Cheniere Energy Partners, L.P. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports fourth-quarter results; it is an annual report, not a standalone quarterly filing.
Business context and reporting period
The Partnership owns and operates the Sabine Pass LNG regasification terminal and the 94-mile Creole Trail Pipeline, and is building LNG liquefaction facilities at Sabine Pass. The terminal has about 4.0 Bcf/d of regasification capacity; construction covers five Trains, each with expected nominal capacity of about 4.5 mtpa, with a sixth Train under development.
Financial and operating metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $270.0 million | $268.7 million |
| Operating income | $3.0 million | $0.5 million |
| Net loss | $318.9 million | $410.0 million |
| Interest expense, net of capitalized interest | $184.6 million | $177.0 million |
| Operating cash flow | $5.7 million | $11.9 million |
| Capital expenditures, cash basis | $2.9 billion | $2.6 billion |
| Cash and cash equivalents at year-end | $146.2 million | $248.8 million |
| Current and non-current restricted cash at year-end | $288.2 million | $740.2 million |
| Total debt, net, at year-end | $11.9 billion | $9.0 billion |
Operating margin was approximately 1.1% in 2015; net margin was approximately negative 118%. These calculated margins reflect reported revenue and income figures. The Partnership remained loss-making and generated very little operating cash relative to construction spending and debt service needs.
Fourth-quarter 2015 revenue was $67.3 million, versus $66.6 million in fourth-quarter 2014. Fourth-quarter operating loss was $18.7 million, versus operating income of $5.3 million a year earlier; net loss was $56.0 million versus $70.8 million. Quarterly per-unit data in the filing should be checked against the annual statements and partnership allocation mechanics.
Material changes versus the prior comparable period
- Annual revenue was nearly flat, while net loss narrowed by $91.1 million. Management attributed the improvement mainly to lower derivative losses, lower operating and maintenance expense, and a smaller loss on early debt extinguishment; higher affiliate general and administrative expense partly offset those benefits.
- Debt rose substantially, with $11.8 billion of total debt outstanding before discounts and premiums at year-end, including $1.7 billion of notes due in 2016. Current debt was $1.7 billion.
- Cash and cash equivalents declined by $102.6 million. Restricted cash fell by about $452 million, mainly as construction funding was spent and project financing proceeds were used.
- Construction-in-process and other property, plant and equipment increased; net PP&E reached $11.9 billion from $9.0 billion.
Outlook, commentary, risks and unusual items
- Trains 1 and 2 were 97.4% complete and Trains 3 and 4 were 79.5% complete at year-end; Train 5 was 14.9% complete. All were reported ahead of contractual schedule. Train 1 produced first LNG in February 2016, after the reporting period; Train 2 was expected to produce LNG as early as mid-2016, with Trains 3–5 expected to start in stages thereafter.
- Six third-party 20-year SPAs cover approximately 19.75 mtpa, about 88% of expected nominal capacity for Trains 1–5. Contracted fixed fees are expected to total about $2.9 billion annually once the relevant Trains begin commercial operations; LNG pricing also includes 115% of Henry Hub. These are prospective contract amounts, not 2015 revenue.
- Estimated capital cost for Trains 1–5 is $12.5–$13.5 billion before financing costs and $17–$18 billion after financing costs, including estimated owner costs and contingencies. Train 6 requires acceptable commercial arrangements, an EPC contract and adequate financing before a final investment decision.
- In January 2016, the Partnership engaged arrangers to structure up to approximately $2.8 billion of secured credit facilities intended to refinance specified CTPL and SPLNG debt, cover related fees and make-whole amounts, and support general purposes. The filing does not say this financing had closed.
- The Partnership continued quarterly distributions of $0.425 per common unit, but disclosed that current operating surplus was insufficient to fund them fully and that it was using accumulated operating surplus. No distributions were being paid on subordinated units; Class B units were not entitled to regular cash distributions. Debt covenants can restrict subsidiary distributions to the Partnership.
- Management cited significant execution and financing risks, including construction delays or cost overruns, refinancing and liquidity needs, customer or guarantor nonperformance, regulatory approvals, commodity and LNG market conditions, weather and operational hazards, and reliance on Cheniere and affiliated service providers. It also disclosed conflicts of interest with Cheniere affiliates and a transition in the general partner’s CEO role.
- Interest-rate and commodity derivative changes affected earnings. The 2015 loss on early extinguishment of debt was $96.3 million, primarily from writing off financing costs and deferred fees after credit-facility changes. Management reported no pending legal matter expected to have a material effect on results, financial position or cash flows.
Important facts for investors to verify
- Progress, commissioning and commercial-start dates for each Train, and whether customer SPA conditions and required export authorizations are satisfied.
- Actual remaining construction costs versus the $12.5–$13.5 billion pre-financing estimate, including EPC change orders and contingency use.
- Completion, terms and repayment of the proposed 2016 refinancing, especially the $1.7 billion maturity and other near-term obligations.
- Cash available at the Partnership level after subsidiary debt covenants, restricted cash, working-capital needs and affiliate fees; assess whether the $0.425 quarterly common-unit distribution is sustainable.
- Counterparty credit quality and performance under the long-term TUAs and SPAs, and the potential dilution and distribution effects of Class B unit conversion.