Company Update (NYSE:LNG): Cheniere Energy, Inc. Reports Second Quarter 2016 Results


Cheniere Energy, Inc. (NYSEMKT:LNG) reported a net loss1 of $298.4 million, or $1.31 per share (basic and diluted), for the three months ended June 30, 2016, compared to a net loss of $118.5 million, or $0.52 per share (basic and diluted), for the comparable 2015 period. Net Loss, As Adjusted2 was $140.2 million, or $0.61 per share (basic and diluted), for the three months ended June 30, 2016, compared to a Net Loss, As Adjusted of $211.2 million, or $0.93 per share (basic and diluted), for the comparable 2015 period.

For the six months ended June 30, 2016, Cheniere reported a net loss of $619.3 million, or $2.71 per share (basic and diluted), compared to a net loss of $386.2 million, or $1.71 per share (basic and diluted), for the comparable 2015 period. For the six months ended June 30, 2016, Net Loss, As Adjusted was $278.3 million, or $1.22 per share (basic and diluted), compared to a Net Loss, As Adjusted of $333.9 million, or $1.47 per share (basic and diluted), for the comparable 2015 period.

For the three and six months ended June 30, 2016, Net Loss, As Adjusted excludes the impact of changes in the fair value of our interest rate, commodity and FX derivatives, loss on early extinguishment of debt, share-based compensation related to employee separations, and impairment expense (recovery). Loss on early extinguishment of debt was associated with the write-off of debt issuance costs by Sabine Pass Liquefaction, LLC (“SPL”) and Cheniere Corpus Christi Holdings, LLC (“CCH”) in connection with the refinancing of a portion of their credit facilities and by Cheniere Creole Trail Pipeline, L.P. as a result of the prepayment of its outstanding term loan. For the three and six months ended June 30, 2015, Net Loss, As Adjusted excludes the impact of changes in the fair value of interest rate, commodity and FX derivatives, loss on early extinguishment of debt related to the write-off of debt issuance costs by SPL primarily in connection with the refinancing of a portion of its credit facilities in March 2015, and impairment expense.

“The second quarter of 2016 saw Cheniere’s continued transition from a development company into an operating one. During the quarter we took over care, custody, and control of Train 1 of the Sabine Pass Liquefaction Project and commenced commercial sales of LNG. After substantial completion, we exported 5 cargoes of LNG under our contract with BG Gulf Coast LNG, LLC (Shell) as of the end of the second quarter. Commissioning activities at Train 2 continue with first LNG achieved in late July, and our remaining Trains under construction continue on time and on budget,” said Jack Fusco, Cheniere’s President and CEO. “On the financial front, we continued to manage our debt maturity profile by successfully issuing bonds to prepay a portion of the outstanding borrowings under credit facilities for both the Sabine Pass Liquefaction Project and the CCL Project.”

Second Quarter 2016 Highlights

  • In May 2016, the Cheniere Board of Directors appointed Jack A. Fusco as President and Chief Executive Officer.
  • In May 2016, CCH issued an aggregate principal amount of $1.25 billion of 7.0% Senior Secured Notes due 2024. Net proceeds from the offering were used to prepay a portion of the outstanding borrowings under CCH’s credit facility and to pay fees and expenses incurred in connection with the offering and prepayment.
  • In May 2016, Cheniere Partners and Bechtel Oil, Gas and Chemicals, Inc. (“Bechtel”) announced that Train 1 of the Sabine Pass Liquefaction Project achieved substantial completion.
  • In June 2016, SPL issued an aggregate principal amount of $1.5 billion of 5.875% Senior Secured Notes due 2026. Net proceeds from the offering were used to prepay a portion of the outstanding borrowings under SPL’s credit facilities and to pay fees and expenses incurred in connection with the offering and prepayment.

Second Quarter and Year to Date 2016 Results

Adjusted EBITDA2 for the three and six months ended June 30, 2016 was a loss of $3.7 million and$47.9 million, respectively, compared to a loss of $60.5 million and $86.5 million, respectively, for the comparable 2015 periods. During the three months ended June 30, 2016, we began recognizing LNG revenues and cost of sales from the Sabine Pass Liquefaction Project (defined below) following the substantial completion of the first liquefaction train (“Train 1”). Prior to substantial completion, amounts received from the sale of commissioning cargoes were offset against LNG terminal construction-in-process because these amounts were earned during the testing phase for the construction of Train 1 of the Sabine Pass Liquefaction Project. We expect sales of LNG cargoes from future liquefaction trains (“Trains”) to be reported in the same manner.

Total operating costs and expenses increased $89.4 million and $120.4 million during the three and six months ended June 30, 2016 compared to the three and six months ended June 30, 2015, respectively, generally as a result of the commencement of operations of Train 1 of the Sabine Pass Liquefaction Project. Depreciation and amortization expense increased during the three and six months ended June 30, 2016 as we began depreciation of our assets related to Train 1 of the Sabine Pass Liquefaction Project upon reaching substantial completion. General and administrative expense during the three and six months ended June 30, 2016 decreased from the comparable 2015 period, which was partially due to a decrease in share-based compensation as a result of vesting of restricted stock awards in the second half of 2015, and partially due to a reallocation of resources from general and administrative activities to operating and maintenance activities following commencement of operations at the Sabine Pass Liquefaction Project.

