Cheniere Energy Partners, L.P. — Q1 2022 Form 10-Q
Business and period: Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. The Partnership owns the Sabine Pass LNG export and regasification facilities and the Creole Trail Pipeline. Train 6 achieved substantial completion on February 4, bringing the facility to six operational trains and approximately 30 mtpa of capacity.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $3.328 billion | $1.963 billion |
| Income from operations | $362 million | $618 million |
| Net income | $159 million | $347 million |
| Net income (loss) per common unit | $(0.11) | $0.64 |
| Operating cash flow | $800 million | $588 million |
| Cash used for capital expenditures | $87 million | $146 million |
| Interest expense, net of capitalized interest | $203 million | $217 million |
Revenue rose $1.365 billion, primarily from higher revenue per MMBtu as Henry Hub prices increased, with additional contribution from higher delivered LNG volumes, including Train 6 production. LNG volumes recognized as revenue were 372 TBtu, up from 325 TBtu. Cost of sales increased to $2.562 billion from $948 million, mainly reflecting higher natural gas feedstock prices and increased deliveries. Operating margin declined to approximately 11% from 31%; net margin declined to approximately 5% from 18%.
Net income fell $188 million, principally due to the unfavorable fair-value impact of the Tourmaline IPM agreement assigned to SPL. The reported loss per common unit despite positive net income reflects the partnership’s distribution and income-allocation provisions; it does not indicate a consolidated net loss.
Financial position and liquidity
- At March 31, cash and cash equivalents were $1.156 billion; restricted cash was $136 million. Total liquidity, including $1.582 billion of available credit commitments, was reported as $2.874 billion.
- Gross debt was $17.332 billion and long-term debt, net of discounts, premiums and issuance costs, was $17.184 billion, versus $17.177 billion net at year-end 2021. No debt was issued or repaid in Q1 2022. The Partnership and SPL reported compliance with debt covenants.
- Partners’ equity moved from $718 million at year-end to a $2.230 billion deficit, largely due to a $2.712 billion noncash distribution recorded when SPL assumed derivative liabilities in the IPM assignment.
- Operating cash flow increased by $212 million year over year, largely from increased cash receipts on LNG deliveries, partly offset by higher feedstock costs. Investing cash outflows were $87 million; financing cash outflows were $395 million, primarily distributions.
Significant developments, outlook and risks
- In March, SPL assumed a JKM-indexed IPM agreement for 140,000 MMBtu per day, with an approximately 15-year term beginning in early 2023. The transfer generated a $2.712 billion noncash distribution to Cheniere and contributed to a $525 million net derivative loss recognized in cost of sales. The related net derivative liability was $3.201 billion at quarter-end, predominantly Level 3, and therefore dependent in part on significant unobservable valuation inputs.
- Management cited approximately 80% of production capacity as contracted, with approximately 16 years of weighted-average remaining contract life. The filing provides no formal near-term earnings or cash-flow guidance. Future development or expansion requires acceptable commercial and financing arrangements and a final investment decision.
- The Department of Energy authorized an additional 152.64 Bcf per year of exports to non-FTA countries through 2050. The Partnership also reported that Train 6 was substantially complete.
- On April 25, 2022, the Partnership declared a $1.050-per-unit distribution for Q1: $0.775 base and $0.275 variable, payable May 13 to holders of record May 5.
- Commodity derivative fair values can make reported results volatile; management’s modeled 10% natural-gas price change produced a $518 million change in derivative fair value. Other disclosed matters include the continuing process to return two tanks affected by the 2018 incident to service; one received conditional approval in March 2022. The PHMSA penalty matter was closed after SPL elected to pay the reduced $1.458 million penalty. The Partnership said the LDEQ matter was not expected to have a material adverse financial impact. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- How the Tourmaline IPM agreement’s commodity-price assumptions, credit-risk valuation and Level 3 fair-value changes may affect future reported earnings and cash flows.
- Whether higher LNG prices and Train 6 volumes translate into sustained operating cash generation after feedstock, operating and distribution requirements.
- The availability and restrictions attached to cash and credit commitments across the Partnership’s separate subsidiary capital structures.
- The durability of contracted volumes, customer credit quality and the variable components of LNG revenue.
- Progress on tank repairs and regulatory requirements, and the basis for the variable distribution level and future capital allocation.
Management stated that disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control over financial reporting during the quarter.