Cheniere Energy, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015; filed July 30, 2015. Amounts below are in U.S. dollars. Cheniere is developing LNG export facilities at Sabine Pass, Louisiana, and Corpus Christi, Texas, alongside its operating Sabine Pass regasification terminal and LNG marketing activities.
Financial performance and position
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Total revenue | $68.0 million | $67.6 million | $136.4 million | $135.2 million |
| Operating loss | $95.6 million | $62.1 million | $156.6 million | $109.7 million |
| Net loss attributable to common stockholders | $118.5 million | $201.9 million | $386.2 million | $299.7 million |
| Basic and diluted loss per share | $0.52 | $0.90 | $1.71 | $1.34 |
- Revenue and operations: LNG terminal revenue was $67.9 million for Q2 and $135.5 million for the first half. Q2 total revenue edged up year over year; first-half revenue was also slightly higher. The filing does not report an operating margin.
- Cash flow: First-half operating cash outflow was $295.0 million, compared with $11.3 million a year earlier. Investing cash outflow was $213.0 million and financing provided $230.6 million. Capital spending and project funding involved substantial transfers into and use of restricted cash.
- Liquidity: June 30 cash and cash equivalents were $1.470 billion, down from $1.748 billion at year-end. Restricted cash totaled $1.423 billion and is subject to contractual use restrictions, principally for project construction and debt service. Current assets were $2.263 billion and current liabilities $640.8 million.
- Debt and equity: Long-term debt, net, was $14.855 billion, versus $9.806 billion at December 31, 2014. Consolidated total equity was $2.215 billion; Cheniere Energy, Inc. stockholders’ deficit was $318.8 million, alongside $2.534 billion of non-controlling interest.
Changes and significant developments
- Net loss attributable to common stockholders improved in Q2, mainly because the prior-year quarter included a much larger debt-extinguishment charge and derivative loss. For the six-month period, the common-stockholder loss increased, primarily with higher interest and general and administrative expense.
- Interest expense, net, rose to $145.1 million for the first half from $84.1 million. Higher debt drove the increase; $276.8 million of first-half interest cost was capitalized and deferred, mainly for SPL construction.
- General and administrative expense increased to $165.9 million for the first half from $141.5 million, reflecting higher professional fees, compensation and headcount. Q2 expense was $107.9 million versus $67.7 million.
- First-half derivative results were an $80.2 million net loss, compared with a $94.9 million loss in 2014; Q2 2015 recorded a $45.8 million net gain. Results include changes in interest-rate derivative values and related transactions.
- Cheniere issued $2.0 billion of 5.625% SPL notes due 2025, $625 million of 4.25% convertible notes due 2045 (issued at a 20% original issue discount), and $1.0 billion of 11% secured convertible notes at CCH HoldCo II. CCH also drew $1.7 billion under its project facility. SPL replaced its prior facilities with $4.6 billion of new commitments, none drawn at quarter-end.
Outlook, commentary and risks
- Management anticipated first LNG production from Sabine Pass Train 1 as early as late 2015 and projected SPL project cash flow beginning in early 2016. Trains 1 and 2 were reported 92.2% complete and Trains 3 and 4 69.2% complete at June 30, ahead of contractual schedules. These are forward-looking expectations, not guarantees.
- Train 5 construction commenced in June. Stage 1 of Corpus Christi reached final investment decision in May, and the company issued Bechtel a notice to proceed. Management estimated Sabine Pass Trains 1–5 capital costs at $12.5–$13.5 billion before financing costs and Corpus Christi Stages 1–2 at $12.0–$13.0 billion before financing costs.
- Funding needs are managed through separate subsidiary capital structures. Management stated expected needs for at least the next 12 months would be met through combinations of project financing, available cash, debt or equity financing, and operating cash flows. This depends in part on project execution, financing access and anticipated operations.
- Key risks include construction delays or cost changes, the high debt burden and interest costs, variable-rate exposure, financing and covenant requirements, LNG market and customer risks, and regulatory approvals. Sierra Club rehearing requests on non-FTA export authorizations remained unresolved. Further investment decisions for Corpus Christi Stage 2 and Sabine Pass Train 6 were conditional on commercial arrangements, financing and other factors.
- Most Sabine Pass and Corpus Christi LNG sales are under long-term contracts with fixed fees plus a Henry Hub-linked component. The filing also describes circumstances in which customers may suspend or cancel cargo deliveries while remaining liable for applicable fixed fees.
- The filing reports no material changes to previously disclosed risk factors, no material off-balance-sheet arrangements, and effective disclosure controls. A previously disclosed shareholder litigation settlement received court approval in March 2015.
Most important facts for investors to verify
- Actual Train 1 startup and subsequent construction progress against the stated schedules and cost estimates.
- Availability of unrestricted liquidity versus restricted project cash, and funding needs across Cheniere’s separate subsidiary capital structures.
- Debt growth, interest expense, maturity and repayment terms, and the cost and dilution implications of convertible and 11% financing.
- Resolution of export authorization rehearing requests and satisfaction of project financing, construction and commercial conditions.
- Whether contracted LNG fees, customer performance and future operating cash flows develop as management expects; the filing provides no formal earnings guidance.