Cheniere Energy Inc · S-1/A · On 10/2/96

Filed On 10/2/96   ·   SEC File 333-10905   ·   Accession Number 899243-96-1283

Pre-Effective Amendment to Registration Statement (General Form)   ·   Form S-1
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Document/Exhibit                   Description                      Pages   Size 

 1: S-1/A       Pre-Effective Amendment to Registration Statement     78    385K 
                          (General Form)                                         
 2: EX-23.4     Consent of Independent Public Accountants              1      4K 

S-1/A   ·   Pre-Effective Amendment to Registration Statement (General Form)
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As filed with the Securities and Exchange Commission on October 2, 1996     

                                                      Registration No. 333-10905

SECURITIES AND EXCHANGE COMMISSION    
WASHINGTON, D.C. 20549  
POST-EFFECTIVE AMMENDMENT NO. 1 
TO  
FORM S-1  
REGISTRATION STATEMENT  
UNDER 
THE SECURITIES ACT OF 1933  

CHENIERE ENERGY, INC. 
(Exact name of registrant as specified in its charter)  

                                                        · Enlarge/Download Table
                                                                                              

           DELAWARE                                 1382                       95-4352386     
(State or other jurisdiction                  (Primary Standard             (I.R.S. Employer  
of incorporation or organization)  Industrial Classification Code Number)  Identification No.)

TWO ALLEN CENTER  
1200 SMITH STREET, SUITE 1710 
HOUSTON, TEXAS 77002-4312 
(713) 659-1361  

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

WILLIAM D. FORSTER  
PRESIDENT AND CHIEF EXECUTIVE OFFICER 
CHENIERE ENERGY, INC. 
TWO ALLEN CENTER  
1200 SMITH STREET, SUITE 1710 
HOUSTON TEXAS 77002-4312  
(713) 659-1361  

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

Copies of all communications, including all communications sent 
to the agent for service, should be sent to:  
CAMILLE ABOUSLEIMAN, ESQ. 
DEWEY BALLANTINE  
1301 AVENUE OF THE AMERICAS 
NEW YORK, NEW YORK 10019  
(212) 259-8000  

  APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:  From time to
time after the effective date of this Registration Statement.                   

 If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of    
1933, check the following box:  [X]                                             

If this Form is filed to register additional securities for an offering     
pursuant to Rule 462(b) under the Securities Act, please 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(c) 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 delivery of the prospectus is expected to be made pursuant to Rule 434,  
please check the following box: [ ]                                             

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PROSPECTUS                                                                      
2,844,211 SHARES  

CHENIERE ENERGY, INC. 
COMMON STOCK  
(PAR VALUE $.003 PER SHARE) 

This Prospectus relates to 2,844,211 shares of issued and outstanding 
common stock of Cheniere Energy, Inc., a Delaware corporation (the "Company" or 
"Cheniere"), par value $.003 per share (the "Common Stock"). The Common Stock   
was originally issued by Cheniere to certain holders of shares of common stock  
of Cheniere Energy Operating Co., Inc., a wholly-owned subsidiary of Cheniere,  
and to an "accredited investor" (as defined in Rule 501(a) promulgated under the
Securities Act of 1933, as amended (the "Securities Act")), pursuant to         
Regulation D promulgated under the Securities Act. See "Description of Capital  
Stock".                                                                         
   The Common Stock (ticker symbol "CHEX") is traded on the over-the-counter
market and quoted on the OTC Bulletin Board (the "Bulletin Board"). On September
27, 1996, the last reported sale price of the Common Stock on the Bulletin Board
was $3.125 per share.                                                           

   The Common Stock has been registered for sale by Selling Stockholders (as
defined herein) and may be offered by Selling Stockholders from time to time in 
transactions in the over-the-counter market, in negotiated transactions or a    
combination of such methods of sale, in each such case, at fixed prices which   
may be changed, at market prices prevailing at the time of sale, at prices      
related to prevailing market prices, or at negotiated prices. The Selling       
Stockholders may effect such transactions by selling shares of the Common Stock 
to or through broker-dealers, and such broker-dealers may receive compensation  
in the form of discounts, concessions or commissions from Selling Stockholders  
and/or purchasers of the Common Stock for whom such broker-dealers may act as   
agents or to whom they sell as principals, or both (which compensation as to a  
particular broker-dealer might be in excess of customary commissions). To the   
extent required, shares of the Common Stock, the name of the Selling            
Stockholder, the public offering price, the names of any such agent, dealer or  
underwriter, and any applicable commission or discount with respect to any      
particular offer will be set forth in an accompanying Prospectus Supplement. See
"Selling Stockholders" and "Plan of Distribution".                              

    None of the proceeds from the sale of the Common Stock will be received by
the Company. The Company has agreed, among other things, to bear all expenses   
(other than underwriting discounts and commissions, fees and expenses of        
investment bankers and brokerage commissions) incurred in connection with the   
registration and sale of the Common Stock covered by this Prospectus, including,
without limitation, all registration, listing and qualification fees, printers  
and accounting fees and fees and disbursements of counsel to the Company.       

SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN  
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT  
IN THE SECURITIES OFFERED HEREBY. 

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE 
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR   
ADEQUACY OF THIS PROSPECTUS.  ANY REPRESENTATION  
TO THE CONTRARY IS A CRIMINAL OFFENSE.  

The date of this Prospectus is October ___,1996   

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SUMMARY 

The following summary is qualified in its entirety by the detailed    
information and financial statements and the notes thereto appearing elsewhere  
in this Prospectus.                                                             

THE COMPANY 

GENERAL                                                                         

Cheniere Energy, Inc., a holding company ("Cheniere," together with   
Cheniere Operating (as defined below), the "Company"), is the owner of 100% of  
the outstanding common stock of Cheniere Energy Operating Co., Inc. ("Cheniere  
Operating"). Cheniere Operating is a Houston-based company formed for the       
purpose of oil and gas exploration and exploitation. The Company is currently   
involved in a joint exploration program which is engaged in the exploration for 
oil and natural gas along the Gulf Coast of Louisiana, onshore and in the       
shallow waters of the Gulf of Mexico. The Company commenced its oil and gas     
activities through such joint program in April 1996.                            

   The Company is involved with one major project in the pre-drilling stage.
The Company has entered into a joint exploration program pursuant to an         
Exploration Agreement between the Company and Zydeco Exploration, Inc.          
("Zydeco"), an operating subsidiary of Zydeco Energy, Inc. (the "Exploration    
Agreement"), with regard to a new proprietary 3-D seismic exploration project in
southern Louisiana (the "3-D Joint Venture"). The Company has the right to earn 
up to a 50% participation in the 3-D Joint Venture. The Company believes that   
the 3-D seismic survey (the "Survey") is the first of its size within the       
Transition Zone of Louisiana, an area extending a few miles on either side of   
the Louisiana State coastline. The Survey is to be conducted over certain areas 
located within a total area of approximately 255 square miles running 5 miles   
south and generally 3 to 5 miles north of the coastline in the most westerly 28 
miles of West Cameron Parish, Louisiana (the "Survey AMI"). The 3-D Joint       
Venture does not currently have rights to survey the entire Survey AMI and the  
extent of the Survey AMI which the 3-D Joint Venture will be entitled to survey 
is dependent upon its ability to obtain survey permits and similar rights.      
Currently, the 3-D Joint Venture has permits and similar rights to survey       
approximately 67% of the Survey AMI and is attempting to acquire rights to      
Survey additional portions of the Survey AMI. There is no assurance that the 3-D
Joint Venture will successfully obtain rights to survey additional portions of  
the Survey AMI. The 3-D Joint Venture will survey specific sections selected by 
it within the areas covered by such permits and rights. A seismic data          
acquisition contract has been signed and the 3-D Joint Venture has begun to     
conduct the survey.                                                             

On July 26, 1996, the Company signed a Letter of Intent with Poseidon 
Petroleum, LLC ("Poseidon") to purchase Poseidon's 47% working interest in      
undeveloped reserves in the Bonito Unit of the Pacific Outer Continental Shelf, 
offshore Santa Barbara County, California (the "Poseidon Interest"). The parties
are conducting due diligence and are negotiating a definitive purchase and sale 
agreement and related documentation. The transactions contemplated in the Letter
of Intent may be terminated by either party upon the occurrence of certain      
events and there can be no assurance that the Company will successfully         
consummate such transactions. Moreover, if such transactions are consummated,   
the Company expects that development of the reserves will not occur for at least
five years. There can be no assurance that the Company will successfully develop
the reserves or that the reserves will yield sufficient quantities of oil and   
gas to be economically viable.                                                  

The Company has not yet established oil and gas production, nor has it
booked proven oil and gas reserves.                                             

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BUSINESS STRATEGY                                                               

     The Company's objective is to expand the net value of its assets by growing
its oil and gas reserves in a cost efficient manner. The Company intends to     
pursue this objective by following an integrated strategy that includes the     
following elements:                                                             

.  FOCUS ON FEW PROJECTS WITH LARGE RESERVE POTENTIAL.                        

