Cheniere Energy Partners, L.P. - 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2009. Cheniere Energy Partners, L.P. owns and operates the Sabine Pass LNG receiving terminal in Louisiana. During the period, the partnership substantially completed construction and achieved full operability of the terminal, which has approximately 4.0 Bcf/d of sendout capacity and 16.9 Bcf of storage capacity. The partnership is dependent on distributions from its subsidiary, Sabine Pass LNG, L.P., which is subject to debt covenants under its Senior Notes indenture.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 |
|---|---|---|
| Total Revenues | $128.5 million | $286.8 million |
| Net Income | $69.5 million | $125.0 million |
| Operating Income | $106.4 million | $224.0 million |
| Net Cash Provided by Operating Activities | N/A | $168.4 million |
| Cash and Cash Equivalents (End of Period) | $121.6 million | $121.6 million |
| Restricted Cash and Cash Equivalents | $137.3 million | $137.3 million |
| Total Long-Term Debt (Net of Discount) | $2.18 billion | $2.18 billion |
| Distributions to Unitholders | N/A | $210.5 million |
Note: The filing does not explicitly state a net profit margin percentage; however, operating income for the nine months ended September 30, 2009, was approximately 78% of total revenues.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues for the nine months ended September 30, 2009, were $286.8 million, compared to $0 in the same period in 2008. This increase is due to the commencement of capacity reservation fee payments under Terminal Use Agreements (TUAs) with Cheniere Marketing (Oct 2008), Total (April 2009), and Chevron (July 2009).
- Profitability: The partnership reported a net income of $125.0 million for the nine months ended September 30, 2009, a significant improvement from a net loss of $49.9 million in the prior year period.
- Interest Expense: Net interest expense increased by $56.8 million for the nine-month period compared to 2008. This was driven by the issuance of additional 2016 Notes in September 2008 and a decrease in interest capitalization as construction neared completion.
- Depreciation: Depreciation expense increased by $20.8 million year-over-year as assets associated with the initial and remaining capacity of the Sabine Pass terminal were placed into service.
- Derivative Gains: Net derivative gains increased by $2.2 million for the nine-month period, primarily due to decreases in natural gas commodity prices which increased the value of the partnership's swap positions.
Outlook, Risks, and Management Commentary
- Construction Completion: Management confirmed that construction of the Sabine Pass LNG receiving terminal was substantially completed within the estimated budget of approximately $1.559 billion (excluding financing costs) by the third quarter of 2009.
- Liquidity and Distributions: The partnership made distributions of $210.5 million to unitholders in the first nine months of 2009. Future distributions depend on Sabine Pass LNG's ability to satisfy debt service reserve requirements and fixed charge coverage ratios under the Senior Notes indenture. The partnership distributed the remaining $34.9 million balance of its distribution reserve to Cheniere in August 2009.
- Subordination Period: Subordinated units will convert to common units once specific financial tests are met. Management projects the earliest possible end to the subordination period is no sooner than the first business day after the distribution for the quarter ending March 31, 2012.
- Risks: The partnership faces risks related to the creditworthiness of its counterparties (Cheniere Marketing, Total, Chevron). Cheniere Marketing has limited capital and no credit rating, though its obligations are guaranteed by Cheniere Energy, Inc. (non-investment grade). Additionally, the partnership is subject to commodity price risks, though it utilizes derivatives to hedge commissioning cargo sales.
Investor Verification Checklist
- Debt Covenants: Verify Sabine Pass LNG's compliance with the fixed charge coverage ratio (2:1) and debt service reserve fund requirements ($82.4 million) to ensure continued ability to make distributions.
- Counterparty Credit: Monitor the financial health of Cheniere Energy, Inc. (guarantor of Cheniere Marketing's TUA) and the credit ratings of Total and Chevron.
- Construction Costs: Confirm that the final construction costs remain within the $1.559 billion budget and that no significant cost overruns require additional funding.
- Derivative Exposure: Review the status of natural gas swap positions and their impact on earnings as commissioning activities conclude.
- Subordination Conversion: Track the financial metrics required to end the subordination period, as this will alter the distribution waterfall and unit economics.