Cheniere Energy Partners, L.P. — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015; balance-sheet comparisons are to December 31, 2014. The Partnership operates Sabine Pass LNG regasification facilities and is developing liquefaction Trains 1–5, with Train 6 also planned.
Financial results and liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $67.5 million | $67.6 million | $202.8 million | $202.1 million |
| Operating income (loss) | $35.9 million | $(1.9) million | $21.8 million | $(4.8) million |
| Net loss | $(24.1) million | $(43.2) million | $(262.9) million | $(339.2) million |
| Interest expense, net of amounts capitalized | $(49.4) million | $(46.9) million | $(142.4) million | $(130.9) million |
| Net cash used in operating activities | Not separately presented | $(0.9) million | $(22.6) million |
Q3 basic and diluted net loss per common unit was reported as $0.18 income per unit, despite the consolidated net loss; the partnership’s distribution and income-allocation rules affect this measure. Nine-month net loss per common unit was $(0.44).
- Cash and restricted cash: At September 30, cash and cash equivalents were $170.4 million; current and non-current restricted cash totaled $467.6 million and was designated mainly for project costs and debt-service interest. Restricted funds are not freely available for general use.
- Debt: Long-term debt, net, was $11.244 billion, up from $8.991 billion at year-end 2014. The Partnership reported total assets of $12.547 billion and partners’ equity of $793.7 million.
- Capital spending and funding: Nine-month property, plant and equipment cash outflows were $2.131 billion, largely offset in investing cash flows by $2.178 billion of restricted-cash use. Financing included $2.250 billion of debt proceeds; distributions to owners were $74.3 million.
- Distributions: The Partnership declared a $0.425 per common unit distribution for Q3, payable November 13, 2015. The filing reports no cash distributions to subordinated or Class B units during the periods shown.
Changes and unusual items
- Revenue was nearly unchanged year over year. Nine-month net loss narrowed by $76.3 million, principally because derivative losses, operating and maintenance expense, and the debt-extinguishment loss were lower; higher interest expense partly offset the improvement.
- Q3 operating results included a $32.2 million fair-value gain on natural-gas purchase agreements after Creole Trail Pipeline modifications enabled physical gas delivery at specified locations. This non-cash gain materially boosted reported operating income. Excluding it, Q3 operating and maintenance expense was $9.4 million, versus $21.0 million in Q3 2014.
- Nine-month derivative loss was $46.5 million, including a loss associated with terminating interest-rate swaps. A $96.3 million write-off of financing costs and deferred commitment fees followed termination of commitments under the former SPL credit facilities; the comparable 2014 debt-extinguishment loss was $114.3 million.
- Interest costs rose: nine-month total interest cost was $520.1 million, of which $377.7 million was capitalized or deferred, primarily for construction. Accrued liabilities increased to $352.5 million, including $177.5 million of Liquefaction Project costs and $166.3 million of interest and debt fees.
Outlook, operations, and risks
- Management expected Train 1 to produce LNG as early as late 2015, with Trains 2–5 starting in sequence. At September 30, Trains 1–2 were 95.2% complete and Trains 3–4 were 73.6% complete, both ahead of contractual schedules. Management projected Liquefaction Project cash flow by early 2016.
- Estimated total capital costs for Trains 1–5 were $12.5–$13.5 billion before financing costs and $17.0–$18.0 billion including financing costs, owners’ costs, and contingencies. Management believed available debt commitments and operating cash flows would provide adequate resources to complete Trains 1–5.
- SPL issued $2.0 billion of 5.625% senior notes due 2025 and entered into $4.6 billion of credit facilities; $250 million was drawn under those facilities at quarter-end. A new $1.2 billion working-capital facility had $1.1 billion available and $127.6 million of letters of credit issued, with no loans outstanding.
- Train 5 construction commenced and received a notice to proceed. Train 6 construction remains conditional on an EPC contract, acceptable commercial arrangements, and adequate financing. FERC authorized Trains 5 and 6; DOE export authorization for those trains included non-FTA countries, but a rehearing request concerning one non-FTA order remained unresolved. Another non-FTA export application was pending.
- Key financing exposure includes the $1.665 billion of 7.50% SPLNG notes due 2016 and the $400 million CTPL term loan due 2017, alongside substantial secured debt, variable-rate facilities, covenants, and restricted project cash. The filing also highlights commodity and interest-rate derivative exposure; the Liquefaction Supply Derivatives’ fair value relies substantially on Level 3, unobservable inputs.
- Related-party charges are significant: nine-month affiliate general and administrative expense was $80.8 million and affiliate operating and maintenance expense was $20.4 million. Management reported no material change in previously disclosed risk factors, no pending legal matter expected to have a material impact, and effective disclosure controls.
Important facts for investors to verify
- Actual Train 1 start-up and subsequent Train commissioning dates, and whether the project remains within cost and schedule estimates.
- Remaining construction funding, use and availability of restricted cash and credit commitments, and refinancing or repayment plans for the 2016 notes and 2017 term loan.
- Whether reported operating improvement persists without the $32.2 million derivative fair-value gain, and how derivative valuations and settlements affect earnings and cash.
- Distribution coverage and liquidity after construction spending and debt service; verify the distinction between unrestricted cash and restricted cash.
- Potential dilution and capital-account effects from Class B unit conversion, which the filing expected to occur within 90 days after substantial completion of Train 3, then anticipated before April 30, 2017.