Business Context and Reporting Period
This Form 8-K filing by Cheniere Energy Partners, L.P. (the "Partnership") reports a material definitive agreement entered into on December 20, 2012. The Partnership's indirect wholly owned subsidiary, Sabine Pass Liquefaction, LLC ("Sabine Liquefaction"), executed a Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction (EPC) of the Sabine Pass LNG Stage 2 Liquefaction Facility.
Key Financial Metrics and Contract Terms
The filing details a significant capital expenditure commitment rather than operational financial results. Key contract metrics include:
- Contract Price: $3,769,000,000 (Lump Sum Turnkey).
- Project Scope: Construction of two liquefaction trains with a nominal capacity of approximately 4.5 million tonnes per annum (mtpa) each.
- Counterparty: Bechtel Oil, Gas and Chemicals, Inc. (guaranteed by Bechtel Global Energy, Inc.).
- Termination Costs (Convenience): Ranges from $1,000,000 to $2,500,000 if terminated before notice to proceed; up to $30,000,000 if terminated after notice to proceed.
- Termination Costs (Delayed Notice): $5,000,000 lump sum if notice to proceed is not issued by December 31, 2013.
The filing does not provide current revenue, profit, cash flow, margins, debt, or liquidity figures for the Partnership.
Material Changes and Contractual Provisions
The primary material change is the execution of the EPC Contract. The agreement includes specific provisions regarding price adjustments and liabilities:
- Change Orders: The Contract Price is subject to adjustment via change orders for delays in construction commencement beyond June 1, 2013, changes in law, force majeure, acceleration of work, and other specified events.
- Performance Guarantees: Bechtel must achieve 95% of the performance guarantee by the substantial completion date. Failure results in delay liquidated damages and a 10-month correction period.
- Liability Limits: Bechtel's liability is limited under the contract, except for indemnification obligations, title warranties, and the obligation to complete work required to produce LNG.
- Termination Rights: Either party may terminate in the event of extended force majeure (100+ consecutive days or 180+ aggregate days in 24 months) or if the notice to proceed is not issued by December 31, 2013.
Outlook, Risks, and Contingencies
Management commentary is limited to the announcement of the agreement. The filing highlights several risks and contingencies inherent in the project:
- Construction Delays: Delays beyond June 1, 2013, or failure to issue a notice to proceed by December 31, 2013, trigger financial penalties or termination rights.
- Performance Risk: If the facility fails to meet minimum acceptance criteria after correction periods, Sabine Liquefaction may declare a default.
- Force Majeure: Extended suspension of work due to force majeure events allows for contract termination by either party.
- Insolvency: Insolvency events regarding Bechtel or Sabine Liquefaction provide grounds for termination.
Investor Verification Checklist
- Verify the funding sources for the $3.769 billion contract price and the impact on the Partnership's liquidity and debt capacity.
- Confirm the timeline for the "Notice to Proceed" to avoid the $5 million termination fee or change order adjustments.
- Review the specific definitions of "force majeure" and "change in law" within the full EPC Contract (Exhibit 10.1) to assess exposure to cost overruns.
- Assess the financial stability of Bechtel and its guarantor, Bechtel Global Energy, Inc., given the reliance on their performance guarantees.
- Monitor the schedule for the Stage 2 facility to ensure the 95% performance guarantee is met to avoid liquidated damages.