all questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Outstanding Notes, which determination will be final and binding. The Company reserves the absolute right to reject any and all Outstanding Notes not properly tendered or any Outstanding Notes the Company’s acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Outstanding Notes. The Company’s interpretation of the terms and conditions of the Exchange Offer (including the instructions in this Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Outstanding Notes must be cured within such time as the Company shall determine. Although the Company intends to notify Holders of defects or irregularities with respect to tenders of Outstanding Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Outstanding Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Outstanding Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering Holders as soon as practicable after the Expiration Date, or, in the case of Outstanding Notes tendered by book-entry transfer, will be transferred into the holder’s account at DTC according to the procedures described above.

IMPORTANT TAX INFORMATION

Under federal income tax law, a Holder tendering Outstanding Notes is required to provide the Exchange Agent with such holder’s correct Taxpayer Identification Number (“ TIN ”) on Substitute Form W-9 below. If such Holder is an individual, the TIN is the Holder’s social security number. Other Holders should consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for information on the correct TIN to report. The Certificate of Awaiting Taxpayer Identification Number should be completed if the tendering Holder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future. If the Exchange Agent is not provided with the correct TIN, the Holder may be subject to a $50 penalty imposed by the Internal Revenue Service on each failure to provide a correct TIN. In addition, if the Exchange Agent is not provided with the correct TIN, payments that are made to such Holder with respect to tendered Outstanding Notes may be subject to backup withholding.

Certain Holders (including, among others, corporations and tax-exempt entities) are not subject to these backup withholding and reporting requirements. For such a Holder to qualify as an exempt recipient, such Holder should complete the Substitute Form W-9 below and write “EXEMPT” on the face thereof to avoid possible erroneous withholding. A foreign person may qualify as an exempt recipient by completing the Substitute Form W-9 as described above and by submitting a properly completed Certification of Foreign Status to the Exchange Agent on Internal Revenue Service Form W-8BEN, W-8ECI, W-8EXP, or W-8IMY, as applicable, signed under penalties of perjury, attesting to that Holder’s foreign status. Such forms can be obtained from the Exchange Agent.

If backup withholding applies, the Exchange Agent is required to withhold the applicable backup withholding rate on any amounts otherwise payable to the Holder. For reportable payments made during calendar year 2006, the applicable backup withholding rate is 28%. Backup withholding is not an additional tax, but the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service.

PURPOSE OF SUBSTITUTE FORM W-9

To prevent backup withholding on payments that are made to a Holder with respect to Outstanding Notes tendered for exchange, the Holder is required to notify the Exchange Agent of his or her correct TIN by completing the form herein certifying that the TIN provided on Substitute Form W-9 is correct (or that such Holder is awaiting a TIN) and that (i) such Holder has not been notified by the Internal Revenue Service that he or she is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the Internal Revenue Service has notified such Holder that he or she is no longer subject to backup withholding.

WHAT NUMBER TO GIVE THE EXCHANGE AGENT

Each Holder is required to give the Exchange Agent the social security number or employer identification number of the record Holder(s) of the Outstanding Notes. If Outstanding Notes are in more than one name or are not in the name of the actual Holder, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9, which may be obtained from the Exchange Agent, for additional guidance on which number to report.

CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER

If the tendering Holder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future, check the “Awaiting TIN” box on Substitute Form W-9, sign and date the form and the Certificate of Awaiting Taxpayer Identification Number and return the executed documents to the Exchange

Agent. If such certificate is completed and the Exchange Agent is not provided with the TIN within 60 days, the Exchange Agent will withhold at the applicable backup withholding rate on all payments made thereafter until a TIN is provided to the Exchange Agent. Furthermore, during this 60-day period, the Exchange Agent will withhold at the applicable backup withholding rate on all reportable payments made after seven business days after the Exchange Agent receives a Certificate of Awaiting Taxpayer Identification Number until a TIN is provided to the Exchange Agent.

IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER WITH CERTIFICATES FOR OUTSTANDING NOTES OR A BOOK ENTRY-CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO 5:00 P.M., NEW YORK CITY TIME ON THE EXPIRATION DATE.

SUBSTITUTE FORM W-9

THE INSTRUCTIONS BELOW MUST BE FOLLOWED:

PROVIDE SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER ON THIS SUBSTITUTE FORM W-9 AND CERTIFY THEREIN THAT YOU ARE NOT SUBJECT TO BACKUP WITHHOLDING. FAILURE TO DO SO WILL CURRENTLY SUBJECT YOU TO WITHHOLDING FROM YOUR PROCEEDS.


