Cheniere Energy Partners, L.P. — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014. Dollar amounts below are in millions unless noted. The partnership owns and operates the Sabine Pass LNG regasification terminal and is developing liquefaction facilities and the Creole Trail Pipeline. Results are not necessarily indicative of full-year performance.
Financial performance
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $67.3 | $67.6 | $134.5 | $133.7 |
| Operating loss | $(7.7) | $(20.4) | $(2.6) | $(14.8) |
| Net loss | $(226.2) | $(47.0) | $(296.0) | $(98.7) |
| Net loss per common unit | $(0.85) | $0.11 | $(0.91) | $0.21 |
| Operating cash flow | Not separately presented | $6.9 | $(24.7) |
- Revenue was broadly stable. Operating losses narrowed, but net losses increased substantially, mainly from derivative losses and debt-extinguishment charges.
- Q2 derivative loss was $60.2 million versus a $95.5 million gain a year earlier; the six-month derivative loss was $94.9 million versus a $78.0 million gain. Management attributed the swing chiefly to lower long-term LIBOR and settlement of interest-rate swaps.
- The May refinancing generated a $114.3 million write-off of debt issuance costs and deferred commitment fees. Net interest expense was $43.8 million for Q2 and $84.1 million for the first half; much of total construction-period interest was capitalized.
- Operating margin, calculated as operating loss divided by revenue, was approximately negative 11.5% in Q2 2014 versus negative 30.2% in Q2 2013, and negative 2.0% for the first half versus negative 11.0%.
Balance sheet, cash flow and liquidity
- At June 30, cash and cash equivalents were $307.5 million; restricted cash totaled $2,207.2 million. Restricted funds were designated principally for the Liquefaction Project ($2,064.7 million), CTPL ($51.4 million) and Sabine Pass LNG interest payments ($91.1 million), and are not generally available for unrestricted use.
- Total assets were $10.71 billion, including $7.82 billion of property, plant and equipment. Long-term debt, net, was $8.99 billion, compared with $6.58 billion at year-end 2013. Current assets were $686.2 million and current liabilities $381.5 million.
- First-half operating cash flow was $6.9 million. Capital spending was $1.31 billion, largely for construction; restricted cash funded $1.30 billion of property and equipment expenditures. Cash declined $43.5 million to $307.5 million.
- In May, subsidiaries issued $2.0 billion of 5.75% notes due 2024 and $0.5 billion of additional 5.625% notes due 2023. Proceeds repaid borrowings and funded construction; $2.7 billion of commitments remained available under the 2013 Liquefaction Credit Facilities at June 30.
- The partnership paid $49.5 million of distributions in the first half. It declared a $0.425-per-common-unit distribution for Q2, payable August 14, 2014. The filing reports no cash distributions to Class B or subordinated units for the period.
Material changes, outlook and risks
- Trains 1 and 2 were approximately 69% complete and Trains 3 and 4 approximately 36% complete at June 30, ahead of contractual schedules. Management anticipated initial LNG production from Train 1 as early as late 2015, with subsequent trains starting on a staggered basis.
- Estimated capital costs for Trains 1–4 were $9–10 billion before financing costs and $12–13 billion including financing costs, owners’ costs and contingencies. Management said available financing, remaining credit commitments and operating cash flows were expected to be adequate for those trains’ anticipated needs.
- Four third-party 20-year SPAs cover 16 mtpa for Trains 1–4. Contracted fixed fees were approximately $2.3 billion annually once applicable operations commence. A further 3.75 mtpa is contracted for Train 5, subject to its development and regulatory approvals.
- Construction and commissioning, regulatory approvals for Trains 5 and 6, financing needs, interest-rate and derivative valuation volatility, and future LNG and natural-gas market conditions are material uncertainties. Liquefaction subsidiaries’ ability to distribute cash is subject to debt-service reserves, completion milestones and coverage-ratio tests.
- Four lawsuits against Cheniere and certain current or former officers and directors challenge approval of an incentive-plan amendment. The outcome could affect operating expenses charged to the partnership under affiliate agreements. Cheniere could not estimate a potential loss; the partnership warned additional expense could be material.
- Related-party charges were significant: affiliate general and administrative expense was $23.0 million in Q2 and $50.1 million in the first half. This warrants attention given the litigation-related uncertainty and extensive affiliate service arrangements.
Important facts for investors to verify
- Progress against Train 1–4 schedules, budgets and stated late-2015 initial-production expectations.
- Availability and permitted uses of restricted cash, remaining credit commitments, and the timing and cost of further financing.
- Whether the reported derivative losses and debt-refinancing charges are recurring, and the sensitivity of derivative values to LIBOR and other inputs.
- Cash generation available for distributions, including debt covenant conditions and the distinction between unrestricted and restricted cash.
- Developments in the Cheniere litigation and any resulting changes to affiliate fees or the partnership’s reported expenses.