Louisiana Gulf Coast Transition Zone. The Company's current activities are
focused within one area, the Transition Zone of Louisiana. The Company    
believes that the Transition Zone, including the westernmost 28 miles of  
   Louisiana coastline that are within the Survey AMI, has significant remaining
undiscovered reserves. The 3-D Joint Venture therefore plans to focus its 
   efforts on certain areas, all located within the Survey AMI. In addition, the
substantial infrastructure along the Gulf Coast and in the shallow Gulf of
  Mexico permits the Company to lower its operating costs compared to those in
other geographic regions and facilitates the timely development of oil and
  gas discoveries. The Company's officers and Zydeco have extensive experience
   both onshore and offshore in the Gulf Coast and believe the 3-D Joint Venture
 is well positioned to evaluate, explore and develop properties in the area.

  Offshore California. The Company has signed a Letter of Intent with Poseidon
to purchase Poseidon's 47% working interest in undeveloped reserves in the
Bonito Unit of the Pacific Outer Continental Shelf, offshore Santa Barbara
County, California. An independent reserve report is being prepared to    
determine an estimate of the volume of undeveloped oil and gas reserves   
attributable to the Poseidon Interest. The parties are conducting due     
diligence and are negotiating a definitive purchase and sale agreement and
  related documentation. The transactions contemplated in the Letter of Intent
 may be terminated by either party upon the occurrence of certain events and
 there can be no assurance that the Company will successfully consummate the
   transactions contemplated by the Letter of Intent with Poseidon. Moreover, if
such transactions are consummated, the Company expects that development of
the reserves will not occur for at least five years. There can be no      
   assurance that the Company will successfully develop the reserves or that the
 reserves will yield sufficient quantities of oil and gas to be economically
viable.                                                                   

 .  MAINTAIN A SIGNIFICANT WORKING INTEREST IN EACH PROJECT. The Company has the
 right to earn up to a 50% participation in the 3-D Joint Venture. Under the
  terms of the Exploration Agreement, the Company must timely meet its payment
 obligations to the 3-D Joint Venture in order to reach a 50% participation.
The Company does not intend to be an operator in the area, but intends to 
   maintain a significant working interest to better leverage its administrative
and technical resources and to better influence operator decisions.       

.  UTILIZE THE LATEST EXPLORATION, DEVELOPMENT AND PRODUCTION TECHNOLOGY. The 
Company intends to use the latest technology to enhance the efficiency and
   economy of its exploration, development and production efforts. These include
  the use of advanced 3-D seismic acquisition and processing techniques in the
Survey AMI.                                                               

.  CONTROL OVERHEAD COSTS. The Company plans to maintain a small, but         
experienced working staff, and to leverage their talents by focusing on a 
relatively few projects which have high reserve potential in which it can 
obtain a high working interest, and to employ outside consultants and seek
 industry partners with the appropriate geographic and technical experience.
   Currently, the Company has no employees other than its executive officers and
one administrative assistant.                                             

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RISK FACTORS  

An investment in the common stock, par value $.003 per share, of the  
Company (the "Common Stock") involves a significant degree of risk. The         
following factors, together with the information provided elsewhere in this     
Prospectus, should be considered carefully in evaluating an investment in the   
Common Stock of the Company.                                                    

FACTORS RELATING TO THE COMPANY                                                 

Limited Operating History                                                 

Cheniere Energy, Inc., a holding company ("Cheniere," together with   
Cheniere Operating (as defined below), the "Company"), is the owner of 100% of  
the outstanding common stock of Cheniere Energy Operating Co., Inc. ("Cheniere  
Operating"). The Company has a limited operating history with respect to its oil
and gas exploration activities which were commenced through a joint exploration 
program in April 1996 by Cheniere Operating. Following a reorganization with    
Bexy Communications, Inc. ("Bexy"), Cheniere Operating became a wholly-owned    
subsidiary of Cheniere. During the fiscal year ended August 31, 1996, the       
Company incurred net losses of $286,819. The Company is likely to continue to   
incur losses during 1997, and possibly beyond, depending on whether it generates
sufficient revenue from producing reserves acquired either through acquisitions 
or drilling activities.                                                         

Limited Assets                                                            

The Company has not yet established oil and gas production, nor has it
booked proven oil and gas reserves. Currently, the Company's primary asset is   
its interest in a joint exploration program pursuant to an Exploration Agreement
(the "Exploration Agreement") between the Company and Zydeco Exploration, Inc.  
("Zydeco") with regard to a new proprietary 3-D seismic exploration project in  
Southern Louisiana (the "3-D Joint Venture"). Therefore, the Company is highly  
dependent on the success of the 3-D Joint Venture and the Company's ability to  
acquire operating assets in the future. While the Company has signed a Letter of
Intent to purchase a working interest in undeveloped reserves in the Bonito Unit
of the Pacific Outer Continental Shelf, offshore Santa Barbara County, there is 
no assurance that the Company will successfully consummate the transactions     
contemplated by such Letter of Intent. Moreover, if such transactions are       
consummated, the Company expects that development of the reserves will not occur
for at least five years. There can be no assurance that the Company will        
successfully develop the reserves or that the reserves will yield sufficient    
quantities of oil and gas to be economically viable. See "Business and          
Properties."                                                                    

Need for Additional Financing                                             

The Company presently has no operating revenues and does not expect to
generate substantial operating revenues in the foreseeable future. It is        
expected that the Company will need substantial additional capital in order to  
sustain operations and to timely make required payments to the 3-D Joint Venture
and to holders of outstanding promissory notes of the Company. Such additional  
capital will also be necessary in order for the Company to acquire additional   
oil and gas leases, producing properties or to drill wells on potential         
prospects. Additional capital may be secured from a combination of funding      
sources that may include borrowings from financial institutions, debt offerings 
(which would increase the leverage of the Company and add to its need for cash  
to service such debt), additional offerings of the Company's equity securities  
(which could cause substantial dilution of the Common Stock), or sales of       
portions of the Company's interest in the 3-D Joint Venture (which would reduce 
any future revenues from the 3-D Joint Venture). The Company's ability to access
additional capital will depend on its results of operations and the status of   
various capital markets at the time such additional capital is sought.          
Accordingly, there can be no assurances that capital will be available to the   
Company from any source or that, if available, it will be on terms acceptable to
the Company. Should sufficient additional financing not be available, the       
Company will be unable to make required payments to the 3-D Joint Venture and/or
to holders of outstanding promissory notes of the Company. See "Management      
Discussion and Analysis of Financial Condition and Results of Operations -      
Liquidity and Capital Resources."                                               

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Timeliness of 3-D Joint Venture Payments                                  

  Under the terms of the Exploration Agreement, the Company is required to
make monthly payments to the 3-D Joint Venture aggregating, at least, $13       
million, $5 million of which has been paid by the Company to date. The Company's
potential participation in the 3-D Joint Venture could be significantly reduced 
in the event of a failure by the Company to make such required monthly payments 
when due. The Company has in the past failed to make such payments when due.    
While the Company has in such instances succeeded in obtaining waivers under,   
and amendments to, the Exploration Agreement extending the due dates for such   
payments, there can be no assurance that the Company will successfully obtain   
similar amendments should it fail to timely make required payments to the 3-D   
Joint Venture in the future. The Company currently does not have sufficient     
capital to meet its future payment obligations and there can be no assurance    
that the Company will successfully secure the necessary funds. See "Business and
Properties - 3-D Joint Venture Exploration Agreement."                          