SUBSTITUTE Form W-9 Department of the Treasury Internal Revenue Service Payer’s Request for Taxpayer Identification Number (TIN) Name:	PLEASE PROVIDE YOUR SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER IN THE BOX AT THE RIGHT & CERTIFY BY SIGNING & DATING BELOW	Part I Social Security Number OR Employer Identification Number ¨ or awaiting TIN (see note below)
	Part II—Exemption If you are exempt from backup withholding, please write “Exempt” in the box at the right and certify by signing and dating the Certification below.
	Part III—Certification —Under penalties of perjury, I certify that:
	(1) The number shown on this form is my correct Social Security Number or Taxpayer Identification Number (or I am waiting for a number to be issued to me); (2) I am not subject to backup withholding either because (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding; and (3) I am a United States person (which includes a United States resident alien). Certificate Instructions —You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because you have failed to report all interest and dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required to avoid backup withholding.

	Signature: Date:

NOTE:

FAILURE TO COMPLETE AND RETURN THIS FORM OR IF “APPLIED FOR” IS INDICATED, FAILURE TO SUBMIT A VALID TIN PRIOR TO PAYMENT OF PROCEEDS, MAY RESULT IN BACKUP WITHHOLDING ON ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.

YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.

CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER

I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number within 60 days, backup withholding will apply to all reportable payments made to me thereafter until I provide a number. Moreover, I understand that during this 60-day period, the applicable backup withholding rate on all reportable payments made to me will be withheld commencing seven business days after the payer receives this Certificate of Awaiting Taxpayer Identification Number and terminating on the date I provide a certified TIN to the payer.

Signature Date

Name (Please Print)

Address (Please Print)

EXHIBIT 99.2

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION

NUMBER ON SUBSTITUTE FORM W-9

Guidelines for Determining the Proper Identification Number to Give the Payer. Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer Identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the Payer.

For this Type of Account:

Give the TAXPAYER
IDENTIFICATION
NUMBER of:

For this Type of Account:

Give the TAXPAYER
IDENTIFICATION
NUMBER of:

Individual

The Individual

Corporation or other entity electing corporate status on Form 8832

The Corporation

Two or more individuals
(joint account)

The actual owner of the account or, if combined funds, the first individual on the account(1)

Association, club, religious, charitable, education or other tax-exempt organization

The organization

Custodian account of a minor

(Uniform Gift to Minors Act)

The Minor(2)

a. The usual revocable savings trust (grantor is also trustee)

b. So-called trust account that is not a legal or valid trust under state law

The grantor-trustee(1)

10.

Partnership

The partnership

Sole proprietorship

The owner(3)

11.

The broker or registered nominee

The broker or nominee

Single-owner LLC

The owner(3)

12.

Account with the Department of Agriculture in the name of a public entity that received program payments

The public entity

A valid trust, estate, or pension trust

The legal entity(4)

(1)	List first and circle the name of the person whose number you furnish. If only one person on a joint account has a social security number, that person’s social security number must be furnished.

(2)	Circle the minor’s name and furnish the minor’s social security number.

(3)	Show the name of the owner. Either the social security number or employee identification number of the owner or the employer identification number for the entity (if you have one) may be used.

(4)	List first and circle the name of the legal trust, estate, or pension trust. Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.

NOTE:

If no name is circled when there is more than one name listed, the number will be considered to be that of the first name listed.

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9

Section references are to the Internal Revenue Code.

Obtaining a Number

If you don’t have a taxpayer identification number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service (the “IRS”) and apply for a number.

Payees Exempt from Backup Withholding

The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except item (9). For broker transactions, payees listed in (1) through (13) and a person registered under the Investment Advisers Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except that a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (2) through (6) are exempt from backup withholding for barter exchange transactions and patronage dividends.

(1)

A corporation.

(2)

An organization exempt from tax under section 501(a), or an individual retirement plan (“IRA”), or a custodial account under section 403(b)(7) if the account satisfies the requirements of section 401(f)(2).

(3)

The United States or any of its agencies or instrumentalities.

(4)

A State, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities.

(5)

A foreign government or any of its political subdivisions, agencies or instrumentalities.

(6)

An international organization or any of its agencies or instrumentalities.

(7)

A foreign central bank of issue.

(8)

A dealer in securities or commodities required to register in the United States, the District of Columbia, or a possession of the United States.

(9)

A futures commission merchant registered with the Commodity Futures Trading Commission.

(10)

A real estate investment trust.

(11)

An entity registered at all times during the tax year under the Investment Company Act of 1940.

