Cheniere Energy, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; filed May 5, 2016. Unless noted, amounts below are in U.S. dollars and rounded to millions.
Business context and reporting period
Cheniere develops and operates U.S. LNG infrastructure and markets LNG and natural gas. In February 2016, Sabine Pass Train 1 began producing and shipping commissioning cargoes. Train 2 was in commissioning; Trains 3–5 were under construction. Corpus Christi Stage 1 was also under construction. Reported LNG revenue remained limited, and proceeds and costs from commissioning cargoes were capitalized as construction testing costs rather than recognized in revenue and expense.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Total revenue | $69.1 million | $68.4 million; up about 1% |
| Operating loss | $90.6 million | $60.2 million loss |
| Net loss attributable to common stockholders | $320.8 million; $1.41 per share | $267.7 million; $1.18 per share |
| Net cash used in operating activities | $88.7 million | $14.2 million used |
| Cash and cash equivalents at quarter-end | $1,094.8 million | $1,201.1 million at December 31, 2015 |
| Restricted cash at quarter-end | $764.3 million current and non-current | $535.1 million at December 31, 2015 |
| Total debt, net | $18,133.4 million | $16,593.8 million at December 31, 2015 |
| Current liabilities | $2,568.6 million | $2,185.3 million at December 31, 2015 |
Cash used in investing activities was $16.6 million, reflecting $1,149.8 million of property and equipment spending offset by $1,151.1 million of restricted cash used for construction. Cash decreased $106.3 million during the quarter. The filing does not provide a clear operating-margin or other margin figure.
Changes versus the prior comparable period
- Common-stockholder net loss widened by $53.1 million. Management attributed the increase mainly to higher derivative losses and net interest expense, partly offset by a sharply lower early-extinguishment-of-debt loss and a smaller loss allocated to non-controlling interests.
- Net derivative loss rose to $180.9 million from $126.7 million, primarily reflecting changes in forward interest-rate curves. The filing reports derivative fair-value movements in earnings; these should not be read as equivalent to cash losses.
- Net interest expense increased to $76.3 million from $59.6 million as debt outstanding grew. Total interest cost was $293.3 million, of which $217.0 million was capitalized or deferred, mainly for the Sabine Pass and Corpus Christi projects.
- Operating costs increased to $159.6 million from $128.6 million. The new cost-of-sales and marketing-expense categories reflect the start of liquefaction operations and associated marketing activity; prior-period amounts were reclassified for presentation.
Outlook, financing, risks and unusual items
- Project schedule and costs: Sabine Pass Trains 1 and 2 were 98.3% complete overall and Trains 3 and 4 were 83.8% complete at March 31. Train 5 was 28.8% complete. Management said Train 2 could produce LNG as early as mid-2016, with Trains 3–5 expected to start in sequence. Sabine Pass Trains 1–5 estimated capital costs were $12.5–$13.5 billion before financing costs and $17–$18 billion including financing costs, owners’ costs and contingencies. Corpus Christi Stage 1 was 32.5% complete; Train 1 was expected to produce LNG as early as late 2018. Stage 1 estimated capital costs were $9–$10 billion before financing costs and $11–$12 billion including financing costs, owners’ costs and contingencies.
- Financing and liquidity: Cheniere Partners entered into up to $2.8 billion of credit facilities in February 2016. The $450 million CTPL tranche refinanced a $400 million term loan; an approximately $2.1 billion SPLNG tranche was intended to refinance or redeem the 2016 and 2020 SPLNG notes. At quarter-end, the SPLNG tranche had not yet been drawn. The $1.7 billion of 2016 SPLNG notes were current debt and mature in November 2016; management anticipated addressing them with the new facility. Cash is held across independent subsidiary capital structures, with restricted funds and limits on some subsidiary withdrawals and distributions.
- Construction funding and commercial arrangements: Management stated it believed resources were adequate to complete Sabine Pass Trains 1–5 and meet currently anticipated requirements, relying on project borrowings, available commitments, operating cash flows and equity contributions. This is not a quantified company-wide financial forecast. Corpus Christi Stage 2 and Sabine Pass Train 6 remained subject to acceptable commercial arrangements and adequate financing; no FID was reported.
- Contingencies: Parallax sought $400 million in alleged damages and rescission of a secured note in litigation over proposed Louisiana liquefaction projects. Cheniere was separately pursuing collection of an approximately $46 million secured loan that had matured unpaid. The company said it did not expect the litigation to materially adversely affect financial results. Sabine Pass entities were working with Louisiana environmental regulators on self-reported permit deviations and a potential penalty; management likewise did not expect a material adverse impact.
- Other items and risks: The company recognized a $1.5 million debt-extinguishment loss from the CTPL refinancing. It reported no material change in the risk factors from its 2015 Form 10-K and no material off-balance-sheet arrangements. Certain non-FTA LNG export authorizations faced pending rehearing requests, and Corpus Christi non-FTA authorization for additional trains remained pending. Management cautioned that forward-looking statements are subject to project, financing, market, regulatory and other risks.
Most important facts for investors to verify
- Whether the SPLNG tranche of the 2016 CQP Credit Facilities was funded and the 2016 SPLNG notes were refinanced or redeemed before maturity.
- Actual commissioning and commercial-operation dates for Sabine Pass Trains 1–5, and progress and funding for Corpus Christi Stage 1.
- Updated project cost estimates, change orders, construction spending and remaining financing needs compared with the estimates in this filing.
- Cash availability by subsidiary, restricted-cash requirements, credit-facility covenants and the effect of rising debt and interest costs.
- Subsequent developments in derivative valuations, the Parallax litigation, the LDEQ matter and pending LNG export authorizations.