   Potential Acquisition of Working Interest in California Offshore Oil Reserves

  On July 26, 1996 the Company signed a Letter of Intent to purchase a 47%
working interest in undeveloped reserves in the Bonito Unit of the Pacific Outer
Continental Shelf, offshore Santa Barbara County, California. The parties are   
currently conducting due diligence and are in the process of negotiating a      
definitive purchase and sale agreement. The transactions contemplated in the    
Letter of Intent may be terminated by either party upon the occurrence of       
certain events and there can be no assurance that the Company will consummate   
such transactions. Moreover, if such transactions are consummated, the Company  
expects that development of the reserves will not occur for at least five years.
There can be no assurance that the Company will successfully develop the        
reserves or that the reserves will yield sufficient quantities of oil and gas to
be economically viable. See "Business and Properties."                          

Lack of Liquidity of the Common Stock                                     

  There is currently limited liquidity in the trading of the Common Stock.
The completion of the offering of the Common Stock provides no assurance that   
the trading market for the Common Stock will become more active. The Company    
intends to apply for a Nasdaq SmallCap Market listing as soon as is practicable.
There can be no assurance that the Company will qualify for such listing.       

Possible Issuance of Additional Shares                                    

The Company's Certificate of Incorporation authorizes the issuance of 
20,000,000 shares of the Common Stock. As of September 27, 1996, approximately  
50% of the shares of the Common Stock remained unissued. The Company's Board of 
Directors has the power to issue any and all of such shares without shareholder 
approval. It is likely that the Company will issue shares of the Common Stock,  
among other reasons, in order to raise capital to sustain operations, make      
required payments to the 3-D Joint Venture and/or to finance future oil and gas 
exploration projects. In addition, the Company has reserved 309,666 and 2/3     
shares of the Common Stock for issuance upon the exercise of outstanding        
warrants and 319,444 and 2/3                                                    
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shares of the Common Stock for issuance upon the exercise of outstanding options
and has agreed to issue additional warrants to purchase 12,500 shares of the    
Common Stock. The Company has also agreed to issue 105,000 shares of the Common 
Stock in exchange for certain outstanding promissory notes of Cheniere Operating
(See "Management Discussion and Analysis of Financial Condition and Results of  
Operations - Liquidity and Capital Resources"). Any issuance of the Common Stock
by the Company may result in a reduction in the book value per share or market  
price per share of the outstanding shares of the Common Stock and will reduce   
the proportionate ownership and voting power of such shares. See "Description of
Capital Stock."                                                                 

Dependence on Key Personnel                                               

The Company is dependent upon its executive officers for its various  
activities. The Company does not maintain "key person" life insurance policies  
on any of its personnel nor does it have employment agreements with any of its  
personnel. The loss of the services of any of these individuals could materially
and adversely affect the Company. In addition, the Company's future success will
depend in part upon its ability to attract and retain additional qualified      
personnel. Other than its officers, the Company has only one full-time employee,
an administrative assistant.                                                    

Dependence on Industry Partners                                           

   The future success of the 3-D Joint Venture is largely dependent upon the
experience and performance of Zydeco. As the Company has few employees and      
limited operating revenues, the Company will be largely dependent upon industry 
partners for the success of its oil and gas exploration projects for the        
foreseeable future.                                                             

Control by Principal Stockholders                                         

   William D. Forster, President and Chief Executive Officer of the Company,
and BSR Investments, Ltd. ("BSR"), an entity under the control of a member of   
the immediate family of Charif Souki, Secretary and a director of the Company,  
own in the aggregate approximately 54.3% of the outstanding Common Stock.       
Accordingly, Mr. Forster and BSR will be able to elect all of the directors of  
the Company and to control the Company's management, operations and affairs,    
including the ability to effectively prevent or cause a change in control of the
Company.                                                                        

FACTORS RELATING TO THE 3-D JOINT VENTURE                                       

Ability to Obtain Permits                                                 

     The 3-D Joint Venture will conduct a 3-D seismic survey (the "Survey") over
certain areas located within a total area of approximately 255 square miles     
running 5 miles south and generally 3 to 5 miles north of the coastline in the  
most westerly 28 miles of West Cameron Parish, Louisiana (the "Survey AMI"). The
3-D Joint Venture does not currently have rights to survey the entire Survey AMI
and the extent of the Survey AMI which the 3-D Joint Venture will be entitled to
survey is dependent upon its ability to obtain survey permits and similar       
rights. Currently, the 3-D Joint Venture has rights to survey approximately 67% 
of the Survey AMI and is attempting to acquire rights to survey additional      
portions of the Survey AMI. There can be no assurance that the 3-D Joint Venture
will successfully obtain permits or rights to survey additional portions of the 
Survey AMI.                                                                     

Louisiana State Waters - Timing Risks                                     

Among certain other rights, the 3-D Joint Venture currently has the   
exclusive right to shoot and gather seismic data over 51,360 net acres of       
Louisiana State waters, located in the Western half of West Cameron Parish,     
Louisiana and constituting a sub-area of the Survey AMI and to nominate for     
lease any acreage in such State waters (the "Louisiana Seismic Permit"). The    
Louisiana Seismic Permit expires in August 1997, but may be extended at Zydeco's
option for an additional six months to February 1998 by payment of an additional
fee of $391,876.80. By December 1997, the 3-D Joint Venture is scheduled to     
complete the Survey, process and interpret the Survey data, nominate and bid for
leases, propose and contract for drilling, and commence drilling its first set  
of prospects. Under the terms of the Louisiana Seismic Permit, the 3-D Joint    
Venture will be liable to pay penalties of $783,753.60 in the event it fails to 
(i) complete the acquisition of                                                 

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the seismic data covering the entire area subject to the Louisiana Seismic      
Permit or (ii) provide access to such data to the State of Louisiana in a timely
manner. Under the terms of the Exploration Agreement, any such penalties payable
under the Louisiana Seismic Permit shall be borne equally by Zydeco and the     
Company. There can be no assurance that the 3-D Joint Venture will complete its 
scheduled activities within the time period required under the Louisiana Seismic
Permit. Failure of the 3-D Joint Venture to complete its scheduled activities   
within the term of the Louisiana Seismic Permit would materially and adversely  
affect the value of the Company's interest in the 3-D Joint Venture. See        
"Business and Properties - Permit and Lease Status within the Survey AMI."      

FACTORS RELATING TO THE OIL AND GAS INDUSTRY                                    

Operating Risks                                                           

   The oil and gas operations of the Company are subject to all of the risks
and hazards typically associated with the exploration for, and the development  
and production of, oil and gas. Risks in drilling operations include cratering, 
explosions, uncontrollable flows of oil, gas or well fluids, fires, pollution   
and other environmental risks. The Company's activities are also subject to     
perils specific to marine operations, such as capsizing, collision, and damage  
or loss from severe weather. These hazards can cause personal injury and loss of
life, severe damage to and destruction of property and equipment, pollution or  
environmental damage and suspension of operations. In accordance with customary 
industry practices, the Company intends to maintain insurance against some, but 
not all, of such risks and some, but not all, of such losses. The occurrence of 
a significant event not fully insured or indemnified against could materially   
and adversely affect the Company's financial condition and operations. Moreover,
no assurance can be given that the Company will be able to maintain adequate    
insurance in the future at rates considered reasonable by the Company. See      
"Business and Properties - Operational Risks and Insurance."                    