(12)

A common trust fund operated by a bank under section 584(a)

(13)

A financial institution.

(14)

A middleman known in the investment community as a nominee or custodian.

(15)

A trust exempt from tax under section 664 or described in section 4947.

Privacy Act Notice. Section 6109 requires you to give your correct taxpayer identification number to persons who must file information returns with the IRS to report interest, dividends, and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, cancellation of debt, or contributions you made to an IRA or Archer MSA. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. The IRS may also provide this information to the Department of Justice for civil and criminal litigation, and to cities, states, and the District of Columbia to carry out their tax laws. The IRS may also disclose this information to other countries under a tax treaty, or to federal or state agencies to enforce federal non-tax criminal laws and to combat terrorism. You must provide your taxpayer identification number whether or not you are required to file a tax return. Payers must generally withhold 28% under current law on payments of taxable interest, dividends, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply.

Penalties.

(1)

Penalty for Failure to Furnish Taxpayer Identification Number. If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect.

(2)

Civil Penalty for False Information with Respect to Withholding. If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty.

(3)

Criminal Penalty for Falsifying Information. Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment.

FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE.

EXHIBIT 99.3

SABINE PASS LNG, L.P.

NOTICE OF GUARANTEED DELIVERY

FOR TENDER OF OUTSTANDING 7 ¹ / 4 % SENIOR SECURED NOTES DUE 2013

(INITIAL AMOUNTS OF $100,000 AND INTEGRAL MULTIPLES OF $1,000 THEREOF)

AND

FOR TENDER OF OUTSTANDING 7 ¹ / 2 % SENIOR SECURED NOTES DUE 2016

(INITIAL AMOUNTS OF $100,000 AND INTEGRAL MULTIPLES OF $1,000 THEREOF)

A holder of 7 ¹ / 4 % Senior Secured Notes due 2013 (the “ 2013 Outstanding Notes ”) and/or 7 ¹ / 2 % Senior Secured Notes due 2016 (the “ 2016 Outstanding Notes ” and collectively with the 2013 Outstanding Notes, the “ Outstanding Notes ”) of Sabine Pass LNG, L.P. (the “ Company ”) who wishes to tender such Outstanding Notes pursuant to the exchange offer (the “ Exchange Offer ”) described in the Prospectus dated [ ] (as it may be supplemented from time to time, the “ Prospectus ”) and the accompanying Letter of Transmittal and the instructions thereto (the “ Letter of Transmittal ”) must complete and deliver this form or one substantially equivalent to it under the following circumstances: (i) certificates representing the Outstanding Notes are not immediately available, (ii) the Outstanding Notes or other required documents will not reach the Exchange Agent on or prior to the Expiration Date (as defined in the Letter of Transmittal and the Prospectus), or (iii) the appropriate procedures for book-entry transfer will not be completed on or prior to the Expiration Date. This requirement is set forth in the Prospectus in the section entitled “The Exchange Offer—Procedures for Tendering—Guaranteed Delivery” and in the Letter of Transmittal in Instruction 2. This form may be delivered by hand or sent by overnight courier, facsimile transmission or registered or certified mail to the Exchange Agent. The Exchange Agent must receive this form prior to 5:00 p.m., New York City time, on [ ], unless extended.

To The Bank of New York

(the “Exchange Agent”)


By Hand Delivery, Overnight Delivery or Regular Mail:		By Facsimile Transmission (for Eligible Institutions Only):
The Bank of New York Corporate Trust Operations 101 Barclay Street, 7 East New York, New York 10286 Attention: Mrs. Evangeline R. Gonzales		(212) 298-1915 Attention: Mrs. Evangeline R. Gonzales
		To confirm by telephone or for information:
		(212) 815-3738

Delivery of this Notice of Guaranteed Delivery to an address or transmission hereof to a facsimile number other than those set forth above will not constitute a valid delivery.

This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an “Eligible Institution” under the instruction thereto, such signature guarantee must appear in the applicable space provided in the box on the Letter of Transmittal for guarantee of signatures.

