Cheniere Energy, Inc. — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; the filing also reports fourth-quarter results. Cheniere is an LNG-focused company whose principal operating asset was the Sabine Pass import terminal. It was building export liquefaction trains there and developing a second export project near Corpus Christi, Texas. Results consolidate entities with independent capital structures.
Financial performance and position
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Revenue | $267.2 million | $266.2 million |
| Operating income (loss) | $(329.0) million | $(75.8) million |
| Net loss attributable to common stockholders | $(507.9) million; $(2.32) per share | $(332.8) million; $(1.83) per share |
| Net interest expense | $178.4 million | $200.8 million |
| Cash used in operating activities | $52.4 million | $107.8 million |
| Cash and cash equivalents at year-end | $960.8 million | $201.7 million |
| Restricted cash at year-end | $1.630 billion | $793.2 million |
| Long-term debt, net of discount | $6.576 billion | $2.167 billion |
Revenue was nearly flat year over year, while operating loss widened substantially. The approximate operating margin was negative 123%, compared with negative 29% in 2012. Cash used in investing activities was $29.4 million after restricted-cash movements; construction spending was substantial, with $3.114 billion of LNG terminal costs paid in cash. Financing provided $841.0 million net cash during 2013. Restricted cash is contractually limited and is not equivalent to freely available liquidity.
At December 31, 2013, total assets were $9.673 billion and total equity, including non-controlling interests, was $2.840 billion. The filing reports approximately $14.744 billion of contractual obligations, including construction and purchase commitments, debt principal, interest, and leases.
Fourth quarter: Revenue was $66.4 million, operating loss was $79.4 million, net loss was $147.7 million, and net loss attributable to common stockholders was $135.2 million, or $0.61 per share. In Q4 2012, revenue was $67.4 million, operating loss was $15.9 million, common-stockholder net loss was $94.3 million, or $0.44 per share.
Material changes and notable items
- General and administrative expense increased to $384.5 million from $152.1 million, driven primarily by timing and recognition of project-related bonus awards. Share-based compensation expense was $271.4 million, net of amounts capitalized.
- Loss on early extinguishment of debt rose to $131.6 million from $57.7 million, including write-offs associated with refinancing and terminating credit commitments.
- LNG terminal operating expense increased by $32.1 million, including costs and inventory write-downs associated with maintaining terminal cryogenic readiness. Management expected similar maintenance expense until minimum inventory levels were achieved, anticipated in 2015.
- Net interest expense declined, partly because interest on construction debt was capitalized. Derivative gains increased, primarily reflecting fair-value changes on interest-rate derivatives.
- Cheniere Holdings completed an IPO in December 2013, raising $665.0 million net, which was received by Cheniere for development, future projects, and general corporate purposes. Cheniere also sold the Creole Trail Pipeline business to Cheniere Partners for $480.0 million, receiving $313.9 million net after related transactions.
Projects, outlook, and principal risks
- Sabine Pass: Trains 1–2 were approximately 54% complete and Trains 3–4 approximately 20% complete at year-end, ahead of contractual schedules. Train 1 was expected to produce LNG as early as late 2015, with later trains to follow in stages. Estimated capital cost for Trains 1–4 was $9–10 billion before financing costs.
- Four 20-year SPAs cover 16 mtpa for Trains 1–4; two additional SPAs cover 3.75 mtpa for Train 5, subject to required approvals, financing, and investment decision. Contract pricing includes a fixed fee plus 115% of Henry Hub. Contracted fixed fees were estimated at about $2.3 billion annually for Trains 1–4 and $2.9 billion with Train 5, beginning only when applicable trains enter commercial operation.
- Corpus Christi: The company signed EPC contracts in December 2013, with stated contract prices of about $7.1 billion for Stage 1 and $2.4 billion for Stage 2; estimated total project costs were $10.5–11.0 billion before financing costs. Construction remained subject to, among other matters, FERC authorization, commercial arrangements, pipeline transportation, and adequate financing. One 20-year SPA with Pertamina covers about 0.8 mtpa, subject to project conditions.
- Management said existing resources and financing arrangements were expected to fund Sabine Pass Trains 1–4 and anticipated operating cash flow beginning with initial Train 1 production. The company had $6.6 billion of consolidated debt and anticipated substantial additional debt and/or equity needs for Corpus Christi and Sabine Pass Trains 5–6. Capital-market access, project costs, and timing remain important uncertainties.
- Major risks include construction delays or overruns, dependence on Bechtel and pipeline interconnections, outstanding permits and regulatory approvals, financing availability and dilution, customer performance or SPA termination rights, LNG market economics, weather and operational hazards, and debt covenants that restrict distributions. The company had not historically been profitable or generated positive operating cash flow.
- Management reported no pending or threatened legal matters expected to materially affect consolidated results, financial position, or cash flows. The auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded internal control over financial reporting was effective.
Investor verification priorities
- Confirm unrestricted cash available to the parent versus cash held in restricted project, debt-service, and subsidiary accounts; review near-term funding needs and construction draw schedules.
- Track actual project progress, cost-to-complete, change orders, and the timing of Train 1 commissioning against the late-2015 target.
- Verify Corpus Christi’s FERC and other permit status, financing, feed-gas transportation, and satisfaction of SPA conditions precedent; assess whether Train 5 reaches a final investment decision.
- Review debt maturities, interest-rate exposure, covenant and distribution restrictions, and the scale and potential dilution of future financing.
- Reconcile the sharp increase in G&A and share-based compensation, including the nature, timing, and continuing impact of project bonus awards.