Cheniere Energy, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; comparison is with Q1 2011. Cheniere owns and operates the Sabine Pass LNG terminal through an 88.7% interest in Cheniere Partners, operates the Creole Trail Pipeline, and conducts LNG and natural-gas marketing. It is also developing LNG export facilities at Sabine Pass.
Key financial results
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Total revenue | $70.5 million | $79.2 million |
| Operating income | $0.7 million | $23.6 million |
| Net loss | $56.4 million | $39.8 million |
| Net loss per share, diluted | $0.43 | $0.60 |
| Net cash used in operating activities | $68.7 million | $49.2 million |
- Revenue fell 11% year over year. LNG terminal revenue was $67.3 million; marketing and trading revenue fell to $2.7 million from $8.4 million.
- Operating margin was approximately 1%, versus 30% a year earlier. Operating costs increased to $69.8 million from $55.7 million, mainly because LNG terminal and pipeline development expense rose to $21.8 million from $8.4 million.
- Net loss widened despite lower net interest expense ($58.4 million versus $64.2 million). The filing attributes the deterioration primarily to higher development expense and lower marketing and trading revenue. Loss per share improved as weighted-average shares outstanding increased to 131.1 million from 67.0 million.
- Cash and cash equivalents were $439.8 million unrestricted for Cheniere and $205.9 million restricted at March 31. Total debt carrying value was approximately $2.67 billion, including $198.9 million current and $2.48 billion long-term. Stockholders’ deficit was $84.1 million; consolidated equity was $116.8 million, including non-controlling interest.
- Financing cash flow included $351.9 million net proceeds from a March stock offering and $298.0 million of debt repayment. Cash declined $19.3 million in the quarter. Operating cash use included the March purchase of the Crest Royalty; the filing reports $25.7 million as a cash-flow adjustment related to that purchase.
Material changes, outlook, and risks
- Cheniere repaid its $298.0 million 2007 Term Loan in January. The $204.6 million Convertible Senior Unsecured Notes were current and due in August 2012. Sabine Pass LNG had $2.215 billion principal of secured Senior Notes, including $550 million due in 2013 and the remainder due in 2016.
- Management said available unrestricted cash, liquid assets, operating cash, and anticipated capital-market proceeds should fund debt obligations and operations for at least 12 months; it noted cash could be used to repay the convertible notes. This expectation depends in part on access to financing and cash availability across separately capitalized entities. Much of consolidated restricted cash is unavailable to Cheniere for general purposes.
- In January, Sabine Pass Liquefaction added 2.0 mtpa to BG’s LNG purchase commitment, bringing BG’s total to 5.5 mtpa, and signed a 3.5 mtpa agreement with KOGAS. In April, after quarter-end, FERC authorized construction and operation of up to four liquefaction trains; Cheniere Partners also engaged arrangers for up to $4 billion of debt financing. These were reported as subsequent developments, not Q1 results.
- Management estimated total Sabine Pass liquefaction project costs of $9–10 billion before financing costs, expected construction of trains 1 and 2 to begin in the first half of 2012, and targeted initial operations in 2015. The $3.9 billion turnkey EPC contract for the first two trains allows adjustments by change order, including in certain delay circumstances. Funding, construction costs, schedule, regulatory matters, and commercial arrangements remain significant execution risks. No formal earnings guidance was provided.
- Cheniere bought the Crest Royalty rights for $27.5 million in March; litigation over the royalty calculation and Freeport LNG’s assumed payment obligation remained pending. Management said no pending or threatened legal matter was expected to materially affect consolidated results, financial position, or cash flows.
- Marketing results are affected by differences in accounting timing: inventory is recorded at cost subject to lower-of-cost-or-market adjustments, while derivatives are marked to fair value through earnings. The filing cautions that these effects may not offset in the same period. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether Cheniere repaid or refinanced the $204.6 million convertible notes due in August 2012, and how it addressed the $550 million Senior Notes due in 2013.
- Whether project financing and equity funding were secured on acceptable terms, and whether liquefaction construction costs and schedule remained consistent with the stated estimates.
- Progress toward the BG and KOGAS contract milestones and FERC-related project requirements.
- Cash availability by legal entity, restrictions on subsidiary distributions, and the extent to which ongoing operating cash use requires additional financing.
- Developments in the Crest Royalty litigation and the accounting and cash-flow effects of marketing inventory and derivatives.