Cheniere Energy, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated results include Cheniere’s subsidiaries, including CQP, which Cheniere consolidates but owns 48.6% of as a limited partner.
Business context
Cheniere operates the Sabine Pass and Corpus Christi LNG export facilities, with approximately 45 mtpa of combined production capacity. Sabine Pass Train 6 achieved substantial completion on February 4, 2022, bringing Sabine Pass to six operational trains and approximately 30 mtpa of capacity. Corpus Christi Stage 3 is under development; in March, its subsidiary issued a limited notice to proceed and entered an EPC contract with Bechtel for approximately $5.5 billion, subject to adjustment by change order.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $7.484 billion | $3.090 billion |
| Operating income (loss) | $(613) million | $1.064 billion |
| Net income (loss) attributable to common stockholders | $(865) million | $393 million |
| Basic and diluted earnings (loss) per share | $(3.41) | $1.56 basic; $1.54 diluted |
| Net cash provided by operating activities | $2.655 billion | $1.066 billion |
| Cash used in investing activities | $178 million | $200 million |
| Cash used in financing activities | $1.388 billion | $545 million |
Revenue growth reflected higher LNG prices and, to a lesser extent, increased delivered volumes: 592 TBtu versus 456 TBtu. Operating costs rose to $8.097 billion from $2.026 billion, chiefly due to cost of sales, including natural gas feedstock costs and commodity derivative effects. The filing does not provide a single headline operating-margin or EBITDA measure.
The common-stockholder loss was primarily driven by a $3.5 billion year-over-year increase in pre-tax derivative losses from fair-value changes and settlements, before the impact of non-controlling interests, and lower contribution from certain portfolio optimization activities. Management said approximately $3.1 billion of unfavorable fair-value changes were non-cash and related to appreciation in forward international LNG price curves. These derivative accounting effects may precede recognition of the economically hedged transactions.
At March 31, 2022, total assets were $40.055 billion; cash and cash equivalents were $2.487 billion, with another $419 million of restricted cash. Total debt was $29.242 billion before unamortized discounts, premiums and issuance costs; reported long-term debt, net of those items, was $28.907 billion, and current debt was $62 million. Stockholders’ deficit was $3.710 billion. Net derivative liabilities were $7.744 billion, compared with $4.466 billion at December 31, 2021.
Reported total available liquidity was $6.662 billion, comprising cash, restricted cash and $3.756 billion of available credit commitments. Some cash is restricted or held within subsidiaries, and subsidiary debt and partnership terms limit distributions and access to funds. Operating cash flow benefited from higher LNG receipts; it also includes significant non-cash derivative adjustments.
Material changes and capital allocation
- Revenue increased $4.394 billion year over year, while the company moved from common-stockholder income to a loss, reflecting the derivative effects and higher operating costs described above.
- Operating cash flow increased $1.589 billion year over year. Cash, cash equivalents and restricted cash rose by $1.089 billion during the quarter.
- Debt repayments and redemptions exceeded debt issuance by approximately $1.040 billion. The company redeemed or repaid debt, including the January redemption of its 2045 convertible notes.
- Cheniere paid a $0.33-per-share dividend and repurchased approximately 238,537 shares for $25 million under its repurchase program. It declared another $0.33-per-share dividend in April.
- The company adopted ASU 2020-06 on January 1, 2022; adoption primarily reclassified an equity component of the 2045 convertible notes to debt. Those notes were redeemed or converted in cash on January 5, 2022.
Outlook, risks and contingencies
The filing does not provide quantitative earnings or cash-flow guidance. Management said operating costs would generally increase following Train 6’s completion, while some efficiencies may limit the increase. More than 95% of Liquefaction Projects’ capacity, including contracts executed to support Corpus Christi Stage 3, was contracted through the 2020s, and over 90% through the mid-2030s. Disclosed unsatisfied transaction price was $108.9 billion, with estimated weighted-average recognition timing of nine years; substantially all variable consideration under SPAs and TUAs is excluded, so this is not a fixed revenue forecast.
- Commodity price movements can cause substantial fair-value volatility. The company reported a $7.489 billion net liability for liquefaction supply derivatives, with significant Level 3 valuation inputs; a modeled 10% commodity-price change corresponded to a $1.749 billion change in fair value for these derivatives.
- Liquidity is subject to subsidiary-level restrictions, collateral requirements and debt covenant tests. Issuers reported compliance with their debt covenants at quarter-end.
- Corpus Christi Stage 3 remains dependent on project development and financing decisions. The EPC contract is subject to change orders, and management cautions that forward-looking statements are not guarantees of future results.
- Two Sabine Pass tanks had been out of operational service following a 2018 incident. PHMSA and FERC conditionally approved one tank’s return to service in March 2022; work on the incident and the second tank continued. The company did not expect a material adverse financial or operational impact.
- Cheniere continued discussions with Louisiana regulators over self-reported permit deviations from 2012–2016 and did not expect a material adverse financial impact. PHMSA’s proposed penalty related to the tank incident was reduced to $1.46 million and paid after the company elected not to contest the alleged violations.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. No material changes to the risk factors in the 2021 Form 10-K were reported.
Important facts for investors to verify
- How much of the quarter’s derivative loss is non-cash or timing-related, and how subsequent LNG price movements affect derivative valuations, settlements and realized margins.
- Whether operating cash generation remains strong after feedstock, maintenance, construction, debt service and distributions, while distinguishing unrestricted cash from restricted or subsidiary-held balances.
- Corpus Christi Stage 3’s FID, financing, schedule and total cost, including potential EPC change orders and the conditions attached to related gas-supply agreements.
- The operational status and regulatory conditions for the Sabine Pass tanks, and any developments in the LDEQ matter.
- Debt maturities, covenant and distribution restrictions, and the company’s planned balance among debt reduction, dividends, repurchases and project spending.