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NorthernStar Natural Gas Inc · S-1 · On 12/15/06

Filed On 12/15/06 5:09pm ET   ·   SEC File 333-139424   ·   Accession Number 950129-6-10190

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  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

12/15/06  NorthernStar Natural Gas Inc      S-1                    3:139                                    Bowne of Houston...01/FA

Registration Statement (General Form)   ·   Form S-1
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: S-1         Registration Statement (General Form)               HTML    877K 
 2: EX-23.1     Consent of Malone & Bailey Llp                      HTML      5K 
 3: EX-23.2     Consent of Pannell Kerr Forster of Texas, P.C.      HTML      5K

S-1   ·   Registration Statement (General Form)
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page
"Table of Contents
"Summary
"Risk Factors
"Forward-Looking Statements
"Use of Proceeds
"Dividend Policy
"Capitalization
"Dilution
"Selected Historical Financial Data
"Management s Discussion and Analysis of Financial Condition and Results of Operations
"Industry Overview
"Business
"State and Federal Government Regulatory Matters
"Management
"Principal Stockholders
"Certain Relationships and Related Transactions
"Description of Capital Stock
"Description of Senior Convertible Notes
"Shares Eligible for Future Sale
"Underwriting
"Legal Matters
"Experts
"Where You Can Find Additional Information
"Index to Financial Statements
"Consolidated Balance Sheets at September 30, 2006 and December 31, 2005 (unaudited)
"Consolidated Statements of Operations for the nine months ended September 30, 2006, and Cumulative Period from Inception (May 17, 2005) through September 30, 2006 (unaudited)
"Consolidated Statements of Cash Flows for the period nine months ended September 30, 2006 and the Cumulative period from Inception (May 17, 2005) through September 30, 2006 (unaudited)
"Consolidated Statements of Stockholder s Equity at September 30, 2006 (unaudited)
"Notes to Consolidated Financial Statements (unaudited)
"Report of Independent Registered Public Accounting Firm
"Consolidated Balance Sheet as of December 31, 2005
"Consolidated Statement of Operations from Inception (May 17, 2005) through December 31, 2005
"Consolidated Statement of Changes in Members Equity from Inception (May 17, 2005) through December 31, 2005
"Consolidated Statement of Cash Flows from Inception (May 17, 2005) through December 31, 2005
"Notes to Financial Statements
"Consolidated Balance Sheet at December 31, 2004 and December 31, 2005
"Consolidated Statement of Operations from Inception (January 14, 2002) through December 31, 2005 and for the years ended December 31, 2003, 2004, and 2005
"Consolidated Statement of Changes in Members Equity from Inception (January 14, 2002) through December 31, 2005 and for the years ended December 31, 2003, 2004, and 2005
"Consolidated Statement of Cash Flows from Inception (January 14, 2002) through December 31, 2005 and for the years ended December 31, 2003, 2004, and 2005

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Table of Contents

As filed with the Securities and Exchange Commission on December 15, 2006
Registration No. 333-            
 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
NORTHERNSTAR NATURAL GAS INC.
(Exact name of Registrant as specified in its charter)
         
Delaware   5171   20-4827373
(State or other jurisdiction of   (Primary Standard Industrial   (I.R.S. employer
incorporation or organization)   Classification code number)   identification no.)
First City Tower
1001 Fannin, Suite 1700
Houston, TX 77002
Tel. (713) 599-4910
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Jonathan L. Phillips, Esq.
General Counsel
First City Tower
1001 Fannin, Suite 1700
Houston, TX 77002
Tel. (713) 599-4910
(Name, address, including zip code and telephone number, including area code, of agent for service)
Please address a copy of all communications to:
     
Douglas A. Tanner, Esq.   R. Joel Swanson, Esq.
Brett Goldblatt, Esq.   Baker Botts L.L.P.
Milbank, Tweed, Hadley & McCloy LLP   One Shell Plaza
1 Chase Manhattan Plaza   910 Louisiana
New York, New York 10005   Houston, Texas 77002
Tel. (212) 530-5000    
     Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
     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. o
     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. o
     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. o
     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. o
     If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o
CALCULATION OF REGISTRATION FEE
                         
 
  Title of each class of     Proposed maximum aggregate     Amount of  
  Securities to be registered     offering price (1)     Registration fee  
 
Common Stock, $0.01 par value
     $ 125,000,000       $ 13,375    
 
(1)   Estimated solely for the purpose of computing the registration fee pursuant to Rule 457(o) under the Securities Act.
 
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.
 
 

 

Table of Contents

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 state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED DECEMBER 15, 2006
P R O S P E C T U S
Image -- (NOTHERNSTAR NATURAL GAS INC. LOGO)
     Shares
NorthernStar Natural Gas Inc.
Common Stock
$           per share
 
     We are selling          shares of our common stock. We have granted the underwriters an option to purchase up to          additional shares of common stock to cover over-allotments.
     This is the initial public offering of our common stock. We currently expect the initial public offering price to be between $        and $       per share. We are applying to have the common stock listed on The Nasdaq Global Market under the symbol “NSNG.”
 
     Investing in our common stock involves risks. See “Risk Factors” beginning on page 10.
     Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
                 
    Per Share     Total  
Public Offering Price
   $       $    
Underwriting Discount
   $       $    
Proceeds to NorthernStar Natural Gas Inc. (before expenses)
   $       $    
     The underwriters expect to deliver the shares to purchasers on or about      , 2007.
 
Sole Book-Runner
Citigroup
     , 2007

 

Table of Contents

[GRAPHIC TO COME]

 

 

     You should only rely on the information contained in this prospectus. We have not authorized anyone to provide you any information other than the information contained in this prospectus. We are not, and the underwriters are not, making any offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained in this prospectus is accurate only as of the date of this prospectus regardless of the time of delivery of this prospectus or any sale of the common stock.
 
