Cheniere Energy Partners, L.P. - 10-Q Summary (Q2 2008)
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2008. Cheniere Energy Partners, L.P. is a publicly-held limited partnership in the development stage, owning and constructing the Sabine Pass LNG receiving terminal in Louisiana. The company has no operating revenues and is focused on completing construction and commissioning the facility, with commercial operations anticipated in the third or fourth quarter of 2008.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2008 | Six Months Ended June 30, 2008 |
|---|---|---|
| Revenues | $0 | $0 |
| Net Loss | $(24.5) million | $(39.0) million |
| Net Loss Per Unit (Basic/Diluted) | $(0.15) | $(0.24) |
| Total Assets | $1,855.4 million (as of June 30, 2008) | |
| Long-Term Debt | $2,033.5 million (as of June 30, 2008) | |
| Restricted Cash & Equivalents | $222.6 million (Current: $183.9M; Non-Current: $38.7M) | |
| Unrestricted Cash | $0.008 million | |
| Construction-in-Process | $1,416.2 million |
Material Changes vs. Prior Period
- Net Loss Increase: Net loss for the three months ended June 30, 2008, increased 104% to $24.5 million compared to $12.0 million in the prior year period. The six-month loss increased 57% to $39.0 million from $24.8 million.
- Derivative Losses: The increase in net loss was primarily driven by $11.5 million in derivative losses for the quarter (and $12.4 million for the six months) related to natural gas swaps hedging commissioning cargoes. No such losses were recorded in the comparable 2007 periods.
- Interest Income Decline: Interest income decreased significantly ($11.2 million for the quarter) due to lower balances of restricted cash invested compared to the prior year.
- Capitalized Interest: Interest expense (net) decreased due to higher capitalization of interest costs as construction expenditures increased.
- Advances to Affiliate: Advances to affiliates for LNG held for commissioning increased to $64.5 million as the company funded the purchase of three commissioning cargoes.
Outlook, Risks, and Management Commentary
- Construction Status: As of June 30, 2008, the initial 2.6 Bcf/d send-out capacity and 10.1 Bcf storage capacity were completed. The commissioning process began in April 2008 and is estimated to finish in Q3 or Q4 2008. Construction of the remaining 1.4 Bcf/d was approximately 79% complete.
- Liquidity and Distributions: The company has minimal unrestricted cash. Distributions of $0.425 per common unit through June 30, 2009, are funded by a $98.4 million reserve from the IPO. Future distributions depend on operating cash flows and meeting a 2:1 fixed charge coverage ratio.
- Revenue Outlook: Commercial operations and TUA (Terminal Use Agreement) payments are expected to commence in Q3 or Q4 2008. Key customers include Total LNG USA, Chevron, and Cheniere Marketing.
- Key Risk - Cheniere Marketing: A significant portion of future revenue depends on Cheniere Marketing (an affiliate). Cheniere Energy (parent of Cheniere Marketing) has a non-investment grade rating and announced in August 2008 a need for additional funding. If Cheniere Marketing cannot meet its TUA obligations, the partnership may fail the fixed charge coverage test, halting distributions.
- Debt Service: The company holds $141.3 million in a restricted interest reserve to cover debt service through May 2009. Interest payments of ~$75.5 million are due semi-annually.
Investor Verification Checklist
- Commissioning Timeline: Verify if the commissioning process and commercial start date occur in Q3/Q4 2008 as projected.
- Cheniere Marketing Solvency: Monitor the financial status of Cheniere Energy and its ability to secure the $250 million financing mentioned in August 2008 to ensure TUA payments are made.
- Fixed Charge Coverage Ratio: Confirm the partnership meets the 2:1 fixed charge coverage ratio required to resume distributions after the reserve fund is exhausted in mid-2009.
- Construction Budget: Track actual construction costs against the revised budget of approximately $1,559 million to ensure no further funding gaps arise.
- Derivative Exposure: Monitor the fair value of natural gas swaps used for commissioning cargoes, as fluctuations continue to impact net income.