01—Abstract
Summary
Summary of the 10-K filed February 24, 2017. Cited figures are marked; the original filing is the authoritative source.
Cheniere Energy Partners, L.P.
(NYSE MKT: CQP) reported a 2016 net loss of $171.2 milliona ($0.20 per common unit), improved from a net loss of $318.9 million in 2015, as total revenues rose to $1.10 billion from $270.0 million. The increase reflects the start of LNG operations at the Sabine Pass Liquefaction Project: Trains 1 and 2 achieved substantial completion and began operating activities in May and September 2016, respectively. Operating cash flow was essentially break-even at negative $0.2 million, while investing cash outflows of $2.35 billion and financing inflows of $2.52 billion funded construction of Trains 1 through 5.
Total debt outstanding was $14.6 billionb at year-end, against zero cash and cash equivalents and $604.9 million of current restricted cash. The partnership's revenue base is supported by long-term contracts: six fixed-price, 20-year SPAs for approximately 19.75 mtpa, or about 88% of expected nominal capacity of Trains 1 through 5, with annual fixed fees of roughly $2.9 billion in aggregate. Regasification capacity at the Sabine Pass LNG terminal is fully contracted under two long-term TUAs.
Train 3 was in commissioning, Trains 4 and 5 were under construction with expected substantial completion in 2H 2017 and 2H 2019, and Train 6 had not yet reached a final investment decision. Management expects total capital costs for Trains 1 through 5 of $17.0 billion to $18.0 billionc after financing costs.
Key risks highlighted include the partnership's lack of profitability history, reliance on a single facility, dependence on Cheniere affiliates and Bechtel for construction, substantial indebtedness with maturities concentrated from 2022 to 2027, and a pending lawsuit challenging an Louisiana industrial tax exemption contract, which management considers remote as a material adverse risk. Distributions of $0.425d per common unit per quarter continued, funded from accumulated operating surplus.
02—Key points
Key Highlights
- Net loss narrowed to $171.2 million ($0.20 per common unit) in 2016 from $318.9 million ($0.43 per unit) in 2015.
- Total revenues increased to $1.10 billion in 2016 from $270.0 million in 2015, as LNG revenues began after Trains 1 and 2 reached substantial completion.
- Six fixed-price, 20-year SPAs cover about 19.75 mtpa, approximately 88% of expected nominal capacity of Trains 1 through 5, with annual fixed fees of about $2.9 billion.
- Total debt was $14.6 billion at December 31, 2016, with $0.2 billion maturing in 2017 and $9.5 billion maturing between 2022 and 2027; the company reported zero cash and cash equivalents.
- Train 3 was in commissioning, Trains 4 and 5 were under construction with expected substantial completion in 2H 2017 and 2H 2019, and Train 6 had not reached a final investment decision.
- Total expected capital costs for Trains 1 through 5 are $17.0 billion to $18.0 billion after financing costs, based on the Bechtel EPC contracts.
- Quarterly distribution of $0.425 per common unit was maintained, with a $0.425 distribution paid February 13, 2017; subordinated unit distributions remain suspended since the quarter ended March 31, 2010.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2016, Cheniere Energy Partners lost $0.16.
- Revenue$1.10B100.0%
- Cost of revenue−$410.0M37.3%
- Gross profit$690.0M62.7%
- Operating costs−$440.0M40.0%
- Operating income$250.0M22.7%
- Interest, other & tax−$421.0M38.3%
- Net income−$171.0M15.5%
Where FY2016 revenue went
$1.10B- Operating costs: $440.0M, 40% of revenue
- Cost of revenue: $410.0M, 37% of revenue
- Operating income: $250.0M, 23% of revenue
Kept 23% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 24, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $1.10B$270.00M | +307.4% |
| Cost of Revenue | $410.00M-$31.00M | +1422.6% |
| Gross Profit | $690.00M$301.00M | +129.2% |
| R&D Expenses | $0$3.00M | −100.0% |
| Operating Expenses | $850.00M$267.00M | +218.4% |
| Operating Income | $250.00M$3.00M | +8233.3% |
| Interest Expense | $357.00M$185.00M | +93.0% |
| Net Income | -$171.00M-$319.00M | +46.4% |
| EPS (Basic) | $-0.20$-0.43 | +53.5% |
| Shares Outstanding (Basic) | 57.10M57.10M | 0.0% |
05—Questions
Frequently Asked Questions
Why did the partnership's revenue increase so sharply in 2016?
Revenues rose to $1.10 billion from $270.0 million because the Liquefaction Project began generating LNG revenues after Trains 1 and 2 reached substantial completion and commenced operating activities in May and September 2016. Before that, sales from commissioning cargoes were offset against construction costs rather than recorded as revenue.
How does the partnership generate revenue from its contracts?
SPL's SPA customers pay a fixed fee per MMBtu of LNG, a portion of which adjusts annually for inflation, plus a variable fee equal to 115% of Henry Hub per MMBtu. Customers must still pay the fixed fee on contracted volumes they cancel or suspend. SPLNG earns regasification capacity fees from two long-term TUAs with Total and Chevron, plus SPL's own TUA, which together reserve the terminal's full regasification capacity.
What are the main risks to the partnership's debt repayment?
The filing notes that the partnership has not been profitable historically and had zero cash at year-end, with $14.6 billion of total debt. It will need to refinance or extend debt maturing largely in 2020 through 2027, and it anticipates additional borrowing to finance Train 6. Distributions from SPL are restricted until debt service reserve and a 1.25:1.00 debt service coverage ratio tests are met.
What legal and regulatory matters could affect the partnership?
A lawsuit filed by JMCB, LLC on October 12, 2016 seeks to void one of SPL's Industrial Tax Exemption contracts; management believes a material adverse effect is remote. Separately, certain subsidiaries are in discussions with the Louisiana Department of Environmental Quality over self-reported Title V permit deviations, and the company does not expect any ultimate sanction to have a material adverse impact. A DOE export authorization for non-FTA countries for Trains 5 and 6 is subject to a pending appeal in the D.C. Circuit.
What is the status of Train 6 and future growth?
Train 6 is fully permitted by FERC but has not been contracted to date, and the partnership will only consider a final investment decision after entering an EPC contract, securing acceptable commercial arrangements, and obtaining adequate financing. The filing says Cheniere's separate Corpus Christi project has signed eight 20-year SPAs and may compete for commercial arrangements that might otherwise have gone to Train 6.
06—Continue