Exploration Risks                                                         

   The Company's exploration activities involve significant risks. There can
be no assurance that the use of technical expertise as applied to geophysical or
geological data will ensure that any well will encounter hydrocarbons. Further, 
there is no way to know in advance of drilling and testing whether any prospect 
encountering hydrocarbons in the Survey AMI by the 3-D Joint Venture will yield 
oil or gas in sufficient quantities to be economically viable. In addition, the 
Company is highly dependent upon seismic activity and the related application of
new technology as a primary exploration methodology. There can be no assurance  
that the 3-D Joint Venture's efforts will be successful. See "Business and      
Properties."                                                                    

High Dependence upon Lease Acquisition Activities                         

Both the United States Department of the Interior and the State of    
Louisiana award oil and gas leases on a competitive bidding basis and non-      
governmental owners of the onshore mineral interests within the Survey AMI are  
not obligated to lease their mineral rights to the 3-D Joint Venture except to  
the extent they have granted lease options to the 3-D Joint Venture. Other major
and independent oil and gas companies having financial resources significantly  
greater than those of the 3-D Joint Venture may bid against the 3-D Joint       
Venture for the purchase of oil and gas leases. Accordingly, there can be no    
assurance that the 3-D Joint Venture or any other oil and gas venture of the    
Company will be successful in acquiring farmouts, seismic permits, lease        
options, leases or other rights to explore or recover oil and gas. Consequently,
the proportion of the Survey AMI which could be surveyed or subsequently        
explored through drilling would be reduced to the extent that the 3-D Joint     
Venture is not successful at such acquisitions. See "Business and Properties -  
Permit and Lease Status within the Survey AMI."                                 

Lack of Diversification; Oil and Gas Industry Conditions; Volatility of   
Prices for Oil and Gas                                                

   As an independent energy company, the Company's revenues and profits will
be substantially dependent on the oil and gas industry in general and the       
prevailing prices for oil and gas in particular. Oil and 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: relatively minor changes in the supply
of and demand for oil and gas; market uncertainty; political conditions in      
international oil producing regions; the extent of domestic production and      
importation of oil in certain relevant markets; the level of consumer demand;   
weather conditions; the                                                         

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competitive position of oil or gas as a source of energy as compared with other 
energy sources; the refining capacity of oil purchasers; and the effect of      
federal and state regulation on the production, transportation and sale of oil. 
It is likely that adverse changes in the oil market or the regulatory           
environment would have an adverse effect on the Company's ability to obtain     
capital from lending institutions, industry participants, private or public     
investors or other sources.                                                     

Intense Competition in Oil and Gas Industry                               

The oil and gas industry is highly competitive. Most of the Company's 
current and potential competitors have significantly greater financial resources
and a significantly greater number of experienced and trained managerial and    
technical personnel than the Company and the 3-D Joint Venture. There can be no 
assurance that the Company or the 3-D Joint Venture will be able to compete     
effectively with such firms. See "Business and Properties - Competition and     
Markets."                                                                       

Risks of Turnkey Contracts                                                

     The Company anticipates that any wells established by it will be drilled by
proven industry contractors under turnkey contracts that limit the Company's    
financial and legal exposure. However, circumstances may arise where a turnkey  
contract is not economically beneficial to the Company or is otherwise          
unobtainable from proven industry partners. In such instances, the Company may  
decide to drill, or cause to be drilled, the applicable well(s) on either a     
footage or day rate basis and the drilling thereof will be subject to the usual 
drilling hazards such as cratering, explosions, uncontrollable flows of oil, gas
or well fluids, fires, pollution and other environmental risks. The Company     
would also be liable for any cost overruns attributable to downhole drilling    
problems that otherwise would have been covered by a turnkey contract had one   
been negotiated. See "Business and Properties - Operational Risks and           
Insurance."                                                                     

United States Governmental Regulation, Taxation and Price Control         

Oil and gas production and exploration are subject to comprehensive   
federal, state and local laws and regulations controlling the exploration for   
and production and sale of oil and gas and the possible effects of such         
activities on the environment. Failure to comply with such rules and regulations
can result in substantial penalties and may adversely affect the Company.       
Present, as well as future, legislation and regulations could cause additional  
expenditures, restrictions and delays in the Company's business, the extent of  
which cannot be predicted and which may require the Company to limit            
substantially, delay or cease operations in some circumstances. In most, if not 
all, areas where the Company may conduct activities, there may be statutory     
provisions regulating the production of oil and natural gas which may restrict  
the rate of production and adversely affect revenues. The Company plans to      
acquire oil and gas leases in the Gulf of Mexico, which will be granted by the  
Federal government and administered by the U.S. Department of Interior Minerals 
Management Service (the "MMS"). The MMS strictly regulates the exploration,     
development and production of oil and gas reserves in the Gulf of Mexico. Such  
regulations could have a material adverse affect on the Company's operations in 
the Gulf of Mexico. The Federal government regulates the interstate             
transportation of oil and natural gas, through the Federal Energy and Regulatory
Commission ("FERC"). The FERC has in the past regulated the prices at which oil 
and gas could be sold. Federal reenactment of price controls or increased       
regulation of the transport of oil and natural gas could have a material adverse
affect on the Company. In addition, the Company's operations are subject to     
numerous laws and regulations governing the discharge of oil and hazardous      
materials into the environment or otherwise relating to environmental           
protection, including the Oil Pollution Act of 1990. These laws and regulations 
have continually imposed increasingly strict requirements for water and air     
pollution control, solid waste management, and strict financial responsibility  
and remedial response obligations relating to oil spill protection. The cost of 
complying with such environmental legislation will have a general adverse affect
on the Company's operations. See "Business and Properties - Governmental        
Regulation."                                                                    

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THE COMPANY 

       Cheniere Energy, Inc., a holding company ("Cheniere," together with
Cheniere Operating (as defined below), the "Company"), is the owner of 100% of  
the outstanding common stock of Cheniere Energy Operating Co., Inc. ("Cheniere  
Operating"). Cheniere Operating is a Houston-based company formed for the       
purpose of oil and gas exploration and exploitation. Cheniere Operating was     
incorporated in Delaware in February 1996 under the name FX Energy, Inc.        

        On July 3, 1996 Cheniere Operating consummated the transactions (the
"Reorganization") contemplated in the Agreement and Plan of Reorganization (the 
"Reorganization Agreement") dated April 16, 1996 between Cheniere Operating and 
Bexy Communications, Inc., a publicly held Delaware corporation ("Bexy"). Under 
the terms of the Reorganization Agreement, Bexy transferred its existing assets 
and liabilities to Mar Ventures, Inc., its wholly-owned subsidiary ("Mar        
Ventures"), Bexy received 100% of the outstanding shares of Cheniere Operating  
and the former shareholders of Cheniere Operating received approximately 8.3    
million newly issued shares of Bexy common stock, representing 93% of the then  
issued and outstanding Bexy shares. Immediately following the Reorganization,   
the Original Bexy Stockholders held the remaining 7% of the outstanding Bexy    
stock. In accordance with the terms of the Reorganization Agreement, Bexy       
changed its name to Cheniere Energy, Inc.  Subsequently, the Company distributed
the outstanding capital stock of Mar Ventures to the original holders of Bexy   
common stock.                                                                   

     The Common Stock of the Company is traded on the over-the-counter
market and quoted on the OTC Bulletin Board (the "Bulletin Board") of the       
National Association of Securities Dealers (the "NASD") (ticker symbol "CHEX")  
with 10,039,594 shares outstanding as of September 27, 1996. The Company intends
to apply for a Nasdaq SmallCap Market listing as soon as is practicable.        