As set forth in the Prospectus under “The Exchange Offer—Procedures for Tendering—Guaranteed Delivery,” and in the accompanying Letter of Transmittal, this form or one substantially equivalent hereto or an agent’s message relating to guaranteed delivery must be used to accept the Company’s offer to exchange an aggregate principal amount of up to $550,000,000 of its 7 ¹ / 4 % Senior Secured Notes due 2013 (the “ 2013 Exchange Notes “) and/or an aggregate principal amount of up to $1,482,000,000 of its 7 ¹ / 2 % Senior Secured Notes due 2016 (the “ 2016 Exchange Notes ” and collectively with the 2013 Exchange Notes, the “ Exchange Notes ”) for like principal amounts of its outstanding unregistered 2013 Outstanding Notes and/or 2016 Outstanding Notes, respectively, upon the terms and conditions set forth in the Prospectus and the accompanying Letter of Transmittal, if certificates representing such Outstanding Notes are not immediately available, time will not permit the Letter of Transmittal, certificates representing such Outstanding Notes or other required documents to reach the Exchange Agent, or the procedures for book-entry transfer (including a properly transmitted agent’s message with respect thereto) cannot be completed, on or prior to the Expiration Date.

PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

Ladies and Gentlemen:

I, the undersigned, hereby tender to Sabine Pass LNG, L.P. the principal amount of the Outstanding Notes listed below, upon the terms of and subject to the conditions set forth in the Prospectus and the Letter of Transmittal, which I have received, pursuant to the guaranteed delivery procedures set forth in such Prospectus, as follows:

2013 Outstanding Notes


Certificate or Registration Nos. (for non-book-entry Holders)	Aggregate Principal Amount Represented by Outstanding Note(s)	Principal Amount Tendered (Must be in Initial Amounts of $100,000 and Integral Multiples of $1,000 Thereof)

2016 Outstanding Notes


Certificate or Registration Nos. (for non-book-entry Holders)	Aggregate Principal Amount Represented by Outstanding Note(s)	Principal Amount Tendered (Must be in Initial Amounts of $100,000 and Integral Multiples of $1,000 Thereof)

If Outstanding Notes will be tendered by book-entry transfer, provide the following information:

DTC Account Number:

Transaction code (if available):

Date:

All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned.

Please sign here

(Signature of Owner(s) or Authorized Signatory)

Date:

Taxpayer Identification Number

Or Social Security Number:

Area Code and Telephone Number:

Must be signed by the holder(s) of the Outstanding Notes as their name(s) appear(s) on the certificates for Outstanding Notes or on a security position listing, or by person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below.

Please print name(s) and address(es)

Name(s):

Capacity:

Address (including zip code):

THE GUARANTEE ON THE NEXT PAGE MUST BE COMPLETED

GUARANTEE

(NOT TO BE USED FOR SIGNATURE GUARANTEE)

I, the undersigned, a firm or other entity identified as an “eligible guarantor institution” within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, guarantee (a) that the above named person(s) own(s) the principal amount of 7 ¹ / 4 % Senior Secured Notes due 2013 and/or of 7 ¹ / 2 % Senior Secured Notes due 2016 of Sabine Pass LNG, L.P. (collectively, the “ Outstanding Notes ”) tendered hereby within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as amended, (b) that such tender of such Outstanding Notes complies with Rule 14e-4, and (c) that I will deliver to the Exchange Agent the certificates representing the Outstanding Notes tendered hereby or confirmation of book-entry transfer of such Outstanding Notes into the Exchange Agent’s account at The Depository Trust Company, in proper form for transfer, together with the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees or an agents message in lieu thereof and any other required documents, within three (3) business days after the Expiration Date.


Name of Firm:
				(Authorized Signature)
Address:				Name:

				(Please type or print)
(including Zip Code)				Title:

Area Code and Tel. No:				Date:

NOTE: DO NOT SEND CERTIFICATES REPRESENTING OUTSTANDING NOTES WITH THIS FORM. CERTIFICATES REPRESENTING OUTSTANDING NOTES SHOULD BE SENT ONLY WITH A LETTER OF TRANSMITTAL.

INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY

1. Delivery of this Notice of Guaranteed Delivery . A properly completed and duly executed copy of this Notice of Guaranteed Delivery and any other documents required by this Notice of Guaranteed Delivery must be received by the Exchange Agent at its address set forth herein on or prior to the Expiration Date. The method of delivery of this Notice of Guaranteed Delivery and any other required documents to the Exchange Agent is at the election and risk of the Holder. If delivery is by mail, it is suggested that Holders use properly insured registered mail, return receipt requested, and that the mailing be made sufficiently in advance of the Expiration Date, to permit delivery to the Exchange Agent on or prior to such date. Instead of delivery by mail, it is recommended that Holders use an overnight or hand-delivery service. Delivery will be deemed made when actually received or confirmed by the Exchange Agent. For description of the guaranteed delivery procedures, see Instruction 2 of the Letter of Transmittal.