Included in marketing expense and general and administrative expense were share-based compensation expenses of $31.5 million and $45.8 million for the three and six months ended June 30, 2016, respectively, compared to $43.0 million and $58.1 million for the comparable 2015 periods, respectively.

Our financial results are reported on a consolidated basis. Our ownership interest in Cheniere Energy Partners, L.P. (“Cheniere Partners”) (NYSE MKT: CQP) consists of 100% ownership of the general partner of Cheniere Partners and 80.1% ownership interest in Cheniere Energy Partners LP Holdings, LLC (NYSE MKT: CQH) which owns a 55.9% limited partner interest in Cheniere Partners.

Liquefaction Projects Update

Sabine Pass Liquefaction Project

Through Cheniere Partners, we are developing up to six Trains, each with an expected nominal production capacity of approximately 4.5 million tonnes per annum (“mtpa”) of LNG, at the Sabine Pass LNG terminal adjacent to the existing regasification facilities (the “Sabine Pass Liquefaction Project”).

The Trains are in various stages of operation, construction, and development.

  • Construction on Trains 1 and 2 began in August 2012, and as of June 30, 2016, the overall project completion percentage for Trains 1 and 2 was approximately 99.4%, which is ahead of the contractual schedule. Train 1 achieved substantial completion in May 2016. Each Train is expected to achieve substantial completion upon the completion of construction, commissioning and the satisfaction of certain tests. The commissioning process on Train 2 has commenced, and based on the current construction schedule, Cheniere Partners expects substantial completion of Train 2 to be achieved in late September 2016.
  • Construction on Trains 3 and 4 began in May 2013, and as of June 30, 2016, the overall project completion percentage for Trains 3 and 4 was approximately 87.4%, which is ahead of the contractual schedule. Based on the current construction schedule, Cheniere Partners expects Trains 3 and 4 to reach substantial completion in 2017.
  • Construction on Train 5 began in June 2015, and as of June 30, 2016, the overall project completion percentage for Train 5 was approximately 38.3%, which is ahead of the contractual schedule. Engineering, procurement, subcontract work and Bechtel direct hire construction were approximately 77.0%, 58.0%, 37.8% and 2.0% complete, respectively. Based on the current construction schedule, Cheniere Partners expects Train 5 to reach substantial completion in 2019.
  • Train 6 is currently under development, with all necessary regulatory approvals in place. Cheniere Partners expects to make a final investment decision and commence construction on Train 6 upon, among other things, entering into an engineering, procurement, and construction contract, entering into acceptable commercial arrangements, and obtaining adequate financing.
Sabine Pass Liquefaction Project
Liquefaction Train Train 1 Train 2 Trains 3-4 Train 5
Project Status Operational Commissioning 87% Overall Completion 38% Overall Completion
Expected Substantial Completion 2H 2016 2017 2019

Corpus Christi LNG Terminal

We are developing up to three Trains, each with an expected nominal production capacity of approximately 4.5 mtpa of LNG, near Corpus Christi, Texas (the “CCL Project”).

The Trains are in various stages of construction and development:

  • Construction on Trains 1 and 2 began in May 2015, and as of June 30, 2016, the overall project completion percentage for Trains 1 and 2 was approximately 36.6%, which is ahead of the contractual schedule. Engineering, procurement and construction were approximately 98.4%, 50.6% and 8.8% complete, respectively. Based on the current construction schedule, we expect Trains 1 and 2 to reach substantial completion in 2019.
  • Train 3 is under development, with all necessary regulatory approvals in place. We have entered into an LNG Sale and Purchase Agreement (“SPA”) for approximately 0.8 mtpa of LNG volumes that commence with Train 3 and expect to commence construction upon entering into additional SPAs and obtaining adequate financing.

Additionally, we are developing Trains 4 and 5 adjacent to the CCL Project and have initiated the regulatory approval process with respect to those Trains. (Original Source)

Shares of Cheniere Energ closed yesterday at $42.96, up $0.83 or 1.97%. LNG has a 1-year high of $70.25 and a 1-year low of $22.80. The stock’s 50-day moving average is $38.79 and its 200-day moving average is $34.99.

On the ratings front, Cheniere has been the subject of a number of recent research reports. In a report issued on July 1, J.P. Morgan analyst Jeremy Tonet maintained a Buy rating on LNG, with a price target of $54, which represents a potential upside of 26% from where the stock is currently trading. Separately, on June 22, Wolfe Research’s Steve Fleishman initiated coverage with a Buy rating on the stock and has a price target of $47.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Jeremy Tonet and Steve Fleishman have a total average return of 3.8% and -5.3% respectively. Tonet has a success rate of 53.2% and is ranked #956 out of 4105 analysts, while Fleishman has a success rate of 40% and is ranked #3314.

Cheniere Energy, Inc. is engaged in the development, construction and operation of LNG terminals and marketing of LNG and natural gas. It operates through the LNG terminal and LNG and natural gas marketing segments. The LNG terminal segment comprises of the operational Sabine Pass LNG terminal in western Cameron Parish, Louisiana on the Sabine Pass Channel and the following two other LNG terminals that are in various stages of development. The LNG and natural gas marketing segment consists of Cheniere Marketing, LLC (Cheniere Marketing) marketing LNG and natural gas on its own behalf and assisting Cheniere Investments in an effort to utilize the regasification capacity held at the Sabine Pass LNG terminal.