Cheniere Energy Partners, L.P. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. The partnership develops and operates LNG liquefaction facilities at Sabine Pass, as well as regasification facilities and the Creole Trail Pipeline. Trains 1–3 were operational, Train 4 was commissioning, Train 5 was under construction, and Train 6 was being commercialized.
Financial performance and liquidity
| Metric | Q2 2017 | Six months 2017 |
|---|---|---|
| Total revenue | $992 million | $1.883 billion |
| Income from operations | $200 million | $419 million |
| Net income | $46 million | $93 million |
| Operating margin | 20.2% | 22.3% |
| Net cash from operating activities | Not presented quarterly | $324 million |
| Capital spending cash outflow | Not presented quarterly | $898 million |
- Q2 revenue rose $841 million from $151 million a year earlier; six-month revenue rose $1.665 billion from $218 million. Growth reflected more LNG volumes and higher revenue per MMBtu as additional trains entered service. LNG revenues from affiliates were $422 million in Q2 and $753 million for the half-year.
- Operating costs increased with operating activity. Q2 costs were $792 million versus $138 million; six-month costs were $1.464 billion versus $215 million. Net interest expense rose to $154 million in Q2 and $284 million for the half-year, partly because more interest was expensed as trains completed construction.
- Despite consolidated net income, the filing reports net loss per common unit of $3.71 for Q2 and $4.50 for the half-year. The partnership attributes this presentation to allocations under its partnership agreement, including amortization of the Class B units’ beneficial conversion feature; these per-unit figures should not be read as consolidated net losses.
- At June 30, total debt, net, was $16.025 billion, up from $14.433 billion at year-end. Long-term debt was $16.025 billion; no current debt was reported. The partnership issued $800 million of 5.00% notes due 2037 and $1.35 billion of 4.200% notes due 2028, and terminated the remaining $1.6 billion of commitments under its 2015 SPL credit facilities.
- Cash and cash equivalents were zero. Restricted cash totaled $1.563 billion, including $1.277 billion designated for the Liquefaction Project. Available commitments were $834 million under the SPL Working Capital Facility and $190 million under the 2016 CQP Credit Facilities. These balances are restricted or committed funding, not equivalent to unrestricted cash.
- Partners’ equity was $486 million. Distributions to owners were $50 million in the first half. A $0.425-per-common-unit Q2 distribution was declared after quarter-end, payable August 11, 2017.
Changes, outlook and risks
- Operating cash flow improved from a $98 million outflow in first-half 2016 to a $324 million inflow in first-half 2017, primarily due to LNG sales. Investing cash outflow remained substantial at $898 million, mainly for construction.
- Train 3 achieved substantial completion in March 2017 and Train 4 began producing first LNG in July 2017. At June 30, Trains 3–4 were 99% complete overall and Train 5 was 69% complete. Train 4 substantial completion was expected in the second half of 2017; Train 5 in the second half of 2019.
- Management estimated total capital costs for Trains 1–5 at $12.5–$13.5 billion before financing costs and $17.5–$18.5 billion including financing costs, owners’ costs and contingencies. Management said available borrowings, commitments and operating cash flows were expected to fund completion of Trains 1–5 and anticipated requirements. No formal earnings or distribution guidance was provided.
- Management expected LNG revenue and operating costs to rise as additional trains became operational. The partnership had long-term third-party SPAs covering about 19.75 mtpa, approximately 88% of expected nominal capacity for Trains 1–5. Contract economics and timing depend on train completion and commercial delivery dates.
- Key exposures include high debt and interest expense, construction and commissioning execution, natural-gas supply and commodity derivatives, and customer concentration. Non-FTA export authorizations for certain volumes were subject to pending appeals. The filing reported no material change in previously disclosed legal proceedings or risk factors.
- On August 2, 2017, after quarter-end, all Class B units mandatorily converted into common units. This changed the ownership and unit structure; the filing reported that Cheniere Holdings, Blackstone CQP Holdco and the public then held 48.6%, 40.3% and 9.1%, respectively.
Most important facts for investors to verify
- Whether Train 4 achieved substantial completion on schedule and whether Train 5 remains on track for the second half of 2019, including any changes to project cost estimates.
- How restricted cash, facility availability, operating cash flow and future debt service support construction completion and distributions.
- The debt maturity, interest-rate and covenant profile, particularly the $2.56 billion 2016 CQP facilities maturing in 2020 and the effects of rising interest expense.
- The impact of the August 2017 Class B conversion on unit count, ownership, per-unit allocations and distribution economics.
- Affiliate LNG sales and charges, customer concentration, and the outcome of pending challenges to non-FTA export authorizations.