Cheniere Energy Partners, L.P. quarterly report, Q2 FY2010

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Cheniere Energy Partners, L.P. - 10-Q Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2010. Cheniere Energy Partners, L.P. (the "Partnership") owns and operates the Sabine Pass LNG receiving terminal in Louisiana through its wholly-owned subsidiary, Sabine Pass LNG, L.P. The terminal has a regasification capacity of approximately 4.0 billion cubic feet per day (Bcf/d) and is fully reserved under long-term Terminal Use Agreements (TUAs) with Total, Chevron, and an affiliate, Cheniere Energy Investments, LLC ("Investments").

Key Financial Metrics

Metric Six Months Ended June 30, 2010 Six Months Ended June 30, 2009
Total Revenues $260.5 million $158.2 million
Net Income $117.2 million $55.5 million
Operating Cash Flow $84.4 million $83.6 million
Net Income Per Limited Partner Unit $0.71 $0.34
Total Long-Term Debt (Net of Discount) $2.185 billion $2.183 billion
Cash and Cash Equivalents $60.1 million $128.8 million
Restricted Cash and Cash Equivalents $96.1 million $96.1 million

Note: The filing does not explicitly state a net profit margin percentage; however, net income represented approximately 45% of total revenues for the six-month period ended June 30, 2010.

Material Changes vs. Prior Period

  • Revenue Growth: Total revenues increased by $102.3 million (65%) compared to the prior year period. This was primarily driven by the commencement of full services under TUAs with Total (April 2009) and Chevron (July 2009).
  • Net Income Increase: Net income rose by $61.7 million (111%) due to increased revenue, partially offset by higher operating expenses, depreciation, and interest expense as the terminal reached full operability.
  • Expense Increases:
    • Depreciation: Increased by $7.3 million to $21.1 million as the terminal began full depreciation.
    • Interest Expense: Increased by $20.8 million to $87.1 million due to reduced capitalization of interest following the completion of construction.
    • Development Expenses: Incurred $1.1 million related to a proposed liquefaction project.
  • Cash Position: Unrestricted cash decreased by $57.5 million, primarily due to distributions to unitholders ($140.3 million) exceeding operating cash flow.

Outlook, Management Commentary, and Risks

  • Liquefaction Project: In June 2010, the Partnership initiated a project to add liquefaction services to the Sabine Pass terminal, aiming to transform it into a bi-directional facility. The initial phase targets two modular trains with an average capacity of 1.2 Bcf/d, with potential export commencement as early as 2015.
  • Contract Restructuring: In June 2010, Cheniere Marketing assigned its TUA to Investments (a wholly-owned subsidiary). Concurrently, Investments entered a Variable Capacity Rights Agreement (VCRA) with Cheniere Marketing. Under the VCRA, Cheniere Marketing pays Investments 80% of the expected gross margin of LNG cargoes. This restructuring means future consolidated revenues from the affiliate will reflect only VCRA income rather than full TUA capacity fees.
  • Distribution Policy: The Partnership distributed $140.3 million to unitholders for the six-month period. Future distributions to subordinated units depend on available cash after meeting minimum common unit distributions and reserves, which is now tied to the success of the VCRA and new business development.
  • Liquidity Risks: The Partnership's ability to make distributions is dependent on Sabine Pass LNG satisfying debt service requirements under the Sabine Pass Indenture. This requires maintaining a permanent debt service reserve fund of $82.4 million and meeting a 2:1 fixed charge coverage ratio.
  • Counterparty Risk: Cheniere Marketing, which monetizes the capacity under the VCRA, has a limited operating history and no credit rating. Cheniere Energy, Inc. guarantees these obligations but holds a non-investment grade rating.

Key Facts for Investor Verification

  • Debt Service Compliance: Verify that Sabine Pass LNG continues to meet the 2:1 fixed charge coverage ratio and maintains the $82.4 million debt service reserve fund required to permit distributions to the Partnership.
  • VCRA Performance: Monitor the actual gross margins generated under the Variable Capacity Rights Agreement with Cheniere Marketing, as this is the primary driver of future cash flow to subordinated unitholders.
  • Liquefaction Project Progress: Track regulatory approvals and financing arrangements for the proposed liquefaction expansion, as development costs are currently funded by existing cash reserves.
  • Counterparty Creditworthiness: Assess the financial stability of Cheniere Marketing and Cheniere Energy, Inc., given their critical role in monetizing terminal capacity and guaranteeing obligations.
  • Interest Rate Exposure: Note that the Partnership has significant fixed-rate debt ($2.2 billion principal), but interest expense is high due to the scale of the debt load relative to current cash flows.