Cheniere Energy, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; year-over-year comparisons are to the corresponding 2020 periods. Cheniere operates the Sabine Pass and Corpus Christi LNG export facilities. Train 3 at Corpus Christi achieved substantial completion in March 2021. Sabine Pass Train 6 was under construction.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $3.017 billion | $2.402 billion | $6.107 billion | $5.111 billion |
| Income from operations | $146 million | $937 million | $1.210 billion | $2.283 billion |
| Operating margin (calculated) | 4.8% | 39.0% | 19.8% | 44.7% |
| Net income (loss) attributable to common stockholders | $(329) million | $197 million | $64 million | $572 million |
| Basic EPS | $(1.30) | $0.78 | $0.25 | $2.27 |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $1.373 billion | $1.028 billion |
For the six months, cash used in investing was $383 million, including $440 million of property, plant and equipment spending and $68 million of proceeds from fixed-asset sales. Cash used in financing was $837 million. Cash, cash equivalents and restricted cash totaled $2.230 billion at June 30, 2021, comprising $1.806 billion unrestricted cash and $424 million restricted cash.
Total debt, net of discounts and issuance costs, was $30.276 billion ($949 million current and $29.327 billion long-term), compared with $30.843 billion at year-end 2020. Total available commitments under the listed credit facilities were approximately $3.577 billion; these facilities sit within separate subsidiary capital structures and are not necessarily fungible. The company reported compliance with debt covenants.
Changes versus the prior comparable period
- Revenue increased 26% in Q2 and 19% for the six-month period. LNG volumes recognized as revenue were 522 TBtu in Q2 versus 339 TBtu, and 978 TBtu for six months versus 812 TBtu.
- Operating income fell substantially despite higher revenue, as cost of sales rose to $2.154 billion in Q2 from $803 million and to $3.540 billion for six months from $1.527 billion. Management cited higher natural-gas feedstock prices and volumes, as well as unfavorable commodity-derivative changes.
- Pre-tax derivative losses were $674 million in Q2 and $748 million for six months, mainly reflecting unfavorable shifts in international forward commodity curves. Fair-value changes can make reported earnings volatile and may precede the underlying physical transactions.
- Common-stockholder results also reflected the absence of 2020 revenue recognized for customer-notified cargo cancellations: $708 million in Q2 2020 and $761 million in the first half of 2020. No such revenue was recognized in the 2021 periods.
- Six-month operating cash flow increased $345 million year over year, supported by higher LNG receipts and portfolio optimization activity, partly offset by higher feedstock outflows and paid-in-kind interest repayment.
- Net interest expense declined year over year, to $724 million for six months from $819 million, following refinancing activity. Cheniere Partners issued $1.5 billion of 4.00% notes due 2031 to refinance its 2025 notes; Cheniere also repaid its 2021 convertible notes and term loan facility.
Outlook, commentary and risks
- Management expected Sabine Pass Train 6 to reach substantial completion in the first half of 2022; reported project completion was 89.6% at June 30, 2021. Management expected LNG revenue and operating costs to rise as Train 6 enters service. No full-year earnings or cash-flow guidance is provided in the supplied filing text.
- About 85% of existing liquefaction capacity was contracted on a term basis, with approximately 17 years of weighted-average remaining contract life. The filing reports $103.1 billion of unsatisfied transaction price for LNG and regasification obligations, subject to contract terms and exclusions for variable consideration.
- Corpus Christi Stage 3 was still a development project; a final investment decision depends on an EPC contract, further commercial support and financing. Its proposed capacity is approximately 10 mtpa.
- Commodity and derivative exposure is material: at June 30, net derivative liabilities were $693 million. A modeled 10% commodity-price change would change the fair value of liquefaction supply derivatives by $246 million and LNG trading derivatives by $49 million.
- Other considerations include the pending FERC and DOE applications for additional export capacity, LIBOR transition exposure, concentrated customers, and restricted project cash. Cheniere Partners’ assets are available only for its obligations, and its liabilities are without recourse to Cheniere.
- In July 2021, PHMSA proposed a $2.2 million civil penalty related to the 2018 Sabine Pass tank incident. Two tanks remained out of service pending analysis, repair and remediation. Management did not expect the matter to have a material adverse financial or operating impact.
- A $58 million discrete tax benefit from a Louisiana NOL law change affected the 2021 tax provision. Cheniere also disclosed $227 million of first-half commissioning-cargo proceeds as offsets to LNG terminal construction costs.
Important facts for investors to verify
- How much of the derivative losses reflect mark-to-market movements versus realized cash settlements, and how commodity-market changes could affect future periods.
- Whether Train 6 meets the stated first-half 2022 completion target, and the remaining project spending and financing requirements.
- Availability and restrictions on cash and credit commitments across Cheniere’s distinct subsidiary capital structures.
- Debt maturities, refinancing plans and the effect of the July 2021 repayment of the Cheniere revolving-credit balance.
- Progress on Sabine Pass tank repairs and the PHMSA/FERC process, plus the status of pending export authorizations and Corpus Christi Stage 3 prerequisites.