Cheniere Energy Partners, L.P. — Q1 2015 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2015, compared with Q1 2014. The partnership operates the Sabine Pass LNG regasification terminal and Creole Trail Pipeline, and is building LNG liquefaction facilities. Trains 1–4 were under construction; Train 1 was expected to produce LNG as early as late 2015.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 or prior-period balance |
|---|---|---|
| Total revenue | $67.5 million | $67.2 million |
| Operating income (loss) | $(10.6) million | $5.1 million |
| Net income (loss) | $(178.7) million | $(69.7) million |
| Net loss per common unit | $(0.61) | $(0.06) |
| Net cash used in operating activities | $(52.4) million | $(0.5) million |
| Cash and cash equivalents at period end | $171.5 million | $248.8 million at Dec. 31, 2014 |
| Restricted cash at period end | $2.111 billion | $740.2 million at Dec. 31, 2014 |
| Long-term debt, net | $10.992 billion | $8.991 billion at Dec. 31, 2014 |
| Total partners’ equity | $927.3 million | $1.131 billion at Dec. 31, 2014 |
Project construction cash spending was $542.1 million, compared with $751.8 million in Q1 2014; it was funded principally from restricted cash. Reported net investing cash outflow was $0.2 million, reflecting restricted-cash movements. The partnership reported no cash paid for interest in Q1 2015, while $117.2 million of the quarter’s $160.1 million total interest cost was capitalized and deferred. No operating margin was separately reported.
Material changes and unusual items
- Net loss widened by $108.9 million, primarily because of an $89.0 million loss on early extinguishment of debt and higher operating and maintenance costs.
- Operating and maintenance expense rose to $32.0 million from $9.2 million, mainly due to LNG purchases to maintain terminal cryogenic readiness and higher terminal operating costs. A $17.5 million non-cash LNG inventory write-down also affected the quarter.
- In March, SPL issued $2.0 billion of 5.625% senior secured notes due 2025. It used net proceeds for project funding and terminated about $1.8 billion of commitments under its construction credit facilities. The termination triggered the $89.0 million write-off of related financing costs and fees. Remaining facility commitments were $0.9 billion; there were no outstanding borrowings under the facilities at quarter-end.
- Derivative loss was $36.4 million, compared with $34.7 million in Q1 2014. The filing also reports a $34.7 million loss from settling part of the interest-rate swaps in connection with the facility termination.
- Revenue was nearly unchanged, while general and administrative expense—affiliate declined to $21.6 million from $27.2 million, mainly because management fees tied to capital spending decreased.
Outlook, risks and contingencies
- Trains 1–2 were 87.2% complete and Trains 3–4 were 62.6% complete at March 31, both ahead of contractual schedule. Management anticipated staggered starts for Trains 2–4 after Train 1, and expected project cash flow to begin with initial LNG production.
- Management said available borrowing commitments, debt proceeds and operating cash flows were expected to provide adequate resources to complete Trains 1–4 and meet anticipated capital, operating and debt-service requirements. Estimated total capital costs for Trains 1–4 were $9–$10 billion before financing costs and $12–$13 billion including financing costs, owners’ costs and contingencies.
- In April 2015, the partnership received FERC authorization to site, construct and operate Trains 5–6. A final investment decision remained subject to acceptable construction and commercial arrangements, regulatory approvals and adequate financing.
- Two Train 5 SPAs for 3.75 mtpa included conditions precedent, including regulatory approvals, financing and a final investment decision by June 30, 2015; either party could terminate if conditions were not met. Export authorization to non-FTA countries for certain volumes remained pending at the DOE.
- Four third-party 20-year SPAs cover 16 mtpa for Trains 1–4. Their fixed-fee component was approximately $2.3 billion annually once applicable trains begin commercial operations; this is prospective contracted revenue, not Q1 revenue.
- Debt service and distribution restrictions apply to subsidiary cash. Much of the $2.111 billion in restricted cash was designated for project construction, pipeline needs or interest payments and was not freely available for general purposes. The $400 million CTPL term loan matures in 2017; $1.666 billion of Sabine Pass LNG notes mature in 2016.
- The partnership declared a $0.425 per-common-unit distribution for Q1, payable May 15, 2015. Management reported no material change in previously disclosed risk factors, no material pending legal matters, and no material off-balance-sheet arrangements. Disclosure controls were concluded to be effective.
Most important facts for investors to verify
- Actual commissioning and production dates for Train 1 and subsequent trains, compared with the stated construction progress and schedule.
- Whether remaining funding, including the $0.9 billion of facility commitments and restricted project cash, is sufficient for forecast construction costs and debt service.
- Progress on Train 5 approvals, financing and investment decision, and the status of pending DOE non-FTA export authorizations and SPA conditions.
- Availability of cash for distributions after subsidiary debt covenants, reserve requirements and project funding needs.
- Drivers and recurrence of LNG readiness costs, inventory valuation adjustments, derivative losses and related-party fees.