Cheniere Energy, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; financial statements are unaudited. Unless indicated otherwise, amounts below are in U.S. dollars. Cheniere operates the Sabine Pass LNG import terminal through its 56.4%-owned Cheniere Partners and is developing LNG export facilities at the site.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 / prior period |
|---|---|---|
| Revenue | $65.9 million | $70.5 million |
| Operating income (loss) | $(67.5) million | $0.7 million |
| Net loss attributable to common stockholders | $(117.1) million | $(56.4) million |
| Basic and diluted loss per share | $(0.54) | $(0.43) |
| Net cash used in operating activities | $(13.2) million | $(68.7) million |
- Revenue fell about 6.5%. Operating costs and expenses rose to $133.4 million from $69.8 million; the resulting operating margin was approximately negative 102%.
- General and administrative expense increased to $85.8 million from $20.0 million, primarily reflecting the February 2013 Train 3 and Train 4 long-term commercial bonus awards. Share-based compensation expense recognized in the quarter was $63.7 million, compared with $2.3 million a year earlier.
- Derivative loss increased to $17.5 million from $0.8 million, primarily due to fair-value changes in interest-rate swaps. Net interest expense decreased to $40.3 million from $58.4 million, reflecting lower debt outstanding and capitalized interest on project construction.
- Cash and cash equivalents were $178.0 million at March 31, down from $201.7 million at year-end. Restricted cash was $2.189 billion. Most cash held by Cheniere Partners and Sabine Pass entities was restricted as to use or withdrawal by Cheniere; it should not be treated as freely available parent-company liquidity.
- Current assets were $925.6 million and current liabilities were $291.4 million, but current assets include substantial restricted cash. The filing reports $178.0 million of unrestricted cash available to Cheniere.
- Long-term debt, net of discount, was $3.668 billion, versus $2.167 billion at December 31, 2012. Principal debt was $3.686 billion, including $1.5 billion of 5.625% senior secured notes due 2021 issued in February. The notes are project-level secured obligations.
- Cash used in investing activities was $10.0 million net, reflecting $464.2 million of LNG terminal and pipeline spending substantially offset by restricted-cash use. Financing activities used $0.5 million net; cash declined by $23.7 million overall. Capital additions, including accrued amounts, were $557.2 million.
Material changes and significant events
- Train 1 and Train 2 construction was approximately 26% complete at March 31 and described as significantly ahead of contractual schedule. Management anticipated first LNG production as early as the end of 2015.
- Cheniere Partners raised approximately $365 million net from a March common-unit offering for Liquefaction Project costs and general business purposes.
- After quarter-end, Sabine Pass Liquefaction issued an additional $500 million of 2021 notes and $1.0 billion of 2023 notes. The filing says approximately $1.466 billion of net proceeds was intended for Train 1 and Train 2 costs; approximately $1.4 billion of credit-facility commitments was terminated, with about $75 million of related issuance costs written off in April.
- Cheniere Partners entered an LNG sale and purchase agreement with Centrica for Train 5, with stated expected annual fixed-fee cash flow of $274 million when deliveries commence.
Outlook, risks and contingencies
- Management expected Sabine Pass Liquefaction’s available notes proceeds and construction-loan commitments to provide adequate resources for Train 1 and Train 2 and anticipated operating cash flow by the end of 2015. This is forward-looking and depends on construction, financing and start-up assumptions.
- Train 3 and Train 4 construction remained conditional on sufficient financing and a positive final investment decision. Train 5 and Train 6 were in development and regulatory review. Estimated pre-financing construction costs were $4.5–$5.0 billion for each of Train 1 and 2 and Train 3 and 4.
- Six long-term SPAs covered approximately 19.75 million metric tons per year, about 88% of nominal capacity for Trains 1 through 5, with aggregate fixed fees stated at approximately $2.9 billion annually once applicable operations commence. Actual timing depends on train completion and delivery commencement.
- Restricted project cash, debt-service reserve requirements, debt covenants and separate capital structures limit where cash can be used. The filing also identifies construction cost and schedule, financing, permitting, LNG and natural-gas market, and derivative valuation risks.
- Interest-rate swaps were de-designated as cash-flow hedges effective February 1, 2013 after the financing strategy changed; subsequent fair-value changes were recorded in earnings. The quarter included a $17.5 million net derivative loss.
- Management reported no off-balance-sheet arrangements with a potentially material effect and no pending legal matters expected to have a material adverse effect. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether Train 1 and Train 2 remain on schedule and within the disclosed cost estimates, and whether first production can begin by the stated target.
- How much cash is unrestricted and available at each legal entity, including the effects of post-quarter financing and project spending.
- The terms and remaining availability of the Liquefaction Credit Facility after the April note offerings and commitment reductions.
- Progress toward financing and final investment decisions for Train 3 and Train 4, and the regulatory and commercial status of Trains 5 and 6.
- The scale, vesting conditions and future expense effects of the Train 3 and Train 4 share-based bonus awards, and ongoing derivative fair-value exposure.