Cheniere Energy, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 1, 2023. Cheniere operates the Sabine Pass and Corpus Christi LNG export facilities, with approximately 45 mtpa of operating capacity. Its financial statements consolidate CQP, in which Cheniere held a 48.6% limited-partner interest and 100% of the general partner interest.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $7.310 billion | $7.484 billion |
| Income (loss) from operations | $7.991 billion | $(613) million |
| Net income (loss) | $6.435 billion | $(781) million |
| Net income (loss) attributable to common stockholders | $5.434 billion | $(865) million |
| Diluted EPS | $22.10 | $(3.41) |
| Operating cash flow | $3.421 billion | $2.655 billion |
- Revenue declined $174 million (2%). LNG volumes recognized rose 5% to 619 TBtu; lower pricing, primarily reflecting lower Henry Hub prices, was partly offset by higher volumes, derivative gains and sublease income.
- The sharp earnings swing was primarily driven by commodity derivative changes: approximately $4.6 billion of gains in Q1 2023 versus $3.6 billion of losses in Q1 2022. These included significant fair-value changes on long-term IPM-related contracts and do not necessarily represent current-period cash generation.
- Reported operating income was unusually elevated by derivative-related cost-of-sales recoveries. The filing does not provide a single normalized operating margin or earnings measure that removes these effects.
- Interest expense, net, fell to $297 million from $349 million. Income tax expense was $1.316 billion, versus a $191 million tax benefit; the 2023 effective rate was 17.0%.
Cash, debt and capital allocation
- At March 31, cash and cash equivalents were $2.948 billion and restricted cash was $495 million. Total available liquidity, including $7.469 billion of undrawn facility commitments, was reported as $10.912 billion. Some cash and subsidiary facilities are restricted or not freely available to the parent.
- Debt totaled $24.190 billion before unamortized discounts, premiums and issuance costs; reported current and long-term debt were $61 million and $23.928 billion, respectively. The company prepaid or repurchased $896 million of debt during the quarter. Debt issuers were reported in compliance with covenants.
- Investing cash outflow was $727 million, including $712 million for property, plant and equipment. Financing cash outflow was $1.740 billion, including $450 million of common-stock repurchases, $99 million of dividends and $261 million of distributions to non-controlling interests.
- Cheniere repurchased approximately 3.1 million shares at a reported $450 million cost and had about $3.2 billion remaining under its repurchase authorization. The quarterly dividend was $0.395 per share; a further $0.395 dividend was declared after quarter-end.
Changes, outlook and notable items
- Corpus Christi Stage 3 was 28.7% complete at quarter-end; management estimated substantial completion in the range of the second half of 2025 to the first half of 2027. Management expects capital expenditures to rise as construction progresses.
- Cheniere submitted a FERC application in March for a proposed Corpus Christi expansion of about 3 mtpa, and CQP began pre-filing review for a proposed Sabine Pass expansion of up to about 20 mtpa. These projects require acceptable commercial and financing arrangements before a positive final investment decision; they are not presented as approved, committed expansions.
- Approximately 95% of anticipated production from the existing liquefaction projects was contracted through the mid-2030s, including specified additional Corpus Christi capacity. Management cited long-term customer arrangements as a foundation for stable cash flows. No specific earnings or revenue guidance is provided in the supplied filing text.
- Derivative liabilities were $5.699 billion net of derivative assets at March 31, including a $5.350 billion net liability for Liquefaction Supply Derivatives. Much of the valuation uses Level 3 inputs; commodity-price movements can materially affect reported results. A modeled 10% commodity-price change corresponded to a $1.815 billion fair-value change for Liquefaction Supply Derivatives.
- Cheniere reported that it was not subject to the 15% corporate alternative minimum tax in 2023 under then-current law and guidance, but said that status could change. It also warned that derivative fair-value movements may cause volatility in earnings and cash tax obligations.
- Subsidiaries were discussing an LDEQ compliance order concerning formaldehyde emissions from Sabine Pass turbines. Testing indicated 41 of 44 turbines met the relevant standard, including after retesting; the company did not expect any ultimate penalty to materially affect financial results. The petition concerning operating parameters remained pending.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. It reported no material changes to the risk factors in its 2022 Form 10-K.
Key facts investors should verify
- How much of Q1’s reported earnings improvement reflects unrealized derivative fair-value changes rather than operating cash generation, and how derivative values may change with market prices.
- Cash accessibility across Cheniere’s separate subsidiary capital structures, restrictions on subsidiary distributions, and planned debt maturities and repayments.
- Stage 3 construction progress, timing and spending, along with permitting, commercial contracting, financing and FID status for proposed expansions.
- Developments in the LDEQ matter and the status of the pending operating-parameter petition.
- Future tax treatment, including any change in corporate alternative minimum tax guidance or the effect of derivative volatility on cash taxes.