Cheniere Energy Partners, L.P. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Figures are in millions of dollars unless otherwise stated. The Partnership owns the Sabine Pass LNG export terminal, with six operating trains and approximately 30 mtpa of production capacity. Approximately 85% of anticipated production capacity was contracted, with about 14 years of weighted-average remaining contract life.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $2,128 | $4,976 | $6,978 | $12,485 |
| Operating income (loss) | $988 | $(299) | $3,935 | $618 |
| Net income (loss) | $791 | $(514) | $3,348 | $(13) |
| Net income (loss) per common unit | $1.19 | $(1.49) | $5.53 | $(1.36) |
| Operating margin (operating income ÷ revenue) | 46.4% | (6.0)% | 56.4% | 5.0% |
Margins and earnings were materially affected by commodity derivative fair-value movements; they should not be read as measures of recurring operating performance. Q3 LNG volumes loaded and recognized as revenue were 362 TBtu, essentially flat with 363 TBtu a year earlier. Nine-month volumes were 1,118 TBtu versus 1,110 TBtu.
Cash flow, liquidity and debt
- Nine-month operating cash flow was $2,193, down from $2,442 in 2022. Investing cash outflow was $176, mainly for optimization and site improvements. Financing cash outflow was $2,479, including $2,190 of distributions. Cash, cash equivalents and restricted cash declined by $462 to $534.
- At September 30, cash and cash equivalents were $499, restricted cash was $35, and available commitments under revolving facilities were $1,716. Reported total available liquidity was $2,250; some cash is restricted to project-related purposes.
- Gross debt principal was $16,082, compared with $16,332 at year-end 2022; carrying debt, net of discounts and issuance costs, was $15,949, including $349 current debt. The filing reports $350 of 2024 SPL notes outstanding. The Partnership and SPL were in compliance with debt covenants.
- In June, the Partnership issued $1.4 billion of 5.95% notes due 2033; proceeds and cash on hand funded redemptions of 2024 SPL notes. It also refinanced revolving facilities, extending their maturity to June 2028 and reducing applicable borrowing rates and fees. Available commitments were $716 at SPL and $1,000 at CQP.
- Q3 distributions declared were $1.03 per common unit, comprising $0.775 base and $0.255 variable, payable November 14, 2023. The Partnership distributes available cash subject to reserves and debt restrictions.
Material changes and drivers
- Revenue fell $2,848 in Q3 and $5,507 for the nine-month period year over year. Management attributed most of the decline to lower Henry Hub-linked pricing; lower regasification revenue also reflected the December 2022 termination of a customer terminal-use agreement.
- Net income improved by $1,305 in Q3 and $3,361 year to date, primarily because derivative results swung favorably by approximately $2.0 billion and $4.3 billion, respectively. The Partnership recorded derivative-related gains, including non-cash favorable fair-value changes on the Tourmaline IPM agreement; 2022 included significant losses associated with its assignment to SPL and market movements.
- Excluding derivative effects, management said LNG revenue net of cost of sales declined $261 in Q3 and $339 year to date, principally from lower delivered LNG margins. Lower natural-gas feedstock costs offset some of the lower revenue. Operating and maintenance expense rose $130 year to date, partly due to planned large-scale maintenance on two trains in June 2023.
- Accrued liabilities declined to $641 from $1,378 at year-end 2022, mainly reflecting lower accrued natural-gas purchase costs and interest-related accruals.
Outlook, risks and other notable items
- No quantified earnings or distribution guidance is provided. Management expects near-term cash needs to be met with operating cash flow and available liquidity, and long-term needs with operating cash flow and potential debt or equity financing. Distribution capacity depends on available cash, reserves and debt-agreement restrictions.
- In May 2023, subsidiaries entered FERC pre-filing review for a potential expansion of up to 20 mtpa; front-end engineering and design work was contracted to Bechtel. The Partnership said development requires acceptable commercial and financing arrangements before a positive final investment decision.
- Long-term LNG supply derivatives have terms of up to approximately 15 years and a net fair-value liability of $1,880 at September 30. A 10% natural-gas price change was modeled to change their fair value by $392. Significant Level 3 valuations depend on unobservable inputs, including international LNG pricing spreads, so market changes and estimation uncertainty may cause substantial earnings volatility.
- Other risks include commodity-price and counterparty exposure, customer concentration, financing and project-development risks, and limitations on cash transfers from SPL. The filing reported no material changes to previously disclosed risk factors or legal proceedings. Disclosure controls were assessed as effective.
Investor facts to verify
- How much reported earnings and operating margin reflect non-cash derivative remeasurement versus realized operating economics.
- Whether lower LNG pricing and delivered margins persist, and the effect of the ended terminal-use agreement on recurring revenue.
- Cash available for distributions after restricted cash, reserves, debt-service tests and other subsidiary-level limitations.
- Repayment or refinancing plans for the remaining 2024 SPL notes and continued compliance with debt covenants.
- FERC review, commercial contracting, financing and final investment decision milestones for the proposed expansion.