Cheniere Energy, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013. Cheniere develops and operates LNG infrastructure, including the Sabine Pass terminal and its liquefaction project. Results consolidate Cheniere Partners, in which Cheniere held a 57.9% interest.
Financial performance
| Metric | Q3 2013 | Q3 2012 | 9M 2013 | 9M 2012 |
|---|---|---|---|---|
| Revenue | $67.7m | $66.0m | $200.8m | $198.8m |
| Operating loss | $45.9m | $54.5m | $249.6m | $59.9m |
| Net loss attributable to common stockholders | $100.8m | $109.0m | $372.7m | $238.5m |
| Loss per share, basic and diluted | $0.46 | $0.52 | $1.71 | $1.40 |
| Net cash used in operating activities | Not separately stated for the quarter | $22.3m | $105.0m |
For the nine months, total operating costs rose to $450.4m from $258.7m. General and administrative expense increased to $278.0m from $120.2m, primarily due to timing of project-related bonus awards; reported share-based compensation expense was $202.8m versus $54.0m. LNG terminal operating expense also rose, partly reflecting LNG purchases to maintain terminal readiness, maintenance and fuel costs.
Nine-month interest expense, net, declined to $134.8m from $159.7m, while a $80.5m loss on early debt extinguishment was recorded, mainly from refinancing and replacing the 2012 Liquefaction Credit Facility. Derivative results were volatile: a $55.7m nine-month gain compared with a $0.3m loss in 2012, but a $22.3m loss in Q3 2013 versus a small gain in Q3 2012. Much of the change related to interest-rate derivatives.
Balance sheet, debt and liquidity
- At September 30, 2013, total assets were $8.13bn, including $5.71bn of property, plant and equipment, largely under construction.
- Long-term debt, net, was $5.57bn, up from $2.17bn at December 31, 2012. Principal debt was $5.59bn, including $2.09bn of Sabine Pass LNG notes, $3.0bn of liquefaction notes, $100m drawn on the 2013 Liquefaction Credit Facilities and $400m under the CTPL Credit Facility.
- Cash and cash equivalents available to Cheniere were $374.2m. Consolidated restricted cash was $1.41bn, designated principally for project construction, pipeline work, working capital and interest; restricted balances are not generally available for Cheniere’s unrestricted use.
- Operating cash use was $22.3m for the nine months. LNG terminal and pipeline cash costs were $2.45bn; investing cash flow was a $19.7m use. Financing activities provided $214.4m, and unrestricted cash ended at $374.2m.
- Current assets were $1.01bn and current liabilities $213.2m, but current assets include substantial restricted cash.
Material changes and significant developments
- Cheniere raised $2.0bn through 2021 notes and $1.0bn through 2023 notes, both bearing 5.625% interest, and closed $5.9bn of 2013 Liquefaction Credit Facilities. The prior $3.6bn facility was amended and restated; the refinancing generated the $80.5m debt-cost write-off.
- CTPL borrowed the full $400m available under its term facility. Cheniere sold the Creole Trail Pipeline business to Cheniere Partners for $480m, received $13.9m of reimbursements and acquired $180m of Cheniere Partners Class B units, yielding net cash of $313.9m from the linked transactions.
- Construction of Trains 1 and 2 was approximately 45% complete; Trains 3 and 4 were approximately 10% complete at September 30, both ahead of contractual schedules. Construction of Trains 3 and 4 began in May 2013.
- Property, plant and equipment increased to $5.71bn from $3.28bn, reflecting the project build-out. Nine-month capital expenditures on a cash basis were $2.45bn.
Outlook, commentary and risks
- Management expected Train 1 to produce LNG as early as late 2015, with commercial operations expected in February 2016; later trains were expected to start in sequence. These are forward-looking expectations, not guarantees.
- Estimated capital costs for Trains 1–4 were $9bn–$10bn before financing costs and $12bn–$13bn after financing costs, including estimated owner costs and contingencies. Management said committed facility capacity and proceeds, equity contributions and SPA cash flows were expected to fund the project and meet anticipated requirements.
- Six third-party long-term SPAs covered approximately 19.75 mtpa, about 88% of anticipated nominal capacity for Trains 1–5. The fixed-fee portion was estimated at about $2.3bn annually for Trains 1–4, rising to $2.9bn if Train 5 proceeds, once the applicable trains begin commercial operations.
- Key risks include construction cost or schedule overruns, financing availability and costs, regulatory approvals, project execution and LNG market conditions. Trains 5 and 6 and the Corpus Christi project remained under development; final investment decisions require acceptable commercial, regulatory and financing arrangements.
- Management reported no pending legal matter expected to have a material adverse effect and no material off-balance-sheet arrangements. Disclosure controls were assessed as effective.
Most important facts for investors to verify
- Progress, costs and schedule against the construction plans for Trains 1–4, including whether the stated completion and start-up expectations remain achievable.
- Availability and draw conditions for the $5.9bn liquefaction facilities, remaining project funding needs, and the effect of higher debt and financing costs.
- How much reported cash is restricted, and the actual cash accessible to Cheniere versus its subsidiaries and Cheniere Partners.
- Drivers and future vesting impact of unusually high stock-based compensation, and the extent to which derivatives may cause earnings volatility.
- SPA counterparties’ obligations, contract commencement conditions and whether Train 5 receives a final investment decision.