 
TABLE OF CONTENTS
         
    Page  
Summary
     1  
Risk Factors
     10  
Forward-Looking Statements
     24  
Use of Proceeds
     26  
Dividend Policy
     26  
Capitalization
     27  
Dilution
     28  
Selected Historical Financial Data
     30  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
     32  
Industry Overview
     44  
Business
     50  
State and Federal Government Regulatory Matters
     68  
Management
     76  
Principal Stockholders
     83  
Certain Relationships and Related Transactions
     86  
Description of Capital Stock
     88  
Description of Senior Convertible Notes
     92  
Shares Eligible for Future Sale
     95  
Underwriting
     97  
Legal Matters
     99  
Experts
     99  
Where You Can Find Additional Information
     99  
Index to Financial Statements
     F-1  
 Consent of Malone & Bailey LLP
 Consent of Pannell Kerr Forster of Texas, P.C.
     Until      , 2007 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
MARKET AND INDUSTRY DATA
     This prospectus includes industry data and forecasts that we obtained from publicly available information, industry publications, and surveys. Our forecasts are based upon management’s current understanding of industry conditions and speak only as of the date of this prospectus unless the context indicates otherwise. This information has not been independently verified by us and may not be consistent with other third-party information. We believe that the information included in this prospectus from industry surveys, publications and forecasts is reliable.

 

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SUMMARY
     The following summary highlights selected information from this prospectus. It does not contain all the information that you should consider in making an investment decision and should be read together with the more detailed information appearing elsewhere in this prospectus, including “Risk Factors” and the consolidated financial statements and related notes. In this prospectus, unless the context otherwise requires or as otherwise defined, the terms “we,” “us” and “our” refer to NorthernStar Natural Gas Inc. and its consolidated subsidiaries and the terms “our projects” and “our LNG terminal projects” refer to each of (i) Bradwood Landing LLC (Bradwood), (ii) Clearwater Port Holdings LLC and Clearwater Port LLC (Clearwater), and (iii) Port Orion LLC (Orion) individually or all three projects taken together as a group. Amounts in this prospectus are expressed in U.S. dollars and all references in this prospectus to fiscal years made in connection with our financial statements or operating results refer to our fiscal year ended on December 31 of such year.
Our Company
     NorthernStar Natural Gas Inc. was founded in May 2005 to develop, own and operate liquefied natural gas (LNG) receiving/importation terminals on the West Coast of the United States (West Coast). We consolidated ownership of our LNG terminal projects in March 2006 to take advantage of project portfolio diversification, economies of scale and greater access to capital.
     The members of our senior management team have significant project development experience and have been involved in the development of more than 50 energy infrastructure projects with an aggregate cost of over $15 billion. They have been directly involved in either the development, construction or operation of nine LNG terminal projects, including our three development projects.
     Our LNG terminal projects, when complete, will provide direct access to major West Coast natural gas demand centers. We intend to negotiate and sign terminal use agreements (TUAs) for all or substantially all of the long-term base capacity of each LNG terminal with highly rated creditworthy counterparties. We expect to provide offloading and regasification services under the TUAs without taking ownership of LNG or natural gas. Each TUA is expected to have a 20-year term and to generate a steady, predictable stream of contracted fee payments with no commodity price risk. In addition, we may periodically sell capacity to third parties or purchase, regasify and sell cargoes of LNG on a spot basis as opportunities arise when the terminals’ firm capacity is not being utilized by our TUA customers, generating additional revenues to supplement those received under the TUAs.
Our Industry
     During the first nine months of 2006, the United States consumed an average of more than 60 billion cubic feet per day (Bcf/d) of natural gas. The U.S. natural gas market has higher transaction volumes, more trading liquidity and more creditworthy counterparties than most other natural gas markets. LNG only accounted for approximately 3% of total U.S. natural gas supply and consumption in 2005. However, declining North American natural gas reserves coupled with steadily increasing demand is creating a constrained supply of natural gas with a projected shortfall of 13 Bcf/d by 2015, according to the Energy Information Administration. The growing imbalance between supply and demand has led to generally higher energy prices, resulting in an increase in the announcement and development of LNG terminal projects in North America to tap the abundant proved gas reserves located in remote locations around the world.
     This imbalance is more pronounced on the West Coast, making it an attractive market into which to sell LNG:
  •   The West Coast is a 9.0 Bcf/d natural gas market, representing approximately 15% of U.S. natural gas consumption in 2005. Natural gas trading volumes in the key West Coast gas trading hubs have grown substantially over the past three years and are among the most liquid and heavily-traded gas markets in the United States.
 
  •   The West Coast imports over 80% of its natural gas supply, primarily from Canada, and is located at the end of a network of interstate natural gas pipelines, making the market susceptible to supply disruptions. In addition, the decline of production in Canada’s Western Canadian Sedimentary Basin coupled with

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      the 1.9% annual growth in Canadian consumption, driven by bitumen production and integrated oil sands facilities, is expected to reduce Canadian exports to the United States.
 
  •   Major pipeline projects are in development to connect the U.S. Rockies natural gas production with eastern pipelines including Kinder Morgan’s Rockies Express and CenterPoint’s Mid-Continent Express which together is expected to transport over 3 Bcf/d eastbound and further reduce available West Coast supply.
 
  •   The Asia Pacific and Middle East regions have abundant natural gas reserves, and according to Purvin and Gertz, LNG liquefaction capacity is projected to more than double in these regions, from approximately 14.4 Bcf/d in 2005 to approximately 36.3 Bcf/d in 2015. A significant portion of this incremental capacity is presently not contracted and is available for export to West Coast LNG Terminals.
     The primary functions of LNG terminals are offloading LNG from carriers and providing regasification services to convert LNG back into natural gas suitable for transportation through existing pipelines to end users. There are only five operational LNG terminals in the continental United States, all of which are located on the East or Gulf Coasts of the United States. According to the Federal Energy Regulatory Commission (FERC), five new LNG terminals are currently under construction in North America, but only one of these is on the west coast of North America, located on the Baja Peninsula in Mexico.
     We believe that natural gas suppliers in the Asia Pacific and Middle East regions will have a cost, including a 12% return on capital, to produce, liquefy, ship and deliver regasified LNG through our LNG terminals to West Coast pipeline networks that will be $2.50-$4.70 per million British thermal units (MMBtu). This will enable them to compete favorably with North American domestic supplies of natural gas given current and projected natural gas market prices. On December 5, 2006 the Henry Hub spot rate for natural gas was $7.32/MMBtu, and the average future contracts price on New York Mercantile Exchange (NYMEX) for first quarter 2011 deliveries, when we expect Bradwood to begin operations, was approximately $8.02/MMBtu.
Our Projects
     Our existing LNG terminal project portfolio consists of one project in Oregon/Washington and two projects in Southern California.
  •   Our Bradwood project is designed as a land-based LNG terminal in a remote location of Oregon on the Columbia River with deepwater channel access, approximately 30 miles inland from the Pacific Ocean. We have entered into an option agreement which allows us to purchase the property through August 2008. Bradwood is engineered to have an initial sustainable base capacity of 1.0 billion cubic feet per day (Bcf/d), a peak capacity of 1.3 Bcf/d, and a pre-engineered capability to expand the base capacity to 2.0 Bcf/d. Bradwood’s location offers prospective customers, via a connecting pipeline discussed more fully below in “Business —Bradwood,” convenient access to the region’s pipelines serving a 9.0 Bcf/d market across Oregon, Washington, Idaho, Nevada and Northern and Southern California. Bradwood is the only LNG terminal project in the Pacific Northwest to have completed the Federal Energy Regulatory Commission (FERC) prefiling process, and whose formal applications to the FERC have been accepted into the application process under Sections 3 and 7 of the Natural Gas Act for authorization to construct and operate an LNG receiving terminal and pipeline. We are anticipating regulatory approvals by the FERC and remaining state and local authorities in the third quarter of 2007. Based on this permitting timeline, we anticipate the start of terminal construction in the fourth quarter of 2007, and the commencement of commercial operations in the first quarter of 2011.
 