2. Signatures on this Notice of Guaranteed Delivery . If this Notice of Guaranteed Delivery is signed by the registered Holder(s) of the Outstanding Notes referred to herein, the signature(s) must correspond with the names as written on the face of the certificates without alteration, enlargement, or any change whatsoever. If this Notice of Guaranteed Delivery is signed by a participant in the book-entry transfer facility whose name is shown as the owner of the Outstanding Notes, the signature must correspond with the name shown on the security position listing as the owner of the Outstanding Notes.

If this Notice of Guaranteed Delivery is signed by a person other than the registered Holder(s) of any Outstanding Notes listed as a participant of the book-entry transfer facility, this Notice of Guaranteed Delivery must be accompanied by appropriate bond powers, signed as the name of the registered Holder(s) appears on the Outstanding Notes or signed as the name of the participant shown on the book-entry transfer facility’s security position listing.

If this Notice of Guaranteed Delivery is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or other person acting in a fiduciary or representative capacity, such person should so indicate when signing and submit with the Letter of Transmittal evidence satisfactory to the Company of such person’s authority to so act.

3. Requests for Assistance or Additional Copies . Questions relating to the procedure for tendering Outstanding Notes and requests for additional copies of the Prospectus, the Letter of Transmittal, this Notice of Guaranteed Delivery and any other documents related to the Exchange Offer may be directed to the Exchange Agent. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer.

EXHIBIT 99.4

LETTER TO REGISTERED HOLDERS AND DTC PARTICIPANTS

REGARDING THE OFFER TO EXCHANGE

$550,000,000 PRINCIPAL AMOUNT OF

7 ¹ / 4 % SENIOR SECURED NOTES DUE 2013

AND

$1,482,000,000 PRINCIPAL AMOUNT OF

7 ¹ / 2 % SENIOR SECURED NOTES DUE 2016

SABINE PASS LNG, L.P.

[ ]

To Registered Holders and The Depository Trust Company Participants:

We are enclosing herewith the materials listed below relating to the offer by Sabine Pass LNG, L.P. (the “ Company ”) to exchange the Company’s new 7 ¹ / 4 % Senior Secured Notes due 2013 (the “ 2013 Exchange Notes ”) and 7 ¹ / 2 % Senior Secured Notes due 2016 (the “ 2016 Exchange Notes ” and collectively with the 2013 Exchange Notes, the “ Exchange Notes ”), pursuant to an offering registered under the Securities Act of 1933, as amended (the “ Securities Act ”), for like principal amounts of its issued and outstanding 7 ¹ / 4 % Senior Secured Notes due 2013 (the “ 2013 Outstanding Notes ”) and 7 ¹ / 2 % Senior Secured Notes due 2016 (the “ 2016 Outstanding Notes ” and collectively with the 2013 Outstanding Notes, the “ Outstanding Notes ”), respectively, issued by the Company on November 9, 2006, which Outstanding Notes have not been registered under the Securities Act, upon the terms and subject to the conditions set forth in the Company’s Prospectus, dated [ ], and the related Letter of Transmittal (which together constitute the “ Exchange Offer ”).

Enclosed herewith are copies of the following documents:

Prospectus dated [ ];

Letter of Transmittal;

Notice of Guaranteed Delivery;

Instructions to Registered Holder or DTC Participant from Beneficial Owner;

Letter which may be sent to your clients for whose account you hold definitive registered notes or book-entry interests representing Outstanding Notes in your name or in the name of your nominee, to accompany the instruction form referred to above, for obtaining such client’s instruction with regard to the Exchange Offer; and

Substitute Form W-9 and Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (included with the Letter of Transmittal).

WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON [ ], UNLESS EXTENDED.

The Exchange Offer is not conditioned upon any minimum number of Outstanding Notes being tendered.

To participate in the Exchange Offer, a beneficial holder must either (i) cause to be delivered to The Bank of New York (the “ Exchange Agent ”), at the address set forth in the Letter of Transmittal, definitive registered notes representing Outstanding Notes in proper form for transfer together with a properly executed Letter of Transmittal or (ii) cause a DTC Participant to tender such holder’s Outstanding Notes to the Exchange Agent’s account maintained at The Depository Trust Company (“ DTC ”) for the benefit of the Exchange Agent through

DTC’s Automated Tender Offer Program (“ ATOP ”), including transmission of a computer-generated message that acknowledges and agrees to be bound by the terms of the Letter of Transmittal. By complying with DTC’s ATOP procedures with respect to the Exchange Offer, the DTC Participant confirms on behalf of itself and the beneficial owners of tendered Outstanding Notes all provisions of the Letter of Transmittal applicable to it and such beneficial owners as fully as if it completed, executed and returned the Letter of Transmittal to the Exchange Agent. You will need to contact those of your clients for whose account you hold definitive registered notes or book-entry interests representing Outstanding Notes and seek their instructions regarding the Exchange Offer.

