Business Context and Reporting Period
Company: Cheniere Energy Partners, L.P.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2008
Status: Development Stage Enterprise
Overview: The Company owns and operates the Sabine Pass LNG receiving terminal in Louisiana, which was under construction during the reporting period. The Company has no operating revenues and is funded primarily through debt and restricted cash reserves. Commercial operations for the initial phase (2.6 Bcf/d sendout capacity) commenced in October 2008.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 | Balance Sheet (Sep 30, 2008) |
|---|---|---|---|
| Revenues | $0 | $0 | N/A |
| Net Loss | $(10,897) | $(49,925) | N/A |
| Total Assets | N/A | N/A | $2,020,619 |
| Cash & Cash Equivalents (Unrestricted) | N/A | N/A | $11 |
| Restricted Cash & Equivalents | N/A | N/A | $419,293 |
| Long-Term Debt (Net) | N/A | N/A | $2,179,278 |
| Partners' Deficit | N/A | N/A | $(311,811) |
Note: The Company reported $0 revenue as it was in the development stage. Net loss was driven by interest expense, depreciation, and operating costs, partially offset by interest income and derivative gains.
Material Changes vs. Prior Period
- Net Loss: Net loss for the nine months ended September 30, 2008, increased 39% to $49.9 million compared to $36.0 million in the prior year period. This was primarily due to decreased interest income, increased repair/maintenance expenses (Hurricane Ike), and increased depreciation.
- Depreciation: Depreciation expense increased significantly ($1.8 million for the quarter) as the Company began depreciating the initial phase of the LNG terminal (2.6 Bcf/d capacity) placed in service in Q3 2008.
- Derivative Gains: The Company recognized a $14.7 million derivative gain in Q3 2008 (vs. $0 in Q3 2007) related to natural gas swaps hedging commissioning cargoes.
- Construction Costs: Capital expenditures for the terminal totaled $333.8 million for the nine months ended September 30, 2008, compared to $307.1 million in the prior year period.
- Debt Issuance: In September 2008, the Company issued an additional $183.5 million of 2016 Senior Secured Notes to fund construction cost overruns.
Outlook, Risks, and Management Commentary
- Construction Progress: Physical construction of the initial 2.6 Bcf/d sendout capacity is complete. Construction of the remaining 1.4 Bcf/d capacity was approximately 84% complete, with full operability expected in Q3 2009.
- Hurricane Ike Impact: The facility sustained minor damage from Hurricane Ike. Estimated repair costs are $38 million, with approximately $28 million expected to be recoverable via insurance.
- Liquidity & Distributions: The Company has $450.7 million in restricted cash and securities designated for construction, interest payments, and distributions. Quarterly distributions of $0.425 per common unit are being paid from a distribution reserve through June 30, 2009. Future distributions depend on satisfying a 2:1 fixed charge coverage ratio.
- Revenue Outlook: The entire 4.0 Bcf/d capacity is reserved under Terminal Use Agreements (TUAs) with Total, Chevron, and Cheniere Marketing. Capacity payments are expected to commence between April and July 2009.
- Risks: Significant risk exists regarding the creditworthiness of Cheniere Marketing (a related party) and its ability to meet TUA obligations. If Cheniere Marketing defaults, the Company may be unable to make distributions to unitholders.
Investor Verification Checklist
- Construction Completion: Verify the timeline for achieving full operability (Q3 2009) and the status of the remaining 1.4 Bcf/d capacity.
- Insurance Recovery: Confirm the actual insurance proceeds received for Hurricane Ike damages versus the estimated $28 million recovery.
- Counterparty Credit: Monitor the financial health of Cheniere Marketing and Cheniere Energy, as their ability to pay TUA fees is critical for future cash flow and distributions.
- Debt Covenants: Track the Company's ability to meet the 2:1 fixed charge coverage ratio required to release cash for distributions after the reserve period ends in June 2009.
- Capital Expenditures: Review actual construction costs against the $1.559 billion budget to assess potential for further cost overruns.