Cheniere Energy, Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017; filed August 7, 2017. Amounts are in U.S. dollars unless noted. Cheniere develops and operates LNG export infrastructure. Sabine Pass Trains 1–3 were operational, Train 4 was commissioning, and Train 5 was under construction. Corpus Christi Trains 1–2 were under construction.
Financial results and position
- Revenue: Q2 revenue was $1.241 billion, up from $177 million; first-half revenue was $2.452 billion, up from $246 million. LNG revenue was $1.171 billion for Q2 and $2.314 billion for the first half, reflecting increased operating capacity and LNG volumes.
- Operating results: Operating income was $274 million in Q2 versus an operating loss of $76 million; first-half operating income was $650 million versus a loss of $167 million. Calculated operating margins were approximately 22% and 27%, respectively.
- Net income and EPS: Consolidated net income was $21 million for Q2 and $193 million for the first half. After income attributable to non-controlling interests, the loss attributable to common stockholders was $285 million ($1.23 per share) in Q2 and $231 million ($0.99 per share) in the first half. The allocation to non-controlling interests included the impact of Cheniere Partners Class B unit beneficial-conversion-feature amortization.
- Costs and interest: Q2 operating costs and expenses were $967 million; first-half costs were $1.802 billion. First-half net interest expense was $353 million, versus $182 million a year earlier, as debt increased and less interest was capitalized after trains entered service.
- Cash flow: First-half operating cash flow was $536 million, compared with cash used of $295 million in 2016. Investing used $2.357 billion, principally for construction; financing provided $2.538 billion. Cash, cash equivalents and restricted cash totaled $2.544 billion at period-end.
- Liquidity: Cash and cash equivalents were $796 million; restricted cash was $1.748 billion, much of it project- or entity-restricted. Current assets were $2.368 billion and current liabilities $840 million; unrestricted cash should not be equated with total cash and restricted cash.
- Debt and equity: Debt, net of issuance costs and discounts, was $24.654 billion, up from $21.935 billion at year-end 2016. Total equity was $1.004 billion, including a $1.613 billion stockholders’ deficit and $2.617 billion of non-controlling interest.
Material changes versus prior period
- Revenue and operating income rose sharply as more Sabine Pass trains operated and LNG sales volumes increased. First-half LNG volumes recognized as revenue were 319 TBtu versus 23 TBtu.
- Operating costs, depreciation and maintenance costs also rose as additional trains entered service. SG&A declined, and restructuring expense was lower.
- First-half derivative losses declined to $35 million from $272 million in 2016. Early-debt-extinguishment losses were $75 million versus $57 million, while net interest expense increased.
- First-half common-stockholder loss narrowed to $231 million from $619 million, despite positive consolidated net income, largely because a larger share of earnings was allocated to non-controlling interests.
Outlook, commentary and risks
- Management said it expected capital and operating needs over at least the next 12 months to be met through project financing, operating cash flow, existing cash, debt or equity financing, and subsidiary distributions or service fees. No consolidated earnings or revenue guidance was provided.
- Management believed financing and operating resources were adequate to complete Sabine Pass Trains 1–5. Reported expected substantial-completion timing was second half of 2017 for Train 4 and second half of 2019 for Train 5. Corpus Christi Stage 1 was 67.9% complete, with Train 1 expected in the first half of 2019 and Train 2 in the second half of 2019.
- Sabine Pass Trains 1–5 were supported by long-term SPAs; management reported approximately $2.9 billion of annual fixed fees once the relevant trains’ commercial deliveries begin. Corpus Christi Stage 1 SPAs were also in place, but the facility remained under construction and dependent on financing and execution.
- Key exposures include high debt and interest costs, substantial ongoing construction spending, project completion and financing needs, LNG and natural-gas market and derivative risks, and reliance on permits and regulatory authorizations. Non-FTA export authorization appeals for Sabine Pass and Corpus Christi remained pending.
- Parallax litigation included claims seeking $400 million in alleged damages and additional claims filed in Texas in July 2017. Cheniere said it did not expect the litigation to have a material adverse effect on financial results.
- Cheniere reported that the August 2, 2017 mandatory conversion of Cheniere Partners Class B units changed ownership interests; this occurred after quarter-end. The filing also said the forthcoming lease-accounting standard was preliminarily expected to materially affect the balance sheet.
Most important facts for investors to verify
- Progress, cost and timing of Sabine Pass Train 4 commissioning and Train 5 construction, and Corpus Christi Stage 1 construction.
- Availability and restrictions on cash, project-level liquidity, debt maturities, covenants and capacity to fund remaining capital requirements.
- Actual LNG volumes, realized economics and cash receipts under SPAs as additional trains enter commercial operation.
- Effects of non-controlling interests and the Class B unit conversion on earnings attributable to Cheniere common stockholders and future distributions.
- Status and potential outcomes of export-authorization appeals and Parallax litigation, and any material changes in project, market or financing risks.