Business context and reporting period
Cheniere Energy Partners, L.P. filed this unaudited Form 10-Q for the three months ended March 31, 2013. It operates the Sabine Pass LNG regasification terminal and is developing LNG export facilities. Train 1 and Train 2 were under construction; the partnership also had plans for up to six trains.
Financial results and liquidity
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Total revenue | $66.1 million | $69.3 million |
| Operating income | $14.9 million | $24.9 million |
| Net loss | $42.5 million | $19.3 million |
| Operating cash flow | $7.7 million | $(9.9) million |
| Cash capital spending on LNG terminal costs | $462.7 million | $0.4 million |
- Revenue declined 4.7%; operating income fell 40.1%. The derived operating margin was approximately 22.6%, versus 35.9% a year earlier.
- Net loss widened by $23.2 million. The filing attributes the change mainly to higher affiliate and non-affiliate general and administrative costs, increased operating and maintenance expense, and a larger derivative loss, partly offset by lower development expense.
- Common-unit net income per unit was reported as $0.10, despite the consolidated net loss. The filing’s partnership-allocation and distribution methodology governs this per-unit measure; it should not be read as consolidated profitability.
- At March 31, cash and cash equivalents were $456.9 million and restricted cash was $1.720 billion. Restricted balances are subject to contractual controls and are not freely available for general use.
- Total debt principal was $3.686 billion; balance-sheet debt, net of discount, was $3.668 billion. Total partners’ capital was $1.697 billion. Interest expense, net, was $40.3 million.
- Current assets were $732.9 million and current liabilities $284.5 million. The partnership distributed $0.425 per common unit for the prior quarter; it declared the same amount for Q1 2013, payable after quarter-end.
Material changes versus the prior comparable period
- Q1 2013 included issuance of $1.5 billion of 5.625% senior secured notes due 2021 and a common-unit offering that generated $372.4 million net, including the general partner contribution.
- Debt issuance and equity proceeds supported the construction program. Property, plant and equipment increased to $3.242 billion from $2.705 billion; construction-in-process rose to $1.776 billion from $1.229 billion.
- Operating cash flow improved from use of cash to generation of cash, primarily because qualifying Train 1 and Train 2 costs began being capitalized in 2012 rather than expensed as development costs.
- Affiliate general and administrative expense rose sharply, including costs for managing liquefaction construction. Total general and administrative expense, including affiliate charges, was $22.4 million versus $6.8 million.
- Derivative loss increased to $17.5 million from $0.8 million, primarily reflecting fair-value changes in interest-rate swaps. The partnership de-designated the swaps as cash-flow hedges effective February 1, 2013 after financing changes altered the expected timing of variable-rate borrowings.
Outlook, risks and unusual items
- Train 1 and Train 2 were approximately 26% complete as of March 31, 2013, ahead of contractual schedule. Management expected Train 1 to produce LNG as early as year-end 2015; completion and timing remain subject to construction and financing risks.
- Management estimated Train 1 and Train 2 construction costs at $4.5–$5.0 billion before financing costs. Train 3 and Train 4 were estimated at the same range, with construction commencement dependent in part on financing and a final investment decision.
- Six fixed-price, 20-year LNG sales agreements covered an aggregate 19.75 million MMBtu? The filing states 19.75 million metric tons per annum (mmtpa), about 88% of nominal capacity for Trains 1–5, and approximately $2.9 billion in aggregate annual fixed fees when all specified trains are operating. These are future contracted amounts, not current-period revenue.
- Management said available note proceeds and remaining credit-facility commitments were expected to provide resources to complete Train 1 and Train 2 and meet anticipated obligations. However, project cash is largely restricted, and the filing cautions that actual results may differ from forward-looking statements.
- After quarter-end, Sabine Pass Liquefaction issued a further $500 million of 2021 notes and $1.0 billion of 2023 notes. The resulting $1.5 billion offering was intended to fund project costs; approximately $1.4 billion of credit-facility commitments was terminated, and about $75 million of related financing costs was written off in April.
- Related-party arrangements are significant, including construction and operating services, terminal capacity arrangements and LNG marketing agreements. Management reported no pending legal matters expected to have a material adverse impact and no material off-balance-sheet arrangements.
Most important facts for investors to verify
- Construction progress, schedule, cost estimates and funding sufficiency for Train 1 and Train 2, including the impact of the April 2013 financing and credit-commitment changes.
- How much reported cash is restricted, when it can be released, and the partnership’s ability to fund distributions while meeting project and debt-service needs.
- The source and recurrence of elevated affiliate charges, and the terms and governance oversight of related-party transactions.
- The effect of interest-rate swaps and other derivatives on earnings, accumulated other comprehensive income and future interest costs.
- Whether projected LNG start dates, contracted volumes and fixed-fee cash flows are achieved; the filing’s forward-looking statements are subject to construction, financing, regulatory and market risks.