  •   Our Clearwater project has contracted for the use of Platform Grace, an existing oil and gas production platform located in federal waters approximately 13 miles offshore of Oxnard, California, which we intend to convert into an LNG terminal. We have entered into an option agreement which allows us to purchase the property through March 2012. The current owner will terminate oil and gas production activities and permanently abandon production wells prior to our taking possession of the platform. We plan to refurbish and reconfigure the platform for regasification of LNG and to add two floating mooring

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      docks capable of accommodating large LNG carriers. Clearwater is engineered to have a sustainable base capacity of 1.2 Bcf/d and a peak capacity of 1.4 Bcf/d. The platform will be connected by a 13-mile offshore pipeline to the Southern California Gas Co. (SoCalGas) pipeline network and storage infrastructure serving the 4.0 Bcf/d Southern California market. SoCalGas will construct 65 miles of pipeline to connect and to loop the existing system to receive 1.4 Bcf/d on a firm basis. Clearwater signed a collectable work agreement with SoCalGas in 2004 to initiate the engineering design of the pipeline and in August 2006 we entered into a collectable system upgrade agreement with SoCalGas for the design and construction of the required pipeline facilities. Clearwater filed its original Deepwater Port (DWP) license application in February 2004, and, following our purchase of this project in late March 2006, we submitted an amended and restated application in June 2006 as a more comprehensive response to additional data requests with direction from the relevant state and federal regulatory agencies. Based upon new agency reviews, the U.S. Coast Guard and the California State Lands Commission are expected to move forward with engagement of a contractor for the preparation of our draft environmental reports. We are anticipating regulatory approval in the second quarter of 2008, the commencement of construction in the third quarter of 2008, and commencement of commercial operations in the second quarter of 2010.
 
  •   Our Orion project has a target location about 25 miles offshore of Carlsbad, California with direct access to the Los Angeles and San Diego markets. Orion is expected to be designed to include a concrete hull floating storage and regasification unit with a sustainable base capacity of 1.2 Bcf/d, a peak capacity of 1.5 Bcf/d. We intend to pursue the development of Orion in conjunction with the approval process of our Clearwater project.
     Our three LNG terminal projects are designed to have an aggregate sustainable base capacity of 3.4 Bcf/d and expansion capability that could increase our base capacity to 4.4 Bcf/d.
     We expect the proceeds of this offering to fund the equity portion of the construction of our Bradwood LNG terminal project, to fund the continued development of our remaining initial projects, to fund the development of LNG projects in addition to our initial projects that we determine to have strong development potential, to pay the transaction costs related to this offering and to fund working capital for general corporate purposes. We expect construction of our LNG terminals to be funded by project financings supported by TUAs with highly rated creditworthy parties. The aggregate construction cost for our Bradwood and Clearwater projects is projected to be approximately $1.4 billion, excluding interest during construction and financing fees. Through September 30, 2006, we have incurred a total of approximately $20.8 million in development costs for all three of our projects.

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Our Company
                   
     
 
NorthernStar Natural Gas Inc.
 
       
 		  
 
     
 		      
 		      
 
     
Bradwood
 		    
Clearwater
 		    
Orion
 
 
    Columbia River,   13 miles offshore   25 miles offshore
Location:   Bradwood OR   Oxnard CA   Carlsbad CA
    (dollars in millions) (capacity in Bcf/d)
Base capacity
   1.0   1.2   1.2
Peak capacity
   1.3   1.4   1.5
Expanded base capacity(1)
   2.0   —   —
Target market(s)
   OR, WA, ID,        
  CA, NV   S. CA   S. CA
Market size
   9.0   4.0   4.0
Primary permitting authority
   FERC   Coast   Coast
    Guard/CSLC   Guard/CSLC
Expected primary permit
   Third Quarter 2007   Second Quarter 2008   Not determined
Expected commercial operations
   First Quarter 2011   Second Quarter 2010   Not determined
Estimated remaining development cost from October 1, 2006(1)
   $18   $20   $24
Estimated construction cost (1) (2)
   $600   $800   Not determined
 
(1)   Excludes development and construction cost of Bradwood base capacity expansion from 1.0 to 2.0 Bcf/d, excluding interest during construction and financing fees, of approximately $230 million.
 