Pursuant to the Letter of Transmittal, each holder of Outstanding Notes will represent to the Company and the Guarantors (as defined in the Prospectus) that: (i) the Exchange Notes or book-entry interests therein to be acquired by such holder and any beneficial owner(s) of such Outstanding Notes or interests therein (“ Beneficial Owner(s) ”) in connection with the Exchange Offer are being acquired by such holder and any Beneficial Owner(s) in the ordinary course of business of the holder and any Beneficial Owner(s), (ii) the holder and each Beneficial Owner are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes, (iii) if the holder or Beneficial Owner is a resident of the State of California, it falls under the self-executing institutional investor exemption set forth under Section 25102(i) of the Corporate Securities Law of 1968 and Rules 260.102.10 and 260.105.14 of the California Blue Sky Regulations, (iv) if the holder or Beneficial Owner is a resident of the Commonwealth of Pennsylvania, it falls under the self-executing institutional investor exemption set forth under Sections 203(c), 102(d) and (k) of the Pennsylvania Securities Act of 1972, Section 102.111 of the Pennsylvania Blue Sky Regulations and an interpretive opinion dated November 16, 1985, (v) the holder and each Beneficial Owner acknowledge and agree that any person who is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) or is participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes or interests therein acquired by such person and cannot rely on the position of the staff of the Securities and Exchange Commission (the “ Commission ”) set forth in certain no-action letters, (vi) the holder and each Beneficial Owner understand that a secondary resale transaction described in clause (v) above and any resales of Exchange Notes or interests therein obtained by such holder in exchange for Outstanding Notes or interests therein originally acquired by such holder directly from the Company should be covered by an effective registration statement containing the selling security holder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (vii) neither the holder nor any Beneficial Owner(s) is an “affiliate,” as defined in Rule 405 under the Securities Act, of the Company. Upon a request by the Company, a holder or beneficial owner will deliver to the Company a legal opinion confirming its representation made in clause (vii) above. If the tendering holder of Outstanding Notes is a broker-dealer (whether or not it is also an “affiliate”) or any Beneficial Owner(s) that will receive Exchange Notes for its own or their account pursuant to the Exchange Offer, the tendering holder will represent on behalf of itself and the Beneficial Owner(s) that the Outstanding Notes to be exchanged for the Exchange Notes were acquired as a result of market-making activities or other trading activities, and acknowledge on its own behalf and on the behalf of such Beneficial Owner(s) that it or they will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes; provided, however, by so acknowledging and by delivering a prospectus, such tendering holder will not be deemed to admit that it or any Beneficial Owner is an “underwriter” within the meaning of the Securities Act.

The enclosed “Instructions to Registered Holder or DTC Participant from Beneficial Owner” form contains an authorization by the beneficial owners of Outstanding Notes for you to make the foregoing representations. You should forward this form to your clients and ask them to complete it and return it to you. You will then need to tender Outstanding Notes on behalf of those of your clients who ask you to do so.

The Company will not pay any fee or commission to any broker or dealer or to any other persons (other than the Exchange Agent) in connection with the solicitation of tenders of Outstanding Notes pursuant to the

Exchange Offer. The Company will pay or cause to be paid any transfer taxes payable on the transfer of Outstanding Notes to it, except as otherwise provided in the section “The Exchange Offer—Fees and Expenses” of the enclosed Prospectus.

Additional copies of the enclosed materials may be obtained from the Exchange Agent at its address and telephone number set forth on the front of the Letter of Transmittal.

Very truly yours,

SABINE PASS LNG, L.P.,

by its general partner, SABINE PASS LNG-GP, INC.

NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE AGENT OF THE COMPANY OR THE EXCHANGE AGENT OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.

EXHIBIT 99.5

INSTRUCTIONS TO REGISTERED HOLDER

OR DTC PARTICIPANT

FROM BENEFICIAL OWNER

FOR

7 ¹ / 4 % SENIOR SECURED NOTES DUE 2013

AND

7 ¹ / 2 % SENIOR SECURED NOTES DUE 2016

SABINE PASS LNG, L.P.

