01—Abstract
Summary
Summary of the 10-K/A filed September 12, 2011. Cited figures are marked; the original filing is the authoritative source.
Cheniere Energy Partners, L.P.
(NYSE Amex: CQP) filed this amended annual report on Form 10-K/A for fiscal 2010, restating how it presents net income per unit. The restated basic and diluted net income per common unit for 2010 is $1.70a, versus $0.65 per limited partner unit under the prior combined presentation, while total net income of $107.6 million is unchanged. Management concluded that internal control over financial reporting was not effective as of December 31, 2010, because of a material weakness in the per-unit presentation, and Ernst & Young's opinion on internal control was revised accordingly.
The partnership's core asset is the Sabine Pass LNG terminal in Louisiana, with about 4.0 Bcf/d of regasification capacity fully contracted under three 20-year take-or-pay TUAs. Two third-party customers, Total and Chevron, each pay roughly $125 millionb per year. Since June 2010, Cheniere Investments, a subsidiary, has held the third TUA (about $250 million per year) after Cheniere Marketing assigned it, and that capacity is monetized through a variable capacity rights agreement that pays 80% of expected gross margin.
Revenues fell to $399.3 millionc in 2010 from $416.8 million in 2009, and net income fell to $107.6 million from $186.9 million, mainly because of that assignment. For investors, the key issues are the $2.2 billion of senior secured notes maturing in 2013 and 2016, distributions that depend on Sabine Pass LNG being able to pass its fixed-charge coverage test, and the company's plan to add bi-directional liquefaction capacity, which it estimates could begin exporting as early as 2015. No distributions were paid on subordinated units for quarters after June 30, 2010, and the company has signed only non-binding memoranda of understanding with potential liquefaction customers.
02—Key points
Key Highlights
- Restated net income per common unit for 2010 is $1.70, compared with $0.65 per limited partner unit under the prior combined presentation; total net income of $107.6 million is unchanged.
- Management concluded internal control over financial reporting was not effective as of December 31, 2010, due to a material weakness in presenting net income per common unit.
- Revenues were $399.3 million in 2010 versus $416.8 million in 2009; net income was $107.6 million versus $186.9 million, mainly due to the July 2010 TUA assignment to Cheniere Investments.
- The Sabine Pass LNG terminal's roughly 4.0 Bcf/d of regasification capacity is fully contracted under three 20-year TUAs: Total and Chevron each pay about $125 million per year, and Cheniere Investments pays about $250 million per year.
- Senior Notes totaling $2,215.5 million are outstanding, including $550.0 million due 2013 and $1,665.5 million due 2016; annual interest payments are approximately $164.8 million.
- No distributions were paid on subordinated units for quarters ended on or after June 30, 2010; common unit distributions were $0.425 per quarter.
- Liquefaction project plans up to four LNG Trains of about 4.0 mtpa each, with eight non-binding MOUs totaling up to 9.8 mtpa and export possibly starting as early as 2015.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-K/AFY2010filed September 12, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $399.28M$416.79M | −4.2% |
| R&D Expenses | $8.74M$0 | — |
| Operating Expenses | $118.48M$88.87M | +33.3% |
| Operating Income | $280.80M$327.92M | −14.4% |
| Interest Expense | $174.02M$147.20M | +18.2% |
| Net Income | $107.57M$186.91M | −42.4% |
| EPS (Basic) | $1.70$1.13 | +50.4% |
| Shares Outstanding (Basic) | 26.42M— | — |
05—Questions
Frequently Asked Questions
Why did net income fall in 2010?
The main cause was the July 1, 2010 assignment of Cheniere Marketing's TUA to Cheniere Investments. Under the assignment, TUA payments are eliminated on consolidation, so the partnership's affiliate revenue dropped. The filing also cites higher interest expense, depreciation, operating expense and development expense tied to the liquefaction project.
Why was this 10-K/A filed?
The filing says it responds to SEC correspondence by presenting earnings per common unit rather than combined earnings per limited partner unit. The 2010 figure changed from $0.65 as originally presented to $1.70 as restated, although total earnings did not change. Management also determined this was a material weakness in internal control.
Can the partnership keep paying distributions?
Distributions depend on cash the partnership receives from Sabine Pass LNG, which must pass a fixed-charge coverage ratio test of 2:1 and fund required reserves under the Sabine Pass Indenture. The filing states Sabine Pass LNG made $374.8 million of distributions to the partnership in 2010. Subordinated unit distributions were suspended after the TUA assignment, and the filing warns that further reductions could affect the initial quarterly distribution on common units.
What are the main risks to the liquefaction project?
The filing says the project depends on obtaining FERC authorization and financing, on entering long-term customer contracts before construction starts, and on Bechtel's cost estimate of roughly $400 per metric ton before financing costs, which is subject to change. As of February 25, 2011, the partnership had only non-binding MOUs with eight potential customers and had not signed definitive agreements.
How concentrated is the partnership's revenue?
The filing states that substantially all anticipated 2011 revenue depends on a single facility, the Sabine Pass LNG terminal. Two third-party customers, Total and Chevron, provide substantially all current operating cash flows under their TUAs, and each has agreed to pay about $125 million annually.
06—Continue