Business context and reporting period
Cheniere Energy Partners, L.P. (NYSE American: CQP) filed this Form 10-K for the fiscal year ended December 31, 2019. The partnership owns and operates the Sabine Pass LNG terminal and a 94-mile pipeline in Louisiana. Five liquefaction trains were operating; Train 6 was under construction. The terminal also has approximately 4 Bcf/d of regasification capacity and 17 Bcfe of LNG storage.
Key financial results
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $6.838 billion | $6.426 billion |
| Income from operations | $2.040 billion | $1.979 billion |
| Net income | $1.175 billion | $1.274 billion |
| Net income per common unit | $2.25 | $2.51 |
| Cash from operations | $1.547 billion | $1.874 billion |
| Cash used for property, plant and equipment | $1.331 billion | $804 million |
| Cash distributions to owners | $1.260 billion | $1.113 billion |
Operating margin was approximately 29.8% in 2019 versus 30.8% in 2018; net margin was approximately 17.2% versus 19.8%. These are calculated from reported revenue and income figures, not separately reported company measures.
In the fourth quarter of 2019, revenue was $1.908 billion, operating income $676 million, net income $448 million and net income per common unit $0.87. In the fourth quarter of 2018, the respective figures were $1.897 billion, $524 million, $351 million and $0.69.
Financial position and liquidity
At year-end 2019, cash and cash equivalents were $1.781 billion and restricted cash was $181 million. Gross consolidated debt was approximately $17.75 billion before unamortized financing adjustments; reported long-term debt, net, was $17.579 billion. The partnership had $786 million available under SPL’s working-capital facility and $750 million available under its CQP revolving facility, alongside $414 million of outstanding letters of credit. No credit-facility borrowings were outstanding at year-end. Debt maturities include $2.0 billion in 2021, $1.0 billion in 2022, $1.5 billion in 2023 and $2.0 billion in 2024.
Changes and operating developments
- Revenue increased 6.4% year over year, mainly reflecting higher LNG volumes as Train 5 entered service; recognized LNG volumes rose to 1,180 TBtu from 955 TBtu.
- Net income declined $99 million. Higher operating and maintenance costs, depreciation and interest expense offset increased LNG gross margins. Operating and maintenance expense, including affiliate charges, rose to $770 million from $526 million, including higher Total terminal-use reservation charges and turnaround and maintenance work.
- Operating cash flow fell $327 million, primarily due to higher operating costs and expenses. Capital spending on property, plant and equipment increased to $1.331 billion from $804 million, principally for liquefaction construction.
- In May 2019, the partnership made a final investment decision on Train 6 and issued Bechtel a full notice to proceed in June. Train 6 was 43.7% complete at year-end; substantial completion was expected in the first half of 2023. Its EPC contract was approximately $2.5 billion, including estimated optional third-berth costs; $1.1 billion had been incurred.
- In September 2019, the partnership issued $1.5 billion of 4.5% senior notes due 2029, using proceeds in part to repay its $750 million term loan and to fund general purposes, including Train 6.
Outlook, risks and unusual matters
Management’s stated strategy is to operate reliably, bring Train 6 on time and on budget, and generate steady cash flows from long-term fixed-fee contracts. Eight third-party SPAs cover approximately 75% of the production capacity of Trains 1–6. Annual fixed fees from third-party customers were approximately $2.9 billion for Trains 1–5; management expected them to rise to at least $3.3 billion upon Train 6’s first commercial delivery, reflecting an SPA Cheniere had committed to provide. This is a forward-looking expectation, not a guarantee. The filing provides no formal earnings or distribution guidance.
Key risks include the partnership’s substantial debt and refinancing needs, construction delays or cost increases, dependence on one principal facility, customer and counterparty credit or performance, LNG market competition, weather and operational disruptions, regulatory and environmental requirements, and conflicts of interest and related-party arrangements with Cheniere. Four external customers accounted for 84% of 2019 external-customer revenue; affiliate LNG revenue was $1.312 billion. SPL’s variable LNG price component is generally linked to approximately 115% of Henry Hub, while fixed fees under many SPAs remain payable when customers cancel or suspend cargoes.
Train 6’s additional export authorization application was pending before DOE. The partnership reported ongoing work with Louisiana’s environmental regulator regarding previously self-reported permit deviations and with PHMSA and FERC regarding two LNG tanks taken out of service after 2018 leaks. Management did not expect these matters to have a material adverse financial impact; it also reported no pending legal matter expected to materially affect results, financial position or cash flows. The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Train 6 construction progress, remaining cost, schedule and the expected first-half 2023 completion date.
- Availability and terms of funding for Train 6, debt maturities and compliance with debt covenants and distribution restrictions.
- Whether contracted fixed fees, customer performance and the additional Cheniere-related SPA support expected cash generation and distributions.
- Resolution and operational consequences of the PHMSA/FERC tank matter and the LDEQ permit matter.
- Related-party revenues, costs and governance safeguards, as well as customer concentration and exposure to commodity and derivative valuation changes.