Business Context and Reporting Period
Company: Cheniere Energy Partners, L.P.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2009
Business Overview: The registrant owns and operates the Sabine Pass LNG receiving terminal in Louisiana through its wholly-owned subsidiary, Sabine Pass LNG, L.P. The terminal achieved commercial operability in September 2008. The company generates revenue primarily through Terminal Use Agreements (TUAs) with Cheniere Marketing, LLC, Total LNG USA, Inc., and Chevron U.S.A., Inc.
Key Financial Metrics
| Metric (in thousands) | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Revenues | $62,549 | $0 |
| Net Income (Loss) | $13,588 | $(14,515) |
| Operating Cash Flow | $56,316 | $(423) |
| Cash and Cash Equivalents (End of Period) | $169,943 | $10 |
| Restricted Cash & Equivalents | $149,306 | $273,969 |
| Total Long-Term Debt (Net) | $2,179,508 | $2,180,706 |
| Distributions to Unitholders | $(70,169) | $(11,456) |
Note: Q1 2008 figures reflect the pre-commercial operability phase with no TUA revenue.
Material Changes vs. Prior Period
- Revenue Recognition: The company recorded $62.5 million in LNG TUA revenue from affiliate Cheniere Marketing in Q1 2009, compared to zero in Q1 2008. This follows the achievement of commercial operability in September 2008.
- Profitability: Net income improved from a loss of $14.5 million in Q1 2008 to a profit of $13.6 million in Q1 2009, driven by the commencement of TUA revenues.
- Expenses: Operating and maintenance expenses increased by $6.6 million, and depreciation expense increased by $6.6 million, reflecting the placement of initial capacity (2.6 Bcf/d sendout) into service.
- Interest Income: Decreased by $6.1 million due to lower interest rates and reduced investment of unrestricted cash.
- Interest Expense: Net interest expense increased by $16.6 million as less interest was capitalized following the placement of assets into service.
- Cash Position: Unrestricted cash increased significantly to $169.9 million from $7,000 at the end of 2008, largely due to the use of restricted cash reserves for construction and interest payments.
Outlook, Risks, and Management Commentary
- Construction Status: The company expects to achieve full operability of the Sabine Pass LNG receiving terminal (4.0 Bcf/d capacity) in the third quarter of 2009. Remaining construction costs are anticipated to be funded by working capital and designated cash reserves.
- Revenue Outlook: Total LNG USA, Inc. began monthly capacity payments in April 2009. Chevron U.S.A., Inc. is expected to commence payments by July 1, 2009. Cheniere Marketing is obligated to pay approximately $250 million annually.
- Liquidity and Distributions: The company made its first distribution to subordinated unitholders in Q1 2009. Management anticipates sufficient cash flow from Total and Chevron TUAs to meet future operating and interest requirements, even if Cheniere Marketing faces liquidity issues.
- Risks:
- Counterparty Risk: Cheniere Marketing has limited capital and no credit rating; its obligations are guaranteed by Cheniere Energy, Inc., which holds a non-investment grade rating. Failure of Cheniere to meet TUA obligations could impact the company's ability to make distributions.
- Debt Covenants: Distributions are restricted under the Sabine Pass Indenture until specific conditions are met, including maintaining a debt service reserve fund of approximately $82.4 million and a fixed charge coverage ratio of 2:1.
- Unusual Items: The company recorded a $2.6 million net derivative gain related to natural gas swaps hedging commissioning cargoes.
Key Facts for Investor Verification
- Debt Service Reserve: Verify the status of the $82.4 million permanent debt service reserve fund required by the Senior Notes indenture.
- Cheniere Marketing Solvency: Monitor the financial health of Cheniere Marketing and its parent, Cheniere Energy, Inc., as they represent a significant portion of contracted revenue.
- Construction Completion: Track progress toward the projected third-quarter 2009 completion of full terminal operability.
- Chevron and Total Start Dates: Confirm the commencement of revenue streams from Total (April 2009) and Chevron (July 2009) as scheduled.
- Restricted Cash Usage: Review the utilization of the $170.1 million in restricted cash and securities designated for interest payments and construction.