Cheniere Energy, Inc. quarterly report, Q1 FY2018

Cheniere Energy, Inc. — Q1 2018 Form 10-Q

Reporting period: Three months ended March 31, 2018; unaudited consolidated results. Cheniere develops and operates U.S. LNG export and related facilities. Sabine Pass Trains 1–4 were operational; Train 5 and Corpus Christi Stage 1 were under construction.

Financial performance and position

Metric	Q1 2018	Q1 2017
Total revenue	$2.242 billion	$1.211 billion
Operating income	$747 million	$376 million
Operating margin	33.3%	31.0%
Net income attributable to common stockholders	$357 million	$54 million
Diluted earnings per share	$1.50	$0.23
Operating cash flow	$469 million	$309 million
Cash capital expenditures	$776 million	$1.290 billion
Net cash from financing activities	$116 million	$2.095 billion

• LNG revenue was $2.166 billion, versus $1.143 billion; regasification revenue was $65 million in both periods.
• Operating cash flow less cash capital expenditures was negative $307 million, compared with negative $981 million in Q1 2017.
• Interest expense, net of capitalized interest, was $216 million, up from $165 million. Total interest cost was $404 million, of which $188 million was capitalized.
• At March 31, cash and cash equivalents were $715 million and restricted cash was $1.707 billion. Total current assets were $3.268 billion and current liabilities $895 million.
• Long-term debt, net, was $25.656 billion, up from $25.336 billion at year-end. Total equity was $1.707 billion, including a $1.397 billion stockholders’ deficit and $3.104 billion non-controlling interest.

Material changes and operating developments

• Revenue rose 85% and operating income nearly doubled year over year, primarily because four Sabine Pass Trains were operating in Q1 2018, compared with two in Q1 2017. LNG volumes recognized as revenue increased to 284 TBtu from 144 TBtu.
• Common-stockholder net income increased by $303 million. The improvement reflected higher operating income and a $77 million net derivative gain, compared with a $1 million gain in Q1 2017; higher interest expense and increased income allocated to non-controlling interests partly offset the improvement.
• Q1 2017 included a $42 million loss on early debt extinguishment and $131 million of commissioning-cargo proceeds offset against construction costs; neither occurred in Q1 2018.
• Operating cash flow improved, while investing outflows remained substantial due mainly to construction. Financing inflows were much lower than in Q1 2017, when major debt issuances occurred.
• Train 5 at Sabine Pass was 89.3% complete, with substantial completion expected in the first half of 2019. Corpus Christi Stage 1 was 85.7% complete; substantial completion was expected in the first half of 2019 for Train 1 and the second half of 2019 for Train 2. The Corpus Christi Pipeline was expected to be completed in Q2 2018.
• After quarter-end, Cheniere reported agreements for approximately 1.2 mtpa of LNG sales to PetroChina through 2043 and a 15-year, approximately 1 mtpa agreement with Trafigura beginning in 2019. It also engaged financial institutions to arrange up to $6.4 billion of CCH credit facilities. These were reported as subsequent developments, not Q1 results.

Outlook, risks and unusual items

• Management stated that existing resources were expected to meet each entity’s cash needs for at least the next 12 months, using operating cash flows, project borrowings, available commitments, subsidiary distributions and, where needed, equity contributions or financing. This is not a quantified earnings or cash-flow forecast.
• Management expected LNG revenue and operating costs to generally increase as additional Trains enter service. Train 6 at Sabine Pass and Corpus Christi Stage 2 remain subject to financing and other conditions; further projects require acceptable commercial and financing arrangements before final investment decisions.
• Reported available commitments included $494 million under the SPL working-capital facility, $220 million under the CQP facilities, $1.821 billion under the CCH credit facility, $61 million under the CCH working-capital facility and $750 million under Cheniere’s revolver. Some cash is contractually restricted, so reported cash and commitments should not be treated as fully interchangeable liquidity.
• Two Sabine Pass LNG tanks were taken out of service after a minor LNG leak and a minor vapor release. A PHMSA consent order replaced the corrective action order; the company did not expect the work to materially affect results or operations.
• The Parallax litigation included claims seeking $400 million in alleged damages; trial was set for September 2018. The company did not expect resolution to have a material adverse effect.
• Derivative fair values contributed materially to quarterly earnings and include Level 3 natural-gas basis valuations sensitive to market assumptions. Customer concentration was notable: one customer represented 24% of third-party revenue and another 17%.
• Cheniere expected the new lease accounting standard, due for adoption January 1, 2019, to have a preliminary material balance-sheet impact; effects on results and cash flows had not been determined. The filing reported compliance with debt covenants and effective disclosure controls.

Important facts for investors to verify

• Progress, costs, financing, and in-service timing for Sabine Pass Train 5 and Corpus Christi Stage 1, the pipeline, and Stage 2.
• How much reported cash and facility capacity is available to the relevant entity after restrictions, letters of credit, project requirements, and covenant conditions.
• Debt service and refinancing exposure, including floating-rate borrowings, scheduled repayments, and the effect of interest-rate changes.
• Sustainability of LNG volumes, margins, and operating cash generation as additional capacity starts up; distinguish operating performance from derivative gains and other nonrecurring items.
• Resolution and operational consequences of the tank repairs and PHMSA order, the Parallax litigation, and material customer concentration.