It was 2002, and the race to find natural gas in the United States was on. Oilmen and businessmen were making massive bets on overlooked U.S. fields. Charif Souki was just as sure the United States needed new energy supplies. And he was certain he had a way to get his hands on enough natural gas to change his country’s fortunes, as well as his own.
Souki was a rank outsider to the oil patch. He hadn’t taken a single geology or engineering course -- or even worked a day in an oil or gas field. He had no business imagining himself as any kind of energy player. But Souki had an audacious plan.
BIG MAN ON CAMPUS
Souki was born in Cairo in 1953, a year after a coup d’état led by Muhammad Naguib and Gamal Abdel Nasser. His father, Samyr, a Greek Orthodox Christian, moved the family to Beirut when Charif was four, after Samyr realized that his writing was being censored and that he was being tracked by members of the regime. In Beirut, Samyr, who went by Sam, became Newsweek’s chief correspondent for the Middle East. As he covered subsequent upheavals, including the 1957 war, as well as Beirut’s growth into an intellectual, tourist, and banking center, Sam emerged as a star reporter.
It didn’t take long for him to become a key adviser to political and business leaders throughout the region. As a boy, Charif sometimes sat with his father as he entertained various rulers, including King Faisal of Saudi Arabia, top United Nations officials, and a range of diplomats and businessmen, including chief executives of U.S. military contractors. He had little interest in politics and business, however. His time was filled with other pursuits: Some days, he skipped out to surf or sail. Other times, he and his friends escaped to a resort in the mountains for a day of skiing.
When the time came, Souki’s father encouraged his son to attend college in America. As a teenager, Sam Souki’s own dream had been to go to a U.S. university. World War II had intervened, though, so he was thrilled when his son was accepted at Colgate University in Hamilton, New York. Souki was having a lot of fun in Beirut and wasn’t particularly eager to leave his family in Lebanon, but when he heard Colgate was in New York he became enthusiastic, anticipating four years of excitement.
When Souki arrived on Colgate’s campus in 1971, he was stunned. It turned out that the university was in a little hamlet over 200 miles from the city. Worse yet, there no female students to be found. “The notion of an all-male school never even entered my mind,” Souki says. “I was in cultural shock for a few years.”
There wasn’t much point complaining to his parents back in Beirut since it was almost impossible to contact them by phone, so Souki decided to try to complete his studies as quickly as possible. He enjoyed the classes, at least, so he took extra courses in economics, history, and literature and received a bachelor’s degree in three years.
By then, Sam Souki had left Newsweek to start his own publishing, consulting, and public relations enterprise and to do his own investing. The shift inspired his son to consider his own career in business. He figured a master’s in business administration might help him find a job when he returned to Lebanon, so he enrolled at Columbia University’s business school.
By the time Souki graduated, a brutal civil war had broken out in Lebanon. Unable to return to Beirut, Souki began interviewing for jobs in the United States, quickly realizing he was a hot commodity. Banks were racing to various Gulf states to court wealthy businessmen and emerging oil barons looking to invest their growing piles of petrodollars. There was intense demand for young men like Souki who spoke Arabic and held a business degree from a top American school.
FROM OIL TO COOKING OIL
In 1976, Souki was hired by an investment banking firm called Blyth, Eastman Dillon & Co. and began wooing Middle Eastern moneybags, trying to entice them to diversify their holdings into real estate, hotels, and other projects championed by banks in various Western cities. Many of them had trekked to the Souki home before, and they proved eager to meet with Charif.
Because he had been exposed to power at a young age, Souki wasn’t impressed or intimidated by the wealthy men with whom he was dealing. That’s not to say that cutting deals in the region was easy. For one thing, phone communication wasn’t reliable in Saudi Arabia and other countries in the Middle East, so he couldn’t even book a hotel room before getting on a flight to the area. Secretaries were rare in that part of the world, making it just as difficult to schedule an appointment with anyone of importance. Instead, Souki would show up at the home or business of a local baron or family patriarch and take a seat in a large waiting room next to dozens of bankers, businessmen, and well-wishers.
Souki and his competitors would lounge and chat for hours, waiting for the tycoon to arise from his midafternoon nap and convene his late-afternoon majlis, or daily social gathering. There, those vying for the titan’s attention would try to get invited to another, more private get-together later that evening. Souki usually was among the lucky few asked to return for these one-on-one meetings, which featured exotic food and drink and took place around midnight. That’s when hands were shaken, deals were cut, and checks were written.