The Company's principal executive offices are located at Two Allen  
Center, 1200 Smith Street, Suite 1710, Houston, Texas 77002. The Company's      
telephone number is (713) 659-1361.                                             

USE OF PROCEEDS 

          All shares of Common Stock covered hereby are being registered for the
account of the Selling Stockholders and, accordingly, the Company will not      
receive any proceeds from the sale of the Common Stock by the Selling           
Stockholders.                                                                   

CAPITALIZATION  

          The following table sets forth the capitalization of the Company as of
August 31, 1996. All information set forth below should be read in conjunction  
with the financial data of the Company and related notes that appear elsewhere  
in this Prospectus.                                                             

                                                                · Download Table


                                                       

Shareholders' Equity                                   
    Common Stock - $.003 Par Value                     
    Authorized 20,000,000 shares;                      
    9,931,767 Issued and Outstanding(1)     $   29,795 

    Preferred Stock -                                  
    Authorized 1,000,000 shares;                    -- 
    None Issued and Outstanding                        

    Additional paid-in capital               5,626,840 

    Retained Deficit                        (1,230,180)
                                            ---------- 
Total Shareholders' Equity                  $4,426,455 
                                            ========== 

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(1)  In addition, (i) 209,666 and 2/3 shares of the Common Stock are reserved   
     for issuance upon exercise of outstanding warrants to purchase Common Stock
    at an exercise price of $3.00 per share, (ii) 100,000 shares of the Common
   Stock are reserved for issuance upon the exercise of outstanding warrants
  to purchase Common Stock at an exercise price of $3.125 per share, (iii)
    300,000 shares of the Common Stock are reserved for issuance upon exercise
    of outstanding options granted by the Board of Directors to certain of the
   Company's executive officers, at an exercise price of $3.00 per share and
  (iv) 19,444 and 2/3 shares of the Common Stock are reserved for issuance
     upon exercise of outstanding options granted to Buddy Young, at an exercise
price of $1.80 per share.                                             

MARKET PRICE AND DIVIDEND INFORMATION 

       From 1989 through December 1993, there was no public trading market
for the Bexy Common Stock. In December 1993, the common stock of Bexy began     
trading on the Bulletin Board. In connection with the Reorganization, the       
Company divested itself of the assets relating to the business of Bexy prior to 
the Reorganization and has shifted its focus to oil and gas exploration.        
Simultaneously with the Reorganization, each three outstanding shares of common 
stock of Bexy was converted to one share of Common Stock and the stockholders of
Cheniere Operating were issued shares of Common Stock equaling approximately 93%
of the then issued and outstanding shares of Bexy causing the existing          
stockholders of Bexy to be diluted to approximately 7%. On July 8, 1996, the    
Common Stock began trading on the Bulletin Board (ticker symbol "CHEX"). As the 
nature of the business and the Common Stock has changed as a result of the      
Reorganization, this section describes the market price of the Common Stock     
following the Reorganization on July 3, 1996.                                   

       The high ask and low bid prices of the Common Stock reported on the
Bulletin Board for the period from July 8, 1996 through September 27, 1996 were 
$6.00 and $3.00, respectively. These quotations reflect inter-dealer prices,    
without retail mark-up, mark-down or commission and may not reflect actual      
transactions.                                                                   

        As of September 27, 1996 there were 766 record holders of the Common
Stock which does not include holders who hold their shares of the Common Stock  
in "street name".                                                               

  The Company has not paid any dividends since its inception and
presently anticipates that all earnings, if any, will be retained for           
development of the Company's business and that no dividends on its Common Stock 
will be declared in the foreseeable future. Any future dividends will be subject
to the discretion of the Company's Board of Directors and will depend upon,     
among other things, future earnings, the operating and financial condition of   
the Company, its capital requirements and general business conditions.          

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SELECTED FINANCIAL DATA 

The following income statement data and balance sheet data have been  
derived from the financial statements prepared in accordance with generally     
accepted accounting principles. The financial statements of Cheniere Energy,    
Inc. and Subsidiary as of August 31, 1996 and for the year then ended have been 
audited by Merdinger, Fruchter, Rosen & Corso, P.C. This information should be  
read in conjunction with the financial statements and notes thereto and         
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations" included elsewhere in this Prospectus.                              

                                                                · Download Table


                                                        September 1, 1995 
                                                               to         
                                                         August 31, 1996  
                                                       -------------------
                                                                          
Net operating revenues                                $           --      
(Loss) from continuing operations                            (79,097)     
Loss) from continuing operations per share of common                      
 stock                                                        (0.008)     
(Loss) from discontinued operations                         (207,722)     
Net (loss) per share of common stock                           (0.03)     
Total Assets                                               5,145,310      
Long-term obligations                                             --      
Total Liabilities                                            718,855      
Total Shareholders' Equity                                 4,426,455      
Cash dividends declared per share of common stock                 --      


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MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

       Cheniere Operating was incorporated in Delaware in February of 1996
for the purpose of entering the oil and gas exploration and exploitation        
business, initially on the Louisiana Gulf Coast.                                

          In March of 1996, Cheniere Operating entered into discussion with Bexy
Communications, Inc. ("Bexy") for a reorganization in order to give it a        
presence in the public market.                                                  

    On April 16, 1996, the Reorganization Agreement was entered into
whereby the Cheniere Operating stockholders would acquire control of Bexy in    
consideration for the outstanding stock of Cheniere Operating.                  

         Under the terms of the Reorganization Agreement, Bexy transferred its
existing assets of approximately $224,000 and its liabilities of approximately  
$111,000 to Mar Ventures, Inc. ("Mar Ventures"), Bexy received 100% of the      
outstanding shares of Cheniere Operating and the former shareholders of Cheniere
Operating received approximately 8.3 million newly issued shares of Bexy common 
stock, representing 93% of the then issued and outstanding Bexy shares. Cheniere
Operating became a wholly-owned subsidiary of Bexy and the principal business   
became oil and gas exploration. Bexy then changed its name to Cheniere Energy,  
Inc. The Company distributed the outstanding capital stock of Mar Ventures to   
the original holders of Bexy common stock.                                      

   The reorganization was accounted for as the recapitalization of
Cheniere Operating and the issuance of stock for the net assets of Bexy.        

RESULTS OF OPERATIONS - AUDITED STATEMENTS YEAR ENDED AUGUST 31, 1996           

         The Company's operating results reflected a loss of $79,097, as there
were no revenues from continuing operations. General and Administrative expenses
of $73,814 comprised most of the loss.                                          

The Company incurred one time losses of $207,722 from the   
discontinuance of its former business in the television production and health   
information field. Total losses were $286,819.                                  

      The Company's balance sheet reflected current assets of $1,097,980
with liabilities of $718,855. Other assets reflect an investment of $4 million  
in the 3-D Joint Venture. After fiscal year end, in early September 1996, the   
Company made an additional payment of $1 million to the 3-D Joint Venture, such 
that an aggregate of $5 million has been paid by the Company to the 3-D Joint   
Venture to date.                                                                

  The Company's capital reflects sales of shares net of offering
expenses of $609,451 and distribution of net assets of $112,902.                

