Cheniere Energy, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited fourth-quarter results. Unless noted otherwise, financial amounts are in U.S. dollars.
Business context
Cheniere develops, owns and operates U.S. LNG infrastructure and markets LNG internationally. At year-end, Sabine Pass had five liquefaction trains operating and Train 6 under construction; Corpus Christi had two trains operating and Train 3 under construction. Cheniere owned 48.6% of Cheniere Partners, which operates Sabine Pass, and wholly owned the Corpus Christi project. Approximately 85% of the two projects’ production capacity was contracted on a term basis.
Key financial results
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Total revenue | $9.730 billion | $7.987 billion |
| Income from operations | $2.361 billion | $2.024 billion |
| Net income attributable to common stockholders | $648 million | $471 million |
| Basic / diluted EPS | $2.53 / $2.51 | $1.92 / $1.90 |
| Operating cash flow | $1.833 billion | $1.990 billion |
| Cash capital spending on property, plant and equipment | $3.056 billion | $3.643 billion |
| Cash and cash equivalents at year-end | $2.474 billion | $981 million |
| Restricted cash at year-end | $520 million | $2.175 billion |
| Total debt, before unamortized discounts and costs | $31.466 billion | $29.193 billion |
Operating margin was approximately 24.3% in 2019, versus 25.3% in 2018. Common-stockholder net margin was approximately 6.7%, versus 5.9%; 2019 earnings included a substantial income-tax benefit. Interest expense, net of capitalized interest, rose to $1.432 billion from $875 million.
Fourth-quarter 2019 revenue was $3.007 billion and income from operations was $1.016 billion. Net income was $1.153 billion, including $939 million attributable to common stockholders; basic and diluted EPS were $3.70 and $3.34, respectively.
Changes and notable items
- Revenue increased 22% year over year, mainly as additional trains entered operation and LNG sales volumes rose. LNG volumes recognized as sold increased to 1,498 TBtu from 1,057 TBtu. Lower realized pricing on integrated marketing volumes partly offset volume growth.
- Operating costs and expenses rose to $7.369 billion from $5.963 billion, including higher maintenance, transportation, storage and depreciation costs as more trains operated. Operating cash flow declined by $157 million, partly due to increased operating costs.
- Net income attributable to common stockholders increased by $177 million. The company recorded a $517 million income-tax benefit, primarily from releasing a significant portion of its deferred-tax-asset valuation allowance; it reported a $27 million tax provision in 2018.
- Investing cash outflow was $3.163 billion, primarily for project construction. Financing cash inflow was $1.168 billion. Year-end cash, cash equivalents and restricted cash totaled $2.994 billion.
- Cheniere refinanced debt through multiple note offerings and repaid portions of credit facilities. It repurchased 4.0 million shares for $249 million under a three-year, $1 billion program; $751 million remained authorized at year-end. No cash dividend had been paid on common stock.
Outlook, risks and contingencies
- Train 6 at Sabine Pass was 43.7% complete at year-end, with substantial completion expected in the first half of 2023. Corpus Christi Train 3 was 74.8% complete, with substantial completion expected in the first half of 2021. Management expected LNG revenue to grow as these trains and the trains completed during 2019 contributed more operating volume; the filing does not provide a numerical earnings or revenue forecast.
- Corpus Christi Stage 3 received FERC authorization for up to seven midscale trains and approximately 10 mtpa of capacity. A final investment decision remained conditional on an EPC contract, additional commercial support and financing. The company also entered long-term indexed natural-gas supply arrangements supporting prospective capacity.
- Long-term SPAs generally require fixed-fee payments even when customers suspend or cancel cargo deliveries, supporting contracted cash flows. However, Cheniere depends on customer and guarantor performance, reliable feed-gas supply and transportation, project execution, LNG market competitiveness and continued access to financing.
- Consolidated debt was substantial; management identified refinancing and funding needs, interest costs, construction delays or overruns, customer concentration, commodity and derivative volatility, regulatory approvals, severe weather, safety incidents and environmental requirements as risks. Contractual obligations totaled $59.069 billion, including $30.610 billion of debt and $13.468 billion for natural-gas supply, transportation and storage; the filing also disclosed $2.0 billion of legally binding future vessel-charter payments not included in the operating-lease total.
- Two Sabine Pass LNG storage tanks remained out of service following 2018 leaks while the company coordinated repairs and operating conditions with PHMSA and FERC. Cheniere did not expect a material adverse financial or operational impact. Parallax-related litigation was dismissed with prejudice in January 2020 without material financial impact; a shareholder derivative action filed in January 2020 remained disclosed.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified valuation of Level 3 physical liquefaction supply derivatives, reported at $138 million at year-end, as a critical audit matter because of significant unobservable inputs and valuation judgments.
Investor verification priorities
- Assess the sustainability of earnings and cash generation apart from the $490 million valuation-allowance release and volatile derivative gains and losses.
- Review debt maturities, interest expense, subsidiary distribution restrictions and the availability of cash that is restricted or held within project-level structures.
- Track Train 6 and Train 3 schedules, final construction costs and financing; separately verify whether Corpus Christi Stage 3 meets its commercial and financing conditions for FID.
- Evaluate customer concentration, counterparty credit quality and the commercial exposure of uncontracted LNG volumes to global price spreads and Henry Hub.
- Monitor the return of the Sabine Pass tanks to service, the shareholder derivative action, and changes in regulatory, environmental, weather and LNG-market risks.