During that period, Souki met billionaire arms dealer Adnan Khashoggi, members of the Saudi royal family, up-and-coming energy power brokers, and others. Personable and smooth, Souki managed to broker huge investments. Once, an oil magnate wrote a check for $300 million, or the equivalent of over a billion dollars in today’s money. Souki’s employer usually received a healthy commission of one to five percent of each investment, he says.
Souki spent three years wooing various moguls, emerging as a star at his bank. The job began to grate on him, though. For one thing, the lifestyle made it hard to have a family (by then he was married with two small children). For another, Souki was meeting interesting and powerful people, and he was dealing with big sums of money, but he wasn’t doing any actual investing. He chafed at raising money for deals he wasn’t participating in and felt he was little more than a well-paid matchmaker introducing wealthy oil barons to his bosses.
Souki quit in 1978 and began raising money for deals that he himself found. There was a refinery in Long Beach, California, a hotel in Hawaii, an office building in Paris, and more. His business thrived, but the stepped-up pace put even more pressure on his marriage, which soon ended. After some years cooling his heels, he even opened a restaurant, called Mezzaluna, in Aspen, and then another in Los Angeles, where he became friendly with a young waiter named Ron Goldman, as well as a regular patron, Nicole Brown Simpson. He also got to know her ex-husband, football legend O. J. Simpson.
After Simpson and Goldman’s murder, hordes of tourists lined up to get into Mezzaluna. Business soared, but Souki was sickened by the experience. He received another shock when he realized he had drained most of his savings. A nest egg of several million dollars had been whittled away by years of fun in Aspen and mixed results from his Los Angeles ventures.
By 1996, American businesses were beginning to embrace technology. The Internet was coming into vogue, and Souki was convinced something big was afoot. He decided to try to find an industry that hadn’t been fully impacted by technological change. He thought he might have an advantage if he could be the first to embrace some new advance.
His interest began to shift to energy, a sector few cared about. Oil and gas prices had been limp for nearly two decades, making it hard to score profits, even as sexy Silicon Valley technology companies were raking in investor money and attracting the best and brightest young minds.
Because the energy industry was so unloved -- and thus starved for capital -- Souki thought there might be opportunity. He knew a bit about the business from his trips to the Middle East and from a few early deals, but that was about it. At that point in his life, he knew more about fajitas than fracking, a method of fracturing compressed rock that wildcatters were then perfecting.
Souki went to an industry conference to meet geoscientists and learn what they were up to. There, an expert from Chevron discussed how his team was doing more with desktop and even laptop computers than they had a decade earlier with a huge supercomputer. Not only that, but 3-D seismic imaging and other advances were improving the odds of finding energy deposits.
Technology was a great equalizer, Souki concluded, one that might even allow someone who had been skiing and pouring drinks for seven years to discover oil or gas. All he had to do was find smart geophysicists, raise enough capital -- something he always had been good at -- and invest in the right exploration technology.
“It was a numbers game now,” he says. “I was never going to be an expert in putting geology together, but I understand probability and statistics.”
Souki searched for energy exploration and production pros employing the latest technology and in need of cash. Then he tapped friends and previous investors to raise the necessary financing. He received a commission for bringing money to the exploration executives, cash that gave him and his family some breathing room after his financial scare. Soon he was kicking his own money into the deals.
To be sure, these were small-fry deals, each less than $20 million. One early investment was in a California company that saw a well burst into flames, sparking a fire that took 90 days to put out. After two years, Souki’s group realized that gas just couldn’t be produced economically from the company’s wells. He decided to try to do some exploration himself, figuring there was more upside to that approach.
Souki’s entrance into the wildcatter game had small-time written all over it. He took over an inactive Hollywood film-colorization company that happened to still have publicly traded shares. Assuming control over a “shell” company, or one without any assets or operations, is a decidedly backdoor means of accessing public markets and one that often raises eyebrows among experienced investors.
The company now in his name, Souki and his geologists decided to focus on drilling in the Louisiana Gulf Coast area after their mapping data suggested the region held promise. Souki renamed his company Cheniere Energy after the Cajun word for the elevated land above a swamp. The name seemed sturdy and safe, and had some local flavor.
In 1998, Souki and his family moved to Houston so he could run Cheniere. He began raising money for his new company, telling investors that his team would use the latest and most expensive seismic data to find oil and gas in the Gulf of Mexico. Tapping old connections, he managed to raise cash from a former Lehman Brothers energy banker, a Cayman affiliate of a company headed by Lebanese financier Michel el-Khoury, and several high-profile executives.
