Business context and reporting period
Cheniere Energy Partners, L.P. (CQP) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2019. It owns and operates the Sabine Pass LNG terminal and related pipeline. Trains 1–5 were operational; Train 6 was under construction.
Financial results and key metrics
Amounts are in millions of dollars, except per-unit data and percentages.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $1,705 | $1,407 | $3,454 | $3,000 |
| Operating income | $455 | $455 | $1,018 | $963 |
| Net income | $232 | $281 | $617 | $616 |
| Net income per common unit | $0.44 | $0.55 | $1.19 | $1.22 |
| Operating margin (approx.) | 26.7% | 32.3% | 29.5% | 32.1% |
| Net margin (approx.) | 13.6% | 20.0% | 17.9% | 20.5% |
- For the six months, operating cash flow was $640, down from $805; capital investment cash outflow was $586, versus $345. Financing cash flow was $17, compared with an outflow of $528, reflecting $649 of new borrowings and $616 of distributions.
- At June 30, cash and cash equivalents were $1,016; restricted cash was $596. Long-term debt, net, was $16,720, compared with $16,066 at year-end 2018. The Partnership reported $801 of partners’ equity.
- Available commitments were $785 under the SPL working-capital facility and $851 under the 2019 CQP facilities. The latter had $649 outstanding. CQP and SPL reported compliance with debt covenants.
- Quarterly common and subordinated unit distributions were $0.60 per unit for Q1 2019 and $0.59 for Q4 2018. After quarter-end, CQP declared $0.61 per unit for Q2, payable August 14, 2019.
Material changes versus the prior comparable period
- Q2 revenue rose $298 (21%) year over year, while net income declined $49 (17%). Six-month revenue increased $454 (15%), while net income was nearly unchanged.
- LNG volumes recognized as revenue increased to 305 TBtu in Q2 from 222 TBtu, and to 568 TBtu for the half from 463 TBtu. Management attributed higher revenue mainly to Train 5 entering service in March 2019, partly offset by lower revenue per MMBtu.
- Operating costs rose $298 in Q2 and $399 for the half. Drivers included higher feed-gas costs from increased volumes, additional maintenance and transportation costs, and higher depreciation as Train 5 began commercial operations.
- Net interest expense rose to $230 in Q2 from $184 and to $417 for the half from $369, primarily because less construction interest could be capitalized after Train 5 was completed. Six-month operating cash flow also fell, principally due to increased operating costs.
- In May, CQP replaced its prior credit facilities with $1.5 billion of facilities: a $750 million term loan and a $750 million revolver. It borrowed $649 million by quarter-end, primarily to support Train 6 development and construction.
Outlook, commentary, risks and unusual items
- Train 6 reached 32.4% overall completion at June 30; substantial completion was expected in the first half of 2023. Its EPC contract price was approximately $2.5 billion, including estimated costs for an optional third marine berth. Management said available commitments and operating cash flows were expected to provide adequate resources for anticipated capital, operating and debt-service needs.
- Management expects LNG revenue to increase when Train 6 becomes operational. The filing provides no specific earnings or distribution guidance.
- Four customers each accounted for at least 10% of external revenue in Q2 2019; their reported shares were 30%, 20%, 19% and 23%. Affiliate LNG revenue was $455 in Q2, versus $178 a year earlier. Related-party services and operating charges also increased; assess these arrangements and customer concentration.
- Two LNG storage tanks remained out of service following 2018 leaks. A July 2019 PHMSA/FERC letter specified operating conditions to be met before return to service. CQP said it did not expect the matter and remediation to materially adversely affect results or operations.
- Commodity derivatives were a source of valuation uncertainty: $34 net fair-value asset at June 30, including Level 3 valuations sensitive to unobservable gas-basis assumptions. Derivative fair-value movements can add earnings volatility.
- Train 5 commissioning-cargo sales reduced construction-in-process by $48 during the first half. CQP adopted lease accounting on January 1, recognizing approximately $100 of operating lease assets and liabilities at adoption, with no material income-statement or cash-flow impact.
- The filing identifies no material changes to previously disclosed risk factors and no material off-balance-sheet arrangements. It cautions that forward-looking statements are subject to risks and may not be realized.
Most important facts for investors to verify
- Train 6 schedule, completion progress, total project cost, and any spending or financing changes.
- Whether cash generation and available, covenant-compliant credit capacity support construction, debt service, and distributions; distinguish unrestricted from restricted cash.
- Train 5’s contribution to LNG volumes, costs, and margins, and the reasons cash flow lagged earnings.
- Customer and affiliate exposure, including the terms and economics of related-party LNG sales and service agreements.
- Regulatory conditions, repair progress, and potential operating effects before the two tanks return to service.