Cheniere Energy Partners, L.P. - Q1 2011 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2011. Cheniere Energy Partners, L.P. owns and operates the Sabine Pass LNG terminal in Louisiana, which provides regasification services. The partnership is actively developing a liquefaction project to enable bi-directional import and export capabilities. As of the filing date, the partnership had 26.7 million common units and 135.4 million subordinated units outstanding.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Total Revenues | $74.5 million | $130.8 million |
| Net Income (Loss) | $(2.2) million | $58.8 million |
| Operating Cash Flow | $46.2 million | $108.6 million |
| Long-Term Debt | $2.19 billion | $2.19 billion |
| Cash and Equivalents | $46.9 million | $118.4 million |
| Restricted Cash | $137.3 million | $96.1 million |
| Distributions Paid | $11.5 million | $70.2 million |
Note: The filing does not provide explicit margin percentages; however, operating income decreased from $101.7 million in Q1 2010 to $41.1 million in Q1 2011.
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased by $56.3 million (43%) compared to Q1 2010. This was primarily due to the July 1, 2010, assignment of a Terminal Use Agreement (TUA) from Cheniere Marketing to Cheniere Investments (a wholly-owned subsidiary). Consequently, $62.8 million in affiliate revenue recognized in Q1 2010 was eliminated in Q1 2011 upon consolidation.
- Net Loss: The company reported a net loss of $2.2 million, a decrease of $61.0 million from the prior year's net income. This was driven by the revenue elimination noted above and a $7.2 million increase in development expenses related to the liquefaction project.
- Operating Expenses: Operating and maintenance expenses decreased by $2.8 million, largely due to reduced fuel costs as the terminal shifted from regasification to LNG export operations.
- Distributions: Distributions to unitholders dropped significantly to $11.5 million from $70.2 million. No distributions were paid on subordinated units in Q1 2011, as available cash was insufficient after meeting common unit and general partner obligations.
Outlook, Risks, and Management Commentary
- Liquefaction Project: Management is advancing the liquefaction project to transform the terminal into a bi-directional facility. An application was submitted to the FERC in January 2011. The company has signed non-binding MOUs for up to 9.8 mtpa of capacity and estimates construction costs at approximately $400 per metric ton.
- Liquidity Constraints: The company's ability to make distributions is dependent on Sabine Pass LNG satisfying strict conditions under its Senior Notes indenture, including maintaining a debt service reserve fund of $82.4 million and meeting a 2:1 fixed charge coverage ratio.
- Capital Raising: In January 2011, the company initiated an at-the-market program to sell up to 1.0 million common units to fund liquefaction development costs. As of March 31, 2011, 0.1 million units were sold for net proceeds of $2.1 million.
- Legal Proceedings: On March 7, 2011, the company filed a lawsuit against Centerbridge Partners alleging defamation and tortious interference. The company seeks monetary damages, though no amount has been determined.
- Risk Factors: Forward-looking statements regarding the liquefaction project, regulatory approvals (FERC/DOE), and future cash flows are subject to significant uncertainty. The conversion of subordinated units to common units is no longer expected to occur as early as previously estimated due to the TUA assignment.
Investor Verification Checklist
- Debt Covenants: Verify the company's ability to maintain the 2:1 fixed charge coverage ratio required to release cash for distributions.
- Liquefaction Progress: Monitor the status of the FERC application and the execution of definitive commercial agreements for the liquefaction trains.
- Affiliate Transactions: Review the Variable Capacity Rights Agreement (VCRA) with Cheniere Marketing to understand the revenue model replacing the eliminated TUA revenue.
- Legal Exposure: Track the outcome of the litigation against Centerbridge Partners and its potential impact on the company's reputation or financial standing.
- Subordinated Unit Status: Assess the timeline for the conversion of subordinated units, which is now contingent on future business development rather than a fixed schedule.