Cheniere Energy Partners, L.P. — Q2 2023 Form 10-Q
Business and period: The partnership owns and operates the Sabine Pass LNG terminal in Louisiana, including six operational trains with approximately 30 mtpa of production capacity, regasification facilities and a pipeline. This unaudited report covers the three and six months ended June 30, 2023; dollar amounts are in millions unless noted.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $1,933 | $4,181 | $4,850 | $7,509 |
| Operating income | $818 | $555 | $2,947 | $917 |
| Net income | $622 | $342 | $2,557 | $501 |
| Net income per common unit | $0.84 | $0.25 | $4.35 | $0.13 |
| Operating cash flow | Not separately presented for Q2 | $1,538 | $1,586 | |
| Capital expenditures, cash basis | Not separately presented for Q2 | $155 | $239 |
Reported operating margin was approximately 42% in Q2 2023 versus 13% in Q2 2022; six-month operating margin was approximately 61% versus 12%. These margins are calculated from reported revenue and operating income. Cash and cash equivalents were $1,834 at June 30, with another $241 restricted. Reported available liquidity, including $1,671 of unused revolving commitments, was $3,746.
Total debt was $17,532, including $1,796 classified as current; long-term debt, net of discounts and issuance costs, was $15,595. Partners’ deficit was $1,046. The partnership declared a Q2 distribution of $1.03 per common unit, comprising a $0.775 base and $0.255 variable component, payable August 14, 2023.
Comparative changes and drivers
- Revenue fell 54% in Q2 and 35% for the six-month period, primarily because lower Henry Hub prices reduced LNG revenue; regasification revenue also declined following termination of a terminal-use agreement in December 2022.
- Despite lower revenue, operating income and net income increased. The principal driver was a favorable change in commodity-derivative results: six-month derivative gains were $1,502 versus losses of $819 in the comparable prior-year period. Management attributed much of the favorable fair-value movement to moderation in international gas-price volatility and declines in forward commodity curves. These changes can be non-cash and create earnings volatility.
- Management said LNG margins, excluding derivative effects, were lower. Operating and maintenance expense rose $72 in Q2 and $108 for six months, partly due to planned large-scale maintenance on two trains in June and higher service, maintenance and gas-transportation costs.
- Operating cash flow declined $48 year over year for the first half, as lower LNG cash receipts were largely offset by lower feedstock cash outflows. Cash, cash equivalents and restricted cash increased by $1,079 over the period.
Debt, outlook and risks
- In June, the partnership issued $1.4 billion of 5.95% senior notes due 2033 and refinanced its and SPL’s revolving facilities, each with a $1.0 billion capacity and maturities extended to June 2028. At quarter-end, $671 was available under SPL’s facility and $1,000 under CQP’s facility. The filing reports compliance with debt covenants.
- In July 2023, SPL redeemed $1.4 billion of its 5.75% notes due 2024 using contributed proceeds from the 2033 notes and cash on hand; this was subsequent to quarter-end.
- The partnership reports approximately 85% of Sabine Pass production capacity contracted, with approximately 15 years of weighted-average remaining contract life. Disclosed unsatisfied transaction price was $51.5 billion, with estimated weighted-average recognition timing varying by revenue category; some variable consideration is excluded.
- In May 2023, subsidiaries entered FERC pre-filing review for a proposed expansion of up to three trains and approximately 20 mtpa; front-end engineering and design work was contracted. Development remains subject to regulatory, commercial and financing conditions, and management had not reported a final investment decision.
- Commodity derivative liabilities were $2,302 net at June 30, predominantly Level 3 valuations dependent on significant unobservable inputs. Management’s 10% natural-gas-price sensitivity analysis showed a $420 change in derivative fair value. Market-price movements, counterparty credit risk, and access to cash held within SPL’s restricted capital structure are relevant risks. The filing reports no material change to previously disclosed risk factors.
Most important facts for investors to verify
- How much reported earnings growth reflects non-cash derivative fair-value movements versus realized operating performance and cash generation.
- The effects of lower LNG pricing and operating costs on margins, and the timing and cost of planned maintenance and optimization projects.
- Cash availability across the partnership’s separate capital structures, distribution capacity, debt maturities and post-quarter refinancing/redemption effects.
- Progress on FERC review, commercial arrangements, financing and any final investment decision for the proposed expansion.
- Key assumptions and sensitivities underlying the Level 3 derivative valuations and the partnership’s exposure to commodity-price changes.