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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
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
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| Delaware | 5171 | 20-4827373 | ||
| (State or other jurisdiction of | (Primary Standard Industrial | (I.R.S. employer | ||
| incorporation or organization) | Classification code number) | identification no.) |
| 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 |
| 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 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.

| Per Share | Total | |||||||
Public Offering Price |
$ | $ | ||||||
Underwriting Discount |
$ | $ | ||||||
Proceeds to NorthernStar Natural Gas Inc. (before expenses) |
$ | $ | ||||||
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| Consent of Malone & Bailey LLP | ||||||||
| Consent of Pannell Kerr Forster of Texas, P.C. | ||||||||
| • | 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. |
| • | 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. |
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NorthernStar Natural Gas Inc. |
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| Bradwood |
Clearwater |
Orion |
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| 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. |
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Issuer
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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
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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
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We do not intend to declare or pay any dividends on our common stock in the foreseeable future. | |
Nasdaq Global Market
symbol
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NSNG |
| • | 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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| 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: |
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Revenue |
$ | — | $ | — | $ | — | ||||||
Costs and expenses: |
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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: |
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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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| • | 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. |
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| • | 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. |
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