Cheniere Energy Partners, L.P. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; filed May 3, 2017. The partnership develops and operates the Sabine Pass LNG terminal, liquefaction facilities and Creole Trail Pipeline. Trains 1–3 were in commercial operation by quarter-end, Train 4 was commissioning, Train 5 was under construction and Train 6 was being commercialized.
Financial performance and position
| Metric | Q1 2017 | Q1 2016 / prior year-end |
|---|---|---|
| Revenue | $891 million | $67 million in Q1 2016 |
| Operating income (loss) | $219 million; approximately 24.6% operating margin | $(10) million |
| Net income (loss) | $47 million | $(75) million |
| Net loss per common unit | $(0.80) | $(0.08) |
| Operating cash flow | $115 million | $(6) million |
| Capital spending, cash basis | $524 million | $749 million |
| Net debt carrying value | $16.02 billion | $14.43 billion at December 31, 2016 |
| Cash and restricted cash | $1.756 billion, all restricted | $605 million restricted at December 31, 2016 |
LNG revenue was $823 million, including $331 million from an affiliate; regasification revenue was $68 million. Cost of sales was $513 million, operating and maintenance expense was $68 million, and depreciation and amortization was $66 million. Net interest expense rose to $130 million from $43 million, while the partnership recorded a $42 million loss on early extinguishment of debt. Total interest cost was $211 million, of which $81 million was capitalized.
Material changes and financing
- Revenue increased substantially as the partnership began recognizing operating LNG sales after Train 1 entered service in 2016, followed by Trains 2 and 3. In Q1 2017, it recognized revenue on sales of 128 million MMBtu; commissioning cargo proceeds were recorded as construction-cost offsets before commercial operation.
- Operating cash flow improved by $121 million year over year, mainly from LNG cargo receipts, partly offset by higher operating costs. Financing provided $1.56 billion, including proceeds from new notes, while investing used $524 million.
- SPL issued $800 million of 5.00% senior secured notes due 2037 and $1.35 billion of 4.200% notes due 2028. It used proceeds to repay borrowings and fund construction, and terminated the remaining $1.6 billion of commitments under its 2015 credit facilities. The termination generated a $42 million debt-cost write-off.
- At March 31, available commitments were $823 million under the SPL working-capital facility and $190 million under the 2016 CQP credit facilities. The partnership reported no unrestricted cash; restricted cash included $1.531 billion designated for the Liquefaction Project.
Outlook, risks and unusual items
- Management said it expected borrowings, working-capital commitments and operating cash flows to provide adequate resources to complete Trains 1–5 and meet anticipated capital, operating and debt-service needs. Expected substantial completion was Train 4 in the second half of 2017 and Train 5 in the second half of 2019. Estimated total capital costs for Trains 1–5 were $12.5–$13.5 billion before financing costs and $17.5–$18.5 billion including financing costs, owner’s costs and contingencies.
- The partnership expected revenue and operating costs to rise as additional trains entered service. Its third-party SPAs cover about 19.75 mtpa, approximately 88% of expected nominal capacity for Trains 1–5; 94% of net LNG revenue in Q1 came from two SPA customers, underscoring customer concentration.
- Train 3’s substantial completion triggers mandatory conversion of Class B units into common units after the record date for the first distribution for Q2 2017, unless converted earlier. The Class B conversion feature materially affects allocation of partnership equity and per-unit results.
- Appeals concerning DOE non-FTA export authorizations for specified LNG volumes remained pending. Management reported no material changes to previously disclosed risk factors or legal proceedings and no material off-balance-sheet arrangements. The filing cautions that forward-looking statements are uncertain; it gives no specific earnings guidance.
- The $0.425 per common unit distribution for Q1 was declared April 21, 2017, payable May 15. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Investor verification priorities
- Confirm the distinction between net income of $47 million and the reported $(0.80) net loss per common unit, which reflects the partnership’s allocation and Class B beneficial conversion accounting.
- Assess restricted-cash availability, remaining construction funding needs, debt service and compliance with credit-facility and note covenants.
- Track Train 4 commissioning and Train 5 construction progress, costs and timing against management’s estimates.
- Evaluate reliance on two customers for most net LNG revenue and the implications of affiliate LNG sales and related-party service arrangements.
- Monitor Class B unit conversion and resulting common-unit dilution, as well as pending export-authorization appeals.