Business context and reporting period
Cheniere Energy Partners, L.P. (NYSE American: CQP) filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2019. The partnership operates the Sabine Pass LNG export and regasification facilities and its connecting pipeline. Trains 1–5 were operational; Train 6 was under construction.
Financial performance and condition
| Metric (USD millions, except per-unit data) | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Revenue | 1,476 | 1,529 | 4,930 | 4,529 |
| Income from operations | 346 | 492 | 1,364 | 1,455 |
| Net income | 110 | 307 | 727 | 923 |
| Basic and diluted net income per common unit | $0.19 | $0.60 | $1.38 | $1.82 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | 977 | 1,264 |
| Capital spending, cash basis | Not stated for quarter | Not stated for quarter | 1,157 | 578 |
Calculated operating margin was approximately 23.4% in Q3 2019 versus 32.2% in Q3 2018, and 27.7% for 9M 2019 versus 32.1% for 9M 2018. Calculated net margin was approximately 7.5% versus 20.1% in the quarters and 14.8% versus 20.4% for the nine-month periods.
At September 30, 2019, cash and cash equivalents were $1.707 billion and restricted cash was $185 million. Available commitments were $1.536 billion: $786 million under the SPL working-capital facility and $750 million under the CQP revolver, both undrawn. Long-term debt, net, was $17.571 billion, compared with $16.066 billion at year-end 2018; partners’ equity was $592 million. The partnership reported covenant compliance. Nine-month cash flow after cash capital spending was negative $180 million.
Material changes versus prior comparable periods
- Q3 revenue fell $53 million (3.5%) year over year, while nine-month revenue rose $401 million (8.9%). LNG volumes recognized as revenue increased 49 TBtu in Q3 and 154 TBtu for the nine months, reflecting Train 5 operations; lower LNG revenue per unit offset volume growth in the quarter.
- Net income declined $197 million in Q3 and $196 million for the nine months. Management cited higher operating and maintenance costs, depreciation and interest expense, and lower LNG pricing; higher sales volumes partly offset these pressures.
- Operating and maintenance expense rose $59 million in Q3 and $166 million for the nine months, including turnaround activity, Total reservation charges under a partial TUA assignment, and transportation and storage capacity charges associated with Train 5. Net interest expense increased $48 million in Q3 and $96 million for the nine months, principally because less interest was capitalized after Train 5 completion.
- Cash from operations declined $287 million year over year for the nine months, while investing outflows roughly doubled as construction spending increased.
Outlook, commentary, risks and unusual items
- Train 6 was 38.1% complete at September 30, 2019; substantial completion was expected in the first half of 2023. Its EPC contract price was approximately $2.5 billion, including estimated costs for an optional third marine berth. Management said it expected LNG revenue to rise when Train 6 becomes operational and believed available cash, operating flows and borrowing capacity would meet currently anticipated needs.
- In September, CQP issued $1.5 billion of 4.5% senior notes due 2029. Proceeds repaid the $750 million term loan and supported general corporate purposes, including Train 6 capital spending. The transaction contributed to $13 million of debt modification/extinguishment expense. The remaining $750 million revolver was undrawn.
- Nine-month construction cash spending was $1.157 billion; the partnership also reported $48 million of commissioning-cargo proceeds offset against construction costs.
- Commodity derivatives had a net fair-value liability of $24 million. Management’s modeled 10% natural-gas price change would change derivative fair value by $6 million. Fair-value movements and unobservable basis assumptions can affect reported results.
- Commercial exposure includes customer concentration: four customers each represented at least 10% of external revenue for the nine months. Affiliate LNG revenue was $1.017 billion, and affiliate service expenses and arrangements are material. The filing identifies no material change in previously disclosed risk factors or legal proceedings and no material off-balance-sheet arrangements.
- The partnership declared a $0.62 per-unit distribution for Q3, payable November 14, 2019. The filing provides no specific full-year earnings or cash-flow guidance.
Most important facts to verify
- Train 6 schedule, remaining project costs and funding plan, including the basis for the first-half 2023 completion expectation.
- Debt maturity, interest burden and refinancing exposure relative to operating cash flow and distributions.
- Whether LNG pricing, feedstock costs, derivative marks and maintenance spending continue to pressure margins.
- Cash availability: distinguish unrestricted cash from project-restricted cash and confirm revolver availability and applicable distribution conditions.
- Customer concentration and affiliate transaction terms, including the effect of contracted fixed fees versus variable LNG revenues.