Cheniere Energy, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021; filed November 3, 2021. Cheniere operates LNG export facilities at Sabine Pass and Corpus Christi. The unaudited statements consolidate Cheniere Partners, in which Cheniere held a 48.6% limited partner interest and 100% of the general partner interest.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $3.200 billion | $1.460 billion | $9.307 billion | $6.571 billion |
| Operating income (loss) | $(2.350) billion | $72 million | $(1.140) billion | $2.355 billion |
| Net income (loss) attributable to common stockholders | $(1.084) billion | $(463) million | $(1.020) billion | $109 million |
| Basic and diluted EPS | $(4.27) | $(1.84) | $(4.03) | $0.43 |
| Operating cash flow | Not stated for the quarter | Not stated for the quarter | $2.057 billion | $765 million |
Revenue growth reflected higher LNG volumes and revenue per MMBtu, including stronger marketing results and more customer cargo deliveries. LNG volumes recognized as delivered were 499 TBtu in Q3 2021 versus 199 TBtu a year earlier. No LNG revenue was recognized in 2021 for cargoes customers elected not to take; in 2020, such fixed-fee revenue was $171 million for Q3 and $932 million for the first nine months.
The large operating and net losses were driven principally by unfavorable fair-value movements in commodity derivatives as international LNG forward prices rose. Management reported pre-tax derivative losses of approximately $3.5 billion for Q3 and $4.2 billion for the first nine months, excluding non-controlling interest. Derivative losses are recognized before some economically related physical transactions are delivered or settled, so reported earnings may be volatile. Higher feed-gas costs and derivative effects also contributed to cost of sales rising to $4.868 billion in Q3 and $8.408 billion year to date. The nine-month income tax benefit was $1.864 billion; the effective tax rate was volatile and affected by non-controlling interests.
Nine-month operating cash flow increased by $1.292 billion year over year, attributed mainly to increased cash receipts from LNG sales and portfolio optimization, partly offset by higher gas costs and payments of paid-in-kind interest. Investing cash outflow was $707 million, including $761 million of property and equipment spending; financing cash outflow was $805 million.
Financial position, debt and liquidity
- At September 30, 2021, cash and cash equivalents were $2.203 billion and restricted cash was $419 million. Cash and available commitments are distributed among separately financed subsidiaries; some subsidiary cash is restricted or otherwise limited to project obligations.
- Total debt, net of discounts and issuance costs, was $30.528 billion, down from $30.843 billion at December 31, 2020. Current debt was $1.047 billion and long-term debt was $29.481 billion. Total current liabilities exceeded current assets by approximately $797 million, with derivative balances a major source of volatility.
- Available commitments included $804 million under the SPL working-capital facility, $750 million under Cheniere Partners’ credit facilities, $840 million under the CCH working-capital facility and $1.250 billion under Cheniere’s revolving facility. The filing reports covenant compliance at quarter-end.
- Net derivative liabilities were $3.800 billion at September 30, compared with $56 million at year-end 2020. Commodity-price movements and unobservable valuation inputs can materially change reported derivative values.
Material changes and management outlook
- Train 3 at Corpus Christi achieved substantial completion in March 2021. Sabine Pass Train 6 was 97.1% complete at September 30; feed gas was introduced in September, with substantial completion expected in the first quarter of 2022. Management expects higher LNG revenue and operating costs when Train 6 enters service.
- Corpus Christi Stage 3 is planned as up to seven midscale trains, with approximately 10 mtpa expected capacity. FERC authorization has been received, but FID remains subject to an EPC contract, additional commercial support and financing.
- Approximately 90% of production capacity at the existing liquefaction projects, including contracts executed to support Stage 3, was contracted. The filing disclosed $102.5 billion of transaction price allocated to unsatisfied performance obligations, with a weighted-average recognition timing of about 10 years for LNG revenue. This excludes substantially all variable consideration and is not a forecast of guaranteed revenue.
- The September 2021 capital allocation plan targets repurchasing, repaying or retiring approximately $1.0 billion of existing debt annually through 2024, initiated a quarterly dividend of $0.33 per share, and reset the share-repurchase authorization to $1.0 billion effective October 1. The plan is subject to management decisions and market conditions.
- Debt refinancing included $1.5 billion of Cheniere Partners’ 4.0% notes due 2031, $1.2 billion of 3.25% notes due 2032, and $750 million of CCH notes due 2039 at 2.742%. Subsequent to quarter-end, Cheniere Partners completed redemptions of remaining 2026 notes and part of SPL’s 2022 notes; Cheniere also amended its revolving credit facility, extending maturity to October 2026.
Risks, contingencies and unusual items
Key exposures include commodity-price and derivative valuation volatility, counterparty credit risk, LNG and natural-gas market conditions, project execution and financing needs, and debt covenants. The company stated there were no material changes to the risk factors in its 2020 Form 10-K. LIBOR phase-out remains relevant to certain facilities and swaps. At September 30, $758 million of legally binding minimum vessel-charter payments related primarily to leases commencing in future periods was not included in recognized lease liabilities.
Two Sabine Pass LNG tanks remained out of operational service following a 2018 leak and vapor release while analysis, repair and remediation continue. In October 2021, SPL elected not to contest the amended PHMSA violations and to pay the proposed $1.458 million penalty; management did not expect the matter to materially adversely affect results or operations. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
Investor verification points
- Track whether Train 6 reaches substantial completion and commercial operation on the stated schedule, and assess remaining construction and commissioning costs.
- Review derivative fair-value movements, settlements, collateral and cash consequences separately from underlying LNG sales and physical hedging economics.
- Assess cash accessibility across subsidiaries, project-level restrictions, near-term maturities and the execution of the planned debt-reduction and capital-return program.
- Verify Stage 3’s commercial support, EPC contract, financing and FID status; also assess the assumptions and exclusions behind disclosed future contract revenue.
- Monitor the Sabine Pass tank remediation and regulatory process, and the effects of LIBOR transition on applicable debt and derivative contracts.