Northern Star restructures for IPO

As part of their preparation for an initial public offering (IPO) of stock, Northern Star has changed their status from LLC to C corporation. They have also filed their initial paperwork with the Securities and Exchange Commission (S1 form) and created a prospectus for potential investors. Both of these documents are available for your perusal (links below) online.

The prospectus seems to have more than the usual number of caveats including that the IPO will not be for enough to complete development of the three facilities NS have in the works. But there were a few things that jumped out at me. To wit:

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.

I read that and thought: 62 million to develop three plants? Seems kind of cheap. But apparently develop means plan or something because the next point says:

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.

Oh! So this offering is really a drop in the bucket for NS's theoretical three LNG facilities. Makes you wonder where the other billion is coming from, doesn't it?

The construction and operation of our proposed LNG terminals on the West Coast could be materially adversely affected by earthquakes, volcanic eruptions, tsunamis, hurricanes, floods, and other similar natural catastrophes.

But didn't they tell us we didn't have to worry about natural disasters?

LNG and oil facilities, shipyards, carriers, pipelines, and oil and gas fields and virtually all other energy-related facilities could be targets of future terrorist attacks. Any such attacks could lead to, among other things, bodily injury or loss of life or other property damage, increased operational costs, including insurance costs, and the inability to operate our LNG terminals.

But didn't they tell us we didn't have to worry about terrorists?

Based on the amount of convertible notes outstanding as of November 15, 2006, if we were to be required to redeem all of the convertible notes (on May 17, 2009) we would be required to make cash payments to convertible note holders in an aggregate amount of up to $103.5 million plus interest accrued through May 17, 2009, unless all or a portion of the convertible notes are converted by the holders or redeemed by us prior to such date.

That's a big bill for people with so little in the way of assets. But don't listen to me, listen to Northern Star:

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.

"But, where does the money go?" she asked only somewhat rhetorically.

Concurrently with the acquisition of Bradwood and Orion, we acquired intellectual property rights relating to LNG project conceptualization and development activities from an entity owned by our Chief Executive Officer and our President in exchange for a $5.0 million cash payment which was paid on May 17, 2006. This payment has been included as general and administrative expenses in the September 30, 2006 financial statements.

In addition, we issued shares of our common stock valued at $8.9 million to Mr. Lindner, one of our directors, and a former director, for consulting services provided during our formation and initial capitalization. These costs have also been included as general and administrative expenses in our September 30, 2006 financial statements.

California Office Rental

     On April 1, 2006 we entered into a lease for office space in California with Real Estate Energy Company, Ltd., an entity controlled by Mr. Lindner, a member of our board of directors. The lease period extends through May 31, 2007 and is terminable upon 30 days notice with no termination penalty. Payments for the lease are $2,000 per month, which we believe is indicative of the market rates for such commercial office space and services available in the local region.

Those are only a few highlights. I encourage all of you to read the document linked below. It's a bit of a slog but it's got some interesting tidbits hidden in there. If you find more that you think others should hear about, please post them in the comments section here. (please! sometimes I feel so alone talking to myself here)

 

Additional reading on the subject:
Northern Star's S1 filing at the SEC