Cheniere spent about $20 million for 3-D seismic data and leases along the Louisiana coast and began drilling. By the summer of 1999, however, Cheniere had no booked reserves, no revenues, and no production. Natural gas was trading for less than three dollars per thousand cubic feet. But it cost Cheniere about three dollars per thousand cubic feet to get gas out of the ground. I’m using the latest technology, I have great guys, and we’re in a promising area, but I still can’t get my costs low enough to make any money, he thought. He couldn’t figure out how other producers could be profitable if it cost more to find and produce natural gas than they could get selling it. The math just didn’t add up.
Souki came to a simple and yet unconventional conclusion: Natural gas prices were bound to climb. If they didn’t, the entire energy industry would go out of business, he decided. And there was no way that was going to happen, since the country still depended on natural gas. In fact, Souki saw indications of rising demand. So, if natural gas prices were set to skyrocket, Souki figured he’d strike it rich if he could just find a lot of gas somewhere. It was getting harder for him and others to produce natural gas in the Gulf of Mexico, but maybe Cheniere could locate it somewhere else.
Other oilmen were still searching within the United States, but Souki couldn’t imagine that the country held enough natural gas to get very excited about. “I knew about the shale reserves,” he recalls, “but it wasn’t relevant, nobody believed they could be produced.”
He had another, more unorthodox idea. Maybe he could get his hands on cheap natural gas being produced elsewhere in the world and ship it to the United States? He knew that a number of countries, including Algeria, Australia, Qatar, and Russia, had massive gas reserves and needed new customers. Perhaps he could turn those supplies into a liquefied form of gas that could be shipped to the United States.
Liquefied natural gas is simply natural gas subjected to the intense cold of minus 260 degrees Fahrenheit. The supercooling process converts the gas to a liquid form that’s 1/600 its original volume. As long as it remains at this temperature, liquefied natural gas can be shipped for use elsewhere. Producers transport it in a cryogenic container, which isn’t much more than a very, very large thermos. At its destination, the liquefied natural gas, or LNG, is “regasified,” or heated until it turns back into its natural gaseous state. Then it can be distributed through traditional natural gas pipelines for heating, electricity, and other purposes in homes and businesses.
Souki knew the LNG business was growing abroad. But the amounts being shipped weren’t huge, and very few even considered selling to the United States. There were just four facilities in the country capable of accepting LNG and converting it into gas. All of these had been built nearly two decades earlier and two of them had been mothballed, a sign of how unpopular and unprofitable the idea had become. Most in the industry saw the low price of natural gas as a sign that the country had more than enough of it, so shipping more of it to America was the last thing on their minds.
But Souki decided that Cheniere should raise enough cash to secure land for an enormous gas import terminal, or maybe even a few terminals. Then the company would convince regulators to give it permission to build the facilities. After that, Cheniere would somehow raise billions of additional dollars to build the facilities. Oh, and Cheniere also had to persuade foreign companies to ship LNG to the United States and pay Cheniere to regasify it so the gas could be sold domestically.
The idea was crazy, but Souki figured he could get at least a meeting or two with foreign businessmen and government officials to pitch it, if only because some of them still had fond memories of his father. Then he’d sell them on the idea, like he had sold so many of his previous deals.
Souki quickly realized that he had misjudged. Warburg Pincus, the white-shoe Wall Street firm he had struck the earlier deal with, turned down a chance to invest in the project. Other large investment firms also rejected Souki’s offer. “I definitely lacked credibility,” he acknowledges. Souki knew that he had to recruit experts who knew something about importing LNG, so he approached Charles Reimer, who had spent twelve years on the board of directors of the world’s biggest LNG liquefaction plant in Indonesia, asking him to join Cheniere. Reimer was skeptical.
Reimer did share Souki’s belief that energy prices were headed higher, but Souki’s scheme didn’t seem likely to succeed. “Let me put some numbers together,” to see if the idea even makes sense, Reimer finally told him. That summer, Reimer went over the math, assessing what it would cost to freeze, ship, and warm natural gas. He determined that the expense would be huge -- but the endeavor could be profitable if gas prices rose by as much as he and Souki expected. Reimer signed on.
Reimer wasn’t necessarily convinced that importing gas to the United States was the brightest idea, but he had just spent a decade in Indonesia and was eager to try something new. He figured he’d roll the dice on Souki and his radical idea; even if it didn’t work he’d likely still have fun and learn a thing or two.
In the summer of 2000, Souki and Reimer began working on importing of natural gas from foreign countries. If he could get his hands on enough gas to quench the nation’s growing thirst, Souki was sure he could make a fortune.