The undersigned hereby acknowledges receipt of the Prospectus dated [ ] (the “ Prospectus ”) of Sabine Pass LNG, L.P., a Delaware limited partnership (the “ Company ”), and the accompanying Letter of Transmittal (the “ Letter of Transmittal ”) that together constitute the Company’s offer (the “ Exchange Offer ”) to exchange an aggregate principal amount of up to $550,000,000 of its 7 ¹ / 4 % Senior Secured Notes due 2013 (the “ 2013 Exchange Notes ”) and an aggregate principal amount of up to $1,482,000,000 of its 7 ¹ / 2 % Senior Secured Notes due 2016 (the “ 2016 Exchange Notes ” and collectively with the 2013 Exchange Notes, the “ Exchange Notes ”) registered under the Securities Act of 1933, as amended (the “ Securities Act ”), for like principal amounts of its outstanding unregistered 7 ¹ / 4 % Senior Secured Notes due 2013 (the “ 2013 Outstanding Notes ”) and 7 ¹ / 2 % Senior Secured Notes due 2016 (the “ 2016 Outstanding Notes ” and collectively with the 2013 Outstanding Notes, the “ Outstanding Notes ”), respectively. Capitalized terms used but not defined herein have the meanings assigned to them in the Prospectus and the Letter of Transmittal.

This will instruct you, the registered holder, as to the action to be taken by you relating to the Exchange Offer with respect to the Outstanding Notes held by you for the account of the undersigned, on the terms and subject to the conditions in the Prospectus and Letter of Transmittal.

The principal amount of the 2013 Outstanding Notes held by you for the account of the undersigned is (fill in the amount):

$ (principal amount of 2013 Outstanding Notes).

With respect to the Exchange Offer, the undersigned hereby instructs you (check appropriate box):

To TENDER ALL of the 2013 Outstanding Notes held by you for the account of the undersigned.

To TENDER the following 2013 Outstanding Notes held by you for the account of the undersigned

( insert principal amount of 2013 Outstanding Notes to be tendered, if any ):

$ (principal amount of 2013 Outstanding Notes).

NOT TO TENDER any 2013 Outstanding Notes held by you for the account of the undersigned.

The principal amount of the 2016 Outstanding Notes held by you for the account of the undersigned is (fill in the amount):

$ (principal amount of 2016 Outstanding Notes).

With respect to the Exchange Offer, the undersigned hereby instructs you (check appropriate box):

To TENDER ALL of the 2016 Outstanding Notes held by you for the account of the undersigned.

To TENDER the following 2016 Outstanding Notes held by you for the account of the undersigned

( insert principal amount of 2016 Outstanding Notes to be tendered, if any ):

$ (principal amount of 2016 Outstanding Notes).

NOT TO TENDER any 2016 Outstanding Notes held by you for the account of the undersigned.

If the undersigned is instructing you to tender any or all of the Outstanding Notes held by you for the account of the undersigned, the undersigned agrees and acknowledges that you are authorized:

(a) to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner of the Outstanding Notes, including but not limited to the representations that: (i) the Exchange Notes or book-entry interests therein to be acquired by the undersigned (the “ Beneficial Owner(s) ”) in connection with the Exchange Offer are being acquired by the undersigned in the ordinary course of business of the undersigned, (ii) the undersigned is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes, (iii) if the undersigned is a resident of the State of California, it falls under the self-executing institutional investor exemption set forth under Section 25102(i) of the Corporate Securities Law of 1968 and Rules 260.102.10 and 260.105.14 of the California Blue Sky Regulations, (iv) if the undersigned is a resident of the Commonwealth of Pennsylvania, it falls under the self-executing institutional investor exemption set forth under Sections 203(c), 102(d) and 102(k) of the Pennsylvania Securities Act of 1972, Section 102.111 of the Pennsylvania Blue Sky Regulations and an interpretive opinion dated November 16, 1985, (v) the undersigned acknowledges and agrees that any person who is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), or is participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes or interests therein acquired by such person and cannot rely on the position of the staff of the Securities and Exchange Commission (the “ Commission ”) set forth in certain no-action letters, (vi) the undersigned understands that a secondary resale transaction described in clause (v) above and any resales of Exchange Notes or interests therein obtained by such holder in exchange for Outstanding Notes or interests therein originally acquired by such holder directly from the Company should be covered by an effective registration statement containing the selling security holder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission, and (vii) the undersigned is not at an “affiliate,” as defined in Rule 405 under the Securities Act, of the Company. If the undersigned is a broker-dealer (whether or not it is also an “affiliate”) that will receive Exchange Notes for its own account pursuant to the Exchange Offer, the undersigned represents that the Outstanding Notes to be exchanged for the Exchange Notes were acquired by it as a result of market-making activities or other trading activities, and acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes; provided, however, by so acknowledging and by delivering a prospectus, the undersigned does not and will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act;

(b) to agree on behalf of the undersigned, as set forth in the Letter of Transmittal; and

(c) to take such other action as necessary under the Prospectus or the Letter of Transmittal to effect the valid tender of the Outstanding Notes.