(2)   Excluding interest during construction and financing fees.
Our Competitive Strengths
     We believe that our competitive strengths include the following:
     Strategic project locations provide Pacific basin suppliers with access to attractive U.S. West Coast markets. We have selected the locations of our LNG terminals because each offers (i) access to attractive markets; (ii) reduced downstream transportation costs for our customers; (iii) the opportunity for cost-effective development and construction, reducing unproductive capital investments; and (iv) reduced development time for permitting and construction.
     Significant barriers to entry based on advanced positioning in regulatory approval processes and natural / existing infrastructure of LNG Terminal sites. We believe that Bradwood and Clearwater, if completed on schedule, will be the first operating LNG terminals in their respective markets. Bradwood is the only LNG project in the Pacific Northwest to have completed the Federal Energy Regulatory Commission (FERC) prefiling process under Section 3 of the Natural Gas Act for authorization to construct and operate an LNG receiving terminal. We believe Bradwood is approximately 6 to 12 months ahead of competing projects in the region reflecting the current stage of its permitting activities. Its deepwater location does not require a costly breakwater or significant dredging. Clearwater utilizes an existing platform and does not require construction of LNG storage facilities, thus we believe that it can have a 24 to 30 months shorter construction period compared to other offshore terminal designs.

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     Portfolio of LNG Terminal projects provides economies of scale, market optionality and increased likelihood for success. We believe that our portfolio of LNG terminal projects in Oregon and California will be more attractive to potential TUA capacity holders than single project entities because we can provide our terminal customers with flexibility to deliver LNG supply to multiple receiving points connecting to several major pipelines and West Coast markets. Further, we believe that simultaneously pursuing a portfolio of LNG terminals will provide economies of scale at the development, TUA marketing, financing, construction and operating stages. We believe that we will be able to leverage our knowledge and experience as we develop our projects to expedite the permitting process and to increase the likelihood of success for each successive project.
     Seasoned and incentivized management team with significant project development experience. The members of our senior management team have significant project development experience, having been involved in the development of more than 50 energy infrastructure projects with an aggregate investment of over $15 billion. They have been directly involved in either the development, construction or operation of nine LNG terminal projects worldwide including all three of the existing projects currently being developed by us. Following the completion of this offering, our senior management team will, directly or indirectly, control approximately      % of our outstanding common stock.
Our Strategy
     Our strategy is to become a leading independent LNG terminal developer, owner and operator in our targeted markets. These markets, including the West Coast, are those that we believe offer: (i) attractive margins to potential LNG suppliers; (ii) fewer LNG terminal competitors; (iii) high barriers to entry; and (iv) the potential to allow us to charge competitive rates with attractive margins. We intend to implement this strategy through the following steps:
     Target LNG Terminal Sites with Attractive Margins. We are presently developing LNG terminals on the West Coast to help satisfy the region’s substantial existing and forecasted demand for natural gas with LNG supplies from Asia Pacific, Middle East, and other potential LNG producers. We believe these gas producers view the liquid, heavily-traded, creditworthy U.S. market as an attractive alternative to other Pacific Basin LNG markets. We believe the barriers to entry caused by the significant regulatory, environmental and public-concern hurdles in the West Coast market will limit the number of LNG terminals built in this market. We believe that implementation of our low cost, first-to-market strategy will give us a competitive advantage in securing TUAs with attractive margins and highly rated creditworthy counterparties and in obtaining project financing for construction of our LNG terminals.
     Disciplined Project Development. The successful development and construction of LNG terminal projects requires managing the complex interaction of legal requirements, regulatory processes, technical knowledge, political environments, public policy and construction execution. Members of our senior management team, who have developed more than 50 energy infrastructure projects with an aggregate cost of over $15 billion, have formulated a disciplined project site feasibility and pre-screening process to identify attractive terminal locations, and are adept at identifying significant issues and challenges in completing our LNG terminals that require early resolution. Once a site is selected, our senior management actively manages our project team of seasoned professionals, who are supported by leading engineering, environmental, regulatory and legal firms. Each project team strives to anticipate difficulties, define strategies and analyze the needs of each constituent group and regulatory body so as to design the project to achieve as much collaboration and widespread support as possible. By applying our disciplined project development program, we believe that we will incur lower development and capital costs and more quickly complete our projects. We believe that rapid and responsible development of low-cost LNG terminals will greatly increase our likelihood of success.
     Build Cost-Effective Terminals. Our disciplined project development strategy includes a process for completing LNG terminals whose cost-effectiveness and location should allow us to generate attractive margins from our TUAs. We have sited, and are designing and engineering our LNG terminals to be cost-effective, reducing unproductive capital investments by: (i) locating our projects in close proximity to major interstate gas transmission pipelines, thereby reducing pipeline interconnection and construction costs, (ii) maximizing use of existing infrastructure where possible, such as the existing platform for Clearwater and the existing onshore third-party natural gas storage facilities in Southern California, and (iii) selecting sites that are well-suited for LNG terminal operations such as Bradwood, whose deepwater location does not require a costly breakwater or significant dredging.
     Secure Long-Term Terminal Use Agreements. We intend to negotiate and sign firm capacity 20-year TUAs with highly rated creditworthy LNG suppliers, natural gas marketers, distribution utilities or industrial consumers for all or

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substantially all of our terminal base capacity. We expect that the terms of our standard TUA will include an initial fee at the time of execution of the TUA, a fixed reservation charge for the monthly throughput capacity, and a variable charge for each million British thermal units (MMBtu) processed through the facility.
Lead Investor
     MatlinPatterson Global Advisers LLC (MatlinPatterson), a global investment firm which manages private equity funds which have raised $3.9 billion, is the lead investor in our company. MatlinPatterson (including its principals) has experience with a variety of companies with involvement in energy and natural gas markets including: KGen Power Management LLC, NRG Energy, Inc., Central Piedra Buena, S.A., Huntsman Corporation, and PT Medco Energi Internasional Tbk. References to MatlinPatterson in this prospectus include, where appropriate, MatlinPatterson Global Opportunities Partners II L.P. and MatlinPatterson Global Opportunities II (Cayman) L.P. and certain subsidiaries through which they have invested in our Company.
Risk Factors
     You should consider carefully the risks discussed under “Risk Factors” beginning on page 10. These risks could materially and adversely impact our business, financial condition, operating results, and cash flow, which could cause the trading price of our common stock to decline and could result in a partial or total loss of your investment.
How You Can Contact Us
     We are a Delaware corporation. Our principal executive offices are located at First City Tower, 1001 Fannin, Suite 1700, Houston, TX 77002. Our telephone number is (713) 599-4910. Our website address is http://www.northernstar-ng.com. The contents of our website are not incorporated by reference into this prospectus and you should not consider our website part of this prospectus.

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The Offering
     
Issuer
  NorthernStar Natural Gas Inc.
 
