Cheniere Energy Partners, L.P. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. The partnership develops and operates the Sabine Pass LNG export and regasification facilities. Trains 1–4 were operational; Train 5 was commissioning, and Train 6 remained in commercialization.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $1.529 billion | $903 million | $4.529 billion | $2.786 billion |
| Operating income | $492 million | $197 million | $1.455 billion | $616 million |
| Net income | $307 million | $23 million | $923 million | $116 million |
| Operating margin | 32.2% | 21.8% | 32.1% | 22.1% |
| Net margin | 20.1% | 2.5% | 20.4% | 4.2% |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $1.264 billion | $513 million |
Q3 LNG revenue was $1.249 billion, including $205 million from affiliates; reported LNG volumes were 228 TBtu versus 144 TBtu. Nine-month LNG volumes were 691 TBtu versus 439 TBtu. Growth primarily reflected more operating trains and higher revenue per TBtu. Basic and diluted net income per common unit was $0.60 for Q3 and $1.82 year to date; the comparable 2017 figures were losses of $1.10 and $4.12 per unit, respectively.
Nine-month investing cash outflow was $578 million, mainly for project construction, versus $1.195 billion in 2017. Financing cash outflow was $818 million, including $814 million of distributions. Total cash, cash equivalents and restricted cash declined $132 million to $1.457 billion; cash and cash equivalents were zero, and all reported cash was restricted.
Debt, liquidity and distributions
- Long-term debt, net, was $16.059 billion at September 30, 2018, versus $16.046 billion at year-end 2017. Net interest expense was $183 million for Q3 and $552 million for nine months, higher than prior-year periods as less interest was capitalized after trains entered service.
- In September, the partnership issued $1.1 billion of 5.625% notes due 2026 and used the proceeds to repay outstanding CQP Credit Facilities borrowings. Only the $115 million undrawn CQP revolver remained. The SPL Working Capital Facility had $706 million available, with $494 million of letters of credit issued and no borrowings.
- Of $1.457 billion in restricted cash, $649 million was designated for the Liquefaction Project and $808 million was held by the partnership and guarantor subsidiaries. Use of restricted balances is contractually limited. Management reported compliance with debt covenants.
- The partnership paid $814 million in distributions during the first nine months. After quarter-end, it declared a $0.58 per-unit distribution for Q3, payable November 14, 2018.
Changes, outlook and risks
- Higher LNG sales from additional operating trains drove revenue and profit growth; operating costs also rose with feed gas volumes, maintenance and transportation needs, and depreciation. The partnership recorded an $8 million impairment and asset-disposal loss related to prepaid assets.
- Train 5 was 98.5% complete at September 30, with substantial completion expected in Q1 2019. Feed gas entered the train in September and first LNG production occurred in October. Management expected revenue and operating costs to increase when Train 5 became operational.
- Management said available project borrowings, working-capital commitments and operating cash flows were expected to provide adequate resources to complete Train 5 and meet anticipated capital, operating and debt-service needs. Total expected capital costs for Trains 1–5 were estimated at $12.5–$13.5 billion before financing costs and $17.5–$18.5 billion including financing costs, owner’s costs and contingencies. Train 6 construction remained contingent on an EPC contract, acceptable commercial arrangements and adequate financing; no final investment decision was reported.
- Third-party long-term LNG contracts cover approximately 80%–95% of expected adjusted nominal production capacity for Trains 1–5. Revenue also includes substantial affiliate sales. Four customers each represented at least 18% of nine-month third-party revenue, indicating customer concentration.
- Commodity and interest-rate derivatives expose results to market movements. The partnership reported a $19 million net asset for Liquefaction Supply Derivatives, including Level 3 positions whose valuations depend partly on unobservable basis-spread assumptions. It terminated related CQP interest-rate swaps in October 2018, recognizing a $28 million gain.
- The partnership anticipated a potentially material balance-sheet impact from adopting lease accounting on January 1, 2019; the effects on earnings and cash flows had not been determined. It reported no material change in risk factors, no material off-balance-sheet arrangements, and effective disclosure controls.
Important facts for investors to verify
- Whether Train 5 achieved substantial completion on schedule and the resulting production, revenue and cost levels.
- Restrictions on cash availability, distribution capacity, and compliance with debt-service and other covenants.
- The economics and refinancing implications of the $1.1 billion 2026 notes issuance, including remaining facility commitments and interest costs.
- Customer and affiliate concentration, contract delivery obligations, and the sensitivity of cash generation to LNG volumes, Henry Hub prices and derivative valuations.
- The final balance-sheet effect of lease-accounting adoption and any developments in legal proceedings referenced in the prior-quarter filing.