Cheniere Energy Partners, L.P. quarterly report, Q1 FY2018

Cheniere Energy Partners, L.P. — Q1 2018 Form 10-Q

Reporting period: Three months ended March 31, 2018; comparisons are with the three months ended March 31, 2017 unless stated otherwise. The partnership operates the Sabine Pass LNG export and regasification facilities and the Creole Trail Pipeline. Trains 1–4 were operational; Train 5 was under construction.

Key financial results

Metric	Q1 2018	Q1 2017
Total revenue	$1.593 billion	$891 million
Income from operations	$508 million	$219 million
Net income	$335 million	$47 million
Operating cash flow	$331 million	$115 million
Cash used in investing activities	$194 million	$524 million
Cash used in financing activities	$249 million	Cash provided: $1.560 billion

• Revenue increased 79%, mainly as LNG volumes recognized as revenue rose to 241 TBtu from 128 TBtu, reflecting four operating trains versus two. LNG revenue was $1.015 billion, including $503 million from affiliates; regasification revenue was $65 million.
• Operating costs rose to $1.085 billion from $672 million, principally as more trains operated. Operating margin was approximately 31.9%, compared with 24.6% in the prior-year quarter; net margin was approximately 21.0%, compared with 5.3%.
• Net income increased $288 million. Higher operating income and the absence of the prior-year $42 million early-debt-extinguishment loss were partly offset by net interest expense increasing to $185 million from $130 million.
• Basic and diluted net income per common unit was $0.67, versus a reported loss of $0.80 per common unit in Q1 2017. The prior-year per-unit result reflects the Class B beneficial conversion feature and unit-allocation effects, despite reported net income of $47 million.
• Operating cash flow increased $216 million, primarily due to higher LNG cargo receipts. Investing outflows were lower as construction spending declined. The filing reports no cash and cash equivalents at quarter-end; $1.477 billion was restricted cash.

Debt, liquidity, and distributions

• Long-term debt, net, was $16.052 billion at March 31, 2018, versus $16.046 billion at December 31, 2017. There was no debt repayment or issuance during the quarter. The partnership reported compliance with debt covenants.
• Available commitments were $494 million under the $1.2 billion SPL Working Capital Facility and $220 million under the 2016 CQP Credit Facilities. The facilities had $706 million and $20 million of letters of credit outstanding, respectively; the latter also had $1.090 billion of borrowings outstanding.
• The partnership paid $249 million in owner distributions during the quarter. On April 27, it declared a $0.55-per-unit distribution for Q1, payable May 15, 2018.

Outlook, developments, and risks

• Train 5 was 89.3% complete at March 31, with substantial completion expected in the first half of 2019. Management said LNG revenues and operating costs are expected to increase when Train 5 becomes operational.
• Train 6 remained subject to a final investment decision, dependent on an EPC contract, acceptable commercial arrangements, and adequate financing. Management stated that available resources and operating cash flows were expected to fund Train 5 and anticipated requirements; this is forward-looking and not a guarantee.
• Estimated total capital costs for Trains 1–5 were $12.5–$13.5 billion before financing costs and $17.5–$18.5 billion after financing costs, including estimated owner’s costs and contingencies.
• In February, PHMSA issued a corrective action order following a minor LNG leak from one tank and a minor vapor release from another. Both tanks were removed from service for analysis, repair, and remediation. An April 20 consent order superseded the corrective action order; the company did not expect a material adverse effect on results or operations.
• Commodity and interest-rate derivative positions create market and counterparty risks. The filing identifies significant unobservable inputs in some physical gas-supply derivative valuations. No material off-balance-sheet arrangements were reported.
• The partnership adopted revenue-recognition guidance retrospectively with no impact on prior-period statements or retained earnings. It anticipated a potentially material balance-sheet impact from adopting lease accounting in 2019; the effect on results and cash flows had not been determined.

Important facts for investors to verify

• Train 5 completion timing, final costs, and any changes to the expected first-half 2019 substantial-completion date.
• How the tank inspections, remediation, regulatory requirements, and tanks’ return to service affect operations and export capacity.
• Cash availability and distribution capacity, given that reported quarter-end cash was restricted and debt facilities impose use-of-cash and distribution conditions.
• Debt service, interest expense, refinancing requirements, and compliance with applicable covenants as scheduled principal payments approach.
• Exposure to related-party LNG sales and services, customer concentration, and assumptions underlying derivative valuations.