LIQUIDITY AND CAPITAL RESOURCES                                         

    At August 31, 1996, the Company had working capital of $379,125.
Operating expenses and capitalized costs were financed by the sale of common    
stock and Bridge Loan (as defined below) funding as revenues have yet to be     
generated. It is anticipated that future liquidity requirements, including the  
commitment to the 3-D Joint Venture which will amount to, at least, an          
additional $8 million, will be met by sale of equity, further borrowings and/or 
sales of portions of the Company's interest in the 3-D Joint Venture. At this   
time, no assurance can be given that such sale of equity, further borrowings or 
sales of portions of the Company's interest in the 3-D Joint Venture will prove 
to be successful. The Company has in the past failed to timely                  

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make certain payments due to the 3-D Joint Venture. While the Company has in    
such instances succeeded in obtaining waivers under, and amendments to, the     
Exploration Agreement extending the due dates for such required payments, there 
can be no assurance that the Company will successfully obtain similar amendments
should it fail to timely make required payments to the 3-D Joint Venture in the 
future. The Company currently does not have sufficient capital to meet its      
future payment requirements and there can be no assurance that the Company will 
successfully secure the necessary funds. See "Business and Properties -         
3-D Joint Venture Exploration Agreement."                                       

      Since its inception, the Company's primary source of financing for
operating expenses and payments to the 3-D Joint Venture has been the sale of   
its equity securities.                                                          

      In May and June 1996, Cheniere Operating raised $2,883,000, net of
offering costs, from the sale of shares of its common stock (which were         
exchanged for 2,000,000 shares of the Common Stock following the Reorganization)
to "accredited investors" (as defined in Rule 501(a) promulgated under the      
Securities Act of 1933, as amended (the "Securities Act")) pursuant to Rule 506 
of Regulation D promulgated under the Securities Act ("Regulation D"). The      
proceeds were used to fund Cheniere Operating's initial $3 million payment to   
the 3-D Joint Venture.                                                          

          In order to finance a $1 million payment made to the 3-D Joint Venture
on August 9, 1996, the Company sold Common Stock pursuant to Regulation D and   
Regulation S promulgated under the Securities Act ("Regulation S"). In July     
1996, the Company sold 50,000 shares of the Common Stock to an "accredited      
investor" pursuant to Rule 506 of Regulation D and the Company received proceeds
of $100,000 from such sale. In July and August 1996, the Company conducted an   
offering of Common Stock pursuant to Regulation S. The Company sold 508,400     
shares of the Common Stock and received proceeds of $915,000, net of placement  
fees, from such sale.                                                           

       In late August 1996, the Company raised $1,000,000 from the sale of
100,000 units, each consisting of five shares of the Common Stock and a warrant 
to purchase one share of the Common Stock, pursuant to Regulation S.  The       
proceeds were used to fund a $1 million payment to the 3-D Joint Venture made on
September 4, 1996.                                                              

   In September 1996, the Company raised $260,500 from the sale of
130,250 shares of the Common Stock to "accredited investors" (as defined in Rule
501(a) promulgated under the Securities Act) pursuant to Rule 506 of Regulation 
D.                                                                              

          In June 1996, Cheniere Operating borrowed $425,000 (the "Bridge Loan")
through a private placement of short term promissory notes with an initial      
interest rate of 8% (the "Notes"). The Notes were due on September 14, 1996. In 
connection with the placement of the Notes, Cheniere Operating issued warrants, 
which following the Reorganization, were exchanged for an aggregate of 141,666  
and 2/3 warrants to purchase shares of the Common Stock, to the holders of the  
Notes (the "Noteholders"), each of which warrants entitles the holder to        
purchase one share of the Common Stock at an exercise price of $3.00 per share  
at any time on or before June 14, 1999. The Company has satisfied all of its    
obligations under Notes in the aggregate principal amount of $210,000 by paying 
the accrued interest on such Notes and by agreeing to issue 105,000 shares of   
the Common Stock at a price of $2.00 per share to the holders of such Notes     
pursuant to Regulation D. In addition, prior to the maturity of the Notes, an   
individual Noteholder (the "Remaining Noteholder") purchased several outstanding
Notes following which such Noteholder held Notes in the aggregate principal     
amount of $215,000. In connection with a modification of the Bridge Loan        
arrangements as between the Remaining Noteholder and the Company, Cheniere      
Operating has issued a new promissory note to the Remaining Noteholder with an  
interest rate of 13% per annum in exchange for the Notes held by him. Such new  
promissory note is due on January 14, 1997. The Remaining Noteholder is also    
entitled to receive up to 21,500 additional warrants to purchase shares of the  
Common Stock for each month, or partial month, any amounts remain due and       
payable after September 14, 1996, up to a maximum aggregate number of 86,000    
such additional warrants. Such additional warrants will have an exercise price  
of $3.00 per share and will be exercisable for 3 years from the date of         
issuance.                                                                       

BUSINESS AND PROPERTIES 

GENERAL                                                                         

          The Company is currently involved in a joint exploration program which
is engaged in the exploration for oil and natural gas along the Gulf Coast of   
Louisiana, onshore and in the shallow waters of the Gulf of Mexico. The Company 
commenced its oil and gas activities in April 1996 through such joint           
exploration program, and since July 3, 1996 has been publicly traded under the  
name Cheniere Energy, Inc.                                                      

      The Company is involved with one major project in the pre-drilling
stage. The Company entered into a joint exploration program pursuant to an      
Exploration Agreement dated April 4, 1996 between FX Energy, Inc., now known as 
Cheniere Operating, and Zydeco Exploration, Inc. ("Zydeco"), an operating       
subsidiary of Zydeco Energy, Inc. (the "Exploration Agreement"), with regard to 
a new proprietary 3-D seismic exploration project in southern Louisiana (the "3-
D Joint Venture"). The Company has the right                                    

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to earn up to a 50% participation in the 3-D Joint Venture. The Company believes
that the 3-D seismic survey (the "Survey") is the first of its size within the  
Transition Zone of Louisiana, an area extending a few miles on either side of   
the Louisiana State coastline. The Survey is to be conducted over certain areas 
located within a total area of approximately 255 square miles running 5 miles   
south and generally 3 to 5 miles north of the coastline in the most westerly 28 
miles of West Cameron Parish, Louisiana (the "Survey AMI"). The 3-D Joint       
Venture does not currently have rights to survey the entire Survey AMI and the  
extent of the Survey AMI which the 3-D Joint Venture will be entitled to survey 
is dependent upon its ability to obtain survey permits and similar rights.      
Currently, the 3-D Joint Venture has permits and similar rights to survey       
approximately 67% of the Survey AMI and is attempting to acquire rights to      
survey additional portions of the Survey AMI. There can be no assurance that the
3-D Joint Venture will successfully obtain rights to survey additional portions 
of the Survey AMI. The 3-D Joint Venture will survey specific sections selected 
by it within the areas covered by such permits and rights. See "- Permit and    
Lease Status Within the Survey AMI." A seismic data acquisition contract has    
been signed and the 3-D Joint Venture has begun to conduct the Survey.          

         On July 26, 1996, the Company signed a Letter of Intent with Poseidon
Petroleum, LLC ("Poseidon") to purchase Poseidon's 47% working interest in      
undeveloped reserves in the Bonito Unit of the Pacific Outer Continental Shelf, 
offshore Santa Barbara County, California (the "Poseidon Interest"). The parties
are conducting due diligence and are negotiating a definitive purchase and sale 
agreement and related documentation. The transactions contemplated in the Letter
of Intent may be terminated by either party upon the occurrence of certain      
events and there can be no assurance that the Company will successfully         
consummate such transactions. Moreover, if such transactions are consummated,   
the Company expects that development of the reserves will not occur for at least
five years. There can be no assurance that the Company will successfully develop
the reserves or that the reserves will yield sufficient quantities of oil and   
gas to be economically viable.                                                  

          The Company has not yet established oil and gas production, nor has it
booked proven oil and gas reserves.                                             

BUSINESS STRATEGY                                                               

       The Company's objective is to expand the net value of its assets by
growing its oil and gas reserves in a cost efficient manner. The Company intends
to pursue this objective by following an integrated strategy that includes the  
following elements:                                                             

.  FOCUS ON FEW PROJECTS WITH LARGE RESERVE POTENTIAL.                        

Louisiana Gulf Coast Transition Zone. The Company's current activities are
focused within one area, the Transition Zone of Louisiana. The Company    
believes that the Transition Zone, including the westernmost 28 miles of  
   Louisiana coastline that are within the Survey AMI, has significant remaining
undiscovered reserves. The 3-D Joint Venture therefore plans to focus its 
   efforts on certain areas, all located within The Survey AMI. In addition, the
substantial infrastructure along the Gulf Coast and in the shallow Gulf of
  Mexico permits the Company to lower its operating costs compared to those in
other geographic regions and facilitates the timely development of oil and
  gas discoveries. The Company's officers and Zydeco have extensive experience
   both onshore and offshore in the Gulf Coast and believe the 3-D Joint Venture
 is well positioned to evaluate, explore and develop properties in the area.