SIGN HERE

Name of beneficial owner(s) (please print):

Signature(s):

Address:

Telephone Number:

Taxpayer Identification Number or Social Security Number:

Date:

EXHIBIT 99.6

LETTER TO CLIENTS

REGARDING THE OFFER TO EXCHANGE

$550,000,000 PRINCIPAL AMOUNT OF

7 ¹ / 4 % SENIOR NOTES DUE 2013

AND

$1,482,000,000 PRINCIPAL AMOUNT OF

7 ¹ / 2 % SENIOR NOTES DUE 2016

SABINE PASS LNG, L.P.

To Our Clients:

We are enclosing herewith a Prospectus, dated [ ], of Sabine Pass LNG, L.P. (the “ Company ”) and a related Letter of Transmittal (which together constitute the “ Exchange Offer ”) relating to the offer by the Company to exchange the Company’s new 7 ¹ / 4 % Senior Secured Notes due 2013 (the “ 2013 Exchange Notes ”) and 7 ¹ / 2 % Senior Secured Notes due 2016 (the “ 2016 Exchange Notes ” and collectively with the 2013 Exchange Notes, the “ Exchange Notes ”), pursuant to an offering registered under the Securities Act of 1933, as amended (the “ Securities Act ”), for like principal amounts of its 7 ¹ / 4 % Senior Secured Notes due 2013 (the “ 2013 Outstanding Notes ”) and 7 ¹ / 2 % Senior Secured Notes due 2016 (the “ 2016 Outstanding Notes ” and collectively with the 2013 Outstanding Notes, the “ Outstanding Notes ”), respectively, upon the terms and subject to the conditions set forth in the Prospectus and the Letter of Transmittal.

PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ], UNLESS EXTENDED.

The Exchange Offer is not conditioned upon any minimum number of Outstanding Notes being tendered.

This material is being forwarded to you as the beneficial owner of the Outstanding Notes carried by us in your account, but not registered in your name. A TENDER OF SUCH OUTSTANDING NOTES CAN BE MADE ONLY BY US AS THE REGISTERED HOLDER FOR YOUR ACCOUNT AND PURSUANT TO YOUR INSTRUCTIONS. THE ENCLOSED LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED TO TENDER OUTSTANDING NOTES .

Pursuant to the Letter of Transmittal, each holder of Outstanding Notes must make certain representations and warranties that are set forth in the Letter of Transmittal and in the attached form that we have provided to you for your instructions regarding what action we should take in the Exchange Offer with respect to your interest in the Outstanding Notes.

We request instructions as to whether you wish to tender any or all of your Outstanding Notes held by us for your account pursuant to the terms and subject to the conditions of the Exchange Offer. We also request that you confirm that we may on your behalf make the representations contained in the Letter of Transmittal that are to be made with respect to you as beneficial owner.

Your instructions to us should be forwarded as promptly as possible in order to permit us to tender Outstanding Notes on your behalf in accordance with the provisions of the Exchange Offer . THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ], UNLESS EXTENDED . Outstanding Notes tendered pursuant to the Exchange Offer may be withdrawn, subject to the procedures described in the Prospectus, at any time prior to such Expiration Date.

If you wish to have us tender any or all of your Outstanding Notes held by us for your account or benefit, please so instruct us by completing, executing and returning to us the attached instruction form. The

accompanying Letter of Transmittal is furnished to you for informational purposes only and may not be used by you to tender Outstanding Notes held by us and registered in our name for your account or benefit. NONE OF THE OUTSTANDING NOTES HELD BY US FOR YOUR ACCOUNT WILL BE TENDERED UNLESS WE RECEIVE WRITTEN INSTRUCTIONS FROM YOU TO DO SO. UNLESS A SPECIFIC CONTRARY INSTRUCTION IS GIVEN, YOUR SIGNATURE ON THE ATTACHED “INSTRUCTIONS TO REGISTERED HOLDER OR DTC PARTICIPANT FROM BENEFICIAL OWNER” SHALL CONSTITUTE AN INSTRUCTION TO US TO TENDER ALL OF THE OUTSTANDING NOTES HELD BY US FOR YOUR ACCOUNT.

Accordingly, we request instructions as to whether you wish us to tender on your behalf the Outstanding Notes held by us for your account, pursuant to the terms and conditions set forth in the enclosed Prospectus and Letter of Transmittal.