When will the partnership begin generating revenue, and how much?

The company expects to begin receiving revenues from operations in the second quarter of 2008, when commercial operation of the Sabine Pass LNG terminal is expected to begin with initial send-out capacity of approximately 2.6 Bcf/d. Full TUA capacity payments begin in 2009: Total from April 1, 2009, Chevron no later than July 1, 2009, and Cheniere Marketing from January 1, 2009, with the filing estimating roughly $250 million per year from Total and Chevron combined and $250 million per year from Cheniere Marketing.

Are distributions to unitholders currently supported by operating cash flow?

No. The filing states that until the partnership receives cash flows under all three TUAs in 2009, all or a portion of distributions will be a return of investment. Distributions are funded from the $98.4 million distribution reserve invested in U.S. Treasury securities, which covers the $0.425 quarterly initial distribution through the distribution for the quarter ending June 30, 2009. As of December 31, 2007, $75.7 million remained in that reserve after distributions for 2007.

What is the main risk to investors?

The filing identifies Cheniere Marketing's ability to pay its roughly $250 million annual TUA obligation as the principal risk. Cheniere Marketing has a limited operating history, limited capital, no credit rating and an unproven strategy, and Cheniere (rated B) guarantees its obligations. Without substantial revenue from the Cheniere Marketing TUA, the fixed charge coverage ratio test under the Sabine Pass LNG notes indenture would not be met after March 31, 2009, and Sabine Pass LNG could be prevented from distributing cash to the partnership.

What is the status of the construction project and its costs?

The terminal's first three tanks, approximately 2.6 Bcf/d of regasification capacity and associated facilities are expected to be completed and commissioned in the second quarter of 2008 by Bechtel Corporation, with the first stage of the expansion (fourth and fifth tanks and about 1.4 Bcf/d) expected in the third quarter of 2009. The filing estimates the cost to complete at about $1.5 billion before financing costs in Item 1 and about $1.4 billion in Item 7, and notes that change orders for $172.7 million had been approved under the Bechtel EPC agreement as of February 14, 2008.

What did the parent company announce that could affect the partnership?

The filing states that on February 25, 2008, Cheniere announced it was evaluating strategic options to enhance shareholder value, including options to optimize the value of the Sabine Pass LNG receiving terminal and the regasification capacity held under a long-term TUA by its affiliate, Cheniere Marketing, Inc. The filing does not describe the outcome of that evaluation.

CQP 10-K FY2007 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed February 27, 2008. Cited figures are marked; the original filing is the authoritative source.

Cheniere Energy Partners, L.P.

(AMEX: CQP) is a Delaware limited partnership formed by Cheniere Energy, Inc. to own and operate the Sabine Pass LNG receiving terminal under construction in western Cameron Parish, Louisiana. The company is a development stage enterprise with no revenues, operating cash flows or operating history to date, and a cumulative net loss of $121.4 million^a from inception through December 31, 2007. Its net loss was $49.0 million in 2007.

The company expects to begin receiving revenues from operations in the second quarter of 2008, and it estimates the aggregate cost to complete construction at approximately $1.5 billion^b before financing costs in Item 1 (versus $1.4 billion in Item 7). All of the terminal's approximately 4.0 Bcf/d of regasification capacity is contracted under three 20-year firm terminal use agreements (TUAs): Total LNG USA (about 1.0 Bcf/d, roughly $125 million per year), Chevron U.S.A. (about 1.0 Bcf/d, roughly $125 million per year), and Cheniere Marketing, Inc., an affiliate (about 2.0 Bcf/d, roughly $250 million per year beginning January 1, 2009).

The filing emphasizes that Cheniere Marketing is a company with a limited operating history, no credit rating, and an unproven business strategy, and that Cheniere holds a non-investment grade B rating from Standard & Poor's. Cheniere guarantees Cheniere Marketing's obligations. Distributions to unitholders through the distribution made in respect of the quarter ending June 30, 2009 are funded from a $98.4 million^c distribution reserve and are described as a return of investment.

