Cheniere Energy, Inc. — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also reports fourth-quarter results. Unless otherwise noted, financial figures are U.S. dollars.
Business context
Cheniere develops and operates LNG infrastructure and markets LNG and natural gas. Its principal operating asset was the Sabine Pass LNG receiving terminal in Louisiana, with approximately 4.0 Bcf/d of regasification capacity. Through its 59.5% ownership of Cheniere Partners, the company was developing export liquefaction facilities there. Train 1 and Train 2 construction had begun and was approximately 18% complete at year-end; the company also owned the Creole Trail Pipeline and was developing a proposed Corpus Christi export project.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $266.2 million | $290.4 million |
| Operating income (loss) | $(75.8) million | $58.1 million |
| Net loss attributable to common stockholders | $(332.8) million | $(198.8) million |
| Loss per share, basic and diluted | $(1.83) | $(2.60) |
| Net cash used in operating activities | $(107.8) million | $(42.8) million |
- Operating margin was approximately negative 28.5%, versus positive 20.0% in 2011, based on reported revenue and operating results.
- Revenue fell about 8%; the company shifted from operating profit to operating loss, and its net loss widened. Lower LNG marketing results and higher development, operating and general and administrative expenses contributed.
- Fourth-quarter 2012 revenue was $67.4 million, operating loss $15.9 million, net loss attributable to common stockholders $94.3 million and loss per share $0.44. In fourth-quarter 2011, revenue was $72.6 million, operating income $7.8 million, attributable net loss $57.8 million and loss per share $0.54.
- Year-end cash and cash equivalents were $201.7 million; restricted cash was $793.2 million. Management reported $201.7 million of unrestricted cash available to Cheniere. Working capital was $588.8 million.
- Consolidated debt at year-end was approximately $2.2 billion before discounts ($2.167 billion net of discount). In February 2013, Sabine Pass Liquefaction issued an additional $1.5 billion of secured notes; proceeds were intended to fund Train 1 and Train 2 costs.
- Total assets were $4.639 billion and total equity was $2.262 billion, including $1.752 billion of non-controlling interest. Common shares issued and outstanding at year-end were 223.4 million, up from 129.5 million a year earlier.
Material changes and significant items
- Operating cash outflow increased from $42.8 million to $107.8 million. Capital spending on LNG terminal and pipeline projects was $1.118 billion, primarily for Train 1 and Train 2 construction.
- General and administrative expense rose to $152.1 million from $88.4 million, including $58.7 million of non-cash share-based compensation versus $26.4 million in 2011. The increase primarily reflected awards under the Long-Term Commercial Bonus Pool.
- The company recorded a $57.7 million loss on early debt extinguishment. Net interest expense declined to $200.8 million from $259.4 million as debt was repaid or refinanced.
- LNG and natural gas marketing and trading results shifted from $13.6 million of revenue to a $1.2 million loss, principally due to inventory lower-of-cost-or-market adjustments and reduced LNG export activity. The LNGCo arrangements ended in June 2012.
- Cheniere raised approximately $1.2 billion net from common stock offerings. Cheniere Partners also sold Class B units to Blackstone and Cheniere, raising approximately $2.0 billion gross, and closed a $3.6 billion construction/term credit facility for Train 1 and Train 2.
Outlook, commentary and risks
- Management expected Train 1 to produce LNG as early as the end of 2015. Forecast timing and returns depend on construction progress, financing, permits and customer conditions; the filing states that meaningful SPA operating cash flow was not expected before then.
- Train 1 and Train 2 estimated capital costs were $4.5–$5.0 billion before financing costs and $5.5–$6.0 billion all-in. Train 3 and Train 4 estimated costs were $4.5–$5.0 billion before financing costs. These are estimates and may change.
- Long-term SPAs covered substantially all capacity through Train 4 and part of Train 5. Contracted fixed fees were expected to total approximately $2.6 billion annually once the relevant trains began operations; the amounts start in stages and are subject to contract conditions.
- Train 3 and Train 4 construction and the Corpus Christi project remained dependent on financing, regulatory approvals, commercial arrangements and investment decisions. Corpus Christi had FTA export authorization, while non-FTA authorization remained pending.
- Key risks include significant debt and ongoing negative operating cash flow before liquefaction starts; potential equity dilution and dependence on capital-market access; project delays, cost overruns and contractor performance; permits and regulatory requirements; customer or guarantor non-performance or contract termination; commodity-market changes; and weather, operational, pipeline and environmental risks. Subsidiary debt covenants and restricted cash may limit funds available to the parent.
- The company reported no pending or threatened legal matters that management believed would materially affect consolidated results, financial position or cash flows. Auditors issued an unqualified opinion, and management and the auditor concluded internal control over financial reporting was effective as of year-end.
Investor verification priorities
- Verify the availability and permitted use of cash: most consolidated restricted cash was not freely available to Cheniere, and subsidiary capital structures were independent.
- Track Train 1 and Train 2 cost, schedule and financing against estimates, including the status of the February 2013 notes and credit-facility commitments.
- Confirm milestones and conditions for Train 3–5 SPAs, including the February 2013 KOGAS and GAIL amendments extending certain conditions deadlines to December 31, 2013.
- Review customer credit support, contract termination provisions, debt covenants and the timing of any cash distributions to Cheniere.
- Assess the effect of 2012 equity issuance, outstanding awards and future financing needs on dilution; also verify whether management’s projected operating cash-flow start date remains achievable.