Cheniere Energy, Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Amounts below are in U.S. dollars; financial figures are consolidated and unaudited. Cheniere develops and operates LNG terminals and liquefaction projects and conducts LNG and natural-gas marketing.
Key financial results
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $465.7 million | $66.1 million | $711.6 million | $202.5 million |
| Operating income (loss) | $15.3 million | $(52.1) million | $(151.7) million | $(208.2) million |
| Net loss attributable to common stockholders | $(100.4) million | $(297.8) million | $(719.7) million | $(684.0) million |
| Basic and diluted loss per share | $(0.44) | $(1.31) | $(3.15) | $(3.02) |
| Net cash used in operating activities | Not separately stated | Not separately stated | $(199.0) million | $(274.6) million |
Operating margins are not separately reported. Cash and cash equivalents were $990.1 million at September 30, 2016, with restricted cash of $858.7 million. Total debt, net, was $20.8 billion, including $1.8 billion classified as current; debt was $16.6 billion at year-end 2015. Total assets were $22.7 billion and total equity was $705.7 million, including a $1.6 billion stockholders’ deficit.
Net investing cash flow was a $12.2 million outflow, but this reflects substantial use and replenishment of restricted project cash: the company reported $3.5 billion of cash, cash equivalents and restricted cash used in investing activities. Financing cash flow was nearly flat at $0.3 million, following large gross debt issuance and repayment activity.
Material changes and operating progress
- Revenue rose sharply as Sabine Pass Train 1 reached substantial completion in May and Train 2 in September, and the company began recognizing LNG sales from the trains. Q3 LNG revenue was $398.6 million versus a $1.6 million loss in Q3 2015; regasification revenue was broadly stable.
- Q3 operating results improved to income from a loss, primarily reflecting LNG operations and lower derivative losses. For the nine-month period, the operating loss narrowed, but the common-stockholder net loss increased, mainly because of higher interest expense and restructuring costs.
- Interest expense, net of capitalized interest, rose to $330.4 million for the first nine months from $238.7 million. Total interest cost was $951.3 million, of which $620.9 million was capitalized.
- Operating costs increased as the Sabine Pass trains entered service and prior-year cost recovery did not recur. The company recorded $49.2 million of restructuring expense and $82.5 million of early debt-extinguishment losses in the first nine months of 2016.
- Operating cash outflow improved year over year, which management attributed principally to increased LNG cargo receipts, partly offset by higher operating costs and cash payouts for phantom units. Project construction remained a major cash requirement.
Projects, outlook and risks
- Sabine Pass Trains 1 and 2 were substantially complete; Train 3 was in commissioning. Trains 3 and 4 were 91.8% complete overall and Train 5 was 42.8% complete at quarter-end. Management expected Trains 3 and 4 to reach substantial completion in 2017 and Train 5 in 2019. The company said project progress was ahead of contractual schedules.
- Corpus Christi Stage 1 was 43.0% complete overall. Management expected Trains 1 and 2 to reach substantial completion in 2019. Estimated capital costs for Stage 1 were $9–10 billion before financing costs, or $11–12 billion including financing costs, owner’s costs and contingencies. These are estimates, not guarantees.
- Management stated it expected each independent capital structure’s cash needs for at least the next twelve months to be met through combinations of operating cash flow, available cash, project financing, debt or equity offerings, and contributions or distributions. The filing does not provide a consolidated earnings or cash-flow forecast.
- Sabine Pass Trains 1–5 expected capital costs were estimated at $12.5–13.5 billion before financing costs and $17–18 billion including financing costs, owner’s costs and contingencies. Management said adequate resources were available to complete these trains and meet anticipated requirements.
- In October, SPLNG gave notice it would redeem $400 million of 2020 notes at 103.25% of principal and repay approximately $1.7 billion of 2016 notes at par on November 30, using the SPLNG tranche of Cheniere Partners’ credit facilities.
- Material risks include high leverage and interest costs, construction execution and funding needs, project and market conditions, derivative valuation volatility, and customer and counterparty exposure. One SPA customer generated 44% of net LNG revenue in Q3 and 50% for the first nine months. A challenge to a DOE non-FTA export authorization remained pending in court; another rehearing request had not received a final ruling.
- In the Parallax matter, the company is pursuing repayment of an approximately $46 million secured note; jurisdictional discovery was ongoing. Parallax had sought $400 million in a separate suit, but voluntarily dismissed its claims without prejudice. Cheniere said it did not expect the litigation to materially adversely affect results.
- The filing reported no material changes to previously disclosed risk factors, no material off-balance-sheet arrangements, and effective disclosure controls. Restructuring and operational-efficiency initiatives were expected to be substantially complete by year-end 2016.
Most important facts for investors to verify
- Actual commissioning-to-commercial-operation timing, production, cargo economics and operating costs for Sabine Pass Trains 1–3.
- Construction progress, final costs, financing availability and milestone timing for Sabine Pass Trains 3–5 and Corpus Christi Stage 1.
- Debt maturities, funding and completion of the planned November 2016 SPLNG note redemption and repayment, and the resulting interest burden and liquidity at each subsidiary.
- Availability of unrestricted cash: $858.7 million of reported restricted cash is designated for specified project, debt-service or other purposes.
- Derivative valuation and sensitivity, customer concentration, DOE export approvals and litigation developments, including the Parallax proceedings.