Given the persistent march of oil and natural gas prices, most energy company stocks have done pretty well this year.
One glaring exception: Houston's Cheniere Energy.
The company's shares are trading at about one-sixth what they were in January, and analysts are talking about bankruptcy. The stock closed Thursday at $5.04, down from $32.64 at the start of the year.
Cheniere's troubles reflect changes in the global market for liquefied natural gas. A few years ago, LNG was the next big thing in energy, with rising demand for power generation expected to sop up domestic gas supplies.
Hoping to capitalize on a need for imported gas, Cheniere borrowed heavily to build three LNG terminals along the Gulf Coast, including one in Sabine Pass that opened last month. The company also owns natural gas pipelines that connect to the terminals and has a marketing arm to sell gas imported gas.
The LNG tankers, though, aren't lining up as Cheniere hoped.
"If you believe the ships are going to come and they don't, you're in trouble," said Bernard Picchi, an analyst with Wall Street Access who's had a "sell" rating on Cheniere for most of the year.
Demand in other parts of the world outpaced the nascent market in the United States. Japan, for example, turned to LNG to fuel peaking plants after an earthquake last summer shut down most of the country's nuclear power generation.
That drove up LNG prices on the world market, and because other countries are willing to pay more than we are for LNG, little is being shipped to our shores.
"There's virtually no need for LNG in the United States market at this moment," Picchi said.
Other big LNG players, such as Sempra Energy and Exxon Mobil, have the deep pockets to weather the slump, which analysts such as Lasan Johong at RBC Capital Markets believe could ease beginning in early 2010.
Big debt, no equity
Cheniere, though, finds itself with almost $3 billion in debt and no shareholder equity. In its latest financial filing, it said it arranged a bridge loan, but the interest rate was a whopping 16.5 percent -- not exactly a vote of confidence from its bankers.
The company said in February it's considering strategic options, which could include selling the company or the Sabine Pass terminal.
"We have not updated as to what options we're looking at, or who we're talking to," Cheniere spokeswoman Christina Cavarretta said. "They are ongoing negotiations."
Picchi thinks it's unlikely a buyer will step in now rather than wait and buy Cheniere's assets in bankruptcy.
"The situation's probably going to get worse for Cheniere before it gets better," he said.
Johong, however, said a company that wants to lock in today's prices before demand picks up in a couple of years may find Cheniere worth the risk.
"The question is can they survive without an additional cash infusion. The answer is maybe," said Johong, who has an "underperform" rating on the stock and whose firm has done investment banking work for Cheniere.
He gives the company a 50-50 chance of avoiding bankruptcy.
Cavarretta, the company spokeswoman, declined to comment on the bankruptcy speculation.
Top officers selling
Cheniere's decline has taken a personal toll on its top officers as well.
Since mid-April, Chairman Charif Souki, Vice Chairman Walter Williams and Chief Financial Officer Don Turkleson have been forced to sell most of their holdings -- including almost $2.8 million in shares for Souki -- as the declining value of their Cheniere shares triggered margin calls, according to filings with the Securities and Exchange Commission. Margin calls occur when securities bought with borrowed money decline in value to the point that the brokerage demands the investor deposit more money or sell assets to offset the decline.
Cavarretta said none of the executives had previously sold stock.
The stock sales, though, underscore the company's crisis, as does the board's adoption earlier this month of a short-term retention plan to keep key employees on the job for the next six months.
Earlier this month, Picchi raised his "sell" rating to "reduce," but his advice to clients is unchanged:
"There are so many fine energy companies around, why would you want to mess with this one?"
The rest of the energy industry may be booming, but Cheniere's bet on LNG is looking like a bust.
Loren Steffy is the Chronicle's business columnist.
Copyright (c) 2008, Houston Chronicle. Distributed by McClatchy-Tribune Information Services.