Cheniere Energy, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2012. Amounts below are in U.S. dollars; financial statement figures are generally in millions unless stated otherwise.
Business context and reporting period
Cheniere owns and operates the Sabine Pass LNG terminal and Creole Trail Pipeline and is developing liquefaction facilities at Sabine Pass through Cheniere Partners, in which it reported a 66.4% ownership interest. The filing primarily reflects a major transition from an LNG receiving-terminal business toward construction of LNG export facilities. The statements are unaudited, and management cautions that interim results are not necessarily indicative of full-year results.
Key financial metrics
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Total revenue | $66.0 | $65.8 | $198.8 | $217.9 |
| Operating income (loss) | $(54.5) | $10.4 | $(59.9) | $50.4 |
| Net loss attributable to common stockholders | $(109.0) | $(53.9) | $(238.5) | $(140.9) |
| Net loss per share, basic and diluted | $(0.52) | $(0.67) | $(1.40) | $(1.94) |
| Net cash used in operating activities | Not stated for the quarter | $(105.0) | $(39.9) |
At September 30, 2012, total assets were $4.384 billion, including $2.995 billion of net property, plant and equipment. Total equity was $1.865 billion, compared with a $173.0 million deficit at year-end 2011. Long-term debt, net of discount, was $2.296 billion; there was no current debt reported. The debt consisted primarily of $2.216 billion of Sabine Pass LNG Senior Notes and $100 million drawn under the Liquefaction Credit Facility.
Cash and cash equivalents were $215.0 million, while restricted cash totaled $768.4 million. Management said the unrestricted cash was available to Cheniere; cash held by Cheniere Partners and Sabine Pass LNG was restricted as to Cheniere, although some was available for those entities’ own purposes. Consolidated cash and restricted cash together were approximately $983.4 million. Current liabilities were $168.1 million.
Material changes versus the prior comparable period
- Nine-month revenue declined $19.1 million, largely reflecting lower LNG and natural-gas marketing results. Marketing and trading moved from $10.1 million of revenue in 2011 to a $1.6 million loss in 2012; the filing cites reduced LNG export activity and termination of the LNGCo agreements.
- Nine-month operating results moved from $50.4 million income to a $59.9 million loss. General and administrative expense rose to $120.2 million from $57.1 million, principally due to vesting under the Long-Term Commercial Bonus Pool. LNG terminal and pipeline development expense increased to $54.6 million from $32.9 million.
- Nine-month net loss attributable to common stockholders increased to $238.5 million from $140.9 million, despite lower net interest expense ($159.7 million versus $193.9 million). Per-share loss narrowed, but weighted-average shares increased substantially, to 170.4 million from 72.7 million.
- Cash used in operations increased to $105.0 million from $39.9 million. Investing used $75.0 million; cash capital spending on LNG terminal and pipeline construction-in-process was $871.2 million. Financing provided $1.2 billion from Cheniere common stock sales, $887.6 million from Cheniere Partners’ Class B unit sales, and $100 million of project-facility borrowing, among other sources. Cash and cash equivalents fell by $244.2 million during the period.
- Cheniere repaid or converted its 2007 Term Loan, 2008 Loans and Convertible Senior Unsecured Notes during 2012. This reduced parent-level debt but did not eliminate subsidiary debt; the Liquefaction Credit Facility was newly established and Sabine Pass LNG’s Senior Notes remained outstanding at quarter-end.
Outlook, management commentary, risks and unusual items
- Liquefaction project: Construction of Sabine Pass LNG trains 1 and 2 received a full notice to proceed in August 2012. Management estimated their construction cost at $4.5–$5.0 billion before financing costs and expected the first train to begin operations in late 2015, with the second following approximately six to nine months later. These are forward-looking estimates, not guarantees.
- Project financing and commercial arrangements: The $3.6 billion secured facility is intended to fund part of trains 1 and 2. At quarter-end, only $100 million had been drawn; further advances depend on specified equity/debt funding, project expenditure and pipeline-funding conditions. Four third-party SPAs covered approximately 16 mtpa, with stated annual payments of about $2.3 billion plus a gas-price-linked amount.
- Funding and liquidity constraints: A substantial portion of reported cash was restricted by indentures, project-financing arrangements or other contractual limits. Cheniere’s entities have independent capital structures, so consolidated cash should not be assumed to be freely transferable. Project completion and future funding depend on financing, construction execution, regulatory approvals and other conditions.
- Subsequent financing: In October 2012, Sabine Pass LNG repurchased approximately 97% of its 2013 Notes, using proceeds that included $420 million of new 6.50% notes due 2020 and an equity contribution from Cheniere Partners. It expected to redeem the remaining approximately $16.5 million in November. Blackstone’s investment in Cheniere Partners’ Class B Units reached $1.3 billion in October.
- Unusual expense items: Q3 G&A included a significant effect from Long-Term Commercial Bonus Pool awards. The company recognized a $12.3 million expense related to termination of the Crest Royalty, alongside recording a $13.2 million non-current asset for expected Freeport LNG settlement proceeds. Nine-month results also included a $15.1 million loss on early extinguishment of debt.
- Other risks and contingencies: Interest-rate swaps had a $29.7 million fair-value liability at September 30; management estimated that a 10% change in the forward LIBOR curve would change their fair value by about $19.1 million. An ownership change subjected approximately $1.4 billion of tax NOL carryforwards to annual limitations, although management said it did not expect this limitation to prevent full use of existing carryforwards. Management reported no pending legal matter expected to have a material adverse effect and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether construction cost, schedule and financing assumptions for trains 1 and 2 remain achievable, and whether required conditions for further facility advances are met.
- How much cash is actually available to Cheniere versus restricted at subsidiaries or committed to project uses, and the implications of the entities’ separate capital structures.
- The final cost and accounting impact of the bonus awards, debt financing fees, construction changes and other project costs.
- Whether the October 2013-note refinancing and remaining redemption were completed as expected, and how the new 2020 Notes affect subsidiary debt service.
- Progress on Corpus Christi regulatory approvals, commercial contracts and financing; the filing reported DOE export authorization to FTA countries in October 2012, but construction remained conditional on additional arrangements and approvals.