Cheniere Energy, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited consolidated results include Cheniere Partners, a variable interest entity. Amounts are in millions of dollars unless stated otherwise.
Business context
Cheniere operates LNG export facilities at Sabine Pass and Corpus Christi. Five Sabine Pass trains were operating, with Train 6 under construction; two Corpus Christi trains were operating and Train 3 was in commissioning. Management reported approximately 85% of combined project production capacity contracted on a term basis. Corpus Christi Stage 3 remained in development, subject to commercial support, an EPC contract and financing before a final investment decision.
Financial highlights
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $1,460 | $2,170 | $6,571 | $6,723 |
| Income (loss) from operations | $72 | $307 | $2,355 | $1,345 |
| Net income (loss) attributable to common stockholders | $(463) | $(318) | $109 | $(291) |
| Basic and diluted EPS | $(1.84) | $(1.25) | $0.43 | $(1.13) |
| Operating cash flow | Not presented by quarter | $765 | $1,092 |
Revenue and costs: Q3 LNG revenue fell $686 million year over year, and total revenue fell $710 million. For the nine months, total revenue declined $152 million. Lower LNG volumes recognized and weaker integrated marketing revenue weighed on results; lower feed-gas costs and favorable commodity-derivative movements helped reduce cost of sales. Operating and maintenance expense and depreciation rose as additional trains operated.
Margins: Operating margin, calculated as operating income divided by revenue, was approximately 4.9% in Q3 2020 versus 14.1% in Q3 2019; for the nine months it was approximately 35.8% versus 20.0%. These are derived figures, not company-reported measures.
Other income and expenses: Q3 included $171 million of debt modification/extinguishment losses and $129 million of other expense, primarily reflecting a $129 million impairment of the Midship Holdings investment. Nine-month interest expense, net of capitalized interest, was $1,174 million versus $1,014 million; debt modification/extinguishment losses were $215 million versus $27 million.
Cash flow and liquidity: Nine-month operating cash flow was $765 million, investing outflow $1,545 million, and financing inflow $399 million; cash, cash equivalents and restricted cash decreased $381 million to $2,613 million. At September 30, cash and cash equivalents were $2,091 million and restricted cash was $522 million. Available commitments across listed credit facilities and the term loan totaled approximately $3,368 million, though availability is held across separate capital structures and is subject to facility terms.
Debt: Total debt, net, was $31,287 million, including $338 million current debt; long-term debt, net, was $30,949 million. The company issued $2.0 billion of 2028 senior secured notes, approximately $769 million of CCH notes, and $2.0 billion of SPL notes, while refinancing or repaying other borrowings and redeeming or repurchasing convertible notes. All issuers were reported in compliance with debt covenants.
Material changes, outlook and risks
- Q3 common-stockholder loss widened year over year. Management attributed much of the decline to customers’ prior-quarter decisions not to lift cargoes scheduled for Q3, which accelerated revenue recognition into the prior quarter; Q3 LNG revenue also excluded $458 million associated with those prior-period cancellations.
- Customers remained obligated to pay fixed fees on certain cancelled or suspended cargoes. Cheniere recognized $171 million of such LNG revenue in Q3 and $932 million in the first nine months, including $47 million that otherwise would have been recognized after September 30. Management said the highly contracted business and fixed-fee provisions supported its view that COVID-19 would not materially adversely affect forecast 2020 financial results.
- COVID-19 and the energy downturn affected LNG demand, cargo scheduling and operating practices. The company reported $68 million of pandemic-related costs for the first nine months, including $6 million in Q3, and expected incremental costs to continue while risks persisted. Management remained cautiously optimistic but cited potential renewed infections and lockdowns as market risks.
- Management expected LNG revenue and operating costs to increase as Corpus Christi Train 3 and Sabine Pass Train 6 entered service. At quarter-end, Train 3 was 96.7% complete with substantial completion expected in Q1 2021; Train 6 was 70.9% complete with expected substantial completion in the second half of 2022. These are forward-looking expectations, not guarantees.
- Derivative valuations and earnings are exposed to commodity prices, interest rates, foreign exchange and counterparty credit risk. The company reported a $533 million Level 3 net fair-value asset for physical liquefaction supply derivatives. It also flagged the expected LIBOR phase-out and was assessing related contract changes.
- The filing reported no material changes to legal proceedings or risk factors from prior reports and no off-balance-sheet arrangements with a material current or future effect. Environmental and regulatory compliance, construction execution, financing and LNG-market conditions remain relevant risks.
Key facts for investors to verify
- How cargo cancellations, fixed-fee collections and future delivery schedules affect revenue timing, volumes and cash receipts.
- Whether Train 3 and Train 6 meet expected completion dates and budgets, and whether Corpus Christi Stage 3 secures commercial support and financing before FID.
- Debt maturities, refinancing costs, interest-rate exposure and the availability of liquidity across the company’s separate project and corporate capital structures.
- The assumptions and sensitivity behind the $533 million Level 3 derivative asset, including unobservable LNG-price spreads and pipeline-infrastructure conditions.
- The scope and duration of pandemic-related operating costs and any effects on customer creditworthiness, LNG demand or project operations.