Cheniere Energy, Inc. — Q1 2020 Form 10-Q
Business context and period. The filing covers the three months ended March 31, 2020, compared with Q1 2019. Cheniere operates LNG export facilities at Sabine Pass and Corpus Christi. Five Sabine Pass trains and two Corpus Christi trains were operating; Train 6 at Sabine Pass and Train 3 at Corpus Christi were under construction. Corpus Christi Stage 3 remained in development and required further commercial support, financing and an EPC contract before a final investment decision.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Total revenue | $2.709 billion | $2.261 billion; up 20% |
| Income from operations | $1.346 billion | $606 million |
| Operating margin | 49.7% | 26.8% (calculated from reported figures) |
| Net income attributable to common stockholders | $375 million; $1.48 basic and $1.43 diluted EPS | $141 million; $0.55 basic and $0.54 diluted EPS |
| Operating cash flow | $574 million | $412 million |
| Investing cash flow | $(654) million | $(651) million |
| Cash, cash equivalents and restricted cash | $2.829 billion | $2.994 billion at December 31, 2019 |
| Total debt, net | $31.077 billion | $30.774 billion at December 31, 2019 |
At March 31, cash and cash equivalents were $2.399 billion, with another $430 million of restricted cash. The reported cash balance includes $1.7 billion held by consolidated Cheniere Partners; subsidiary cash and restricted balances are not necessarily freely available to the parent. Current debt was $2.137 billion, including $2.0 billion of SPL notes due in 2021 reclassified as current. The company reported compliance with debt covenants.
Capital spending and other investing uses included $556 million for property, plant and equipment and $90 million invested in Midship Holdings. Financing cash flow was a net outflow of $85 million, including $155 million of share repurchases and $154 million of distributions to non-controlling interests. The company had $596 million remaining under its $1.0 billion repurchase authorization.
Material changes and drivers
- Revenue rose by $448 million, principally as additional operating trains increased LNG volumes sold. Recognized LNG volumes delivered as revenue increased to 473 TBtu from 300 TBtu.
- Operating income more than doubled. Cost of sales fell $490 million, substantially reflecting commodity derivative gains and lower natural gas feedstock prices. Operating and maintenance expense increased $95 million and depreciation and amortization increased $89 million as more trains operated.
- Net income attributable to common stockholders increased $234 million, but results included material fair-value effects: commodity derivative gains supported earnings, while interest-rate derivative losses were $208 million versus $35 million a year earlier.
- Interest expense, net of capitalized interest, increased to $412 million from $247 million, in part because less interest was capitalized as projects moved into operation. The tax provision rose to $131 million from $3 million and included a $38 million one-time expense from an internal tax restructuring.
Outlook, risks and unusual items
- COVID-19 and LNG markets: Management cited weaker demand expectations, lower global gas prices and increased customer notifications to cancel cargo deliveries. Customers generally remain obligated to pay fixed fees on canceled cargoes under the relevant contracts. Cheniere recognized approximately $53 million of revenue for canceled cargoes in Q1 and said it did not expect cancellations to materially affect its 2020 forecasted financial results at that time. The filing also warns that the pandemic and energy-market volatility could materially adversely affect demand, customer performance, operations, cash flow and liquidity.
- Cheniere reported approximately $30 million of pandemic-related safety and continuity costs incurred through April 28, 2020, and expected such costs to continue while risks persisted. Facilities remained operational; construction delays were identified as a risk, not reported as having occurred.
- Train 6 at Sabine Pass was 53.9% complete, with substantial completion expected in the first half of 2023. Corpus Christi Train 3 was 83.7% complete, with substantial completion expected in the first half of 2021. Cost overruns, change orders, construction delays and financing availability remain risks.
- Approximately 85% of liquefaction capacity was contracted on a term basis. The filing disclosed $107.7 billion of unsatisfied transaction price for LNG and regasification performance obligations, with estimated weighted-average recognition timing of 11 years and 5 years, respectively; these disclosures exclude substantially all variable consideration.
- A $1.2 billion SPL working-capital facility replaced the prior facility and extended maturity to March 2025. Cheniere also drew $455 million on its revolving facility and CCH borrowed $141 million under its working-capital facility during the quarter.
- Derivative valuations and unrealized gains can make reported results volatile. The Level 3 physical liquefaction supply derivative asset was $674 million at quarter end; its Q1 unrealized gain was $534 million. Management noted sensitivity to unobservable commodity-price inputs.
- No numerical earnings or cash-flow guidance was provided. Management’s statements about expected financial impact, project timing and future costs are forward-looking and subject to substantial uncertainty.
Important facts for investors to verify
- How much of the Q1 operating improvement reflects sustainable LNG operations versus derivative fair-value gains and lower feedstock prices?
- What portion of reported cash is available to Cheniere Energy, Inc. itself, given cash held within subsidiaries and restricted cash?
- How do 2021 debt maturities, working-capital borrowings and future project funding needs affect liquidity and refinancing requirements?
- Are LNG customers continuing to perform and pay fixed fees despite cargo cancellations, and how are customer credit risks evolving?
- Are Train 3 and Train 6 progressing to the stated schedules and budgets, and what financing and commercial milestones remain for Corpus Christi Stage 3?
- What is the continuing cash and earnings impact of pandemic-related measures, market conditions and derivative valuations?