Cheniere Energy Partners, L.P. annual report, FY2021

Cheniere Energy Partners, L.P. — FY2021 Form 10-K

Reporting period: Year ended December 31, 2021. This annual filing reports full-year results, not standalone fourth-quarter financial statements. Amounts are U.S. dollars unless noted.

Business context

CQP operates the Sabine Pass LNG export and regasification terminal in Louisiana and the 94-mile Creole Trail Pipeline. At year-end, five liquefaction trains were operating and Train 6 was 99.5% complete; it reached substantial completion on February 4, 2022. The facility’s total production capacity is approximately 30 mtpa. CQP had contracted about 75% of capacity under long-term SPAs, with a weighted-average remaining term of approximately 16 years. Many contracts require fixed-fee payments even when customers cancel or suspend cargo deliveries.

Financial performance and liquidity

Metric	FY2021	FY2020
Total revenue	$9.434 billion	$6.167 billion
Income from operations	$2.557 billion	$2.125 billion
Net income	$1.630 billion	$1.183 billion
Net income per common unit	$3.00	$2.32
Cash provided by operating activities	$2.291 billion	$1.751 billion
Cash used in investing activities	$648 million	$972 million
Cash distributions to owners	$1.451 billion	$1.359 billion

Revenue rose approximately 53% and net income approximately 38%. LNG revenue recognized rose to $9.112 billion, including $1.472 billion from affiliates; regasification revenue was $269 million. LNG volume recognized as revenue increased to 1,288 TBtu from 991 TBtu. Operating margin was approximately 27.1% of revenue and net margin approximately 17.3%, calculated from reported figures.

Higher LNG delivery volumes and increased revenue per MMBtu drove growth. Cost of sales increased to $5.290 billion from $2.505 billion, primarily due to higher U.S. natural-gas prices and greater delivered volumes. FY2020 included $553 million of revenue from cargoes customers elected not to take; there was no comparable revenue in FY2021. Net interest expense declined to $831 million from $909 million, while debt modification or extinguishment losses increased to $101 million from $43 million.

At December 31, 2021, cash and cash equivalents were $876 million, restricted cash was $98 million, and available credit commitments were $1.555 billion, for total reported available liquidity of $2.529 billion. Principal debt outstanding was $17.332 billion; the weighted-average interest rate on senior notes was 4.86%. CQP and SPL had no credit-facility borrowings outstanding and were in covenant compliance. Operating cash flow increased by $540 million, principally reflecting working-capital movements and the timing of LNG-sale receipts.

Material changes and significant events

• FY2021 U.S. and international LNG prices rose sharply amid strong demand, limited supply availability and low inventories. Sabine Pass exports reached approximately 25 million tonnes.
• CQP issued $1.5 billion of 4.000% notes due 2031 and $1.2 billion of 3.25% notes due 2032; SPL issued approximately $482 million of 2037 secured notes. Proceeds and cash were used in part to redeem $3.6 billion of higher-coupon notes.
• Train 6 achieved substantial completion after year-end. The third marine berth remained under construction; the combined EPC contract price for Train 6 and the berth was approximately $2.5 billion, with about $0.2 billion remaining at year-end.
• In February 2022, CQP announced a planned quarterly distribution structure comprising a base amount and a variable amount, expected to begin with the first-quarter 2022 distribution. The anticipated base was $0.775 per unit, with the variable amount dependent on available cash and reserves. The fourth-quarter 2021 distribution of $0.700 per common unit was paid on February 14, 2022.
• S&P upgraded CQP’s issuer credit rating from BB to BB+ in February 2022. These developments occurred after the reporting date.

Outlook, risks and contingencies

Management expects LNG production available for sale to increase following Train 6’s completion. Estimated future consideration under executed contracts was $128.3 billion: $51.4 billion of fixed-fee LNG revenue, $75.0 billion of variable-fee LNG revenue and $1.9 billion of regasification revenue. Variable-fee estimates assume customers take contracted cargoes and rely on forward prices and other assumptions; they are not guaranteed cash flows. Estimated executed-contract operating and capital payments totaled $21.4 billion, while scheduled debt principal and interest payments totaled $22.1 billion.

• Customer and market exposure: Five customers each represented at least 10% of external-customer revenue; the largest represented 24%. Contractual fixed fees provide support, but default, termination rights, counterparty credit deterioration or difficulty replacing contracts could affect cash flows.
• Debt, distributions and structural liquidity: Debt covenants can restrict subsidiary distributions, including requirements for debt-service reserves and coverage ratios. SPL and CQP have independent capital structures, so consolidated cash is not necessarily freely available throughout the group. The partnership’s distribution policy is subject to available cash, reserves and debt restrictions.
• Operations and supply: Hurricanes, extreme weather, accidents, pipeline interruptions, cyberattacks, insufficient gas supply and labor constraints could disrupt production or deliveries. CQP does not insure against every potential loss.
• Regulation and environment: LNG and pipeline operations require continuing permits and regulatory compliance. Potential future methane or greenhouse-gas rules may raise costs or constrain operations; effects are uncertain.
• Derivatives and estimates: Derivative fair values affect earnings and may be volatile. Level 3 physical gas derivatives rely on significant unobservable inputs; KPMG identified their valuation as a critical audit matter. A 10% natural-gas price sensitivity produced a $1 million fair-value change at year-end 2021.
• Related parties and governance: CQP depends on Cheniere affiliates for management and operating services and has LNG sales arrangements with Cheniere Marketing. The general partner is controlled by Cheniere, and the partnership agreement limits unitholder voting rights and fiduciary-duty protections.
• Legal matters: PHMSA closed its 2018 tank-incident penalty case after SPL elected to pay the reduced $1.458 million penalty; related repair and remediation coordination continued. CQP was still discussing self-reported permit deviations with Louisiana regulators, but management did not expect a material financial impact. Management reported no pending legal matter expected to have a material impact.

Important facts for investors to verify

• How Train 6 and the third berth perform after completion, and whether production, costs and commercial deliveries track expectations.
• The assumptions behind the $75.0 billion variable-fee estimate, including customer delivery elections, gas prices and basis spreads.
• Debt maturity, refinancing and covenant requirements, and the cash actually available to CQP for distributions after subsidiary restrictions and reserves.
• Customer concentration, credit support and affiliate exposure, including the economics and governance of Cheniere Marketing transactions.
• Progress on tank repairs, environmental and regulatory compliance, and any material changes in weather, cyber or pipeline risks.
• The proposed base-plus-variable distribution policy and actual distributions declared. The filing reports unqualified audit opinions on the financial statements and internal controls as of year-end.