Cheniere Energy Partners, L.P. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015; comparisons are to the corresponding 2014 periods. The Partnership owns and operates the Sabine Pass LNG regasification terminal and is developing liquefaction facilities and the Creole Trail Pipeline.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $67.7m | $67.3m | $135.2m | $134.5m |
| Operating loss | $(4.0)m | $(7.7)m | $(14.6)m | $(2.6)m |
| Net loss | $(60.0)m | $(226.2)m | $(238.7)m | $(296.0)m |
| Net loss per common unit | $(0.01) | $(0.85) | $(0.62) | $(0.91) |
| Operating margin | -5.9% | -11.5% | -10.8% | -2.0% |
Operating margin is calculated as operating loss divided by revenue. Net loss improved year over year in both periods, but six-month operating loss widened. Q2 improvement primarily reflected lower debt-extinguishment losses, better derivative results, and lower operating and maintenance expense; higher affiliate G&A and interest expense partly offset these benefits.
- Cash flow: Six-month operating cash flow was $2.6m, versus $6.9m in 2014. Investing cash use was $7.0m and financing cash use was $49.5m; cash and cash equivalents declined $53.9m to $194.9m.
- Liquidity: Current assets were $624.4m and current liabilities $408.3m. Restricted cash totaled $1.107bn, including $996.5m designated for the Liquefaction Project; those funds are restricted in use. Management said available resources, including debt commitments and operating cash flows, were expected to fund Trains 1–5 and anticipated requirements.
- Debt: Long-term debt, net, was $10.993bn, up from $8.991bn at December 31, 2014. The increase primarily reflects $2.0bn of 2025 senior notes issued in March. SPL also entered into $4.6bn of credit facilities in June, with no borrowings outstanding at quarter-end. CTPL had $400m outstanding under a term loan due in 2017.
- Interest: Six-month net interest expense was $93.0m, versus $84.1m. Total interest cost was $334.9m, of which $241.9m was capitalized and deferred.
Material changes and significant events
- Trains 1 and 2 were 92.2% complete and Trains 3 and 4 were 69.2% complete at June 30, ahead of contractual schedules. Train 5 construction commenced in June. Train 1 was expected to produce LNG as early as late 2015, with Trains 2–5 expected to start in sequence.
- The Partnership received FERC authorization for Trains 5 and 6 and DOE authorization to export specified volumes from Trains 5 and 6 to non-FTA countries. A rehearing request concerning one non-FTA export authorization remained pending; another export application also remained pending.
- Estimated capital costs for Trains 1–5 were $12.5bn–$13.5bn before financing costs and $17.0bn–$18.0bn after financing costs, including estimated owner costs and contingencies.
- The Creole Trail Pipeline modifications enabling bi-directional gas flow were completed in April 2015.
- The Partnership declared a quarterly distribution of $0.425 per common unit, payable August 14, 2015. Class B and subordinated units were not receiving regular cash distributions.
Outlook, risks and unusual items
- Six fixed-price, 20-year SPAs cover approximately 19.75 mtpa for Trains 1–5. Their fixed fees are expected to total approximately $2.9bn annually once applicable trains commence commercial operation; customer payment obligations generally include fixed fees even if cargoes are not delivered in certain circumstances.
- Management’s construction, production, financing and distribution expectations are forward-looking and subject to execution, financing, regulatory, market, counterparty and other risks. A final investment decision for Train 6 depends on an EPC contract, acceptable commercial arrangements and adequate financing.
- Unusual items included $96.3m of six-month losses from writing off debt issuance costs and deferred commitment fees related to replacement of credit facilities, and $35.2m of derivative losses, substantially associated with terminated interest-rate swaps. Non-cash LNG inventory write-downs were $17.4m.
- Related-party affiliate G&A expense rose to $55.1m for the six months from $50.1m, and affiliate operating and maintenance expense rose to $12.3m from $9.3m. The filing attributes some management fees to project capital expenditures.
- The Partnership reported no material change in previously disclosed risk factors, no material pending legal matter in management’s view, and no material off-balance-sheet arrangements. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Train 1’s expected late-2015 production timing and the progress, cost and schedule of Trains 2–5.
- Availability and use restrictions on project cash, draw timing and costs under the $4.6bn credit facilities, and the Partnership’s overall funding needs.
- Whether LNG SPA milestones and contractual fixed-fee revenues begin as anticipated, and the impact of any customer delivery suspensions or cancellations.
- Debt maturities, variable-rate exposure, required interest-rate hedging and the ability to meet covenant and debt-service conditions.
- Pending DOE export matters, any regulatory or construction developments, and changes in related-party charges and other unusual expenses.