Cheniere Energy Partners, L.P. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022. CQP owns and operates the Sabine Pass LNG export terminal, with six operational trains and approximately 30 mtpa of production capacity, plus the Creole Trail Pipeline. Approximately 85% of capacity was contracted, with about 15 years of weighted-average contract life remaining.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $2.917 billion | $3.328 billion |
| Income from operations | $2.129 billion | $362 million |
| Net income (loss) | $1.935 billion | $159 million |
| Net income (loss) per common unit | $3.50 | $(0.11) |
| Operating cash flow | $847 million | $800 million |
| Cash capital expenditures | $94 million | $87 million |
| Cash distributions paid | $754 million | $395 million |
Operating margin was approximately 73% in Q1 2023 versus 11% in Q1 2022, based on reported revenue and operating income. This comparison is heavily affected by non-cash derivative fair-value movements; it should not be viewed as a measure of underlying recurring profitability. Gross margin and EBITDA are not separately presented in the filing.
At March 31, 2023, cash and cash equivalents were $834 million and restricted cash was $160 million. Total reported available liquidity was $2.615 billion, including $1.621 billion of undrawn credit commitments. Total debt principal was $16.332 billion; reported long-term debt, net of discounts and issuance costs, was $16.145 billion, with $60 million classified as current. The Partnership and SPL reported compliance with debt covenants.
Changes and drivers
- Revenue declined $411 million year over year. Lower pricing per MMBtu, principally from lower Henry Hub prices, reduced revenue by $604 million; higher LNG delivery volumes added $267 million. Loaded volumes recognized as revenue rose 8% to 403 TBtu, primarily reflecting Train 6.
- Operating costs fell $2.178 billion, principally because derivative results improved by approximately $1.8 billion. Cost of sales excluding derivative movements also declined, mainly from lower natural-gas feedstock costs.
- Net income increased $1.776 billion. Management attributed substantially all of the improvement to derivative changes: Q1 2023 included a $1.0 billion non-cash fair-value gain on the Tourmaline IPM agreement, compared with a $431 million loss related to the agreement’s 2022 assignment and subsequent market movements.
- The net derivative liability declined to $2.470 billion from $3.741 billion at year-end. The portfolio includes significant Level 3 valuations and long-dated contracts.
- Operating cash flow increased $47 million. Cash used in financing rose $360 million, primarily reflecting higher distributions. Cash and restricted cash together ended the quarter at $994 million, down $2 million from year-end.
Outlook, risks and notable items
- No specific earnings or distribution guidance is provided. On April 28, 2023, CQP declared a $1.03-per-common-unit distribution, comprising a $0.775 base and $0.255 variable amount, payable May 15 to holders of record May 8.
- In February, subsidiaries began the FERC pre-filing process for a possible expansion of up to three trains, approximately 20 mtpa; a FEED contract with Bechtel was executed in April. The filing says a positive final investment decision depends, among other things, on acceptable commercial and financing arrangements.
- Commodity derivative fair values can cause substantial earnings volatility before the related LNG sales are recognized. A modeled 10% change in natural-gas prices would change derivative fair value by approximately $447 million as of March 31, 2023. Restricted cash, separate subsidiary capital structures, debt covenants and distribution conditions also affect cash availability.
- Five external customers each represented at least 10% of revenue; the largest represented 27%. Affiliate LNG revenue was $761 million.
- Subsidiaries are discussing an LDEQ compliance order concerning formaldehyde emissions from turbines. Testing indicated 41 of 44 turbines met the relevant standard; management does not expect any ultimate penalty to materially affect financial results.
- The 2022 comparative period included a $2.7 billion non-cash distribution recorded in partners’ equity upon the novation of an IPM agreement. Q1 2022 also included $148 million of commissioning-cargo offsets to construction costs; there were no commissioning cargoes in Q1 2023.
Investor verification priorities
- Assess how much reported earnings improvement reflects non-cash derivative remeasurement versus realized operating performance and cash generation.
- Review the assumptions, sensitivities and timing of the $2.470 billion net derivative liability, particularly Level 3 LNG and natural-gas pricing inputs.
- Verify cash available for distributions after considering restricted subsidiary cash, debt-service tests, planned spending and the variable distribution component.
- Track customer concentration, affiliate transactions and the remaining term and economics of contracted LNG capacity.
- Monitor regulatory progress, commercial commitments, financing and any final investment decision for the proposed expansion.