  Offshore California. The Company has signed a Letter of Intent with Poseidon
to purchase Poseidon's 47% working interest in undeveloped reserves in the
Bonito Unit of the Pacific Outer Continental Shelf, offshore Santa Barbara
County, California. An independent reserve report is being prepared to    
determine an estimate of the volume of undeveloped oil and gas reserves   
attributable to the Poseidon Interest. The parties are conducting due     
diligence and are negotiating a definitive purchase and sale agreement and
  related documentation. The transactions contemplated in the Letter of Intent
 may be terminated by either party upon the occurrence of certain events and
  there can be no assurance that the Company will successfully consummate such
transactions. Moreover, if such transactions are consummated, the Company 
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 years. There can be no assurance that the Company will successfully develop
   the reserves or that the reserves will yield sufficient quantities of oil and
gas to be economically viable.                                            

 .  MAINTAIN A SIGNIFICANT WORKING INTEREST IN EACH PROJECT. The Company has the
 right to earn up to a 50% participation in the 3-D Joint Venture. Under the
  terms of the Exploration Agreement, the Company must timely meet its payment
 obligations to the 3-D Joint Venture in order to reach a 50% participation.
The Company does not intend to be an operator in the area, but intends to 
   maintain a significant working interest to better leverage its administrative
and technical resources and to better influence operator decisions.       

.  UTILIZE THE LATEST EXPLORATION, DEVELOPMENT AND PRODUCTION TECHNOLOGY. The 
Company intends to use the latest technology to enhance the efficiency and
   economy of its exploration, development and production efforts. These include
  the use of advanced 3-D seismic acquisition and processing techniques in the
Survey AMI.                                                               

.  CONTROL OVERHEAD COSTS. The Company plans to maintain a small, but         
experienced working staff, and to leverage their talents by focusing on a 
relatively few projects which have high reserve potential in which it can 
obtain a high working interest, and to employ outside consultants and seek
 industry partners with the appropriate geographic and technical experience.
   Currently, the Company has no employees other than its executive officers and
one administrative assistant.                                             

THE 3-D JOINT VENTURE EXPLORATION PROJECT 
IN WEST CAMERON PARISH, LOUISIANA TRANSITION ZONE 

        The Company's first exploration project is the 3-D Joint Venture, in
which the Company has the right to earn up to a 50% participation, in a new     
proprietary 3-D seismic exploration project that the Company believes will be   
the largest of its kind within the Louisiana Transition Zone. The Survey AMI    
covers approximately 255 square miles situated onshore and offshore over the    
most westerly 28 miles of the shoreline in West Cameron Parish, Louisiana.      

         The 3-D Joint Venture must obtain permits or similar rights to survey
the areas located within the Survey AMI. Currently, the 3-D Joint Venture has   
rights to Survey 51,360 net acres of Louisiana State Waters, pursuant to an     
exclusive permit, and certain privately held areas which together constitute    
approximately 67% of the Survey AMI and is attempting to acquire rights from    
additional private owners. There can be no assurance that the 3-D Joint Venture 
will successfully obtain rights to survey additional portions of the Survey AMI.
The 3-D Joint Venture intends to survey specific sections selected by it within 
the areas covered by its permits and similar rights. See "- Permit and Lease    
Status Within the Survey AMI." The Company believes that survey sites located   
within the Survey AMI have the potential for containing substantial undiscovered
oil and gas reserves, based on the number and size of existing fields in and    
around the Survey AMI, the low level of historical exploration in the Survey AMI
and the exploration success resulting from a speculative 3-D seismic survey shot
by an independent geophysical services company in the adjacent Federal offshore 
area. An acquisition contract with Grant Geophysical, Inc. has been signed and  
the 3-D Joint Venture has begun to conduct the Survey.                          

3-D Joint Venture Exploration Agreement                                         

       Under the terms of the Exploration Agreement, Cheniere Operating is
obligated to pay 100% of the Seismic Costs (as defined below) up to $13.5       
million (subject to adjustment as described in the following sentence) in       
accordance with a fixed schedule of monthly payments, and 50% of the excess of  
any such costs, to acquire a 50% working interest participation in the leasing  
and drilling of all Prospects (as defined below) generated by Zydeco within the 
Survey AMI. If premiums required for turnkey contracts cause total Seismic Costs
to exceed $13.5 million, Cheniere Operating will bear 100% of Seismic Costs only
up to $13 million, and Seismic Costs greater than $13 million will be borne     
equally by Cheniere Operating and Zydeco. "Seismic Costs" are defined in the    
Exploration Agreement to include the following, inter alia: acquiring and       
processing seismic data; turnkey contracts; legal costs; options to lease land  
and leases of land;                                                             

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and the cost of seismic permits including the seismic permit granted by the     
State of Louisiana discussed below. See "-Permit and Lease Status Within the    
Survey AMI-Offshore Area."                                                      

         Under the terms of the Exploration Agreement, Zydeco will perform, or
cause to be performed, all of the planning, land, geologic and interpretative   
functions necessary to the project and will design and oversee the acquisition  
and processing of seismic data, interpret results, acquire leases and generate  
Prospects. The term "Prospect" is defined in the Exploration Agreement as a     
block of acreage suitable for exploration and includes the leasehold, operating,
nonoperating, mineral and royalty interests, licenses, permits and contract     
rights relating thereto. Cheniere Operating has the right to review all data and
may elect to generate its own Prospects. Neither party to the 3-D Joint Venture 
is permitted to sell or license the data without the other party's approval.    

     As described above, under the terms of the Exploration Agreement,
Cheniere Operating is obligated to make payments for the Seismic Costs into a   
joint venture account (the "Joint Venture Account"). The Exploration Agreement  
originally provided for an initial installment of $3 million to be paid by May  
15, 1996, which was extended to June 14 1996 by agreement of the parties.       
Subsequent payments were due on the last day of each of the months of June 1996 
through February 1997. Each of the payments was required to be in the amount of 
$1 million with the exception of the payments at the end of September 1996 and  
February 1997 which were required to be for $2 million and $1.5 million,        
respectively (although the February 1997 payment may be reduced to $1.0 million 
under certain circumstances described above).                                   

        Cheniere Operating failed to timely make the $1 million payments due
on June 30, 1996 and July 30, 1996. Pursuant to the Second Amendment to the     
Exploration Agreement dated August 5, 1996, Cheniere Operating (i) was required 
to make the payment originally due on June 30, 1996 on or before August 9, 1996 
and such payment has been timely made and (ii) is required to make the payment  
originally due on July 30, 1996 on or before October 31, 1996. A failure by     
Cheniere Operating to make such payment on such date will be treated as a       
Discontinuance (as defined below). Other than as described above, all payments  
to the Joint Venture Account are due as scheduled, the next such payment being  
due on September 30, 1996. Cheniere Operating intends to make its future        
payments under the Exploration Agreement as and when they are due, however,     
neither Cheniere Operating nor the Company currently has sufficient capital to  
cover such payments and there can be no assurance that Cheniere Operating or the
Company will successfully secure the necessary funds.                           