    
Common stock offered
            shares (% of common stock to be outstanding after this offering)
 
    
Common stock to be outstanding after this offering
            shares
 
    
Use of proceeds
  We expect to use approximately $        million to pay transaction fees pertaining to this offering and other expenses. We expect to use approximately $         million for equity financing for the construction of the Bradwood terminal project, the continued development of our proposed LNG terminals, additional project development, and working capital and general corporate purposes and approximately $       million to pay transaction fees pertaining to this offering and other expenses.
 
    
Over-allotment option
  We have granted the underwriters a 30-day option to purchase up to additional shares of our common stock at the initial public offering price to cover over-allotments.
 
    
Dividend policy
  We do not intend to declare or pay any dividends on our common stock in the foreseeable future.
 
    
Nasdaq Global Market symbol
  NSNG
     Except as otherwise indicated, the number of shares of common stock outstanding after this offering as presented in this prospectus:
  •   Excludes 4,100,611 shares of common stock issuable upon exercise of currently outstanding options as of November 15, 2006 with an exercise price of $9.12.
 
  •   Excludes shares of common stock issuable upon conversion of our Senior Convertible Notes due 2013 (convertible notes), which totaled 11,346,552 shares as of November 15, 2006, based upon an estimated conversion price of $9.12 per share, including additional shares which will be issuable upon conversion as we have elected to pay interest on these convertible notes in kind by increasing the principal outstanding thereunder. Additional shares will be issuable upon conversion should we elect to pay future interest due on the convertible notes in kind. See “Description of Senior Convertible Notes” regarding the ultimate determination of the conversion price.
 
  •   Assumes no exercise of the underwriters’ over-allotment option.

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Summary Financial Data
     The following table presents our selected consolidated historical financial information. The consolidated statement of operations and balance sheet data for the period from inception (May 17, 2005) through December 31, 2005, and as of December 31, 2005 are derived from our audited consolidated financial statements and related notes included in this prospectus. The consolidated statement of operations and balance sheet data for the nine months ended September 30, 2006 are derived from our unaudited consolidated financial statements included in this prospectus. The consolidated statement of operations from the date of our inception through September 30, 2006 is derived from our audited and unaudited consolidated financial statements included in this prospectus. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the information set forth therein. As we are a recently formed development stage company with no operating revenues, our historical results for any annual or interim period are not necessarily indicative of results to be expected for a full year or for any future period as development activities, and related costs have varied in the past and are anticipated to continue to vary in the future. The net loss per share information is computed using the weighted average number of units/common shares outstanding during the related period.
     You should read this information together with “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus.
                         
                    Cumulative Period  
                    from Inception (May  
    Inception             17, 2005)  
    (May 17, 2005)     Nine Months Ended     through September  
    through     September 30, 2006     30, 2006  
    December 31, 2005     (Unaudited)(3)     (Unaudited)(3)  
Statement of Operations Data:
                        
Revenue
   $ —     $ —     $ —  
Costs and expenses:
                        
Project prospecting
     —       179,846       179,846  
Project development
     7,712,256       13,107,813       20,820,069  
Corporate general and administrative costs
     887,288       27,315,410       28,202,698  
 
                  
Loss from operations
     (8,599,544 )     (40,603,069 )     (49,202,613 )
 
                  
Net other income/(expense)
     23,123       (2,231,705 )     (2,208,582 )
 
                  
Net loss
   $ (8,576,421 )   $ (42,834,774 )   $ (51,411,195 )
 
                  
Weighted average units/shares outstanding basic and diluted (1) (2)
     130       27,356,833       27,330,969  
 
                  
Basic and diluted net loss per share
   $ (65,972.47 )   $ (1.57 )   $ (1.88 )
 
                  
Balance Sheet Data:
                        
Cash and cash equivalents(4)
   $ 1,382,873     $ 82,358,255          
Working capital(4)
     310,593       77,884,362          
Deferred financing costs(4)
     —       6,624,940          
Total assets(4)
     2,259,670       91,605,118          
Debt and advances payable, including current portion(4)
     —       110,868,898          
Members’/Stockholders’ equity (deficit)
     83,406       (25,584,335 )        
 
(1)   Amount does not include 4,100,611 shares of common stock issuable as of November 15, 2006, upon the exercise of outstanding options exercisable at $9.12 per share or 11,346,552 shares issuable, as of November 15, 2006, upon conversion of convertible notes based on an estimated conversion price of $9.12 per share. Additional shares will be issuable upon conversion should we elect to pay future interest due on the convertible notes in kind. See “Description of Senior Convertible Notes” regarding the ultimate determination of the conversion price.

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(2)   As of December 31, 2005 the Company had units outstanding as a limited liability company and was not subject to federal income tax. Amounts at September 30, 2006 reflect our reorganization into a corporation on May 16, 2006 and the contemporaneous conversion of the units into common shares, by issuing 210,000 shares for each unit exchanged.
 
(3)   Our financial results for the nine months ended September 30, 2006 reflect a net loss of $42.8 million, or $1.57 per share (basic and diluted). The major factors contributing to our loss per share at September 30, 2006 were $13.1 million in development costs for our projects, $13.9 million in consulting fees relating to the acquisition of the project companies, and $13.4 million in other general and administrative expenses.
 
(4)   As of September 30, 2006, we had cash of $82.3 million, working capital of $77.9 million, unamortized deferred financing costs of $6.6 million, total assets of $91.6 million, and debt and advances of $110.8 million provided primarily by or directly related to the issuance of our convertible notes.

