Cheniere Energy, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited consolidated results include CQP, a variable interest entity in which Cheniere held a 48.6% limited partner interest and 100% of the general partner interest.
Business context and financial performance
Cheniere operates the Sabine Pass and Corpus Christi LNG export facilities, with approximately 45 mtpa of operating capacity. The Corpus Christi Stage 3 expansion is under construction.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $4.102bn | $8.007bn | $11.412bn | $15.491bn |
| Income from operations | $2.308bn | $1.477bn | $10.299bn | $0.864bn |
| Net income attributable to common stockholders | $1.369bn | $0.741bn | $6.803bn | $(0.124)bn |
| Diluted earnings per share | $5.61 | $2.90 | $27.79 | $(0.49) |
| Operating cash flow | Not stated separately | Not stated separately | $5.000bn | $5.172bn |
Q2 operating margin was approximately 56.3%, versus 18.4% a year earlier; six-month operating margin was approximately 90.2%, versus 5.6%. These calculated GAAP margins were strongly affected by derivative fair-value movements and should not be read as recurring operating margins. The filing does not provide a clear EBITDA figure or a comparable quarterly cash-flow figure.
Six-month cash used for property, plant and equipment was $1.044bn, versus $1.023bn in 2022. Operating cash flow less this cash spending was approximately $3.956bn, a simple cash-flow proxy and not a company-reported non-GAAP measure. Cash, cash equivalents and restricted cash totaled $5.169bn at June 30; unrestricted cash and cash equivalents were $4.529bn.
Material changes versus prior periods
- Q2 revenue fell $3.905bn, and six-month revenue fell $4.079bn. Management attributed the decreases mainly to lower Henry Hub prices, which reduced revenues under indexed long-term contracts, and lower marketing revenue amid reduced short-term sales volumes and declining international prices.
- Despite lower revenue, common-stockholder net income rose $628m in Q2 and $6.927bn for the first half. Management said derivative changes contributed favorable pre-tax variances of $1.7bn and $9.9bn, respectively, mainly from non-cash gains on IPM-related derivatives as international price volatility moderated and forward curves declined. Lower feedstock costs also helped; lower LNG margins, higher taxes and higher non-controlling-interest income partly offset these benefits.
- Q2 LNG volumes recognized were 547 TBtu, down from 570 TBtu; six-month volumes were 1,166 TBtu, up from 1,151 TBtu. Q2 operating and maintenance expense increased $68m, in part due to planned maintenance on two Sabine Pass trains.
- Six-month operating cash flow decreased $172m, mainly due to timing and lower cash receipts from cargo sales, partly offset by lower natural-gas cash outflows. Interest expense, net of capitalized interest, declined to $588m from $706m.
Debt, liquidity and capital allocation
Total debt principal was $25.388bn at June 30, 2023, compared with $25.086bn at year-end 2022; $1.796bn was classified as current. The filing reports $12.695bn of available liquidity, including $4.529bn cash, $640m restricted cash and $7.526bn of undrawn credit commitments. Cash and commitments are held across entities with separate capital structures; restrictions and debt covenants limit some transfers and distributions. Issuers were in compliance with debt covenants at quarter-end.
In June, CQP issued $1.4bn of 5.95% notes due 2033. In July, SPL used contributed proceeds and cash on hand to redeem $1.4bn of its 5.75% notes due 2024. During the first half, Cheniere repurchased 5.4m shares for $788m and paid $195m in common dividends. Approximately $2.8bn remained under the share repurchase authorization at June 30. The company declared a $0.395-per-share quarterly dividend on July 28.
Outlook, risks and unusual items
- The filing gives no explicit full-year 2023 revenue or earnings guidance. Management expects cash requirements to be met with operating cash flows and available liquidity, and expects capital expenditures to increase as Corpus Christi Stage 3 construction progresses.
- Corpus Christi Stage 3 was 38.1% complete at June 30; expected substantial completion is stated as a range from the second half of 2025 to the first half of 2027. The company is pursuing additional expansions, but says a positive final investment decision depends on acceptable commercial and financing arrangements and required approvals.
- Cheniere reported approximately 95% of anticipated production from the operating and in-construction projects contracted through the mid-2030s. New SPAs signed in 2023 provide for up to approximately 76 million tonnes, with approximately 43 million tonnes dependent on a positive FID for the SPL Expansion Project. Disclosed future transaction price of $113.7bn excludes substantially all variable consideration and is not a revenue forecast.
- Derivative valuation is a significant source of reported earnings volatility. At June 30, Level 3 liquefaction supply derivatives had a net fair-value liability of $4.611bn; the filing’s modeled 10% natural-gas price change implied a $1.742bn fair-value change. Commodity prices, unobservable valuation inputs and counterparty credit risk are key sensitivities.
- Other considerations include construction execution and cost, regulatory approvals, restricted subsidiary cash, debt and distribution covenants, and possible changes to the company’s 2023 alternative minimum tax status if regulations or guidance change. The filing reports no material change in previously disclosed risk factors and no material legal-proceeding update beyond prior filings.
Important facts for investors to verify
- How much of reported earnings reflects derivative fair-value changes rather than realized operating economics, and how those positions settle over time.
- The status, cost progression, schedule and funding plan for Corpus Christi Stage 3, and the approvals and commercial commitments needed for proposed expansions.
- Whether cash and credit availability at the individual subsidiaries can be transferred or distributed to meet parent-company needs, given restrictions and covenants.
- The effect of lower commodity prices, marketing volumes and LNG margins on cash generation, alongside the timing of debt repayments and capital returns.