Cheniere Energy, Inc. — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. This is an annual filing; fourth-quarter figures are included where disclosed. Cheniere is developing U.S. LNG export capacity and operates the Sabine Pass regasification terminal through subsidiaries and affiliated publicly traded entities. Results are consolidated, although the entities have separate capital structures.
Business context and project status
- Sabine Pass regasification capacity is approximately 4.0 Bcf/d. Sabine Pass liquefaction Trains 1–4 were under construction; at year-end, Trains 1–2 were 81% complete and Trains 3–4 were 54% complete. Management expected Train 1 to produce LNG as early as late 2015, with later trains starting in sequence.
- Corpus Christi was planned for three trains and approximately 13.5 mtpa. FERC authorized construction and operation in December 2014, but a Sierra Club rehearing request was pending. The project had not reached final investment decision (FID).
- Cheniere Marketing conducts LNG and natural-gas marketing. The existing terminal business supplied most external revenue; the new liquefaction projects had not yet begun commercial production.
Key financial metrics
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $268.0 million | $267.2 million |
| Operating loss | $273.6 million | $329.0 million |
| Net loss attributable to common stockholders | $547.9 million; $2.44 per share | $507.9 million; $2.32 per share |
| Net cash used in operating activities | $124.1 million | $52.4 million |
| Capital expenditures for property, plant and equipment, cash basis | $2.830 billion | $3.114 billion |
| Cash and cash equivalents at year-end | $1.748 billion | $960.8 million |
| Restricted cash at year-end, current and non-current | $1.033 billion | $1.629 billion |
| Total assets | $12.574 billion | $9.673 billion |
| Long-term debt, net of discount | $9.806 billion | $6.576 billion |
Revenue was nearly flat year over year. Operating loss was approximately 102% of revenue; net loss attributable to common stockholders was approximately 204% of revenue. The company remained loss-making and generated negative operating cash flow. Cash rose largely with financing activity, while a substantial portion of reported cash was restricted or held within subsidiaries and unavailable for general corporate use. Consolidated gross debt was approximately $10.0 billion before discounts and premiums. The filing does not provide a single consolidated EBITDA or a conventional operating-margin measure; the operating margin above is calculated from reported operating loss and revenue.
Fourth-quarter 2014 revenue was $66.0 million, operating loss was $102.5 million, and net loss attributable to common stockholders was $158.6 million, or $0.70 per share.
Material changes versus prior periods
- Common-stockholder net loss increased by $40.0 million versus 2013, despite a $55.4 million improvement in operating loss. A $201.5 million year-over-year deterioration in net derivative results was a principal driver; 2014 also included $114.3 million of loss on early extinguishment of debt.
- General and administrative expense fell to $323.7 million from $384.5 million, mainly because 2013 included accelerated recognition of project-related bonus awards. Share-based compensation remained substantial: $102.0 million in 2014 versus $271.4 million in 2013.
- Net operating cash outflow increased by $71.7 million, which management attributed mainly to settlements of interest-rate swaps and higher G&A cash costs.
- Debt increased by approximately $3.4 billion, reflecting new Sabine Pass secured notes and $1.0 billion of parent-company convertible notes, partly offset by debt repayments. Property, plant and equipment rose by approximately $2.8 billion as construction continued.
Outlook, financing and risks
- Management stated that it expected Sabine Pass Liquefaction to generate cash flow beginning as early as late 2015, dependent on timely completion and startup. The filing does not provide a quantified earnings or cash-flow forecast.
- Sabine Pass Trains 1–4 had third-party 20-year SPAs covering 16 mtpa, with stated annual fixed fees of approximately $2.3 billion once the applicable trains operate. Additional Train 5 SPAs would bring the stated total to approximately $2.9 billion, subject to approvals, financing and FID. Corpus Christi SPAs covered approximately 8.4 mtpa, with approximately $1.5 billion in annual fixed fees contingent on FID and other conditions. Certain conditions had to be satisfied or waived by June 30, 2015, or buyers could terminate.
- Estimated Sabine Pass Trains 1–4 capital costs were $9–$10 billion before financing costs and $12–$13 billion including financing costs. Corpus Christi three-train costs were estimated at $11.5–$12.0 billion before financing costs, excluding pipeline facilities. Cost increases, delays, financing availability and contractor performance could affect project economics and timing.
- Financing remained central: management anticipated project debt and equity financing for Corpus Christi and potential additional Sabine Pass trains. The company had arranged for financial institutions to structure up to $11.5 billion of Corpus Christi debt facilities; the filing does not state that all such financing had closed. A $1.5 billion EIG convertible-note investment was contingent on Corpus Christi FID.
- Near-term debt obligations warrant attention: the debt schedule showed $1.666 billion of Sabine Pass LNG notes due in 2016 and a $400 million CTPL term loan due in 2017. Subsidiary debt covenants and restricted cash can limit distributions and the movement of funds to the parent.
- Other material risks include unresolved non-FTA export authorizations, permit conditions and challenges, LNG market and counterparty risks, construction and operating hazards, hurricanes, and potential dilution from convertible notes. The stockholder litigation settlement remained subject to court approval; plaintiffs sought approximately $43 million in fees and expenses, and the ultimate amount and insurance recovery were unresolved.
- The filing reported an unqualified audit opinion and effective internal control over financial reporting as of year-end. The company had never paid a common-stock dividend and did not anticipate one in the foreseeable future.
Most important facts for investors to verify
- Actual startup dates, completion costs and operating performance for Sabine Pass Trains 1–4, and progress against the stated schedule.
- Corpus Christi FID, financing closure, remaining permits and the outcome of the Sierra Club rehearing request.
- Whether SPA conditions were satisfied or waived by June 30, 2015, and the continuing creditworthiness and performance of buyers and guarantors.
- Liquidity available at the parent versus restricted subsidiary cash, debt-covenant distribution tests, and refinancing of the 2016 and 2017 maturities.
- Resolution and final cost of the stockholder litigation settlement, including court approval and any insurance recovery.