Cheniere Energy, Inc. — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. Unaudited results; amounts below are in U.S. dollars. Cheniere’s consolidated results include publicly traded subsidiaries with independent capital structures.
Business context
Cheniere operates the Sabine Pass LNG regasification terminal and is building liquefaction facilities there; it is also developing the Corpus Christi Liquefaction Project. Q3 terminal revenue was primarily from fixed capacity fees. Sabine Pass liquefaction construction was ongoing, so the filing’s reported revenue should not be read as liquefaction-export revenue.
Financial performance and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Total revenue | $66.8 million | $67.7 million | $202.0 million | $200.8 million |
| Operating loss | $61.4 million | $45.9 million | $171.1 million | $249.6 million |
| Operating loss margin | 91.8% loss | 67.8% loss | 84.7% loss | 124.3% loss |
| Net loss attributable to common stockholders | $89.6 million | $100.8 million | $389.3 million | $372.7 million |
| Basic and diluted loss per share | $0.40 | $0.46 | $1.74 | $1.71 |
For the nine months, net cash used in operating activities was $41.1 million, versus $22.3 million used in 2013. Net cash used in investing activities was $91.6 million; net cash used in financing activities was $36.5 million. Cash and cash equivalents declined by $169.2 million to $791.7 million. The company also reported $1.801 billion of restricted cash, which is contractually limited and not equivalent to freely available cash.
At September 30, 2014, total assets were $11.785 billion and long-term debt, net, was $8.990 billion, compared with $6.576 billion at December 31, 2013. Total equity was $2.331 billion, including $2.482 billion of non-controlling interest; stockholders’ equity attributable to Cheniere was negative $151.8 million.
Material changes and notable items
- Revenue was broadly flat year over year. Q3 common-stockholder loss narrowed by $11.2 million, mainly because derivative results improved, partly offset by a $17.2 million increase in general and administrative expense.
- Nine-month common-stockholder loss increased by $16.6 million. Derivative results were substantially less favorable year over year, and the company recorded a $114.3 million loss on early extinguishment of debt, principally from writing off financing costs when it terminated approximately $2.1 billion of credit-facility commitments. The comparable 2013 period included an $80.5 million debt-extinguishment loss.
- In May 2014, Sabine Pass Liquefaction issued $2.0 billion of 5.75% notes due 2024 and $0.5 billion of additional 5.625% notes due 2023. Proceeds refinanced credit-facility borrowings and support construction. Remaining available commitments under the 2013 Liquefaction Credit Facilities were $2.7 billion.
- Property, plant and equipment rose to $8.635 billion from $6.454 billion, largely reflecting construction-in-progress. Nine-month additions to long-lived assets, including accruals, were $2.220 billion.
Outlook, commentary and risks
- Management expected Train 1 to produce LNG as early as late 2015, with Trains 2–4 starting operations on a staggered basis thereafter. At September 30, Trains 1–2 were approximately 76% complete and Trains 3–4 approximately 43% complete; both groups were reported ahead of contractual schedule.
- Management said it believed available borrowings, remaining credit commitments and operating cash flows would provide resources to complete Trains 1–4 and meet anticipated needs. The filing also describes reliance on project financing, debt or equity offerings and future operating cash flows; these plans remain subject to execution and financing risk.
- Corpus Christi remained under development. A final investment decision depended, among other things, on regulatory authorizations, commercial arrangements, pipeline capacity and adequate financing. Eight long-term SPAs covered approximately 7.7 mtpa, but the project had not yet reached a final investment decision.
- Construction cost exposure includes potential change orders and owner costs. Estimated Sabine Pass costs for Trains 1–4 were $9–$10 billion before financing costs and $12–$13 billion including financing costs; Corpus Christi’s three-Train estimate was $11.5–$12.0 billion before financing costs.
- Derivative gains and losses were volatile and affected reported results; management linked period comparisons partly to movements in long-term LIBOR and interest-rate swap settlements. A 10% change in the forward one-month LIBOR curve was estimated to change interest-rate derivative fair value by $18.4 million.
- Stockholder litigation challenged the vote authorizing additional shares under the 2011 Incentive Plan. The parties had reached a memorandum of understanding, subject to court approval and other conditions; Cheniere said it could not reasonably estimate a potential loss. The filing warned that the matter could affect recognized operating costs and expenses.
Most important facts for investors to verify
- Whether Sabine Pass construction, commissioning and first LNG production remain on schedule, and whether total project costs stay within disclosed estimates.
- How much of reported cash is unrestricted and accessible at each subsidiary, and whether remaining project funding is sufficient without additional financing.
- Debt maturities, interest costs, credit-facility availability and the effect of future refinancing or additional borrowing.
- Whether Corpus Christi secures required permits, financing and commercial arrangements before a final investment decision.
- The court’s final disposition of the incentive-plan litigation, including any settlement costs or effects on stock-based compensation.
- The drivers and potential cash effects of derivative gains and losses, and the reconciliation of reported consolidated losses with losses attributable to common stockholders.