Cheniere Energy Partners, L.P. — Q2 2021 Form 10-Q
Business and period: The filing reports the three and six months ended June 30, 2021, compared with the same periods in 2020. The partnership operates the Sabine Pass LNG terminal and related pipeline. Five liquefaction trains were operating; Train 6 and a third marine berth were under construction. Train 6 was 89.6% complete at quarter-end, with substantial completion expected in the first half of 2022.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1.889 billion | $1.470 billion | $3.852 billion | $3.188 billion |
| Operating income | $604 million | $684 million | $1.222 billion | $1.348 billion |
| Net income | $395 million | $406 million | $742 million | $841 million |
| Net income per common unit | $0.73 | $0.78 | $1.38 | $1.62 |
| Operating cash flow | Not separately stated for the quarter | $1.075 billion | $874 million |
Q2 operating margin was approximately 32.0%, versus 46.5% a year earlier; six-month operating margin was approximately 31.7%, versus 42.3%. The decline reflects operating costs growing faster than revenue. Cash paid for interest, net of capitalized amounts, was $410 million in the first half, down from $483 million.
At June 30, 2021, cash and cash equivalents were $1.239 billion and restricted cash was $65 million. Available commitments were $804 million under the SPL working capital facility and $750 million under the CQP credit facilities. Total debt, net of discounts and issuance costs, was $17.589 billion, including $654 million current debt; partners’ equity was $571 million. The partnership reported covenant compliance.
First-half cash used in investing was $316 million, primarily for project construction, and distributions to owners totaled $710 million. The partnership paid $0.660 per common unit for Q1 and $0.655 for Q4 2020; after quarter-end it declared $0.665 per common unit for Q2, payable August 13, 2021.
Material changes versus the comparable period
- Revenue rose $419 million in Q2 and $664 million in the first half. LNG volumes recognized as revenue increased to 313 TBtu from 207 TBtu in Q2 and to 638 TBtu from 534 TBtu in the first half. Higher LNG revenue reflected higher revenue per MMBtu and greater delivered volumes.
- Operating costs rose $499 million in Q2 and $790 million in the first half, mainly because of higher natural-gas feedstock prices and increased LNG production. Consequently, operating income and net income declined despite revenue growth.
- 2020 results included accelerated LNG revenue from cargoes customers elected not to take: $388 million in Q2 and $404 million in the first half. No such revenue was recorded in the 2021 periods. This unusual prior-year item contributed to lower year-over-year margins and earnings.
- Net interest expense decreased by $27 million in Q2 and $44 million in the first half, largely following refinancing and increased capitalization of construction interest. First-half debt extinguishment loss was $54 million, compared with $43 million in 2020, due to redemption of the 2025 CQP notes.
- The partnership issued $1.5 billion of 4.000% notes due 2031 and used the proceeds, together with cash, to redeem $1.5 billion of 5.250% notes due 2025. The 2022 SPL notes contributed $654 million of current debt at quarter-end.
Outlook, commentary, and risks
Management said available cash, operating cash flows, debt proceeds and undrawn credit commitments were expected to provide adequate resources for anticipated capital, operating and debt-service needs for Trains 1–6. The filing gives no specific earnings or distribution guidance. Long-term customer contracts provide substantial contracted revenue visibility: $52.9 billion of unsatisfied transaction price at June 30, 2021, with estimated weighted-average recognition timing of nine years for LNG revenues overall. These amounts exclude substantially all variable consideration and are not a forecast of realized revenue.
Train 6 construction was progressing toward expected substantial completion in the first half of 2022. Its EPC contract, including estimated third-berth costs, was approximately $2.5 billion; $2.1 billion had been incurred by June 30. Subsequent to quarter-end, SPL agreed to sell additional LNG cargoes to Cheniere Marketing under agreements with deliveries scheduled from 2021 through 2027.
- Commodity derivatives are carried at fair value and can add earnings volatility. Their net fair value was a $15 million asset at June 30, compared with a $21 million liability at year-end; Level 3 valuations rely on significant unobservable inputs.
- Customer concentration is material: four external customers each represented at least 10% of first-half revenue. LNG contract revenue also depends in part on variable pricing and customer delivery elections.
- Two LNG storage tanks remained out of service following 2018 incidents. In July 2021, PHMSA proposed a $2.2 million civil penalty related to alleged pipeline-safety violations. The partnership did not expect the matter and associated remediation to have a material adverse effect.
- Forward-looking results remain subject to LNG market conditions, natural-gas prices, construction execution, regulatory approvals, counterparties, financing and other risks. The filing reported no material change to the risk factors in the 2020 Form 10-K.
Investor verification points
- Assess whether higher LNG prices and volumes can offset feedstock-cost increases and sustain operating margins.
- Track Train 6 and the third marine berth for schedule, remaining expenditure and any construction changes.
- Review the 2022 SPL notes refinancing plan, debt maturities, interest costs, available facility commitments and covenant restrictions.
- Evaluate distribution coverage against operating cash flow, construction spending, debt service and the partnership’s available-cash requirements.
- Monitor tank remediation and PHMSA/FERC requirements, the proposed penalty, derivative valuation assumptions, and exposure to concentrated customers and affiliates.