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RISK FACTORS
     An investment in our common stock involves risk. You should carefully consider the risk factors set forth below as well as the other information included in this prospectus before buying shares of our common stock. Any of these risks may have a material adverse effect on our business, financial condition, results of operation and cash flow, and may cause the trading price of our common stock to decline. In that case, you may lose all or part of your investment. The risks described below are not the only ones faced by us. Additional unknown risks or those we currently deem immaterial may also impair our business operations.
Risk Factors Related to Us as a Recently Formed Development Stage Company Engaged in Project Development
We are a recently formed development stage company engaged in project development with limited operating history. If we are unable to successfully construct and commence operations of our LNG terminals, our business will be materially and adversely affected and you could lose all or a significant portion of your investment.
     We are a recently formed company engaged in project development with limited operating history. Although we have begun preliminary engineering work on each of our three liquefied natural gas (LNG) terminal projects, we have not received any of the permits or approvals necessary to start the construction of any of our planned LNG terminals. We are subject to significant business, economic, regulatory and competitive uncertainties as well as the risks associated with any new business, including the risk that we may not be able to develop, build or operate any of our planned LNG terminals. If we do not successfully manage the development of our business or if we experience delays in the implementation or completion of our business plan, our business could be materially and adversely affected and you could lose all or a significant portion of your investment.
We currently have no operating revenues and negative cash flow, and we may not be able to achieve profitability and generate positive cash flow in the future.
     We currently have no operating revenues. During 2005, we incurred combined net losses of $8.6 million and in the nine months ended September 30, 2006, we incurred net losses of $42.8 million. We will continue to incur losses and experience negative operating cash flow during the next several years through the development and construction stages of the LNG terminal projects. We do not anticipate that we will generate revenues until at least one of our planned LNG terminals is completed, which we do not expect to occur until 2010 or later. In addition, following the completion of our LNG terminals, we may continue to incur losses on our in-development projects which reduce or exceed any profits generated by these operating projects.
     In addition, we will continue to incur significant capital and operating expenditures while we develop our planned LNG terminals. We do not anticipate that the advances we expect to receive from customers for sales of regasification capacity at our planned LNG terminals will generate sufficient funds to cover these expenditures. We expect to continue to have operating losses and negative cash flow on a quarterly and annual basis over the next several years. Any delays in the permitting and construction process could increase the level of our operating losses and extend the period for which we will have operating losses and negative cash flow. Our ability to generate positive operating cash flow and achieve profitability is dependent on our ability to successfully complete our LNG terminal projects. If we do not generate positive operating cash flow, you could lose all or a significant portion of your investment. Further, capital and operating expenditures are not the only factors that may contribute to our net losses. For example, the interest expense on our convertible notes of up to $7.0 million annually will contribute to our net losses. As a result, even if we experience positive operating revenues and cash flow in the future, we may continue to incur net losses.
The proceeds from this offering may not be sufficient to finish development of any of our LNG terminal projects.
     We currently estimate that the remaining development cost as of September 30, 2006 for our three LNG terminal projects will be approximately $62 million, and expect that certain of these costs will be funded by the proceeds of this offering. However, we cannot assure you that our development costs will not exceed the amount raised from this offering due to unforeseen circumstances and delays in the permitting process. We will continue to incur significant expenditures as long as we are developing our planned LNG terminals. In the event we cannot complete development of an LNG terminal project, we will not be able to begin construction and may not be able to obtain further development financing or construction financing

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to complete the project. In such event our business would be materially and adversely affected and you could lose all or a significant portion of your investment.
The proceeds from this offering are not sufficient to construct any of our proposed LNG terminals. We must obtain separate and additional financing in order to construct our planned LNG terminals.
     We currently estimate that the aggregate cost of completing our Bradwood and Clearwater LNG terminals will be approximately $1.4 billion, excluding interest during construction and financing fees and the cost of our Orion LNG terminal has not yet been determined. In the event third parties do not finance and construct certain pipelines connecting our LNG terminals to gas distribution pipeline systems, we may need to expend materially greater amounts to complete such pipelines. To fund construction, we will have to obtain additional debt financing, and, if insufficient, additional equity financing by us and/or at our project subsidiary level. Our ability to obtain financing will depend, in part, on factors beyond our control, such as capital market and industry conditions at the time financing is sought. We cannot assure you that we will be able to obtain the additional financing.
     The terms of our outstanding convertible notes provide for additional shares to be issued upon conversion if we sell shares of our common stock at a price that is less than the average trading price of our common stock over the 10-day period prior to any such sale, which might further limit our access to the capital markets.
     In addition, our ability to obtain certain types of financing may depend on our ability to obtain other types of financing. For example, project level debt financing is often contingent upon a significant equity capital contribution from the project developer. As a result, even if we are able to identify potential project level lenders, we may still have to raise additional capital for us to fund the required equity capital contribution. Any project level debt financing will also typically be conditioned upon our prior receipt of commitments for at least a portion of projected LNG terminal regasification capacity under long-term terminal use agreements (TUAs), and our ability to fund the projects will likely be subject to the achievement of additional milestones in our project financing. If we fail to obtain financing at any point in the construction process, our business would be materially and adversely affected and you could lose all or a significant portion of your investment.
Even if we are able to obtain financing for the construction of our planned LNG terminals, the terms of the financing may adversely affect our ability to operate our business.
     In order to obtain further financing, we may have to accept terms that are disadvantageous to us or that may have an adverse impact on our current or future business, operations or financial condition. These terms may have the following results, among others:
  •   borrowings or debt issuances by us or at the project level would result in increased interest expense and add to our need for cash to service such debt and may subject us or the project entity to certain restrictive covenants, including covenants restricting our or the project entity’s ability to raise additional capital or our ability or the ability of our project subsidiaries to make distributions, and may require us to pledge our interest in the project subsidiaries which could result in the loss of our equity interest in an LNG terminal;
 
  •   sales of equity interests in our project subsidiaries would reduce our interest in future revenues once the LNG terminals commence operations; and
 
  •   the prepayment of terminal use fees by, or business development loans from, prospective customers would reduce future revenues once the LNG terminals commence operations.
Risks Related to the Development and Construction of LNG Terminals
Failure to obtain the necessary approvals and permits from governmental and regulatory agencies could prevent us from constructing or operating one or more of our LNG terminals.
     The design, construction and operation of LNG terminals and interconnecting pipelines and the transportation of LNG and natural gas are all highly regulated activities. The approval of the Federal Energy Regulatory Commission (FERC) under Section 3 of the Natural Gas Act of 1938, or the NGA, as well as numerous other material governmental and regulatory

