Cheniere Energy, Inc. — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014. The unaudited consolidated results include Cheniere Energy Partners and other controlled subsidiaries. Cheniere’s principal activity was developing LNG export capacity while operating the Sabine Pass regasification terminal.
Financial performance and position
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Total revenue | $67.6 million | $67.2 million | $135.2 million | $133.1 million |
| Operating loss | $62.1 million | $136.3 million | $109.7 million | $203.7 million |
| Net loss attributable to common stockholders | $201.9 million | $154.8 million | $299.7 million | $271.9 million |
| Basic and diluted loss per share | $0.90 | $0.71 | $1.34 | $1.26 |
| Net cash used in operating activities | Not separately stated | Not separately stated | $11.3 million | $21.8 million |
Revenue increased approximately 0.7% in Q2 and 1.6% for the six-month period. LNG terminal revenue, primarily fixed capacity fees, remained the principal revenue source. Margins are not presented as a standalone measure; the company reported operating losses in both comparative periods.
At June 30, 2014, cash and cash equivalents were $889.9 million, while restricted cash was $2.526 billion and was designated for project, debt-service, pipeline, and other contractual purposes. Total assets were $11.86 billion. Long-term debt, net, was $8.988 billion, up from $6.576 billion at year-end 2013. Total equity was $2.461 billion, including $2.517 billion of non-controlling interest; stockholders’ equity attributable to Cheniere was negative $56.5 million.
Capital investment remained substantial: property, plant and equipment reached $7.934 billion, including $5.943 billion of LNG terminal construction-in-process. Six-month capital spending on property, plant and equipment was $1.352 billion, partly funded with restricted cash. Cash and cash equivalents declined $71.0 million during the six months.
Material changes and unusual items
- Common-stockholder net loss increased $47.1 million in Q2 and $27.9 million for the six-month period, despite lower operating losses. The principal offsets were higher derivative losses and higher losses on early debt extinguishment.
- Q2 derivative results shifted to a $60.2 million loss from a $95.5 million gain in Q2 2013. Six-month derivative results were a $94.9 million loss versus a $78.0 million gain. Management attributed the change principally to movements in long-term LIBOR and swap settlements.
- The company recorded a $114.3 million loss on early extinguishment of debt in Q2 2014, primarily from writing off financing costs after terminating approximately $2.1 billion of credit-facility commitments. The comparable 2013 period included an $80.5 million write-off.
- General and administrative expense declined to $67.7 million in Q2 from $135.1 million, and to $141.5 million for six months from $220.9 million. Management cited the timing of project-related bonus awards. Stock-based compensation expense was also lower year over year.
- In May 2014, Sabine Pass Liquefaction issued $2.0 billion of 5.75% notes due 2024 and $0.5 billion of additional 5.625% notes due 2023. Proceeds were used to repay credit-facility borrowings and fund construction; $2.7 billion of commitments remained available under the 2013 facilities at quarter-end.
Outlook, projects and risks
- Sabine Pass Trains 1 and 2 were approximately 69% complete and Trains 3 and 4 approximately 36% complete at June 30; management said both projects were ahead of contractual schedules. Train 1 was expected to produce LNG as early as late 2015, with later trains commencing on a staggered basis.
- Management estimated total capital costs for Sabine Pass Trains 1–4 at $9–$10 billion before financing costs and $12–$13 billion after financing costs. It stated that available debt commitments, financing proceeds and expected operating cash flows should provide adequate resources for the project’s currently anticipated requirements.
- Corpus Christi remained a development project, not yet at final investment decision. Management said construction would depend on acceptable commercial arrangements, FERC authorization, pipeline transportation and adequate financing. The project’s estimated cost for three trains and related facilities was $10.5–$11.0 billion before financing costs.
- Corpus Christi had eight long-term LNG sales agreements totaling approximately 7.7 mtpa, with deliveries dependent on the relevant trains reaching commercial operation. Sabine Pass had long-term agreements covering 16 mtpa for Trains 1–4; additional Train 5 volumes remained dependent on a positive investment decision and regulatory approval.
- Debt, restricted cash and subsidiary-level financing arrangements limit the fungibility of cash across the consolidated group. Sabine Pass LNG had $1.666 billion of 7.50% notes due in 2016; CTPL’s $400 million variable-rate facility matures in 2017. Debt covenants and reserve requirements may constrain distributions.
- Four Delaware lawsuits challenged the vote approving an increase in shares available under the 2011 incentive plan and related bylaws and disclosures. Cheniere sought court validation of the share issuance; the stockholder litigation was stayed pending that proceeding. The company said it could not estimate a potential loss and intended to defend the claims.
- Management identified no material off-balance-sheet arrangements and concluded disclosure controls were effective. The filing cautions that forward-looking statements, including project schedules, financing and anticipated operating results, are subject to risks and may not be realized.
Important facts for investors to verify
- Whether Train 1’s late-2015 production target and the reported construction progress remain achievable, and how final project costs compare with management’s estimates.
- How much of the reported cash is unrestricted and accessible to Cheniere itself, versus restricted or held within separately financed subsidiaries.
- The funding plan for remaining Sabine Pass construction and Corpus Christi, including the availability and terms of future debt, equity and project financing.
- The effect of derivative valuation and settlement volatility, debt refinancing or maturity requirements, and restrictive covenants on reported losses and liquidity.
- The outcome of the incentive-plan litigation and any resulting compensation expense, share issuance implications or other financial impact.