Cheniere Energy Partners, L.P. — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; quarterly data below includes the fourth quarter. This is an annual filing, not a standalone Q4 report. Amounts are in U.S. dollars.
Business context
The partnership operates the Sabine Pass LNG import terminal and the 94-mile Creole Trail Pipeline, and is developing LNG export facilities at Sabine Pass. Its strategy relies on long-term, largely fixed-fee contracts. Trains 1–4 were under construction; Trains 5–6 remained in development and subject to approvals and financing.
Financial performance and liquidity
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Revenue | $268.2 million | $264.5 million |
| Operating income (loss) | $(32.7) million | $38.2 million |
| Net income (loss) | $(258.1) million | $(175.4) million |
| Operating cash flow | $35.7 million | $(37.7) million |
| Investing cash flow | $(328.8) million | $(4.8) million |
| Financing cash flow | $224.9 million | $380.4 million |
- Annual revenue increased about 1%, while operating results shifted from profit to loss. The larger net loss reflected a $131.6 million early debt-extinguishment loss, higher affiliate general and administrative costs and higher operating and maintenance costs; a larger derivative gain and lower development expense partly offset these items.
- Q4 2013 revenue was $67.0 million, operating income was $5.4 million and net loss was $61.3 million. Q4 2012 figures were $67.4 million, $14.5 million and $68.6 million, respectively.
- At year-end, cash and cash equivalents were $351.0 million; restricted cash was $1.253 billion, including amounts designated for the liquefaction project, pipeline work and debt-service interest. Restricted balances are not freely available for general use.
- Consolidated debt principal was approximately $6.586 billion ($6.576 billion net of discounts and premiums on the balance sheet), versus $2.186 billion principal at year-end 2012. Interest expense, net, was $178.4 million, compared with $171.6 million.
- Property, plant and equipment was $6.384 billion. Cash capital spending on LNG terminal costs was $3.121 billion. Total assets were $8.517 billion and partners’ equity was $1.640 billion.
Material changes and project outlook
- Construction was reported at approximately 54% complete for Trains 1–2 and 20% for Trains 3–4 at year-end, ahead of contractual schedules. Management anticipated first LNG production from Train 1 as early as late 2015, with later trains starting in stages.
- Estimated capital cost for Trains 1–4 was $9–10 billion before financing costs and $12–13 billion including financing costs, owners’ costs and contingencies. Creole Trail Pipeline modifications were estimated at approximately $100 million.
- Four 20-year third-party SPAs cover 16 mtpa for Trains 1–4; two further SPAs cover 3.75 mtpa for Train 5, contingent on approvals, financing and a positive final investment decision. Contract pricing combines a fixed fee with 115% of Henry Hub. Management cited approximately $2.3 billion in annual fixed fees for Trains 1–4 once the applicable trains operate, rising to about $2.9 billion if Train 5 proceeds. These are expected contract amounts, not 2013 revenue.
- Management said available financing and expected cash flows were sufficient for Trains 1–4, but substantial additional funding would be needed for Trains 5–6. The filing provides no quantified earnings or distribution guidance.
- The partnership acquired the Creole Trail Pipeline Business for $480 million and issued 12 million Class B units to Cheniere for $180 million in connection with the transaction. It also issued 17.6 million common units and raised substantial project debt during 2013.
Distribution, risks and unusual items
- Common-unit distributions remained $0.425 per quarter; the Q4 2013 distribution was paid in February 2014. The partnership said it was not generating sufficient quarterly operating surplus to cover common distributions and intended to use accumulated operating surplus. No distributions had been paid on subordinated units since the quarter ended March 31, 2010; Class B units generally receive no cash distributions before conversion.
- Major risks include construction delays or cost overruns, financing and refinancing access, regulatory approvals for Trains 5–6, counterparty performance, operating and severe-weather hazards, and exposure to LNG and natural-gas market conditions. Customer termination rights could apply in specified circumstances, including certain project delays or unmet Train 5 conditions.
- Debt covenants and restricted project cash constrain subsidiary distributions. Approximately $1.666 billion of debt principal was scheduled to mature in 2016, and the $400 million CTPL facility was due in 2017. The filing identifies significant additional debt and possible equity issuance as funding considerations.
- Affiliate relationships are extensive: Cheniere-affiliated entities provide management and operating services, and affiliate fees and reimbursements rose materially. The filing also describes potential conflicts of interest and the general partner’s limited fiduciary duties.
- Management reported no pending or threatened legal matter expected to materially affect results, financial position or cash flows. The independent auditor issued an unqualified opinion, and management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Current construction progress, remaining cost and schedule for Trains 1–4, and whether first production dates remain achievable.
- Funding committed and still required for Trains 5–6, including the status of FERC and environmental approvals and Train 5 conditions precedent.
- Debt maturities, covenant compliance, refinancing plans and the portion of reported cash that is restricted or otherwise unavailable.
- Cash available for distributions, reliance on accumulated surplus, and the potential dilution and conversion effects of Class B units and future equity issuance.
- Actual affiliate service costs, related-party arrangements and customer/guarantor credit quality relative to contracted fixed-fee expectations.