Cheniere Energy Partners, L.P. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013. Financial statements are unaudited; 2012 comparisons were retrospectively adjusted to include the Creole Trail Pipeline Business under common-control accounting. Amounts below are in millions except per-unit data.
Business context
The partnership operates the Sabine Pass LNG regasification terminal and is building liquefaction facilities, while also owning the 94-mile Creole Trail Pipeline acquired in May 2013. Trains 1–4 are under construction; Trains 5–6 remain in development.
Financial results and liquidity
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $67.6 | $61.4 | $133.7 | $130.8 |
| Operating income (loss) | $(20.4) | $12.8 | $(14.8) | $31.9 |
| Net loss | $(47.0) | $(30.4) | $(98.7) | $(55.4) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(24.7) | $(17.5) |
- Q2 revenue rose about 10%; first-half revenue rose about 2%. Operating margin, calculated as operating income or loss divided by revenue, was approximately -30% in Q2 2013 versus 21% in Q2 2012, and -11% for the first half versus 24%.
- Common-unit net income per unit was reported at $0.11 for Q2 and $0.21 for the first half, compared with $0.17 and $0.40, respectively, in 2012. These per-unit figures reflect partnership distribution and allocation rules despite consolidated net losses.
- At June 30, cash and cash equivalents were $355.3; restricted cash was $2,310.8. Current assets were $945.7 and current liabilities $553.3. Much of the restricted balance is subject to collateral-agent controls and project-use conditions.
- Net long-term debt was $5,572.0, versus $2,167.1 at year-end 2012. Debt principal included $2,085.5 of Sabine Pass LNG notes, $3,000.0 of liquefaction senior notes, $400.0 under the CTPL facility and $100.0 under the 2013 liquefaction facilities.
- Capital spending and project financing drove substantial balance-sheet growth: net property, plant and equipment increased to $4,831.4 from $3,219.6.
Material changes and unusual items
- Net loss widened year over year, principally due to higher affiliate general and administrative and operating and maintenance expenses, and an $80.5 loss on early extinguishment of debt when the 2012 liquefaction facility was replaced. Lower development expense from capitalization of construction costs partly offset these items.
- Derivative gain was $95.5 in Q2 and $78.0 for the first half, largely reflecting fair-value changes in interest-rate derivatives; the gain is not equivalent to operating cash generation. Previously designated cash-flow hedges were discontinued, with losses reclassified into earnings.
- The partnership issued $3.0 billion of liquefaction senior notes, closed $5.9 billion of 2013 liquefaction credit facilities, drew $100.0 million on those facilities, and completed a $400.0 million CTPL term loan. It also sold common units for approximately $372.4 million net.
- The Creole Trail Pipeline Business was acquired for $480.0 million, with $180.0 million of Class B units issued to Cheniere and net cash paid of $313.9 million, including reimbursement of pre-closing expenditures.
Outlook, risks and contingencies
- Management reported Trains 1 and 2 approximately 38% complete at June 30 and ahead of contractual schedule. Train 1 was expected to produce LNG as early as late 2015, with commercial operations anticipated in February 2016; later trains were 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. Management believed available debt commitments and proceeds, equity contributions and SPA cash flows would provide adequate resources for Trains 1–4; this is a forward-looking assessment, not a guarantee.
- Construction, financing, schedule, permitting, commodity-price and counterparty risks remain material. Creole Trail modifications were estimated at about $100 million; FERC rehearing/stay and Louisiana permits were pending, with approvals anticipated but not assured.
- Long-term LNG contracts are expected to provide fixed fees as applicable trains enter service. The report gives no formal consolidated earnings or cash-flow guidance. Management’s construction and timing estimates are subject to change.
- Debt agreements impose covenants, reserve requirements and distribution restrictions. The CTPL facility matures in 2017; project facilities and notes are secured, and variable-rate exposure creates interest-rate risk. The partnership reported no pending legal matter expected to have a material adverse effect and no material off-balance-sheet arrangements.
- Class B units accrue conversion value at 3.5% per quarter and may convert into common units, creating potential dilution. The partnership declared a $0.425 per-common-unit distribution for Q2, payable August 2013.
Key investor verification points
- Confirm construction progress, total project cost trends, and whether Trains 1–4 remain on schedule and within funding assumptions.
- Assess how much reported cash is unrestricted and available for partnership needs versus held in project or debt-service accounts.
- Review debt covenants, interest-rate exposure, refinancing and repayment terms, and the effect of future borrowing on leverage.
- Examine affiliate charges and related-party arrangements, including construction-management fees and pipeline/terminal services.
- Evaluate potential common-unit dilution from Class B conversion, distribution coverage, and the timing and conditions for project cash distributions.