          In the event Cheniere Operating fails to make a scheduled payment into
the Joint Venture Account within 30 days after the date such payment is due (a  
"Discontinuance"):                                                              

     (i)   The obligation and right of Cheniere Operating to make such
payments will terminate. Zydeco would have the right to complete the    
acquisition and processing of seismic data with the cooperation or      
 assistance of other companies. In addition, Cheniere Operating's Prospect
   ownership interest would be limited to the total amount of its contribution
   to the Joint Venture Account, divided by twice the amount of funds expended
for Seismic Costs, expressed as a percentage. For example, if Cheniere  
Operating made a total contribution of $3 million to the Joint Venture  
Account, prior to a Discontinuance, and total Seismic Costs were $13.5  
  million, Cheniere Operating's Prospect ownership interest would be limited
to 11.1%;                                                               

      (ii)  If following a Discontinuance, Zydeco contributes funds that
 otherwise were required to have been provided by Cheniere Operating under
   the terms of the Exploration Agreement, Zydeco shall be entitled to receive
   back such funds, together with interest thereon at the prime interest rate,
   from revenues attributable to Cheniere Operating's interest in any Prospect
  (including, without limitation, any working interest or overriding royalty
    interest revenues from production or front end proceeds attributable to such
interest when owned by Cheniere Operating under the applicable operating
agreement or proceeds from the sale or license of seismic data);        

        (iii) Subject to (iv) immediately below, if a Discontinuance occurs,
and Zydeco does not itself fund the deficient Seismic Costs, Zydeco may 
  sell, trade, farm-out, lease, sublease or otherwise trade (collectively, a
 "Trade") the aggregate (i.e., both that of Zydeco and Cheniere Operating)
Prospect                                                                

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    interests to any party on arms' length terms. For this purpose the aggregate
  Prospect interests includes all seismic data acquired, and revenues from a
  Trade include seismic data sale or license proceeds. Any revenues accruing
from a Trade shall be applied toward the cost of completing the project 
contemplated under the Exploration Agreement; and                       

        (iv)  Should Cheniere Operating have funded $8,000,000 or more prior
to the Discontinuance, then the parties will treat Cheniere Operating as
  having earned a vested Prospect ownership interest of 25%, which shall not
   be subject to any Trade, and any revenues from a Trade, which would in this
    instance cover a 75% Prospect ownership interest, shall be shared 33-1/3% by
Cheniere Operating and 66-2/3% by Zydeco.                               

          Prospect Expenses (as defined below) are to be borne equally by Zydeco
and Cheniere Operating; provided, however, that in the event of a               
Discontinuance, Cheniere Operating shall bear a percentage of the Prospect      
Expenses equal to its Prospect ownership interest. "Prospect Expenses" are      
defined in the Exploration Agreement as: lease bonuses and brokerage for leases;
delay or shut in rental payments on leases or interest acquired under the       
Exploration Agreement; engineering costs; and certain other costs related to    
Prospects. If Cheniere Operating fails to pay its share of Prospect Expenses    
within 30 days of receipt of a bill therefor, it will be deemed to have declined
to participate in the Prospect and will have no interest or liability related to
the Prospect in question.                                                       

      In the event that Zydeco incurs a contractual liability to a third
party in performing its undertakings under the Exploration Agreement, such      
contractual liability shall be treated as a Prospect Expense. In the event that 
Zydeco incurs a tort liability to a third party in performing its undertakings  
under the Exploration Agreement, and such liability is a result of gross        
negligence or willful malfeasance, such liability, and all attorneys fees and   
expenses relating thereto, shall be solely Zydeco's responsibility. In the event
that Zydeco incurs a tort liability to a third party in performing its          
undertakings under the Exploration Agreement, and such liability is not a result
of gross negligence or willful malfeasance, such liability, and all attorneys'  
fees and expenses relating thereto, shall be borne equally by the Company and   
Zydeco.                                                                         

Location and Hydrocarbon Potential of the Survey Area                           

          The Survey AMI, which contains the specific areas to be covered by the
Survey, lies within a highly prolific natural gas region. Nevertheless, the     
Transition Zone has been relatively less explored to date as compared to        
exclusively onshore or offshore regions because of the relatively high cost and 
logistical and technical difficulties associated with conducting modern seismic 
surveys over the diverse environments encountered along the coast. An additional
impediment has been the difficulty of negotiating with sophisticated landowners 
who control most of the area close to the Louisiana coastline. The paucity of   
modern seismic data has limited the drilling density: the spacing of exploration
wells testing the primary objective section, outside of the known fields, is    
less than one well per five square miles. However, recent declines in the cost  
of supercomputing workstations which can be employed in processing and          
interpreting seismic data have made projects such as this Transition Zone       
venture technically and economically feasible.                                  

      The Louisiana Transition Zone contains the Miocene Trend which has
produced many of the largest oil and gas fields in the continental United States
and its territorial waters. Objectives within the Miocene Trend have excellent  
reservoir characteristics and have historically exhibited multiple pay zones,   
which can allow a single strategically placed well bore to drain multiple       
reservoirs. Given the relatively low level of historical exploration and the    
high recovery factors characterizing the Louisiana Transition Zone, the Company 
believes that this zone has the potential for containing substantial undeveloped
oil and gas reserves. Miocene age reservoirs in fields overlapping the Survey   
AMI have produced in excess of 3 trillion cubic feet (tcf) of natural gas. Along
the northeast quadrant of the Survey AMI the Mud Lake and Second Bayou Fields   
have cumulatively produced more than 1.3 tcf of natural gas to date, with more  
than 250 billion cubic feet (bcf) having been produced from one well. In the    
southwestern quadrant of the Survey AMI, the West Cameron Block 17 Field in the 
State and Federal waters has cumulatively produced more than 980 bcf to date.   
Numerous other smaller, but still significant, oil and gas fields surround and  
overlay the area.                                                               

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         Immediately farther offshore of the Survey AMI, a successful industry
drilling program based on a spec 3-D survey provides an analogy that illustrates
the potential for new discoveries in this region resulting from 3-D seismic     
data. In 1989, a 3-D seismic survey shot by an independent geophysical services 
company along the shallow Federal waters in the western part of the Western     
Cameron area led to 4 new field discoveries which have produced approximately   
320 bcf of natural gas to date from 15 boreholes. The middle to lower Miocene   
reservoir section has excellent flow characteristics, as can be seen by the per 
well recoveries, 21 bcf of natural gas, in the area of the adjacent shoot. In   
addition to the volumes produced from these discoveries, additional reserves    
have been brought on through exploitation wells drilled into existing fields.   

The entire Survey AMI is located within an existing pipeline
infrastructure. As a result, it will generally be quicker and less costly to    
develop and connect reserves found onshore and in the shallow offshore areas to 
markets than would be the case for reserves found in deeper water areas. The    
Louisiana Gulf Coast/Gulf of Mexico region enjoys easy access to the premium-   
priced markets of the East Coast.                                               

Permit and Lease Status Within the Survey AMI                                   

        The 3-D Joint Venture will Survey only certain sections lying within
the Survey AMI. The area to be covered by the Survey is dependent upon the      
status of permits granting the 3-D Joint Venture the right to Survey certain    
areas and its ability to obtain such permits or similar rights in the future.   

       Offshore Area -- State Waters Exclusive Permit and Federal Offshore
Permits. On February 14, 1996, the State of Louisiana awarded Zydeco the        
exclusive right (the "Louisiana Seismic Permit") to shoot and gather seismic    
data over the 51,360 net unleased acres of Louisiana State waters (running out  
to a 3 1/2 mile limit located within the Survey AMI) in the western half of West
Cameron Parish. The term of the Louisiana Seismic Permit is for 18 months and   
may be extended at Zydeco's option for an additional 6 months by payment of an  
additional fee of $391,876.80. During this term Zydeco has the exclusive right  
to nominate blocks of acreage for leasing in the covered State waters.          

       The Survey AMI includes an area running southward over 1 1/2 to 2
miles of Federal waters. Zydeco's seismic contractor, Grant Geophysical, Inc.,  
has received approval from the U.S. Government to survey over 21,000 acres of   
Federal offshore leases located within the Survey AMI. Although Zydeco has no   
exclusive rights regarding leases in the Federal waters, several offshore lease 
blocks held by industry and covered by the Survey are scheduled to expire within
the next year and may then be available for leasing.                            

     Onshore Area -- Prospective Permits, Lease Options, and Farmouts.
Zydeco is in negotiations to obtain variously, farmouts, seismic permits or     
lease options, with owners of the mineral interests covering approximately      
85,000 additional acres of privately owned lands lying under the onshore portion
of the Survey AMI ("Onshore Area"). The outcome of these discussions will effect
the exact delineation of the areas which will be subject to the Survey within   
the Survey AMI. As of this date, seismic permits or options covering portions of
the Onshore Area have already been obtained.