Business context and reporting period
Cheniere Energy, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2020. It operates LNG export facilities at Sabine Pass, Louisiana, and Corpus Christi, Texas. At quarter-end, Sabine Pass had five operating trains and Train 6 under construction; Corpus Christi had two operating trains and Train 3 commissioning. Reported consolidated results include Cheniere Partners, in which Cheniere held a 48.6% limited partner interest, so consolidated earnings and cash are not wholly attributable or freely available to Cheniere common stockholders.
Financial performance and position
Amounts below are in millions except per-share data. The filing does not provide a clear standalone gross margin figure; operating margins shown are calculated from reported operating income and revenue.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $2,402 | $2,292 | $5,111 | $4,553 |
| Income from operations | $937 | $432 | $2,283 | $1,038 |
| Operating margin | 39.0% | 18.8% | 44.7% | 22.8% |
| Net income (loss) attributable to common stockholders | $197 | $(114) | $572 | $27 |
| Diluted earnings (loss) per share | $0.78 | $(0.44) | $2.26 | $0.11 |
| Net cash provided by operating activities | Not separately presented for the quarter | $1,028 | $760 |
For the six months, investing cash outflow was $1,090 million, principally for project construction and a $100 million investment in Midship Holdings. Financing cash outflow was $388 million; cash, cash equivalents and restricted cash declined $450 million to $2,544 million. The latter comprised $2,039 million of cash and cash equivalents and $505 million of restricted cash. Six-month operating cash flow less investing cash flow was negative $62 million.
At June 30, 2020, total debt, net, was $31,044 million ($237 million current and $30,807 million long-term). Total assets were $35,846 million and total equity $2,996 million, including $2,574 million of non-controlling interest. Current assets were $3,827 million versus current liabilities of $1,464 million. Cash held by consolidated subsidiaries and restricted cash are subject to project-level restrictions. The company reported compliance with debt covenants.
Material changes versus prior comparable periods
- Q2 revenue increased $110 million and common-stockholder results improved by $311 million, from a $114 million loss to $197 million of income. Six-month revenue rose $558 million and common-stockholder income increased $545 million.
- Operating costs fell $395 million in Q2 and $687 million for the six months, mainly because of lower cost of sales, including lower natural-gas feedstock costs. Operating and maintenance expense and depreciation increased as additional trains operated; six-month interest expense also rose $200 million.
- Revenue included $708 million in Q2 and $761 million in the first half from LNG cargoes customers notified Cheniere they would not take. Under the contracts, customers generally remained obligated to pay fixed fees. Of the six-month amount, $458 million otherwise would have been recognized after June 30 if the cargoes had been lifted on schedule.
- Six-month 2020 results included increased commodity-derivative gains, while derivative fair-value changes contributed volatility. The filing also reports a $43 million Q2 debt extinguishment loss associated with redeeming SPL’s 2021 notes.
- Capital spending on property, plant and equipment was $983 million for the first half, compared with $1,508 million in 2019. Share repurchases totaled $155 million for approximately 2.9 million shares; $596 million remained under the authorized program at June 30.
Outlook, risks and unusual items
- Management said weaker LNG demand and prices, high storage inventories, COVID-19 and customer cargo cancellations could affect production and future revenue. It did not expect cancellations to materially adversely affect forecast 2020 financial results, citing fixed-fee obligations and the contracted nature of the business. The filing gives no numeric earnings or cash-flow guidance.
- Cheniere had incurred approximately $62 million of incremental COVID-19 response costs through June 30 and expected further costs while pandemic risks persisted. Management noted that cancellations may reduce revenue in later periods when the relevant deliveries would otherwise have occurred.
- Train 3 at Corpus Christi was 90.5% complete, with substantial completion expected in the first half of 2021. Sabine Pass Train 6 was 63.9% complete, with expected substantial completion in the second half of 2022. Corpus Christi Stage 3 remained subject to an EPC contract, additional commercial support and financing before a final investment decision.
- After quarter-end, Cheniere increased its term-loan facility to $2.695 billion and borrowed $2.323 billion. Proceeds were used to redeem the remaining 2025 CCH HoldCo II convertible notes and repurchase $844 million principal amount of 2021 Cheniere convertible notes; further repayment or repurchases were expected. Available term-loan commitments fell to $372 million after these transactions. These are post-quarter events, not June 30 borrowings.
- Other notable exposures include substantial debt and interest-rate risk, derivative valuation risk (including $590 million of Level 3 physical supply derivative assets), customer concentration, and $1.7 billion of legally binding future minimum vessel-charter payments not yet included in recognized lease liabilities. Management said ordinary-course legal proceedings and environmental compliance were not expected to have a material adverse effect; no material changes to previously disclosed legal proceedings or risk factors were reported.
Investor verification points
- Verify how much of reported revenue and earnings depended on cancellation-related fixed fees, and how later-period delivery deferrals may affect results.
- Review the July debt refinancing, the remaining 2021 convertible-note balance and repayment plan, and the related interest, fees, collateral and maturity obligations.
- Assess unrestricted liquidity by entity, since consolidated cash includes project-company balances and $505 million was restricted at quarter-end; also distinguish June 30 liquidity from post-quarter facility usage.
- Track Train 3 and Train 6 completion dates, costs and financing, and the commercial and funding milestones required for Corpus Christi Stage 3 FID.
- Evaluate LNG market, customer credit and concentration risks, COVID-19 costs, derivative fair-value sensitivity, and the future vessel-charter commitments.