Business Context and Reporting Period
Company: Cheniere Energy Partners, L.P.
Filing Type: Form 8-K (Current Report)
Date of Report: August 5, 2014
Event: Entry into a Material Definitive Agreement (Item 1.01).
On August 5, 2014, Sabine Pass Liquefaction, LLC (a wholly owned subsidiary of Cheniere Energy Partners, L.P.) and Cheniere Marketing, LLC (a wholly owned subsidiary of Cheniere Energy, Inc.) entered into an Amended and Restated LNG Sale and Purchase Agreement. This agreement modifies a prior contract dated May 14, 2012.
Key Financial Metrics
This filing is a Current Report regarding a material agreement and does not contain periodic financial statements. Consequently, specific values for revenue, profit, cash flow, margins, debt, and liquidity are not provided in this document.
Agreement Pricing Terms:
- Price Formula: 115% of the then-current Henry Hub price plus $3.00 per MMBtu of LNG.
- Volume: Cheniere Marketing may purchase any LNG produced in excess of that required for other customers, at its option.
- Term: Twenty years from the later of August 1, 2018, or the date of first commercial delivery of the first liquefaction train.
- Extension: Cheniere Marketing has the right to extend the term for an additional period of up to ten years.
Material Changes Versus Prior Period
The Amended and Restated SPA introduces the following material changes to the May 14, 2012 agreement:
- Removal of Volume Cap: The limit on the maximum annual contract quantity that Cheniere Marketing may purchase has been removed.
- Pricing Mechanism Change: The calculation of price based on a share of net profit has been replaced with a fixed formula (115% of Henry Hub + $3.00/MMBtu).
- Flexibility: Cheniere Marketing may cancel a scheduled cargo of LNG without charge by providing timely advance notice.
Guidance, Outlook, Risks, and Contingencies
Management Commentary and Outlook:
- Sabine Pass Liquefaction agreed to use reasonable efforts to amend or obtain additional LNG export licenses sufficient to meet obligations under this agreement and other agreements.
- The agreement is contingent on the availability of excess LNG; if there is insufficient capacity, Sabine Pass Liquefaction is not obligated to commit LNG to Cheniere Marketing.
Risks and Termination Rights: The agreement includes specific termination rights for either party under the following circumstances:
- Bankruptcy of the other party.
- Late payment exceeding $30 million for ten days or more.
- Delay in first commercial delivery exceeding 180 days (by Cheniere Marketing).
- Violation of LNG export licenses or applicable laws.
- Force majeure events totaling 24 months within a 36-month period preventing 50% or more of the annualized contract quantity.
- Failure to make available or take 50% of scheduled cargoes in any 12-month period (excluding force majeure).
- Failure to execute required direct agreements with lenders within 60 days of request.
Important Facts for Investor Verification
- Related Party Transaction: Verify the relationship between Cheniere Energy Partners, L.P. and Cheniere Energy, Inc., as the agreement is between their respective subsidiaries.
- Export License Status: Confirm the current status of LNG export licenses required to fulfill the 20-year term and the "reasonable efforts" clause regarding additional licenses.
- Capacity Constraints: Assess the operational capacity of the Sabine Pass LNG terminal to determine the likelihood of "excess" LNG being available for sale under this agreement.
- Full Agreement Text: Review Exhibit 10.1 (Amended and Restated LNG Sale and Purchase Agreement) for complete terms, exceptions, and qualifications not detailed in the summary.