Cheniere Energy Partners, L.P. — Q1 2014 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2014, compared with the three months ended March 31, 2013. The partnership operates the Sabine Pass LNG regasification terminal and is building liquefaction facilities; it also owns the Creole Trail Pipeline. Comparative figures were retrospectively adjusted for the Creole Trail Pipeline Business, which was acquired from a common-control affiliate in May 2013.
Key financial results
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Total revenue | $67.2 million | $66.1 million |
| Operating income | $5.1 million | $5.7 million |
| Operating margin | 7.6% | 8.6% |
| Net loss | $69.7 million | $51.7 million |
| Net loss per common unit | $0.06 | Net income of $0.10 |
| Cash from operations | $(0.5) million | $2.3 million |
| Capital spending on property, plant and equipment | $751.8 million | $465.0 million |
Revenue increased 1.7%, while operating income declined. Net loss widened by $18.0 million, primarily because derivative losses increased $17.2 million and general and administrative expense, including affiliate charges, rose $3.5 million; lower operating and maintenance expense partly offset these increases. Derivative loss was $34.7 million, mainly reflecting fair-value changes in interest-rate swaps. Interest expense, net, was $40.3 million. The filing does not provide a separate cash-flow margin metric.
Balance sheet, debt and liquidity
- At March 31, 2014, cash and cash equivalents were $325.3 million; restricted cash was $500.2 million. Restricted funds are subject to contractual controls and project, reserve or debt-service uses and should not be treated as freely available cash.
- Total assets were $8.37 billion, including net property, plant and equipment of $7.03 billion. Partners’ equity was $1.55 billion.
- Long-term debt was $6.59 billion principal, or $6.58 billion net of discounts and premiums; the balance sheet reports no current portion. The debt includes $1.67 billion of 7.50% notes due 2016, $420 million of 6.50% notes due 2020, $4.0 billion of liquefaction project notes due 2021–2023, $100 million drawn under liquefaction credit facilities and the $400 million CTPL facility.
- Current assets were $530.1 million and current liabilities were $200.7 million. Current assets include $176.5 million of restricted cash.
- Cash declined $25.7 million during the quarter. Operating cash flow was slightly negative; construction spending was largely funded through use of restricted cash. The partnership paid $24.8 million in distributions during the quarter.
Project outlook and management commentary
- Trains 1 and 2 were approximately 63% complete, and Trains 3 and 4 approximately 27% complete, as of March 31; management reported progress ahead of contractual schedules. Train 1 was expected to produce LNG as early as late 2015, with the subsequent trains expected to start in stages.
- Estimated total capital costs for Trains 1–4 were $9–$10 billion before financing costs and $12–$13 billion after financing costs, including estimated owner costs and contingencies. The filing says available commitments, borrowings and expected operating cash flows were expected to provide adequate resources to complete Trains 1–4 and meet anticipated needs.
- Sabine Pass Liquefaction had $4.9 billion of available commitments under its 2013 credit facilities. In April 2014, it entered a $325 million letter-of-credit and reimbursement agreement for project-related working capital.
- Four third-party 20-year LNG sale agreements cover 16 mtpa for Trains 1–4; two further agreements cover 3.75 mtpa associated with Train 5, which had not received construction approval. The FERC application for Trains 5 and 6 remained pending.
- On April 21, the partnership declared a $0.425 per common-unit distribution for Q1, payable May 15 to holders of record May 1. The partnership agreement generally requires distribution of available cash, subject to reserves; subordinated and Class B units have different distribution rights.
Risks, contingencies and unusual items
- Construction, regulatory approvals, project costs and timing, financing availability, LNG markets, and counterparties could affect anticipated project completion, cash flows and distributions. Forward-looking statements are not guarantees of performance.
- Debt is substantial and includes a large 2016 maturity; project debt is secured and subject to restrictive covenants, reserve requirements and distribution tests. Much of the cash reported is restricted.
- Interest-rate swaps create fair-value and market exposure. Management’s sensitivity analysis estimated a $30.1 million fair-value change for a 10% change in the forward one-month LIBOR curve.
- Affiliate charges are significant: affiliate general and administrative expense was $27.2 million in the quarter, up from $23.2 million. Management linked the increase mainly to construction-management fees based on project capital expenditures.
- The filing reported no material pending legal matter, no material off-balance-sheet arrangement, and no material change in internal control over financial reporting. Management concluded disclosure controls were effective.
Most important facts for investors to verify
- Construction progress, remaining cost estimates and schedule—particularly Train 1’s expected late-2015 production and the status of Trains 3–6 approvals.
- Whether restricted project funds, the $4.9 billion of available credit commitments and other financing sources remain sufficient as construction costs and timing evolve.
- Debt service and refinancing capacity, especially the $1.67 billion of 2016 notes and the covenant conditions governing subsidiary distributions.
- Cash available for partnership distributions after reserves, project funding and debt-service requirements; restricted cash is not freely deployable.
- How much of the quarterly derivative loss reflects non-cash fair-value movements versus realized cash costs, and how affiliate service charges develop as construction advances.