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approvals and permits are required in order to license, site, construct and operate our proposed LNG terminals. The Coast Guard has responsibility under the Deepwater Port Act of 1974, as amended (DWPA), for approval of any offshore LNG terminals in federal waters. The DWPA approval requires that the Secretary of Transportation seek the de facto approval of the governor of the adjacent coastal state, California, prior to the licensing of a deepwater port. The governor of California must approve or deny the DWPA license within 45 days of the last Federal DWPA hearing. If the governor does not act within 45 days, approval will be presumed. In addition, a FERC certificate of public convenience and necessity under Section 7 of the NGA, as well as numerous other material governmental and regulatory approvals and permits, are required to construct, own, and operate interstate pipelines connecting with an LNG terminal. Although we have formally filed for the FERC authorization for Bradwood and filed the DWP license for Clearwater, we have not yet obtained the required permits to construct and operate our proposed LNG terminals. We cannot assure you of the outcome of the review and approval process and we cannot assure you that a filing will ever be made with regard to Orion. If we are unable to obtain the necessary approvals and permits, our business would be materially and adversely affected and you could lose all or a significant portion of your investment. In addition, if we are unable to obtain the necessary approvals and permits for our initial LNG terminal projects, we may use the proceeds from this offering to fund the development of other projects, which may not yield results equivalent to those expected of such LNG terminal projects and you could lose all or a significant portion of your investment.
Existing and future governmental regulation, taxation and price controls could seriously harm our business.
     Our LNG terminal projects will be subject to extensive federal, state and local laws and regulations that regulate the release of materials into the environment or otherwise relate to the protection of the environment. These laws and regulations may restrict or prohibit the types, quantities and concentration of substances that can be released into the environment and impose substantial liabilities on us for pollution or releases of hazardous substances. Failure to comply with these rules and regulations may result in substantial penalties and harm our business. Present and future legislation and regulations could cause additional expenditures, restrictions and delay the commencement of our operations, to an extent which we cannot predict and which may require us to substantially limit, delay or cease construction or operations in some circumstances. The imposition of price controls on energy products could limit our markets or adversely affect our ability to complete our projects.
     Federal laws such as the Comprehensive Environmental Response, Compensation and Liability Act; the Clean Air Act; the Clean Water Act; and the Coastal Zone Management Act and analogous state laws have regularly imposed increasingly strict requirements for water and air pollution control, hazardous and solid waste management and financial responsibility and remedial response obligations. Existing environmental laws and regulations may be revised or new laws and regulations may be adopted or become applicable to us. Revised or additional laws and regulations could result in increased compliance costs or impose additional operating restrictions on us. The cost of complying with existing and future environmental legislation could adversely affect our business and you could lose all or a significant portion of your investment.
The completion of one or more of our LNG terminals is subject to a number of risks, which could prevent construction at all or could cause cost overruns and delays in the completion of construction.
     Key factors that may affect the timing of, and our ability to complete, our LNG terminals include:
  •   the issuance of necessary permits, licenses and approvals from the FERC, the Coast Guard and other governmental agencies as are required to construct and operate the facilities;
 
  •   the terms and availability of sufficient debt financing and equity financing, both on our part and at the project level, for development and construction of our LNG terminal projects;
 
  •   our ability to enter into a satisfactory agreement with an engineering, procurement and construction (EPC) contractor for each facility and to maintain good relationships with these contractors, and the ability of these EPC contractors to perform their obligations satisfactorily under EPC agreements and to maintain their creditworthiness;
 
  •   site development difficulties, including change orders, cost overruns, construction delays and changes in the price of construction materials or labor;

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  •   unanticipated changes in international and domestic market demand for natural gas or the supply of LNG, which will depend, in part, on supplies of, and prices for, alternative energy sources;
 
  •   competition with other domestic and international LNG terminals;
 
  •   commercial arrangements for pipelines and related equipment to transport natural gas from each LNG terminal;
 
  •   local and general economic conditions;
 
  •   catastrophes, such as accidents, fires, and product spills, as well as acts of terror or sabotage;
 
  •   resistance and challenges in the local community and governmental agencies, including through litigation and regulatory challenges, to the development and construction of LNG terminals;
 
  •   labor disputes; and
 
  •   weather conditions.
     Delays in the commencement of construction of any of our LNG terminals 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 our operations until our LNG terminals are completed, which could cause further delays and impact the competitive position of our LNG terminal projects. Any delay in the completion of any of our LNG terminals would also cause a delay in the receipt of revenues projected from operation of the LNG terminals. Thus, any significant construction delay, whatever the cause, could adversely affect our ability to complete construction of our LNG terminals in a timely manner, or at all, which would materially and adversely affect our business and you could lose all or a significant portion of your investment.
     If sufficient LNG liquefaction capacity is not constructed, we may not be able to secure TUAs for one or more of our LNG terminals.
     There is currently a shortage of LNG liquefaction capacity globally. While there are numerous LNG liquefaction facilities currently being constructed in the Asia Pacific and Middle East regions to bring natural gas to market, commercial development of an LNG liquefaction facility can take anywhere from three to 10 years and requires a substantial capital investment. If sufficient LNG liquefaction capacity is not constructed, we may not be able to secure adequate TUAs for one or more of our LNG terminals, which would materially and adversely affect our business and you could lose all or a significant portion of your investment.
     Failure of imported LNG to become a competitive source of energy in the United States could have a detrimental effect on our ability to implement and complete our business plan.
     In the United States, imported LNG has not been a major energy source. Historically, LNG, as an energy source, competes directly with natural gas and through the use of improved exploration technologies, additional sources of natural gas may be discovered in North America, which would increase the available supply of natural gas at potentially lower costs than importing LNG. In addition to natural gas, LNG also competes with other sources of energy, including liquid petroleum gases such as propane and butane, coal and coal-derived synthetic gas, oil and refined oil products, nuclear, hydroelectric, wind, biomass, and solar energy.
     As a result, LNG may cease to be a competitive source of energy in the United States which could prevent or limit our ability to secure TUAs. The failure of LNG to continue as a competitive supply alternative to domestic natural gas, oil and other energy sources would materially and adversely affect our business and you could lose all or a significant portion of your investment.

