01—Abstract
Summary
Summary of the 10-K filed February 25, 2020. Cited figures are marked; the original filing is the authoritative source.
Cheniere Energy Partners, L.P.
(NYSE American: CQP) reported net income of $1.2 billiona, or $2.25 per common unit, for 2019, compared with $1.3 billion, or $2.51 per common unit, in 2018. Total revenues were $6.84 billion for 2019 versus $6.43 billion in 2018, and income from operations was $2.04 billion versus $1.98 billion. The Partnership operates the Sabine Pass LNG terminal in Louisiana through subsidiaries SPL and SPLNG, with five liquefaction Trains in operation and Train 6 under construction.
Management made a final investment decision on Train 6 in May 2019, and the filing gives its expected substantial completion as 1H 2023 at 43.7%b overall completion. Nearly all of the Partnership's anticipated 2020 revenue depends on this one facility, and its long-term SPAs are fixed-fee contracts with eight third-party customers. Liquidity and leverage are central to the investment case.
At December 31, 2019, the Partnership had $1.8 billionc of cash and cash equivalents and $17.8 billion of total debt before unamortized premium, discount and issuance costs. In September 2019 it issued $1.5 billion of 4.500% Senior Notes due 2029 and used the proceeds to prepay its $750 million term loan. Distributions to unitholders totaled $1.3 billion in 2019, and a $0.63 per unit distribution was declared on January 28, 2020.
The filing also notes that approximately $2.9 billiond in annual fixed fees from third-party SPA customers covers Trains 1 through 5, rising to at least $3.3 billion once Train 6 begins commercial delivery. The filing identifies concentration and structural risks. Customers BG, Naturgy, KOGAS, GAIL and Total each account for 10% or more of revenues, and Cheniere, the general partner's parent, controls the general partner and has limited obligations to offer the Partnership new assets.
The Partnership has no employees and depends on Cheniere subsidiaries for personnel. It reports effective internal control over financial reporting and discloses two regulatory matters, a self-reported LDEQ Title V compliance matter and a PHMSA Consent Order related to a February 2018 leak. Management does not expect either to have a material adverse impact on its financial results.
02—Key points
Key Highlights
- Net income of $1.2 billion ($2.25 per common unit) in 2019, down from $1.3 billion ($2.51 per unit) in 2018; revenues rose to $6.84 billion from $6.43 billion.
- Train 6 of the Liquefaction Project received final investment decision in May 2019; expected substantial completion is 1H 2023, with overall project completion at 43.7% as of December 31, 2019.
- Train 5 reached substantial completion in March 2019, and five Trains are currently operating with a total planned capacity of approximately 30 mtpa.
- Total debt of $17.8 billion (before unamortized premium, discount and issuance costs) against $1.8 billion of cash and cash equivalents at year-end 2019.
- Annual fixed-fee revenue from third-party SPA customers is approximately $2.9 billion for Trains 1-5, expected to rise to at least $3.3 billion with Train 6.
- Distributions to unitholders of $1.3 billion paid in 2019; a $0.63 per unit distribution was declared on January 28, 2020.
- Customer concentration is significant: BG (27%), KOGAS (19%), Naturgy (18%), GAIL (20%) and Total (not separately shown as 10%+ in 2019 table), all of which are long-term fixed-fee SPA or TUA counterparties.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 25, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $6.84B$6.43B | +6.4% |
| R&D Expenses | $0$2.00M | −100.0% |
| Operating Expenses | $4.80B$4.45B | +7.9% |
| Operating Income | $2.04B$1.98B | +3.1% |
| Interest Expense | $885.00M$733.00M | +20.7% |
| Net Income | $1.18B$1.27B | −7.8% |
| EPS (Basic) | $2.25$2.51 | −10.4% |
| Shares Outstanding (Basic) | 348.60M348.60M | 0.0% |
05—Questions
Frequently Asked Questions
How much debt does the Partnership carry and when does it mature?
As of December 31, 2019, total consolidated debt was $17.8 billion before unamortized premium, discount and debt issuance costs. The filing states that $2.0 billion matures in 2021, $1.0 billion in 2022, $1.5 billion in 2023, $2.0 billion in 2024, approximately $10.5 billion between 2024 and 2029, and $0.8 billion in 2037.
What drives the Partnership's revenue, and how contracted is it?
Revenue comes mainly from LNG sales under long-term SPAs with eight third-party customers, generally 20-year terms, plus Cheniere Marketing purchases and regasification capacity payments under TUAs. The SPA price is a fixed fee per MMBtu plus a variable fee of approximately 115% of Henry Hub, and the fixed fee is payable even if customers cancel or suspend cargoes. The SPAs cover approximately 75% of the production capacity from Trains 1 through 6.
What is the status and cost of Train 6?
Train 6 received FID in May 2019, and Bechtel's lump-sum EPC contract price is approximately $2.5 billion, of which $1.1 billion had been incurred as of December 31, 2019. Overall completion was 43.7% at year-end 2019, with construction at 9.7%, and expected substantial completion is 1H 2023. The filing notes that actual costs may exceed estimates due to change orders.
What are the main risks to unitholder distributions?
Distributions depend on customer performance under SPAs and TUAs, the Partnership's ability to refinance debt maturing from 2021 onward, and restrictions in SPL's debt agreements, which require a 1.25:1.00 debt service coverage ratio test before SPL can make distributions. The filing also cites reliance on a single facility for substantially all of 2020 anticipated revenue, dependence on Cheniere for personnel and services, and conflicts of interest with Cheniere and its affiliates.
Are there any material legal or regulatory matters?
Two matters are disclosed. The first is an LDEQ discussion over self-reported Title V permit deviations from 2012 to March 2016, with a Compliance Order issued in April 2016. The second is a PHMSA Consent Order following a February 2018 minor LNG leak from one tank, with two tanks taken out of service. Management does not expect either matter to have a material adverse impact on financial results.
06—Continue