Cheniere Energy Partners, L.P. — Q3 2020 Form 10-Q
Business context and period. The filing covers the quarter and nine months ended September 30, 2020. The Partnership owns and operates the Sabine Pass LNG terminal and pipeline, with five liquefaction trains operating and Train 6 under construction. Its long-term LNG contracts generally require customers to pay fixed fees even when they cancel or defer cargo deliveries.
Key financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $982 million | $1,476 million | $4,170 million | $4,930 million |
| Operating income | $152 million | $346 million | $1,500 million | $1,364 million |
| Operating margin | 15.5% | 23.4% | 36.0% | 27.7% |
| Net income (loss) | $(67) million | $110 million | $774 million | $727 million |
| Net income (loss) per common unit | $(0.08) | $0.19 | $1.55 | $1.38 |
| Operating cash flow | Not presented for quarter | $1,333 million | $977 million |
Operating margin is calculated from reported revenue and operating income. For the nine-month period, investing cash outflow, primarily construction spending, was $795 million; operating cash flow less that outflow was approximately $538 million. Distributions to owners were $1,011 million.
At September 30, cash and cash equivalents were $1.254 billion, with a further $157 million of restricted cash. Long-term debt, net, was $17.573 billion. Available commitments under the SPL working capital and CQP credit facilities totaled $1.537 billion, including $413 million of letters of credit; the Partnership and SPL reported compliance with debt covenants.
Material changes and notable items
- Q3 revenue fell $494 million year over year and the Partnership moved to a net loss. Management attributed the earnings decline primarily to cargo cancellations notified in prior periods: $244 million of revenue that otherwise would have been recognized in Q3 had already been recognized earlier. Q3 LNG volumes recognized as revenue were 132 TBtu, down from 277 TBtu.
- Nine-month net income rose $47 million, supported by lower natural-gas feedstock prices and additional LNG volume from a train reaching substantial completion. Lower operating costs contributed to operating cash flow increasing by $356 million.
- For the nine months, interest expense, net of capitalized interest, increased to $691 million from $648 million. The Partnership recorded $43 million of debt-extinguishment loss related to redeeming SPL’s 5.625% notes due 2021.
- In May, SPL issued $2.0 billion of 4.5% secured notes due 2030 and used the proceeds, with cash on hand, to redeem the 2021 notes. Total debt, net, was broadly unchanged from year-end 2019.
- All 135.4 million subordinated units converted one-for-one into common units effective August 17, 2020, ending the subordination period. The Partnership declared a Q3 distribution of $0.650 per common unit, payable November 13, 2020.
Outlook, risks and contingencies
- COVID-19 and LNG market: Management cited weaker demand, market volatility and customer cargo cancellations or deferrals, while noting prices had recovered from second-quarter lows and cancellations had declined. The Partnership recognized $513 million of revenue during the first nine months for cargoes customers elected not to take; $21 million of that amount would otherwise have been recognized after September 30. Management did not expect these events to materially adversely affect its forecast 2020 financial results, citing the contracted business and fixed-fee obligations. This is a management expectation, not a guarantee.
- COVID-related workforce and business-continuity measures cost approximately $36 million in the first nine months, including $1 million in Q3; incremental costs were expected to continue while pandemic risks persisted.
- Hurricane Laura caused a September shutdown, and affiliate cargo purchases contributed to higher affiliate cost of sales as SPL worked to meet customer commitments. The filing does not quantify the shutdown’s total financial impact.
- Train 6 was 70.9% complete at quarter-end, with substantial completion expected in the second half of 2022. Its EPC contract price was approximately $2.5 billion, including the third marine berth; $1.8 billion had been incurred. Management expected LNG revenue to increase when Train 6 becomes operational.
- Long-term contracted revenue provides visibility, but future results remain exposed to LNG demand and pricing, customer and counterparty performance, construction execution, natural-gas costs, derivatives and financing conditions. The company identified no material changes to previously disclosed legal proceedings or risk factors; no material off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- How cargo cancellations and deferrals, including the timing of fixed-fee recognition, affect future revenue, volumes and cash collections.
- Train 6 construction progress, remaining funding needs, schedule and total project cost, including the third marine berth.
- Debt service, refinancing and liquidity needs alongside the distribution policy and declared $0.650 per-unit distribution.
- Effects of COVID-19, operational interruptions and customer concentration on operations and counterparties.
- Commodity-derivative volatility and related-party arrangements, including affiliate LNG transactions and service costs.