Cheniere Energy, Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. This is an annual filing, not a standalone fourth-quarter filing; unaudited quarterly results are also summarized below. Cheniere develops and operates U.S. LNG infrastructure and markets LNG and natural gas. Its main projects are the Sabine Pass liquefaction project in Louisiana and the Corpus Christi project in Texas.
Financial performance and liquidity
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $1.283 billion | $270.9 million |
| Operating income (loss) | ($29.4 million) | ($449.3 million) |
| Net loss attributable to common stockholders | ($610.0 million) | ($975.1 million) |
| Net loss per share, basic and diluted | ($2.67) | ($4.30) |
| Net cash used in operating activities | ($403.8 million) | ($482.5 million) |
| Cash, cash equivalents and restricted cash at year-end | $1.827 billion | $1.736 billion |
| Total assets | $23.703 billion | $18.809 billion |
| Debt, net of discounts and issuance costs | $21.935 billion | $16.594 billion |
- 2016 revenue included $1.016 billion of LNG revenue, largely reflecting the start of Sabine Pass Train 1 and Train 2 operations; regasification revenue was $265.4 million.
- Year-end cash and cash equivalents were $875.8 million; restricted cash was $950.7 million. Current assets were $2.238 billion versus current liabilities of $1.077 billion, but much of the cash was restricted to specified uses.
- Investing cash outflow was $4.413 billion, primarily for project construction; financing cash inflow was $4.908 billion. The company reported $22.7 billion of consolidated debt before discounts, premiums and unamortized issuance costs, and $368.7 million of outstanding letters of credit.
- Operating margin was approximately negative 2.3% in 2016, versus negative 165.9% in 2015, calculated as operating income (loss) divided by revenue. The filing does not present a separate gross margin measure.
- Unaudited fourth-quarter 2016 revenue was $571.6 million; operating income was $122.4 million; net income attributable to common stockholders was $109.7 million, or $0.48 per share. The first three quarters each reported a common-stockholder net loss.
Business developments and changes versus prior year
- Sabine Pass Trains 1 and 2 reached substantial completion and began operating in May and September 2016; Train 3 was commissioning. Trains 4 and 5 remained under construction. Corpus Christi Stage 1 was 49.2% complete at year-end, with Train 1 expected in the first half of 2019 and Train 2 in the second half of 2019.
- Revenue increased sharply from the commencement of LNG operations. The common-stockholder net loss narrowed by $365.1 million, primarily due to improved operating results and lower derivative losses, partly offset by higher interest expense.
- Interest expense, net of capitalized interest, rose to $488.4 million from $322.1 million, as debt increased and less interest was capitalized after Sabine Pass Trains 1 and 2 left construction.
- Cheniere raised substantial project debt and refinanced existing facilities during 2016, including new Sabine Pass and Corpus Christi senior notes. It also initiated organizational changes focused on simplifying its structure and financially disciplined investment; restructuring charges were $61.4 million, mainly employee-related.
Outlook, risks and contingencies
- Management expected LNG revenue and operating costs to rise as additional trains become operational. No specific company-wide earnings or cash-flow guidance is provided in the filing.
- Long-term fixed-price SPAs cover approximately 19.75 mtpa at Sabine Pass Trains 1–5 and 7.7 mtpa at Corpus Christi Trains 1–2, with an additional 0.8 mtpa for Corpus Christi Train 3. Contracted customers generally owe fixed fees even if they cancel or suspend certain cargo deliveries, subject to contract terms and conditions.
- Completing construction and meeting commercial start dates remain central risks. Cost overruns, delays, contractor performance, financing availability, permitting, feed-gas and pipeline access, LNG shipping, weather and operational interruptions could affect project economics and customer contracts.
- Cheniere reported a history of net losses and negative operating cash flow, substantial debt and ongoing capital needs. Future liquidity depends on project financing, capital markets, operating cash flows and timely project completion. Subsidiary debt covenants can restrict distributions to the parent.
- Non-FTA LNG export authorizations for Sabine Pass and Corpus Christi faced pending court challenges; Corpus Christi Stage III’s non-FTA export application was pending. The filing says loss of an export authorization, though not expected, could affect SPA performance.
- A lawsuit challenged one Sabine Pass industrial tax exemption contract; management assessed a material adverse outcome as remote, while noting loss of the exemption could be material. Separately, Parallax litigation included a claim for $400 million; Cheniere did not expect resolution to materially affect financial results. A Louisiana environmental compliance matter concerned self-reported permit deviations; management did not expect material financial impact.
- Management reported effective internal control over financial reporting, and the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Progress, completion timing and remaining capital costs for Sabine Pass Trains 3–5 and Corpus Christi Stage 1, including any subsequent changes to schedules or EPC costs.
- Available unrestricted liquidity by subsidiary, debt maturities, interest costs, covenant compliance and the financing plan for future trains.
- Actual commercial LNG deliveries, fixed-fee collections and counterparty credit quality under the long-term SPAs and terminal use agreements.
- Status and outcome of export authorization appeals, the Louisiana tax exemption challenge, environmental compliance discussions and Parallax litigation.
- Whether operating cash flow improves as more trains enter commercial service and how much of reported cash remains restricted.