Cheniere Energy Partners, L.P. — Q3 2014 Form 10-Q
Reporting period: Three and nine months ended September 30, 2014. The partnership owns and operates the Sabine Pass LNG regasification terminal and is developing liquefaction facilities; it also owns the Creole Trail Pipeline. Financial amounts below are in millions of dollars unless noted.
Key financial metrics
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Total revenue | $67.6 | $67.4 | $202.1 | $201.2 |
| Operating loss | $(2.1) | $(23.4) | $(4.7) | $(38.1) |
| Net loss | $(43.2) | $(98.1) | $(339.2) | $(196.9) |
| Net loss attributable to partners | $(43.2) | $(98.4) | $(339.2) | $(178.7) |
| Interest expense, net | $(46.9) | $(52.5) | $(130.9) | $(134.8) |
| Derivative gain (loss), net | $5.6 | $(22.3) | $(89.3) | $55.7 |
| Loss on early debt extinguishment | — | — | $(114.3) | $(80.5) |
Q3 basic and diluted net income (loss) per common unit was reported as $0.08, versus $(0.20) a year earlier; nine-month figures were $(0.83) and $(0.01), respectively. The partnership’s two-class distribution and loss-allocation method affects per-unit results, so these figures should not be read as a simple division of consolidated net loss by common units.
Operating margin, calculated from reported operating loss and revenue, was approximately negative 3.0% in Q3 2014 versus negative 34.6% in Q3 2013; for the nine-month periods, approximately negative 2.3% versus negative 18.9%. No conventional positive profit margin was reported.
- Cash and liquidity at September 30: Cash and cash equivalents were $252.6; restricted cash was $1,526.0. Current assets were $703.0 and current liabilities $408.3. Much of the restricted cash is reserved for construction, pipeline purposes, or debt service and is not generally available for unrestricted use.
- Cash flow: Operating activities used $22.6 in the first nine months, compared with $16.1 used in 2013. Investing activities used $1.5 net, substantially funded by restricted cash applied to construction. Financing activities used $74.2. Cash declined $98.4 to $252.6.
- Debt: Long-term debt, net, was $8,989.8 at September 30, versus $6,576.3 at year-end 2013. Debt included $8,985.5 of principal, primarily senior secured notes, plus the $400.0 CTPL facility, partly offset by the remaining $2.7 billion of available commitments under the Liquefaction Credit Facilities. Debt is largely secured by subsidiary assets; CTPL’s $400.0 facility matures in 2017.
- Construction investment: Net property, plant and equipment increased to $8,463.0 from $6,383.9, including $6,554.1 of LNG terminal construction in progress.
Material changes versus prior comparable periods
- Q3 net loss narrowed by $54.9, mainly reflecting a $27.9 improvement in derivative results and $17.8 lower affiliate general and administrative expense. Revenue was nearly unchanged.
- Nine-month net loss increased by $142.3. Derivative results deteriorated by $145.0 and early-extinguishment losses rose by $33.8, partly offset by $27.4 lower affiliate general and administrative expense.
- May 2014 financing added $2.5 billion of 2024 and additional 2023 senior notes. Proceeds repaid borrowings and funded construction; approximately $2.1 billion of credit-facility commitments were terminated. The resulting write-off of debt issuance costs was $114.3.
- Total interest incurred in the first nine months rose to $423.8 from $293.2, while capitalized and deferred interest rose to $292.8 from $158.3. Reported net interest expense was comparatively stable, in part because of capitalization.
Outlook, risks and unusual items
- At September 30, construction was reported approximately 76% complete for Trains 1 and 2 and 43% for Trains 3 and 4, ahead of contractual schedules. Management expected Train 1 to produce LNG as early as late 2015, with Trains 2–4 starting on a staggered basis. These are forward-looking expectations, not guarantees.
- Estimated capital costs for Trains 1–4 were $9–$10 billion before financing costs and $12–$13 billion including financing costs, owner’s costs and contingencies. Management stated it believed available proceeds, credit commitments and operating cash flows would provide adequate resources for the project and anticipated cash flow from the project by late 2015.
- Four third-party 20-year LNG sales agreements cover 16 mtpa for Trains 1–4; two further agreements cover 3.75 mtpa for Train 5, which had not received construction approval. Cheniere Marketing also obtained an option to buy excess LNG at 115% of Henry Hub plus $3.00 per MMBtu.
- The partnership declared a $0.425 per common-unit distribution for Q3, payable November 14, 2014. Subsidiary distribution capacity is subject to debt-service reserve, coverage-ratio and other indenture conditions; liquefaction subsidiary distributions also depend on specified construction milestones.
- Derivative results were volatile: the nine-month derivative loss was $89.3, primarily related to interest-rate movements and settlement of swaps. Management estimated that a 10% change in the forward one-month LIBOR curve would change interest-rate derivative fair value by $18.4.
- Cheniere faced Delaware litigation over a stockholder vote on its incentive plan. A settlement memorandum was reached but remained subject to conditions and court approval. The matter could affect expenses charged to the partnership under affiliate agreements; Cheniere could not reasonably estimate a potential loss range. Management said any resulting expense adjustment could be material.
- The filing reported no pending legal matter expected by management to have a material adverse impact on the partnership, and no material change to previously disclosed risk factors other than the Cheniere litigation risk. Management also stated disclosure controls were effective and there were no material changes to internal control over financial reporting.
Important facts for investors to verify
- Progress, schedule, remaining costs and financing sufficiency for Trains 1–4; verify subsequent updates against the late-2015 Train 1 target.
- Availability and permitted use of restricted cash, undrawn credit commitments, and the debt-service and coverage tests governing subsidiary distributions.
- Debt maturities, interest costs, refinancing needs and exposure to LIBOR and derivative fair-value movements.
- Whether the Cheniere litigation settlement received court approval and whether it changed affiliate charges or produced a measurable liability.
- Whether contracted LNG volumes, commissioning timelines, customer obligations and the Train 5 approval and investment assumptions remain on track.