The company had $2,032.6 million^d of indebtedness at year-end 2007, primarily the Sabine Pass LNG notes. The indenture restricts Sabine Pass LNG from making distributions to the partnership before phase 1 target completion, and after March 31, 2009 a fixed charge coverage ratio test of 2.0 to 1.0 could prevent distributions. The filing also notes that on February 25, 2008 Cheniere announced it was evaluating strategic options, including options to optimize the value of the terminal and the regasification capacity held by Cheniere Marketing.

02—Key points

Key Highlights

Development stage company with no revenues to date; expects first revenues from operations in the second quarter of 2008 and a net loss of $48.95 million in 2007 (cumulative $121.4 million since inception).
Sabine Pass LNG terminal capacity of approximately 4.0 Bcf/d is fully contracted under three 20-year TUAs: Total and Chevron (about 1.0 Bcf/d each, about $125 million per year each) and Cheniere Marketing (about 2.0 Bcf/d, about $250 million per year from January 1, 2009).
Cheniere Marketing, an affiliate with a limited operating history and no credit rating, is the largest counterparty risk; Cheniere guarantees its obligations and holds a non-investment grade B rating from Standard & Poor's.
Total indebtedness of $2,032.6 million at December 31, 2007, primarily the $2,032.0 million Sabine Pass LNG notes (7.25% due 2013 and 7.50% due 2016).
Quarterly distributions of $0.425 per common unit are funded from a $98.4 million distribution reserve through the distribution for the quarter ending June 30, 2009; the filing states these are a return of investment until TUA revenues cover them.
Estimated construction cost of approximately $1.5 billion before financing costs, with change orders of $172.7 million approved under the Bechtel EPC agreement as of February 14, 2008.
Cheniere owns about 90.6% of the partnership, and the general partner is controlled by Cheniere; the filing notes significant conflicts of interest and limited fiduciary duties.

03—Questions

Frequently Asked Questions

When will the partnership begin generating revenue, and how much?
The company expects to begin receiving revenues from operations in the second quarter of 2008, when commercial operation of the Sabine Pass LNG terminal is expected to begin with initial send-out capacity of approximately 2.6 Bcf/d. Full TUA capacity payments begin in 2009: Total from April 1, 2009, Chevron no later than July 1, 2009, and Cheniere Marketing from January 1, 2009, with the filing estimating roughly $250 million per year from Total and Chevron combined and $250 million per year from Cheniere Marketing.
Are distributions to unitholders currently supported by operating cash flow?
No. The filing states that until the partnership receives cash flows under all three TUAs in 2009, all or a portion of distributions will be a return of investment. Distributions are funded from the $98.4 million distribution reserve invested in U.S. Treasury securities, which covers the $0.425 quarterly initial distribution through the distribution for the quarter ending June 30, 2009. As of December 31, 2007, $75.7 million remained in that reserve after distributions for 2007.
What is the main risk to investors?
The filing identifies Cheniere Marketing's ability to pay its roughly $250 million annual TUA obligation as the principal risk. Cheniere Marketing has a limited operating history, limited capital, no credit rating and an unproven strategy, and Cheniere (rated B) guarantees its obligations. Without substantial revenue from the Cheniere Marketing TUA, the fixed charge coverage ratio test under the Sabine Pass LNG notes indenture would not be met after March 31, 2009, and Sabine Pass LNG could be prevented from distributing cash to the partnership.
What is the status of the construction project and its costs?
The terminal's first three tanks, approximately 2.6 Bcf/d of regasification capacity and associated facilities are expected to be completed and commissioned in the second quarter of 2008 by Bechtel Corporation, with the first stage of the expansion (fourth and fifth tanks and about 1.4 Bcf/d) expected in the third quarter of 2009. The filing estimates the cost to complete at about $1.5 billion before financing costs in Item 1 and about $1.4 billion in Item 7, and notes that change orders for $172.7 million had been approved under the Bechtel EPC agreement as of February 14, 2008.
What did the parent company announce that could affect the partnership?
The filing states that on February 25, 2008, Cheniere announced it was evaluating strategic options to enhance shareholder value, including options to optimize the value of the Sabine Pass LNG receiving terminal and the regasification capacity held under a long-term TUA by its affiliate, Cheniere Marketing, Inc. The filing does not describe the outcome of that evaluation.

04—Continue

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