Cheniere Energy Partners, L.P. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2017. Amounts are in U.S. dollars; financial figures are in millions unless otherwise noted.
Business context
The Partnership develops and operates liquefaction, regasification and pipeline assets at Sabine Pass, Louisiana. Trains 1–3 were operating at quarter-end; Train 4 reached substantial completion in October 2017, and Train 5 was under construction. Train 6 was being commercialized, with no final investment decision reported.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $903 | $331 | $2,786 | $549 |
| Income from operations | $197 | $48 | $616 | $51 |
| Net income (loss) | $23 | ($82) | $116 | ($257) |
| Operating cash flow | Not separately stated for the quarter | $513 | ($42) | |
| Investing cash flow | Not separately stated for the quarter | ($1,195) | ($1,923) | |
| Financing cash flow | Not separately stated for the quarter | $1,520 | $2,126 |
Revenue growth primarily reflected more operating trains and higher LNG volumes and revenue per MMBtu. LNG volumes recognized as revenue were 144 TBtu in Q3 2017 versus 51 TBtu in Q3 2016, and 439 TBtu for the nine months versus 69 TBtu. Affiliate LNG revenue was $111 million in Q3 and $864 million for the nine months, compared with $16 million in each 2016 comparable period.
Despite reported net income, basic and diluted net loss per common unit was $1.10 for Q3 and $4.12 for the nine months. The filing attributes the unusual per-unit result in part to the substantial beneficial conversion feature associated with the Class B units, which converted into common units on August 2, 2017. The filing’s allocation mechanics should be considered when interpreting per-unit results.
Operating costs rose with the increase in operating trains. Interest expense, net of capitalized interest, increased to $153 million in Q3 and $437 million for the nine months, mainly because less interest was capitalized as trains entered service and debt outstanding increased. Early debt extinguishment losses were $25 million in Q3 and $67 million for the nine months.
Cash, debt and distributions
- At September 30, cash and cash equivalents were zero; restricted cash was $1.395 billion current and $48 million non-current. Total cash, cash equivalents and restricted cash was $1.443 billion, but restricted balances were subject to use limitations.
- Net long-term debt was $16.040 billion, with no current debt reported. Debt increased from $14.433 billion at December 31, 2016. The Partnership issued $800 million of 2037 SPL notes, approximately $1.35 billion of 2028 SPL notes, and $1.5 billion of 2025 CQP notes; proceeds were used for project costs and to repay or refinance borrowings.
- Available commitments were $479 million under the SPL Working Capital Facility and $190 million under the 2016 CQP Credit Facilities. The facilities also had $721 million and $50 million of letters of credit issued, respectively.
- Nine-month capital spending was a $1.195 billion investing cash outflow. Financing cash flow was positive $1.520 billion, reflecting debt issuance and repayment activity, partly offset by distributions.
- The Partnership declared a $0.44 per-unit distribution for Q3, payable November 14, 2017. Its historical quarterly common-unit distribution had been $0.425.
Material changes, outlook and risks
- Class B units mandatorily converted into common units in August; at conversion, Cheniere Holdings and Blackstone CQP Holdco held 48.6% and 40.3% interests, respectively.
- Train 5 was 76.1% complete at September 30, with substantial completion expected in the second half of 2019. Estimated total capital costs for Trains 1–5 were $12.5–$13.5 billion before financing costs and $17.5–$18.5 billion after financing costs, including estimated owner’s costs and contingencies.
- Management said available financing, working-capital commitments and operating cash flows were expected to provide adequate resources for Trains 1–5 and anticipated capital, operating and debt-service needs. No specific earnings or distribution guidance was provided.
- Hurricane Harvey temporarily suspended construction and LNG loading; the terminal sustained no significant damage and the filing reported no material financial impact.
- Three customers each represented at least 10% of third-party revenue for Q3; the three largest contributed 31%, 24% and 35%. Customer concentration and substantial affiliate revenue are relevant to revenue and counterparty assessment.
- The filing reported no material changes to previously disclosed legal proceedings or risk factors and no material off-balance-sheet arrangements. A challenge to non-FTA export authorizations remained subject to the stated appellate process; the court denied a petition concerning one authorization in November 2017, with the review period not yet expired.
- The Partnership preliminarily expected lease accounting adoption in 2019 to materially affect its balance sheet. It planned full retrospective adoption of the new revenue standard in 2018 and preliminarily did not anticipate a material revenue impact.
Most important facts for investors to verify
- Availability and permitted uses of restricted cash, together with liquidity and debt-service requirements.
- Train 4’s operational ramp-up, Train 5’s cost and schedule, and funding needs for remaining construction.
- Customer concentration, affiliate LNG sales and related-party costs and arrangements.
- The beneficial-conversion-feature accounting and unit allocation behind reported net loss per unit despite positive consolidated net income.
- Debt maturities, covenants, refinancing capacity and the impact of increasing interest expense as construction interest capitalization declines.
- Progress on export authorizations, legal challenges and the expected balance-sheet effect of lease accounting adoption.