Cheniere Energy, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2013. Filed August 2, 2013. Cheniere develops and operates LNG infrastructure, principally the Sabine Pass terminal and its liquefaction project. It consolidated Cheniere Energy Partners, in which it held a 57.9% interest; reported figures therefore include subsidiary operations, debt and non-controlling interests.
Financial results and position
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $67.2 million | $62.3 million | $133.1 million | $132.8 million |
| Operating loss | $136.3 million | $6.1 million | $203.7 million | $5.4 million |
| Net loss attributable to common stockholders | $154.8 million | $73.0 million | $271.9 million | $129.5 million |
| Basic and diluted loss per share | $0.71 | $0.43 | $1.26 | $0.86 |
| Operating cash flow | Not separately provided | Not separately provided | $(21.8) million | $(94.9) million |
Revenue was nearly flat year over year for the first half. Approximate operating and common-stockholder net margins for the six months were negative 153% and negative 204%, respectively; these were loss-making periods, and derivative fair-value movements affected reported earnings.
- At June 30, 2013, cash and cash equivalents were $396.9 million; restricted cash was $2.678 billion. Much of the restricted balance was designated for construction, pipeline work, debt service or subsidiary working capital and was not freely available to Cheniere.
- Total assets were $8.582 billion, current assets $1.354 billion and current liabilities $548.3 million. Current assets include substantial restricted cash.
- Long-term debt, net, was $5.572 billion, up from $2.167 billion at December 31, 2012. Total equity was $2.439 billion, including $2.068 billion of non-controlling interest.
- First-half capital spending on LNG terminal and pipeline costs was $1.271 billion in cash. Cash increased by $195.2 million to $396.9 million, largely reflecting new debt and partnership financing; this does not mean all consolidated cash was unrestricted.
Changes and unusual items
- Common-stockholder net loss more than doubled in both the quarter and first half versus the comparable 2012 periods. The principal drivers were higher general and administrative expense, debt-extinguishment losses and LNG terminal operating costs; lower interest expense and derivative gains partially offset these increases.
- General and administrative expense was $135.1 million in Q2 and $220.9 million for the first half, compared with $20.8 million and $40.8 million, respectively, in 2012. Management attributed much of the increase to liquefaction-project bonus plans. Share-based compensation recognized in net loss was $176.1 million for the first half, versus $4.2 million a year earlier.
- The company recorded an $80.5 million loss on early extinguishment of debt, principally from amending and restating the 2012 liquefaction credit facility.
- Net derivative gains were $95.5 million in Q2 and $78.0 million for the first half, compared with $0.3 million and a $0.6 million loss, respectively, in 2012. The 2013 gains primarily reflected changes in the fair value of interest-rate derivatives and should not be assumed to represent recurring operating performance.
- In May, Cheniere sold the Creole Trail Pipeline business to Cheniere Partners for $480 million and received $13.9 million of reimbursements, while purchasing $180 million of Cheniere Partners Class B units; the combined transactions generated $313.9 million net cash to Cheniere.
Business outlook, financing and risks
- Trains 1 and 2 were approximately 38% complete at June 30, 2013, ahead of contractual schedule. Management expected Train 1 to produce LNG as early as late 2015, with commercial operations expected in February 2016; later trains were expected to start in sequence. These are forward-looking estimates, not guarantees.
- Construction of Trains 3 and 4 commenced in May 2013. Estimated total capital costs for Trains 1–4 were $9–10 billion before financing costs and $12–13 billion including financing costs, owners’ costs and contingencies. Management said available debt commitments and proceeds, together with anticipated equity contributions and SPA cash flows, were expected to provide adequate resources for Trains 1–4.
- Funding expanded materially: the company issued $2.0 billion of 2021 notes and $1.0 billion of 2023 notes, both at 5.625%; Sabine Pass Liquefaction closed $5.9 billion of credit facilities and drew $100 million by quarter-end. CTPL borrowed $400 million under a facility due in 2017. These obligations are substantially secured, and some borrowings have variable-rate exposure.
- Management reported six third-party 20-year SPAs covering about 19.75 mtpa, approximately 88% of expected nominal capacity for Trains 1–5. Fixed fees begin when the relevant trains enter commercial operation; future receipts therefore depend on construction and start-up execution. Train 5 construction remained subject to a positive final investment decision and other conditions.
- Creole Trail Pipeline modifications were estimated at about $100 million. A request for rehearing and stay of FERC approval was pending, and additional Louisiana permits were anticipated but not assured. Corpus Christi remained under development and required acceptable commercial arrangements, regulatory authorization, transportation and financing before a final investment decision.
- Risks include construction delays or cost overruns, ability to secure future financing and project approvals, restricted-cash and debt-covenant constraints, interest-rate and commodity-price exposure, and potential LNG marketing volatility. The filing reports no material off-balance-sheet arrangements and no pending legal matter management expected to have a material adverse impact. Disclosure controls were assessed as effective.
Most important facts for investors to verify
- Whether Trains 1–4 meet schedule and cost estimates, and whether the stated financing is sufficient through completion.
- How much reported cash is actually accessible to Cheniere, versus restricted to subsidiaries, construction or debt-service requirements.
- Debt balances, draw conditions, security, covenants, refinancing needs and exposure to variable interest rates.
- How much of the large first-half loss reflects non-cash share compensation and derivative remeasurement, and whether such items recur.
- Progress on pipeline and LNG project permits, customer arrangements, Train 5 investment decisions and the anticipated timing of commercial cash flows.