Cheniere Energy, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. Unaudited consolidated results include Cheniere Partners, a consolidated variable-interest entity, although its assets and cash are subject to separate project-level restrictions. Amounts are in U.S. dollars.
Business context
Cheniere develops and operates U.S. LNG export and related infrastructure. Sabine Pass Trains 1–5 and Corpus Christi Trains 1–2 were operational; Sabine Pass Train 6 and Corpus Christi Train 3 were under construction. The company reported that approximately 85% of expected nominal production capacity at its existing liquefaction projects was contracted long term.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $2.170 billion | $1.819 billion | $6.723 billion | $5.604 billion |
| Income from operations | $307 million | $425 million | $1.345 billion | $1.508 billion |
| Operating margin | 14.1% | 23.4% | 20.0% | 26.9% |
| Net income (loss) attributable to common stockholders | $(318) million | $65 million | $(291) million | $404 million |
| Basic EPS | $(1.25) | $0.26 | $(1.13) | $1.67 |
| Operating cash flow | Not separately presented | Not separately presented | $1.092 billion | $1.504 billion |
Operating margins are calculated from reported revenue and operating income. Nine-month capital expenditures were $2.587 billion, so operating cash flow less property, plant and equipment spending was approximately negative $1.495 billion, before other investing and financing activity.
- Revenue and costs: Nine-month revenue rose 20%, chiefly as additional trains entered service and LNG volumes increased. LNG revenues from long-term customer contracts increased to $4.406 billion from $3.293 billion. Higher operating and maintenance costs, depreciation, feed-gas and vessel costs weighed on operating income and margins.
- Other expense: Nine-month net interest expense increased to $1.014 billion from $653 million. Derivative results shifted to a net loss of $187 million from a gain of $132 million. Other expense included $87 million of impairment losses on equity-method investments, attributed primarily to investee project cost overruns and delays.
- Liquidity: September 30 cash and cash equivalents were $2.539 billion; restricted cash was $578 million, for combined cash and restricted cash of $3.117 billion. Available commitments under listed credit facilities totaled approximately $2.527 billion. Cash and borrowing capacity are not necessarily freely available across Cheniere’s separate capital structures.
- Debt and equity: Total debt, net, was $30.806 billion, compared with $28.418 billion at year-end 2018. September 2019 financing included $1.5 billion of Cheniere Partners notes due 2029 and $727 million of CCH notes due 2039. Cheniere repurchased about 2.5 million shares for $159 million in the first nine months, with $841 million remaining under its $1.0 billion authorization.
Changes, outlook, and risks
- Common-stockholder results turned from profit to loss in both the quarter and nine-month period. Management attributed the deterioration principally to higher interest, operating and maintenance, depreciation, derivative and equity-investment impairment costs; greater LNG volumes and lower non-controlling-interest attribution partly offset these pressures.
- Management expected revenue and operating costs to increase as Sabine Pass Train 6 and Corpus Christi Train 3 enter service. Train 6 was 38.1% complete at September 30, with substantial completion expected in the first half of 2023; Corpus Christi Train 3 was expected in the first half of 2021. These are expectations, not guarantees.
- Management said it expected near-term cash needs for each capital structure to be met through operating cash flow, project financing, available commitments, and, where applicable, contributions or offerings. No specific consolidated earnings or revenue guidance was provided.
- The company said it might release all of its federal and part of its state deferred-tax valuation allowance as early as Q4 2019; any release would create a non-cash tax benefit and remained uncertain.
- Derivative fair-value changes may add earnings volatility. The filing also identifies LNG-market, commodity-price, interest-rate, foreign-exchange, construction, financing, regulatory and counterparty risks. Cheniere reported compliance with debt covenants and no material changes to previously disclosed risk factors.
- Unusual items include $301 million of commissioning-cargo proceeds offset against construction costs in the first nine months, rather than recognized as revenue, and the $87 million equity-investment impairment. A related Parallax dispute includes asserted damages of $400 million; the company said it did not expect the litigation to materially adversely affect financial results. Trial was set for February 2020.
- After quarter-end, CCH issued $475 million of 3.925% senior secured notes due 2039. The filing also notes new long-term gas-supply transactions and ongoing development of the proposed Corpus Christi Stage 3 project, which remained subject to required approvals and commercial and financing arrangements.
Important facts for investors to verify
- How operating margins, interest expense and cash generation develop as newly completed trains ramp up.
- Construction progress, final costs and financing needs for Sabine Pass Train 6 and Corpus Christi Train 3, as well as Corpus Christi Stage 3 approvals and project economics.
- Debt maturities, interest-rate exposure, facility availability, covenant terms and the extent to which reported cash is restricted or held within separate project entities.
- Whether derivative mark-to-market results and equity-method investment impairments recur, and whether the anticipated tax-valuation-allowance release occurs.
- Developments in the Parallax litigation and the financial implications, if any, of the share-repurchase program and subsequent debt issuance.