Business context and reporting period
Cheniere Energy Partners, L.P. owns and operates the Sabine Pass LNG regasification terminal in Louisiana and is developing liquefaction facilities at the site. This unaudited Form 10-Q covers the three months ended March 31, 2012; comparisons are with the first quarter of 2011 unless otherwise stated.
Key financial results
| Metric | Q1 2012 | Q1 2011 / prior date |
|---|---|---|
| Total revenue | $69.3 million | $74.5 million |
| Operating income | $24.9 million | $41.1 million |
| Operating margin | 35.9% | 55.2% |
| Net loss | $19.3 million | $2.2 million |
| Operating cash flow | $(9.9) million | $5.0 million |
| Cash and cash equivalents | $59.4 million | $81.4 million at December 31, 2011 |
| Restricted cash | $137.3 million | $96.1 million at December 31, 2011 |
| Long-term debt, net of discount | $2.194 billion | $2.192 billion at December 31, 2011 |
| Total assets | $1.762 billion | $1.737 billion at December 31, 2011 |
Current assets were $135.8 million and current liabilities were $104.1 million. Restricted cash is contractually limited, including funds set aside for debt service and interest, and should not be treated as freely available liquidity. The $2.194 billion debt balance comprises secured notes with stated principal of approximately $2.216 billion: $550 million due in 2013 and approximately $1.666 billion due in 2016. Interest expense was $43.5 million.
Changes versus the prior comparable period
- Revenue fell 6.9%, while total expenses rose 33.3%, primarily because development expense, including affiliate expense, increased to $17.9 million from $7.5 million for the liquefaction project.
- Operating income declined 39.5%; net loss widened to $19.3 million. A $0.8 million derivative loss was also recorded, versus none in Q1 2011.
- Operating cash flow declined by $14.9 million, from positive $5.0 million to negative $9.9 million. Management cited higher liquefaction development costs and lower LNG cargo export loading fee revenue.
- Cash distributions paid in the quarter totaled $13.4 million, including $0.425 per common unit. Subordinated units received no distributions; the filing says they have not received distributions since the quarter ended March 31, 2010.
The statements report a net loss but show basic and diluted net income per common unit of $0.23 for Q1 2012, compared with $0.35 in Q1 2011. The filing explains that per-unit results reflect declared distributions and the partnership agreement’s allocation rules; these figures should not be interpreted as consolidated earnings per unit.
Outlook, developments and risks
- Management estimated total construction costs for the proposed liquefaction project at approximately $9–10 billion before financing costs. It expected construction of trains 1 and 2 to begin in the first half of 2012 and operations to start in 2015, with later trains following at six-to-nine-month intervals. These are forward-looking expectations, not reported outcomes.
- In January 2012, BG agreed to purchase an additional 2.0 million tonnes per annum, bringing its total annual contract quantity to 5.5 mtpa. Korea Gas Corporation agreed to purchase approximately 3.5 mtpa.
- After quarter-end, in April 2012, the FERC authorized construction and operation of up to four liquefaction trains. The partnership also reported engaging financial institutions to arrange up to $4 billion of debt financing and discussions with Blackstone regarding project equity funding. These arrangements were not described as completed financing.
- The two-train engineering, procurement and construction contract with Bechtel was priced at $3.9 billion, subject to specified change orders; the filing notes possible adjustments if construction commencement was delayed beyond March 31, 2012. Management cautioned that project cost estimates could change due to schedule, labor, materials and other factors.
- Sabine Pass LNG’s secured-note indenture restricts distributions unless reserve-funding, a 2:1 fixed-charge coverage test and other conditions are met. The partnership also relies on affiliate arrangements to monetize capacity; Cheniere Marketing lacks a credit rating, and its obligations under the capacity agreement are guaranteed by Cheniere, which has a non-investment-grade rating.
- Management reported no material off-balance-sheet arrangements and no known pending or threatened legal matters expected to have a material adverse effect. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Progress, final cost and schedule for the liquefaction project, including any changes to the $9–10 billion estimate and Bechtel contract.
- Whether contemplated debt and equity financing was secured, on what terms, and how it affects leverage and dilution.
- Cash available for distributions after restricted-cash requirements, interest payments, project spending and indenture tests.
- Performance and credit support for customer and affiliate contracts, particularly the Cheniere Investments/Cheniere Marketing capacity arrangements.
- The 2013 note maturity and the partnership’s refinancing or repayment plan.