After close to five years of waiting, we finally got to see what a full operational quarter for one of Cheniere Energy's (NYSEMKT: LNG) LNG liquefaction trains looks like. Based on the jump in revenue, I think it's safe to say most investors and creditors were impressed. These new operations also opened the door for Cheniere Energy's subsidiary partnership, Cheniere Energy Partners (NYSEMKT: CQP), to obtain a highly coveted investment-grade rating. Let's take a look at Cheniere Energy's most recent earnings, progress at the rest of Sabine Pass, and what that investment-grade credit rating is allowing the company to do.
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Image source: Cheniere Energy Partners annual report.
By the numbers
|Results*||Q3 2016||Q2 2016||Q3 2015|
|Net income attributable to shareholders||($100.4)||($298.4)||($297.8)|
|Earnings per share||($0.44)||($1.31)||($1.31)|
*in millions, except per share data. Data source: Cheniere Energy earnings release.
What a difference one full quarter of operation makes. In the third quarter, Train 1 of Cheniere Energy Partners' 6 Train Sabine Pass entered into full operations and delivered 15 cargoes of LNG compared to last quarter's total shipment of five. It also helped that Train 2 was in the commissioning stage and, as part of its testing, delivered three cargoes itself. This additional 13 cargoes were responsible for the 164% increase in revenue.
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The other thing this increased level of sales brought with it was the company's first operational profit since it made the pivot from a natural gas importer to an exporter in 2011. The thing that is really keeping it from generating net income is the $148 million in interest payments it needs to make eachquarteron the build-out of these facilities.
Right now, that's a huge chunk of change for the company. One thing to keep in mind though, is that these were the results from just one LNG liquefaction train. Right now, the company has nine of these trains currently under development, with another two under review. Once these are built out, it should -- I hate saying this -- grow into its debt load.
During Cheniere Energy's first ever conference call to discuss results last quarter, management noted its intention to simplify the structure of the business, which was basically a veiled way of saying that it was planning on doing something with Cheniere Energy Partners Holdings (NYSEMKT: CQH). This was a weird corporate entity whose sole existence was to own shares of Cheinere Energy Partners. Basically, it was a creative way to raise cash to pay for the development of its LNG facilities. Back in September, management delivered on that promise by announcing that the parent company would be buying out all units outstanding in this holding company.
One thing that will help the company going forward with those high interest costs was the recent announcement of a $1.5 billion bond issuance that has a coupon rate of 5% due in 2027 and carries with it an investment-grade rating, the first in the company's history. These notes were used to pay off its $420 million in notes due in 2020 -- with a coupon rate of 6.5% -- and pay off a large portion of the $1.66 billion in notes due this year -- with aggregate coupon rates of 7.5%. Now that the company has finally brought the facility to fruition, and it's generating operating income, there is much less inherent risk with the company, and it should have access to cheaper financing. A percentage point or two over a time period of 10-plus years can add up to a lot when Cheniere has more than $12 billion in debt outstanding.
The other big change was the announcement that the CEO had named his new executive leadership for the company. While it's hard to judge what that means for the company today, investors will have to see if there are any major changes made to the company's strategy in the coming quarters.
What management had to say
As part of the company's press release, CEO Jack Fusco wanted to highlight the progress the company has made in recent quarters and that significant financing accomplishment:
The third quarter of 2016 was significant for Cheniere on multiple fronts. Our transition to operations continues, highlighted in the third quarter by the substantial completion of Train 2 at Sabine Pass and the generation of approximately$67 millionin Adjusted EBITDA. Commissioning activities commenced on Train 3, and our remaining Trains under construction continue on time and on budget.
In addition, we continued to manage our debt maturity profile by successfully issuing bonds to prepay outstanding borrowings under credit facilities for the Sabine Pass liquefaction project, with the issuing entity having earned its first investment-grade credit rating during the quarter.
What a Fool believes
We kind of expected this to happen as management was expecting full operations from Train 1 this quarter, but it's still encouraging to see the company execute on it, keep the facility running at a decent rate, and finally start generating some revenue. These next few quarters will be fascinating to watch as each quarter will bring us closer to a four-train facility at Sabine Pass that is fully functional.
For those patient investors in Cheniere and Cheniere Energy Partners, this quarter was the reason you have been waiting. Hopefully, things will only get brighter from here.
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