Cheniere Energy, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Cheniere develops and operates U.S. LNG export and regasification infrastructure. Sabine Pass Trains 1–3 were in commercial operation by quarter-end; Train 4 was in commissioning and Train 5 was under construction. Corpus Christi Stage 1 remained under construction.
Financial performance and position
| Metric | Q1 2017 | Q1 2016 / prior date |
|---|---|---|
| Total revenue | $1.211 billion | $69 million |
| LNG revenue | $1.143 billion | $3 million |
| Operating income (loss) | $376 million | $(91) million |
| Operating margin | 31.0% (calculated) | Loss from operations |
| Net income (loss) | $172 million consolidated; $54 million attributable to common stockholders ($0.23 per diluted share) | $(349) million consolidated; $(321) million attributable to common stockholders ($(1.41) per diluted share) |
| Net interest expense | $165 million | $76 million |
| Operating cash flow | $309 million | $(131) million |
| Investing cash flow | $(1.290) billion, primarily project construction | $(1.168) billion |
| Financing cash flow | $2.095 billion | $1.423 billion |
| Cash, cash equivalents and restricted cash | $2.941 billion, including $2.018 billion restricted | $1.827 billion at December 31, 2016 |
| Total debt, net | $24.112 billion | $21.935 billion at December 31, 2016 |
| Property, plant and equipment, net | $22.016 billion | $20.635 billion at December 31, 2016 |
Material changes and notable items
- Results reflect the ramp-up of Sabine Pass LNG operations, which began in 2016; the prior-year quarter largely preceded commercial LNG operations. Cheniere recognized revenue on 140 million MMBtu of operational LNG and 18 million MMBtu of commissioning LNG in Q1 2017.
- Operating cash flow improved by $440 million year over year, primarily from LNG cargo receipts. Construction investment remained substantial, and the quarter’s net increase in cash and restricted cash was mainly funded by debt issuance.
- SPL issued $800 million of 5.00% senior secured notes due 2037 and approximately $1.35 billion of 4.200% notes due 2028. It used proceeds in part to repay borrowings and terminated $1.6 billion of remaining commitments under its prior credit facilities, recording a $42 million debt-extinguishment loss.
- Cheniere entered into a $750 million revolving credit facility for potential CCL development funding and, subject to conditions, general corporate purposes. No amounts were drawn at quarter-end; availability is subject to stated conditions.
- Derivative results shifted from a $181 million net loss in Q1 2016 to a $1 million net gain in Q1 2017. Higher interest expense and the debt-extinguishment charge partly offset improved operating results.
- Common-stockholder earnings were also affected by non-controlling interests, including an approximately $84 million allocation related to amortization of the Cheniere Partners Class B units’ beneficial conversion feature. Management estimated approximately $748 million for full-year 2017 based on quarter-end ownership.
Outlook, risks and contingencies
- No specific consolidated earnings or cash-flow guidance is provided. Management said it expected available resources to fund anticipated needs for at least the next 12 months through a mix of project debt, operating cash flows, existing cash and financing, with funding arrangements varying across subsidiaries.
- Management expected Sabine Pass Trains 4 and 5 to reach substantial completion in the second half of 2017 and 2019, respectively. Corpus Christi Stage 1 was 59.1% complete; Train 1 was expected in the first half of 2019 and Train 2 in the second half of 2019. These are forward-looking estimates.
- Estimated total capital costs for Sabine Pass Trains 1–5 were $12.5–$13.5 billion before financing costs and $17.5–$18.5 billion including financing costs. Corpus Christi Stage 1 estimates were $9.0–$10.0 billion before financing and $11.0–$12.0 billion including financing. Construction costs, financing availability and timing remain important execution risks.
- Non-FTA export authorizations for Sabine Pass and Corpus Christi were subject to pending appeals. Authorization for Corpus Christi Stage III non-FTA exports was pending. The filing also identifies risks around LNG markets, counterparties, commodity prices, project completion, financing and regulatory approvals.
- Four customers accounted for 75% of Q1 revenue; four customers represented 82% of accounts receivable at March 31. Certain physical gas derivative valuations rely on unobservable inputs, creating estimation risk.
- Management reported no pending legal matter expected to materially affect results, financial position or cash flows, and no material change in previously disclosed risk factors. Disclosure controls were assessed as effective.
Most important facts for investors to verify
- Sabine Pass and Corpus Christi construction progress, completion dates, remaining capital needs and any changes to project cost estimates.
- Debt maturities, interest burden, covenant requirements, refinancing needs and the conditions governing credit-facility availability; distinguish unrestricted cash from restricted cash.
- Whether LNG operating cash generation and contracted fixed-fee revenues develop as expected, and the effect of customer concentration and cargo marketing.
- Results of export-authorization appeals and pending regulatory approvals, plus the impact of Class B unit conversion and its non-controlling-interest allocation on parent-company earnings.