Cheniere Energy, Inc. — 2015 Q1 Form 10-Q
Reporting period: Three months ended March 31, 2015. Financial statements are unaudited and consolidated, including publicly traded subsidiaries. Cheniere is developing LNG export facilities while operating the Sabine Pass regasification terminal; most terminal revenue came from contractual capacity fees.
Key financial metrics
| Metric | Q1 2015 | Q1 2014 or prior-period balance |
|---|---|---|
| Revenue | $68.4 million | $67.6 million |
| Operating loss | $61.0 million | $47.6 million |
| Net loss attributable to common stockholders | $267.7 million; $1.18 per share | $97.8 million; $0.44 per share |
| Operating cash flow | Use of $14.2 million | Use of $18.2 million |
| Investing cash flow | Use of $64.5 million | Use of $24.0 million |
| Financing cash flow | Provided $489.5 million | Use of $4.0 million |
| Cash and cash equivalents | $2.158 billion | $1.748 billion at December 31, 2014 |
| Long-term debt, net | $12.118 billion | $9.806 billion at December 31, 2014 |
| Total assets | $14.923 billion | $12.574 billion at December 31, 2014 |
The operating loss was approximately 89% of revenue, compared with approximately 71% in Q1 2014. The filing does not present a gross margin measure. At March 31, current assets were $2.703 billion and current liabilities $321.5 million; however, current assets include restricted cash. Management reported $2.158 billion of cash available to Cheniere and $2.314 billion of consolidated restricted cash designated for specified purposes.
Material changes versus the prior comparable period
- Revenue was nearly flat, up $0.8 million, while net loss attributable to common stockholders increased by $169.9 million.
- Derivative loss, net rose to $125.9 million from $34.7 million, primarily reflecting new contingent interest-rate swaps, including an $89.6 million fair-value loss.
- An $89.0 million loss on early extinguishment of debt resulted from writing off deferred fees and debt issuance costs after SPL terminated approximately $1.8 billion of credit-facility commitments.
- Operating and maintenance expense increased $23.5 million, principally due to LNG purchases to maintain terminal readiness and higher terminal operating costs. Net interest expense rose $19.3 million as indebtedness increased.
- General and administrative expense fell $15.8 million, largely because Q1 2014 included expense related to modification of long-term commercial bonus awards.
- SPL issued $2.0 billion of 5.625% senior secured notes due 2025. Cheniere issued $625 million of 4.25% convertible senior notes due 2045 at a 20% original issue discount, generating $495.7 million net proceeds.
Outlook, commentary, risks and unusual items
- Construction outlook: At March 31, Trains 1 and 2 were 87.2% complete and Trains 3 and 4 were 62.6% complete, both ahead of contractual schedules. Management anticipated initial LNG production from Train 1 as early as late 2015, with later trains starting on a staggered basis. SPL construction cash needs were expected to be met through debt, equity contributions and SPA cash flows; management cited available resources to complete Trains 1–4.
- Further projects: FERC authorization for Sabine Pass Trains 5 and 6 was received in April 2015. A final investment decision remained dependent on commercial arrangements, regulatory approvals and adequate financing. Corpus Christi similarly remained subject to financing and final investment decisions; its non-FTA export authorization was pending, and a rehearing request concerning its FERC order was unresolved.
- Contract conditions: SPAs for Sabine Pass Train 5 and Corpus Christi included conditions precedent, including regulatory approvals, financing and final investment decisions, with June 30, 2015 deadlines subject to notice and cure provisions. Failure to satisfy conditions could allow termination.
- Capital and liquidity: Restricted cash rose substantially, mainly as proceeds from the 2025 SPL notes were placed in restricted accounts for project uses. It is not generally available for corporate purposes. The company and subsidiaries have separate capital structures and funding needs.
- Unusual/non-cash items: The quarter included a $17.5 million non-cash LNG inventory write-down and significant derivative fair-value losses. Total interest cost was $180.6 million, of which $121.0 million was capitalized and deferred, primarily for SPL construction.
- Other matters: A stockholder litigation settlement was approved in March 2015; plaintiffs’ counsel fees were paid by insurers in April. The filing reported no material changes to previously disclosed risk factors, no material off-balance-sheet arrangements, and effective disclosure controls. Management provided no specific consolidated earnings guidance.
Important facts for investors to verify
- Whether Train 1 achieved initial LNG production on the expected timetable, and whether construction costs and completion schedules for Trains 1–4 remained within estimates.
- Availability and permitted uses of restricted cash, and whether project financing and operating cash flows were sufficient for remaining construction and debt-service needs.
- Progress on Corpus Christi and Sabine Pass Trains 5–6, including export approvals, SPA conditions, final investment decisions and financing.
- Subsequent derivative fair-value movements, settlement cash requirements and sensitivity to interest rates and commodity prices.
- Debt maturities, refinancing needs, covenant restrictions and potential dilution or cash settlement under convertible notes.
- Whether the quarter’s large reported losses and operating cash use were followed by improved operating performance as LNG facilities entered service.