Cheniere Energy Partners, L.P. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Unaudited interim results. The Partnership operates Sabine Pass LNG export and regasification facilities and the Creole Trail Pipeline; five liquefaction trains were operating and Train 6 was under construction.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Total revenue | $1.718 billion | $1.749 billion; down $31 million |
| Income from operations | $664 million | $563 million |
| Net income | $435 million | $385 million |
| Net income per common unit | $0.84 | $0.75 |
| Operating margin | 38.6% | 32.2% (calculated from reported figures) |
| Net margin | 25.3% | 22.0% (calculated from reported figures) |
| Operating cash flow | $535 million | $344 million |
| Capital spending, cash basis | $317 million | $284 million |
| Cash, cash equivalents and restricted cash | $1.843 billion | $1.962 billion at December 31, 2019 |
| Total debt, net | $17.587 billion | $17.579 billion at December 31, 2019 |
At March 31, cash and cash equivalents were $1.734 billion; $109 million of restricted cash was not freely available. Credit facilities had $1.536 billion of available commitments in aggregate, including $786 million under SPL’s new working-capital facility and $750 million under CQP’s revolving facility. The $2.0 billion SPL notes due 2021 were classified as current debt. The Partnership and SPL reported compliance with debt covenants.
Changes versus prior comparable period
- Revenue declined 1.8%, while LNG volumes recognized as revenue increased to 327 TBtu from 263 TBtu. Lower revenue per unit and a $117 million reduction in affiliate LNG revenue outweighed growth in non-affiliate LNG revenue.
- Operating income rose $101 million. Cost of sales fell $180 million, primarily reflecting lower natural-gas feedstock prices; operating and maintenance costs and depreciation increased, partly reflecting Train 5 operations and related capacity charges.
- Net income increased $50 million despite $47 million higher net interest expense. More interest was expensed rather than capitalized after Train 5 completed construction, and interest costs also reflected the 2029 CQP notes issued in 2019.
- Operating cash flow improved $191 million, which management primarily attributed to higher LNG sales receipts as Train 5 contributed for the full quarter. Cash, cash equivalents and restricted cash declined $119 million after investing and financing outflows.
Outlook, risks and notable items
- COVID-19 and market conditions: Management cited weaker LNG demand expectations, low global prices and more customer notices to cancel deliveries. Customers generally remain obligated to pay fixed fees for canceled contracted volumes; the Partnership recognized $16 million of cancellation-related revenue in Q1. Management said cancellations were not expected to materially affect its 2020 forecast financial results, but cautioned that outcomes remain uncertain.
- Cheniere had incurred approximately $17 million of pandemic-related safety and business-continuity costs through April 28, 2020; management expected these costs to continue while risks persisted. The filing warns that COVID-19, energy-market volatility and customer credit or performance failures could adversely affect results, cash flow and liquidity.
- Train 6: Project completion was 53.9% at March 31; expected substantial completion was in the first half of 2023. The EPC contract price was approximately $2.5 billion, including estimated optional third-berth costs, with $1.3 billion incurred. Cost overruns, construction delays and pandemic-related disruption remain risks.
- Debt and liquidity: In March, SPL replaced its prior working-capital facility with a $1.2 billion facility maturing in March 2025, with a lower stated interest margin and $786 million available after letters of credit. The filing identifies the 2021 maturity and LIBOR transition as matters to monitor.
- Distributions: The Partnership paid $0.63 per common and subordinated unit during Q1 for the prior quarter. On April 27 it declared $0.64 per unit for Q1, payable May 15 to holders of record May 7. Future distributions depend on available cash, reserves and debt-agreement restrictions.
- The filing provides no specific full-year earnings or cash-flow guidance. It describes approximately $2.9 billion of annual fixed fees under third-party SPAs for Trains 1–5, expected to rise to at least $3.3 billion upon Train 6 commercial delivery after an SPA Cheniere committed to provide.
- Long-term LNG and regasification contracts had $56.5 billion of unsatisfied transaction price at March 31, with estimated weighted-average recognition timing of 10 years for LNG and five years for regasification. These amounts exclude substantially all variable consideration and are not a forecast of recognized revenue.
Important facts for investors to verify
- Assess the $2.0 billion 2021 SPL notes maturity, refinancing or repayment plans, and the actual liquidity accessible at each subsidiary.
- Track Train 6 construction progress, remaining spend, change orders and whether the first-half 2023 completion estimate remains achievable.
- Monitor LNG cargo cancellation notices, customer credit quality and payment performance under long-term SPAs and TUAs, including the effect of lower market prices.
- Confirm the sustainability of distributions against operating cash generation, capital spending, debt-service tests and available-cash requirements.
- Review the degree of exposure to variable LNG pricing, derivative valuation assumptions and related-party sales and service arrangements.