That same year, other would-be gas giants, Aubrey McClendon and Tom Ward, launched their own push to discover a historic amount of natural gas in the United States, while Harold Hamm, a seasoned oilman, set out to tap rock in the Bakken formation in Montana. If McClendon, Ward, and Hamm seemed unlikely to transform the nation and revolutionize global energy markets, Souki seemed an even longer shot.
HAIL MARY PASS
Nearly a decade later, Charif Souki was in deep trouble. He insisted to his investors that he was working on a plan. He wouldn’t say what it was, though.
Shares of Cheniere Energy traded for about three dollars in late 2009 and early 2010, and most investors had written the company off. Cheniere had spent billions on a plan to import natural gas to the United States. Now the country was swimming in its own. In 2010, 4.86 trillion cubic feet would be produced from shale formations, more than double the 2.25 trillion cubic feet in 2008.
Cheniere still was receiving revenue from Total and Chevron as part of an earlier import agreement, so Souki’s company wasn’t in imminent danger of bankruptcy. But it was burning through $50 million a year and still faced a billion dollars of debt due in 2012. Board meetings turned contentious as investors became exasperated.
“Charif, you need a plan,” Dwight Scott, a GSO executive on Cheniere’s board, told Souki during one meeting.
“I’m working on a bunch of plans,” Souki told him.
“Like what?” Scott asked.
Souki said he couldn’t share the details just yet. That response didn’t thrill the board members, including John Deutch, the former director of the CIA, who asked Souki his own set of tough questions.
At one point, the Blackstone Group and Paulson & Co, which each maintained big positions in Cheniere, offered to wipe out some of the corporation’s debt in exchange for control of the company. Souki refused. Like a fighter on the ropes, he didn’t want to give up. He could have quit and moved on to something else. But he was rope-a-doping, hoping for a way out of his jam.
“We’ll come up with something, I’ll figure something out” if importing gas doesn’t work out, Souki told the board. “Something good will happen.”
Souki’s unusual background didn’t help alleviate the concerns of the investors and board members, one large Cheniere investor says. “If he was a guy from Midland, Texas, it would have been easier for people to deal” with the repeated reassurances, says a board member. “But he was Lebanese, it was a cultural thing. People would say, ‘Where the hell did this guy come from -- he owned Mezzaluna!’” referring to the infamous Los Angeles restaurant.
Behind the scenes, Souki and his top executives were becoming more committed to the idea of exporting natural gas. They were convinced that they could retrofit the Louisiana terminal to make it capable of turning natural gas into LNG for selling abroad. In the early spring of 2010, Souki and his team received an estimate from Bechtel, the global construction firm, with a cost to reconfigure their plant. Bechtel judged it would cost about $450 for each ton of LNG it wanted to export. At that price, it would cost over $8 billion to convert the terminal into one that could export natural gas using four “trains,” or liquefaction and purification units. That would be enough to ship 18 million tons of gas a year.
Most anyone would blanch at a price quote like that. With financing costs and other expenses, Souki knew he’d have to raise as much as $12 billion to make the switch, even as financial markets remained unstable in the aftermath of the global economic crisis. But Souki wasn’t just anyone. If there was one thing he was confident about, it was his ability to raise boatloads of money, even billions of dollars, if necessary. This is going to be child’s play, he figured.
In April, Souki went to his board to pitch his new idea. “I have a big advantage here,” he told the board confidently. “We already have the terminal, the storage tanks . . . everything but a liquefaction facility. . . . I think I can get the contracts and the permit.” He said the company eventually could export as much as two billion cubic feet a day, or about three percent of U.S. domestic gas production. He looked around the room, waiting for a response.
For all the acrimony in the previous months, Souki’s plan didn’t elicit much reaction. Some board members already had a sense that this was going to be his new strategy. It wasn’t like he had many other options. Others were so tired of Souki’s maneuvering, and the roller coaster the company had been on, that they were too exhausted to give much input or put up a fight.
Cheniere had billions of dollars of debt coming due, though, so most investors and board members figured this was their best chance to salvage a bad situation. “The board’s attitude was that it was a Hail Mary pass, fourth and 25 on our own five-yard line. . . . They were fatigued,” says a former board member. “It was a small company trying to beat the Exxons and Chevrons to the export market, and those companies had better connections to Washington regulators.”
In June 2010, Cheniere publically announced its intention to begin exporting gas. Like the Chenier board, investors let out a collective yawn. Industry members even made fun of the export idea, teasing Cheniere executives.