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We are impacted by fluctuations in energy prices or the supply of LNG that could be particularly harmful to the development of our LNG terminal business because of our early stage of development.
     If the delivery cost of LNG is higher than the delivery cost of domestically produced natural gas or natural gas derived from other sources, until such time as we enter into TUAs on commercially favorable terms, our ability to attract customers to purchase our capacity may be negatively impacted. In addition, in the event the supply of LNG is limited or restricted for any reason, our ability to profitably operate an LNG terminal could be materially impacted. Revenues generated by an LNG terminal depend on the volume of LNG processed and the price of the natural gas produced, both of which can be affected by the price of natural gas and natural gas liquids. In particular, our ability to obtain financing in the amounts we require and on commercially favorable terms may be compromised because fluctuations in energy or LNG prices may cause uncertainty in the market and cause lenders and other sources of funding to become wary of lending to or investing in our industry. In addition, extreme gas price volatility may discourage interim commitments.
We face competition in developing LNG terminals from competitors with far greater resources.
     Many other companies are or are considering building LNG terminals, including major oil and gas companies such as ExxonMobil Corporation, ConocoPhillips, Royal Dutch/Shell Group and Chevron Corporation. Other energy companies such as Cheniere Energy, Inc., Sempra Energy, Suez LNG North America, McMoRan Exploration Co., AES Corporation, Excelerate Energy, LLC, BHP Billiton Limited and Woodside Energy Inc. and other public and private companies have also proposed LNG receiving facilities in North America, both onshore and offshore. Most of our competitors have longer operating histories, greater name recognition, larger staff, and substantially greater financial, technical and marketing resources than we do. The superior resources that these competitors have to deploy increases the likelihood that they will successfully develop LNG terminals and could allow them to complete their LNG terminals before we complete our LNG terminals. Among other things, our competitors may not have to rely on external financing to the same extent we do, if at all. The existence and timing of competing LNG terminal development projects may make our ability to obtain financing for construction more difficult or more expensive. Because only a limited number of LNG terminals are likely to be constructed in the United States and on the West Coast in particular, if our competition is successful in developing and building their LNG terminals before we develop and build our LNG terminals, it would materially and adversely affect our business and you could lose all or a significant portion of your investment.
We may not be able to enter into enough long-term TUAs or obtain enough customers to implement and complete our business plan.
     Our ability to obtain project level financing for each LNG terminal is likely to be contingent on our ability to enter into long-term TUAs covering a significant portion of our regasification capacity in advance of the commencement of construction. We expect to securitize or pledge revenues to be generated under the TUAs to obtain financing for our construction costs. We have not yet entered into any TUAs. We may not be able to attract customers or enter into TUAs because we are a recently formed development stage company with no operating history in the LNG terminal business. In order to succeed, we must convince potential customers, among other things, that the LNG terminals that we are developing will obtain and maintain required government approvals and that we will be able to secure adequate financing for their construction and to construct them successfully and on a timely basis. If these efforts are not successful, we may not be able to secure long-term TUAs or financing for our LNG terminals and our business would materially and adversely affected and you could lose all or a significant portion of your investment.
Potential for overcapacity in the LNG terminal market and other factors could adversely impact our ability to enter into long-term TUAs and our ability to successfully operate our business.
     Industry analysts have predicted that if all of the proposed LNG terminals in North America that have been announced by developers were actually built, there would likely be substantial excess capacity for such LNG terminals in the future. Accordingly, there is a substantial risk that some projects may never be completed. Any perception in the marketplace that we may be unable to complete our proposed LNG terminals could have a material adverse effect on our ability to obtain construction financing and on the market price of our shares.
     If the number of LNG terminals built outstrips demand for natural gas from those LNG terminals, the excess capacity likely will prevent later market entrants from entering into long-term TUAs with highly rated creditworthy customers and lead to a decrease in the prices that LNG terminals will be able to obtain for uncommitted amounts of regasification services. Because we anticipate that we will have significant debt service obligations, if we are unable to enter into long-term TUAs

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with highly rated creditworthy customers, any such price decreases would impact us more severely than competitors that have greater financial resources. Accordingly, potential overcapacity in the LNG terminal marketplace could have a material adverse effect on our ability to enter into long-term TUAs with highly rated creditworthy customers and would materially and adversely affect our business and you could lose all or a significant portion of your investment.
The construction of our proposed LNG terminals will be dependent on performance by, and our relationship with, the EPC contractor that we engage at each facility.
     We plan to enter into turnkey contracts with one or more major EPC contractors for the construction of our proposed LNG terminals. The success of our LNG terminal projects is highly dependent on our ability to enter into acceptable contracts with reputable EPC contractors and for these contractors to perform their obligations under the contracts, including completing the projects on a timely basis. Nevertheless, we may not be able to enter into acceptable EPC contracts for the construction of our proposed LNG terminals. As a result, we may encounter unexpected delays or problems in connection with the construction of any of our proposed LNG terminals. Moreover, any EPC contract could be terminated under certain circumstances prior to completion of construction. If our relationship with any initial EPC contractor were to fail, we would be forced to engage a substitute contractor, which would likely result in increased construction costs and a delay in construction of our LNG terminals, which would materially and adversely affect our business and you could lose all or a significant portion of your investment.
The cost of constructing our proposed LNG terminals will be dependent on several factors, including change orders, cost overruns and commodity prices. As a result, if completed, the actual construction cost of these facilities may be significantly higher than our current estimates, excluding interest during construction and financing fees.
     Although certain of our senior management have experience developing and constructing LNG terminals, we have no prior experience in constructing LNG terminals. Prior to 2005, no LNG terminal had been constructed in the continental United States in over 25 years. If we are able to commence construction on our projects, we may decide or be forced to submit change orders to our EPC contractor that could result in a longer construction period and higher construction costs and greater financing costs. Similarly, we may encounter significant cost overruns during some phases of the construction process. In addition, under any agreement with an EPC contractor, we may retain the commodity price risk for construction materials. As a result, any significant change orders, cost overruns or increases in the price of construction materials and labor would materially and adversely affect our business and you could lose all or a significant portion of your investment.
We may not be able to hire or maintain the staff or contractors necessary to construct or operate our LNG terminals, which may have a material adverse effect on our ability to implement our business plan and our ability to generate revenues and profits.
     As of November 15, 2006, we had 23 employees and many contractors who are primarily focused on the development of our proposed LNG terminals. Once we begin construction, we will need to hire onsite employees to manage the construction of each facility and EPC contractors and other contractors to construct the LNG terminals. Later, once we commence operations, we will need to hire a full staff to operate each completed facility. Only our senior management has experience in the construction or operation of LNG terminals, and, as a result, we will be forced to rely significantly on the employees we hire to perform these functions. We currently e