Cheniere Energy Partners, L.P. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial statements are unaudited. CQP owns and operates the Sabine Pass LNG terminal and related pipeline; all six liquefaction trains were operational following Train 6’s February 2022 substantial completion, with approximately 30 mtpa of capacity.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $4.976 billion | $2.324 billion | $12.485 billion | $6.176 billion |
| Operating income (loss) | $(299) million | $616 million | $618 million | $1.838 billion |
| Net income (loss) | $(514) million | $381 million | $(13) million | $1.123 billion |
| Net income (loss) per common unit | $(1.49) | $0.69 | $(1.36) | $2.07 |
| Operating cash flow | Not separately presented | Not separately presented | $2.442 billion | $1.667 billion |
| Cash capital expenditures | Not separately presented | Not separately presented | $356 million | $495 million |
The filing does not provide a clear operating-margin figure. At September 30, cash and cash equivalents were $988 million and restricted cash was $195 million. Available liquidity, including $1.587 billion of undrawn credit-facility commitments, was $2.770 billion. Debt principal was $17.332 billion; balance-sheet debt, net of discounts and issuance costs, was $17.197 billion, of which $1.498 billion was current. Net derivative liabilities were $5.078 billion. Partners’ equity moved from $718 million at year-end 2021 to a deficit of $3.884 billion.
Changes versus the prior comparable periods
- Revenue rose $2.652 billion in Q3 and $6.309 billion for the nine-month period. Higher Henry Hub-linked pricing was the main driver; increased LNG volumes also contributed, partly following Train 6’s completion. LNG volumes recognized as revenue were 363 TBtu in Q3 versus 308 TBtu and 1,110 TBtu for nine months versus 946 TBtu.
- Despite revenue growth, Q3 resulted in a $514 million net loss, and nine-month net income fell to a $13 million loss. The principal cause was fair-value losses on the Tourmaline IPM agreement assigned to SPL in March: $1.3 billion in Q3 and $2.2 billion for the nine months, primarily reflecting SPL’s lower credit risk and unfavorable changes in international commodity forward curves. The filing notes this accounting volatility can precede recognition of the related LNG sales.
- Natural gas feedstock costs increased substantially with higher U.S. gas prices and greater volumes. Nine-month cost of sales was $10.445 billion, versus $3.178 billion a year earlier. The filing attributes most of the increase in total operating costs to third-party cost of sales, including the IPM valuation impact.
- Nine-month operating cash flow increased $775 million, as higher cash receipts on LNG deliveries more than offset higher operating cash outflows, principally feedstock costs. Financing cash outflow increased to $1.877 billion, mainly reflecting higher unitholder distributions and the absence of the prior-year net debt-issuance inflow.
Outlook, material events and risks
- Management expects short-term cash needs to be met by operating cash flow and available liquidity, and long-term needs by operating cash flow and potential financing. No specific earnings or cash-flow guidance was provided. Approximately 85% of production capacity was contracted, with a weighted-average remaining contract life of approximately 15 years.
- In June, Chevron agreed to pay a $765 million fee to terminate its regasification and marine-services agreements. The termination ends capacity payments of approximately $125 million annually, inflation-adjusted, for 2023–2029. CQP recognized the termination-related regasification revenue ratably through December 2022; a $387 million contract asset was recorded at September 30.
- The March assignment of the Tourmaline IPM agreement generated a $2.7 billion non-cash distribution to Cheniere in the equity statement, reflecting assumed derivative liabilities. Derivatives are not designated as accounting hedges; their fair-value changes can cause substantial reported earnings volatility. Level 3 physical supply derivatives were a $5.024 billion liability at quarter-end, and management’s 10% commodity-price sensitivity indicated a $692 million fair-value change.
- Gross debt principal was unchanged at September 30; in October, SPL redeemed $300 million of notes due 2023. Credit-rating agencies upgraded CQP and SPL in September, with stable outlooks. CQP and SPL reported compliance with debt covenants, including distribution-related restrictions and coverage tests.
- The October 24 distribution declaration was $1.070 per common unit, comprising a $0.775 base amount and $0.295 variable amount, payable November 14. Nine-month distributions paid totaled $2.81 per common unit. The variable distribution depends in part on reserves, debt repayment and capital-allocation considerations.
- Operational and regulatory matters include continuing work with PHMSA and FERC concerning two LNG storage tanks affected by the 2018 incident; one received conditional approval to return to service in March 2022. CQP said it did not expect the cited LDEQ or PHMSA matters to materially adversely affect financial results or operations. Management reported effective disclosure controls and no material change in internal controls.
Investor verification priorities
- Assess the assumptions, valuation sensitivity and eventual cash/economic effects of the Tourmaline IPM derivative liability, distinguishing mark-to-market losses from realized cash flows.
- Verify the timing and accounting of the Chevron termination fee, the end of recurring capacity payments, and the resulting effect on future regasification revenue.
- Review liquidity access across CQP and SPL separately, including restricted cash, facility availability, debt maturities and covenant conditions governing distributions.
- Track feedstock-price exposure, LNG delivery volumes, customer concentration and the contribution of Train 6 to operating results and cash generation.
- Confirm the status of storage-tank repairs and regulatory approvals, and monitor declared distributions against cash generation and the partnership’s variable-distribution policy.