Cheniere Energy Partners, L.P. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. The Partnership owns and operates Sabine Pass LNG regasification facilities and is developing liquefaction facilities and the Creole Trail Pipeline. Trains 1 and 2 reached substantial completion in May and September, respectively; Train 3 entered commissioning.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $331.4 million | $67.5 million | $549.6 million | $202.8 million |
| Operating income | $47.9 million | $35.9 million | $51.0 million | $21.8 million |
| Operating margin | 14.4% | 53.2% | 9.3% | 10.7% |
| Net loss | $81.5 million | $24.1 million | $256.5 million | $262.9 million |
| Net loss per common unit | $0.27 | Net income per unit of $0.18 | $0.56 | $0.44 |
| Net cash from operating activities | Not presented quarterly here | $12.9 million | $(0.9) million |
Revenue growth primarily reflects the start of recognized LNG sales after Train 1 and Train 2 achieved substantial completion. Q3 LNG revenue was $248.2 million, including $16.2 million from an affiliate; nine-month LNG revenue was $333.6 million, plus $16.2 million from an affiliate. A further 44.8 million MMBtu of LNG loaded in the first nine months was treated as a reduction of construction-in-process rather than revenue because it was sold during commissioning.
Operating expenses rose as the liquefaction trains began operating and depreciation commenced. The prior-year comparison also included a $32.2 million gain from a natural-gas supply contract fair-value change, presented as a cost recovery. Net losses reflected higher net interest expense and debt-extinguishment charges, partly offset by higher operating income and lower derivative losses. Interest expense, net of capitalized interest, was $113.2 million in Q3 and $228.7 million for the nine months.
Liquidity, debt and distributions
- At September 30, cash and cash equivalents were $12.5 million; current and non-current restricted cash totaled $582.2 million. Restricted funds were designated for credit facilities, construction and debt interest, and are not generally available for unrestricted use.
- Current assets were $808.4 million versus current liabilities of $2.312 billion. Total debt, net, was $13.958 billion, up from $11.692 billion at December 31, 2015; partners’ equity was $382.3 million.
- Nine-month financing activity included $5.419 billion of debt issuance proceeds, $3.130 billion of repayments, $89.4 million of financing costs and $74.3 million of distributions. Cash and cash equivalents declined by $133.8 million to $12.5 million. Capital construction was largely funded through restricted cash and financing.
- The Partnership reported $12.9 million of cash provided by operating activities on its cash-flow statement. Management’s liquidity discussion also describes $41.7 million of cash used when changes in restricted cash for operating activities are included; these are different presentations.
- In June and September, SPL issued $1.5 billion principal amount of notes due 2026 and $1.5 billion due 2027. The 2016 CQP Credit Facilities had $450 million outstanding and approximately $2.3 billion of available commitments at quarter-end. The SPL working-capital facility had $98.5 million outstanding and $764.5 million available.
- The Partnership declared a $0.425 per-common-unit distribution for Q3, payable November 11, 2016. It reported no distribution to subordinated units during the periods shown.
Outlook, risks and unusual items
- Management expected Trains 3 and 4 to reach substantial completion in 2017 and Train 5 in 2019; the trains were reported ahead of contractual schedule. Train 3 was expected to reach substantial completion before June 30, 2017, triggering mandatory conversion of Class B units within 90 days.
- Expected total capital costs for Trains 1–5 were $12.5–$13.5 billion before financing costs and $17.0–$18.0 billion including financing costs, owner’s costs and contingencies. Management believed available financing commitments and operating cash flows would be adequate to complete Trains 1–5 and meet anticipated requirements. Train 6 construction remained contingent on an EPC contract, acceptable commercial arrangements and adequate financing.
- After quarter-end, SPLNG gave notice to redeem its $420 million of 2020 notes on November 30, 2016 at 103.25% of principal, and intended to repay approximately $1.665 billion of 2016 notes at par, using the SPLNG tranche of the 2016 CQP Credit Facilities.
- One SPA customer accounted for 70% of net LNG revenue in Q3 and 77% for the nine-month period. LNG revenue concentration, construction execution and financing needs are material considerations.
- Non-FTA export authorization for a portion of planned capacity remained subject to a pending court appeal and a rehearing request. The filing cited derivative valuation and counterparty risks, variable-rate debt exposure, and restrictive debt covenants that limit distributions and other cash uses.
- The planned outage to improve flare-system performance and perform maintenance was completed in October on schedule and budget. The filing reported no material change to previously disclosed risk factors, no material off-balance-sheet arrangements, and effective disclosure controls.
Key facts for investors to verify
- Commercial cargo timing, operating performance and cash generation from Trains 1–3, including the effect of commissioning cargoes on reported revenue and construction costs.
- Actual funding, redemption premiums and resulting debt balances after the November 2016 repayment of SPLNG notes.
- Availability and permitted use of restricted cash and credit-facility commitments, alongside near-term maturities and covenant constraints.
- Progress and final cost outlook for Trains 3–5, plus the conditions and financing required for any Train 6 investment decision.
- Exposure to the concentrated SPA customer, affiliate transactions, export-authorization proceedings and Level 3 derivative valuations.