Cheniere Energy Partners, L.P. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter results filing; the supplied filing does not provide a complete standalone Q4 income statement or cash flow statement.
Business context
CQP owns and operates the Sabine Pass LNG export terminal in Louisiana, its liquefaction facilities and the 94-mile Creole Trail Pipeline. Train 6 reached substantial completion in February 2022, bringing the six-train facility to approximately 30 mtpa of production capacity. The third marine berth reached substantial completion in October 2022. About 85% of production capacity was contracted under SPAs and an IPM agreement, with approximately 15 years of weighted-average remaining contract life at year-end.
Financial and operating metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $17.206 billion | $9.434 billion |
| Income from operations | $3.380 billion | $2.557 billion |
| Net income | $2.498 billion | $1.630 billion |
| Net income per common unit | $3.27 | $3.00 |
| Net cash from operating activities | $4.149 billion | $2.291 billion |
| Capital spending, cash basis | $451 million | $648 million |
| Cash and cash equivalents | $904 million | $876 million |
| Restricted cash | $92 million | $98 million |
| Debt outstanding, principal | $16.332 billion | $17.332 billion |
Operating margin was approximately 19.6% in 2022 versus 27.1% in 2021; net margin was approximately 14.5% versus 17.3%. These calculated ratios are affected by substantial derivative accounting volatility. Total available liquidity at year-end was $2.618 billion, including $1.622 billion of undrawn credit commitments. Credit facilities had no borrowings outstanding, although $328 million of letters of credit were issued under SPL’s facility. Senior notes had a 4.83% weighted-average contractual interest rate. The filing reports $4.3 billion of scheduled interest payments and $16.3 billion of principal payments under executed debt contracts, subject to its assumptions.
Material changes and unusual items
- Revenue increased $7.772 billion year over year, primarily from higher LNG pricing and volume, plus higher regasification revenue. LNG volumes loaded and recognized as revenue were 1,520 TBtu, compared with 1,288 TBtu in 2021.
- Net income rose $868 million. Management cited improved LNG margins and volume, and the Chevron terminal-use agreement termination. Chevron paid a $765 million lump-sum termination fee; the filing describes related recognition in regasification revenue and a separate $31 million debt-extinguishment loss.
- Cost of sales increased substantially with higher natural gas feedstock prices and volumes. Derivative losses recognized in cost of sales were $1.159 billion in 2022, compared with a $30 million gain in 2021. The filing attributes much of the adverse mark-to-market impact to the Tourmaline IPM agreement and volatile international LNG price curves.
- At year-end, net derivative liabilities were $3.741 billion, including a $3.719 billion Level 3 liability based on significant unobservable inputs. Management and the auditor identified valuation of these Level 3 physical liquefaction supply derivatives as a critical audit matter. These fair-value changes can materially affect reported earnings and are not equivalent to current-period cash losses.
- Operating cash flow increased $1.858 billion, reflecting higher cargo receipts and the Chevron termination proceeds, partly offset by higher feedstock costs. Financing cash outflow was $3.676 billion, including $2.635 billion of distributions. CQP declared aggregate distributions of $4.25 per common unit for 2022; its January 2023 declaration was $1.07 per unit.
- SPL redeemed $1.5 billion of notes due 2023, using proceeds from $500 million of new notes and cash on hand. Ratings were upgraded during 2022; CQP obtained investment-grade ratings from Fitch and S&P, and Moody’s upgraded CQP and SPL. The filing says the S&P upgrade released required collateral and made CQP’s revolving facility unsecured.
- The assignment of the Tourmaline IPM agreement from a Cheniere affiliate was recorded as a common-control transfer and resulted in a $2.712 billion non-cash distribution to Cheniere in partners’ equity. Total partners’ equity consequently moved from positive $718 million to a deficit of $2.131 billion.
Outlook, risks and contingencies
No quantified earnings or distribution guidance is provided. Management expects to meet near-term cash requirements with operating cash flow and available liquidity, while noting future capital needs and dependence on market access for potential financing. In February 2023, subsidiaries began FERC pre-filing review for a possible adjacent expansion of up to three trains and approximately 20 mtpa; this is a development proposal, not an approved or committed project, and would require acceptable commercial and financing arrangements.
Management reported exceptionally volatile global LNG markets in 2022, driven in part by the Russia-Ukraine war and reduced Russian gas flows to Europe. It said CQP did not have significant direct or indirect exposure to the war. Key risks include substantial debt and refinancing costs, debt covenants that can restrict subsidiary distributions, customer and counterparty performance, natural gas supply and pipeline disruptions, extreme weather, operational and cyber incidents, LNG market competition, and regulatory and environmental requirements. The Inflation Reduction Act methane charge is scheduled to begin in 2024; management did not expect a material adverse effect at the time of filing, but future regulation and compliance costs remain uncertain.
The filing says there were no pending legal matters expected to have a material impact on results, financial position or cash flows. The LDEQ matter concerning self-reported permit deviations remained under discussion, with no expected material impact. SPL paid a reduced $1.458 million PHMSA penalty related to the 2018 tank incident; one affected tank had returned to service, while the other remained out of service for analysis, repair and remediation. Management and the auditor reported effective internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Review the Level 3 derivative valuation assumptions, including international LNG pricing spreads, forward curves and the potential cash and earnings effects of future settlements.
- Assess the distinction between consolidated liquidity and cash available to CQP: SPL and CQP have independent capital structures, and SPL cash and distributions are subject to restrictions and coverage tests.
- Track debt maturities, refinancing terms, interest-rate exposure and covenant compliance, especially the $2.0 billion of principal due in 2024 and the credit facilities maturing in 2024–2025.
- Monitor actual distributions against available cash, reserves, debt-service requirements and the variable distribution policy; 2022 distributions exceeded reported net income.
- Check the status, cost, approvals, customer contracting and financing for the proposed expansion, and the return-to-service status of the remaining tank affected by the 2018 incident.
- Evaluate customer and affiliate concentration: five external customers each represented at least 10% of 2022 external revenue, while affiliate LNG revenue was $4.568 billion.