Cheniere Energy Partners, L.P. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 23, 2021. The filing also reports fourth-quarter results. Cheniere Energy Partners (CQP) owns and operates the Sabine Pass LNG terminal and the 94-mile Creole Trail Pipeline. Five liquefaction trains were operating; Train 6 was under construction.
Financial and operating performance
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $6.167 billion | $6.838 billion |
| Income from operations | $2.125 billion | $2.040 billion |
| Net income | $1.183 billion | $1.175 billion |
| Net income per common unit | $2.32 | $2.25 |
| Net cash from operating activities | $1.751 billion | $1.547 billion |
| Cash capital expenditures | $972 million | $1.331 billion |
| Cash distributions to owners | $1.359 billion | $1.260 billion |
| Cash and cash equivalents, year-end | $1.210 billion | $1.781 billion |
| Total debt outstanding, before unamortized costs | $17.750 billion | $17.750 billion |
Margins: Operating margin was approximately 34.5% in 2020, up from 29.8% in 2019; net margin was approximately 19.2%, compared with 17.2%. The filing does not provide a single consolidated liquidity ratio. At year-end, CQP also reported $97 million of restricted cash, $750 million available under its revolving credit facility, and $787 million available under SPL’s working-capital facility; the latter amount is net of letters of credit.
Fourth quarter: Revenue was $1.997 billion and net income was $409 million, versus $1.908 billion and $448 million, respectively, in fourth-quarter 2019. Fourth-quarter 2020 basic and diluted earnings were $0.77 per common unit, compared with $0.87.
Changes versus the prior year
- Revenue declined $671 million, or about 9.8%. Lower LNG volumes recognized as revenue—including customer cargo cancellations—and lower affiliate sales were key factors. CQP nevertheless recognized $553 million of LNG revenue for cancelled cargoes because customers remained obligated to pay fixed fees.
- Operating income increased $85 million as operating costs fell more than revenue. Lower natural-gas feedstock costs and additional available LNG volumes supported margins; higher interest and depreciation costs, and debt-refinancing charges, offset some of the improvement.
- Operating cash flow rose $204 million, while cash capital spending fell $359 million. Distributions to owners increased $99 million.
- Cash and cash equivalents declined $571 million. Cash, restricted cash and restricted-cash balances together fell $655 million, reflecting cash uses including capital spending, debt repayment and distributions.
- In May 2020, SPL issued $2.0 billion of 4.50% senior secured notes due 2030 and used the proceeds, with available cash, to redeem $2.0 billion of notes due 2021. CQP reported $43 million of loss on debt modification or extinguishment for the year.
- All subordinated units converted one-for-one into common units in August 2020 after the partnership’s distribution tests were met.
Outlook, risks and notable items
- Train 6: Overall construction was 77.6% complete at year-end, with substantial completion expected in the second half of 2022. The EPC contract price was approximately $2.5 billion, including the third marine berth; $1.9 billion had been incurred by year-end.
- Contracted revenue base: Long-term SPAs cover approximately 75% of the production capacity of Trains 1–6, with about 17 years of weighted-average remaining term. Annual fixed fees are approximately $2.9 billion for Trains 1–5 and are expected to rise to at least $3.3 billion following Train 6 commercial delivery and the Cheniere-committed SPA. Fixed fees generally remain payable when customers cancel or suspend cargo deliveries.
- Management outlook: Management said it did not expect spot-price fluctuations or customer cargo cancellations to materially affect forecast 2021 financial results, citing the contracted business and fixed-fee obligations. It noted that cancellations had declined from the summer and that LNG demand showed resilience, while acknowledging continued uncertainty about the pandemic and recovery.
- COVID-19 and operations: CQP incurred approximately $36 million of pandemic-related costs in 2020. Hurricanes Laura and Delta affected operations; 17 TBtu was loaded at an affiliate facility under a supply arrangement to help meet customer commitments. Management described heightened customer credit and performance risk but reported no expected material 2021 impact from cancellations.
- Debt and distributions: Debt principal maturities include $1.0 billion in 2022, $1.5 billion in 2023, $2.0 billion in 2024 and $3.523 billion in 2025. Debt covenants restrict subsidiary distributions, including a 1.25:1.00 debt-service coverage test for SPL. CQP and SPL were in compliance with covenants at year-end. The partnership declared a $0.655-per-unit distribution for fourth-quarter 2020, paid in February 2021.
- Concentration and related parties: Four external customers each accounted for at least 15% of 2020 external-customer revenue; the largest accounted for 24%. CQP relies on Cheniere and its affiliates for personnel and services and has material affiliate sales, costs and contractual arrangements. The filing describes potential conflicts of interest and Cheniere’s ability to compete for projects and commercial opportunities.
- Permits and contingencies: DOE authorization for additional non-FTA exports and a corresponding FERC production-capacity application remained pending. Two LNG storage tanks taken out of service following 2018 leaks remained subject to PHMSA/FERC repair and return-to-service requirements. A Louisiana environmental compliance matter and the tank matter were not expected by management to materially affect results or operations. No pending legal matter was expected to have a material impact on results, financial position or cash flows.
- Other risks: The business depends substantially on one Gulf Coast facility and is exposed to severe weather, construction cost or schedule changes, natural-gas supply and pipeline availability, regulation, market competition, customer performance, derivative valuation and liquidity/refinancing needs. Train 6’s non-FTA export authorization is not yet complete.
Important facts for investors to verify
- Progress, remaining cost and schedule for Train 6 and the third marine berth, including the effect of change orders and any delay.
- Customer cargo cancellations, fixed-fee collections, counterparty credit quality and the extent to which variable LNG sales and affiliate sales affect realized revenue and cash flow.
- Cash available for distributions after debt-service requirements, reserves, capital spending and subsidiary distribution restrictions; confirm the sustainability of the quarterly distribution.
- Debt maturities and refinancing plans, facility availability net of letters of credit, and compliance with debt covenants.
- Status of the two tanks under PHMSA/FERC requirements and any operational capacity or cost consequences; status of pending export and production authorizations.
- Exposure to Cheniere-affiliate transactions and customer concentration, as well as potential changes in environmental, climate and other regulatory requirements.
The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of December 31, 2020.