Cheniere Energy, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2014; filed May 1, 2014. Unless noted otherwise, financial statement amounts below are in millions of U.S. dollars. Results are consolidated and include publicly traded subsidiaries and non-controlling interests.
Business context and financial performance
Cheniere operates the Sabine Pass LNG regasification terminal, is building liquefaction facilities there, and is developing the Corpus Christi LNG project. The business is in a capital-intensive construction phase; most reported revenue came from existing Sabine Pass terminal capacity fees.
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Revenue | $67.6 | $65.9 | Up $1.6, or 2.5% |
| Operating loss | $47.6 | $67.5 | Loss narrowed $19.8 |
| Net loss | $122.3 | $124.6 | Loss narrowed $2.3 |
| Net loss attributable to common stockholders | $97.8 | $117.1 | Loss narrowed $19.3 |
| Basic and diluted loss per share | $0.44 | $0.54 | Improved $0.10 |
| Net cash used in operations | $18.2 | $13.2 | Use increased $5.0 |
| Net cash used in investing | $24.0 | $10.0 | Use increased $14.0 |
Operating costs and expenses were $115.2 million, down from $133.4 million. Operating margin was approximately negative 70.5% of revenue; net loss was approximately 181% of revenue. Interest expense, net, was $40.3 million in both periods. Derivative loss increased to $34.7 million from $17.5 million, substantially reflecting changes in fair value of interest-rate derivatives.
Balance sheet, debt, and liquidity
- At March 31, 2014, cash and cash equivalents were $914.6 million, versus $960.8 million at year-end. Restricted cash totaled $850.2 million; these funds are contractually restricted and are not equivalent to unrestricted corporate liquidity.
- Total assets were $9.525 billion; property, plant and equipment was $7.132 billion, up from $6.454 billion at year-end, largely reflecting construction investment.
- Long-term debt was $6.586 billion gross principal, or $6.578 billion net of discounts and premiums, broadly unchanged from year-end. Current liabilities were $194.9 million.
- Capital expenditures on property, plant and equipment were $773.4 million in the quarter; most were funded using restricted cash. Cash and cash equivalents declined by $46.2 million.
- Management said expected cash needs for the next 12 months would be met through the separate capital structures’ operating cash, existing cash, project debt and equity financings, distributions, fees, and other operating sources. It stated that resources were expected to be adequate to complete Sabine Pass Trains 1–4, including available project credit commitments.
Material changes and project developments
- Common-stockholder net loss improved by $19.3 million year over year. Management attributed the improvement primarily to lower general and administrative expense ($73.8 million versus $85.8 million), lower LNG terminal development expense ($12.1 million versus $17.1 million), and a larger loss allocated to non-controlling interests. Increased derivative losses partly offset these items.
- Sabine Pass Trains 1–2 were approximately 63% complete and Trains 3–4 approximately 27% complete at March 31; management said both were ahead of contractual schedule. Train 1 was expected to begin LNG production as early as late 2015, with later trains to follow on a staggered basis.
- Estimated total capital costs for Sabine Pass Trains 1–4 were $9–10 billion before financing costs and $12–13 billion after financing costs, including estimated owner costs and contingencies. The EPC contract prices for Trains 1–2 and 3–4 were approximately $4.1 billion and $3.7 billion, respectively, including change orders through quarter-end.
- Corpus Christi’s three-train project was estimated to cost $10.5–11.0 billion before financing costs, excluding pipeline facilities. Construction remained subject to acceptable commercial arrangements, regulatory authorization, pipeline transportation, and adequate financing.
- After quarter-end, Corpus Christi Liquefaction entered two SPAs with Endesa for 117.3 million MMBtu of LNG annually (approximately 2.25 mtpa) upon project operations. Sabine Pass Liquefaction also entered a $325 million letter-of-credit and reimbursement agreement for project working-capital needs.
Outlook, risks, and unusual items
- The filing provides project schedules and cost estimates, not numerical earnings or revenue guidance. Management cautioned that quarterly results are not necessarily indicative of full-year results.
- Sabine Pass Liquefaction had $4.9 billion of available commitments under its 2013 credit facilities at quarter-end. Those facilities carry variable interest rates; the project is required to hedge at least 75% of projected variable-rate exposure. CTPL had borrowed its full $400 million facility, due in 2017.
- Debt covenants, security interests, reserve requirements, and distribution tests constrain subsidiary cash availability and transfers. Most Sabine Pass Liquefaction cash is held in trustee-controlled restricted accounts. Project completion, financing availability, construction costs and timing, regulatory approvals, and LNG market conditions remain important uncertainties.
- Stock-based compensation expense, net of capitalization, was $35.9 million versus $63.7 million a year earlier. The quarter included $10.8 million of expense related to modifying long-term commercial bonus awards following an employee termination.
- Management reported no material off-balance-sheet arrangements and no pending legal matter expected to have a material adverse effect. Disclosure controls were deemed effective; no material change in internal control over financial reporting was reported.
Key facts for investors to verify
- Whether Train 1’s expected late-2015 initial production date and the reported construction progress remain on schedule, and whether project cost estimates change.
- How much cash is unrestricted and available at each subsidiary, given the $850.2 million of restricted cash and separate capital structures.
- Availability and draw conditions for the $4.9 billion of project credit commitments, future financing requirements, and exposure to variable interest rates.
- Progress on Corpus Christi regulatory approvals, financing, final investment decision, and the newly announced Endesa SPAs.
- Drivers and potential volatility of derivative fair-value losses, and the effect of non-controlling interests and stock-based compensation on common-stockholder results.