USA: Cheniere Reports Net Loss of USD 150 Million

For the quarter and year ended December 31, 2012, Cheniere Energy Partners, L.P. reported a net loss of $63.5 million and $150.1 million, respectively, compared to a net loss of $7.5 million and $31.0 million, respectively, for the same periods in 2011.

Results for the quarter and year ended December 31, 2012 were primarily impacted by increases in certain expenses related to the liquefaction facilities Cheniere is are developing and constructing at the Sabine Pass LNG terminal adjacent to the existing regasification facilities.

For the quarter and year ended December 31, 2012, results include significant items of $45.1 million and $82.8 million, respectively, related to development expenses primarily for the Liquefaction Project and losses due to the early extinguishment of debt.  Excluding these significant items, the adjusted net loss for the quarter and year ended December 31, 2012 were $18.4 million and $67.3 million, respectively.

Overview of Recent Significant Events

• In October/November 2012, Sabine Pass LNG, L.P. (Sabine Pass LNG) repurchased its $550.0 million 7.25% Senior Secured Notes due 2013 by issuing $420.0 million of 6.50% Senior Secured Notes due in 2020 and by Cheniere Partners selling 8.0 million common units in an underwritten public offering at a price of $25.07 per common unit for net cash proceeds of $194.0 million;
• In December 2012, Sabine Pass Liquefaction, LLC announced the commencement of the development of Train 5 and Train 6 of the Liquefaction Project and that it has entered into an LNG sale and purchase agreement (SPA) with Total Gas & Power North America, Inc.  under which Total has agreed to purchase approximately 2.0 million metric tons per annum (mmtpa) of LNG volumes upon the commencement of Train 5 operations;
• In December 2012, Sabine Pass Liquefaction and Bechtel Oil, Gas and Chemicals, Inc. (“Bechtel”) entered into a lump sum turnkey contract for the engineering, procurement and construction (EPC) of Train 3 and Train 4 of the Liquefaction Project; and
• In February 2013, Sabine Pass Liquefaction issued an aggregate principal amount of $1.5 billion of 5.625% Senior Secured Notes due 2021.  Proceeds from the offering are intended to be used to pay capital costs incurred in connection with the construction of Train 1 and Train 2 of the Liquefaction Project in lieu of a portion of the commitments under Sabine Pass Liquefaction’s $3.6 billion senior secured credit facility.

2012 Results

Cheniere Partners reported income from operations of $19.6 million and $63.5 million for the quarter and year ended December 31, 2012, respectively, compared to income from operations of $37.0 million and $144.6 million for the comparable periods in 2011.

The decrease in income from operations of $17.4 million and $81.1 million for the quarter and year ended December 31, 2012, compared to the comparable periods in 2011, was primarily due to increased general and administrative costs incurred to manage the construction of the Liquefaction Project, decreased revenue, and increased operating and maintenance expense (including affiliate).

The general and administrative expenses incurred to manage the construction of the Liquefaction Project primarily resulted from a management services agreement entered into by Sabine Pass Liquefaction, in which Sabine Pass Liquefaction is paying to Cheniere Energy, Inc. a monthly fee based upon the capital expenditures incurred in the previous month for the Liquefaction Project.

These payments are being funded from proceeds received from the Liquefaction Project’s equity and debt financings.  Revenues for the year ended December 31, 2012, compared to the comparable 2011 period, were  impacted by decreased LNG cargo export loading fee revenue, decreased revenues earned under the variable capacity rights agreement with Cheniere Marketing, Inc., and a loss on LNG inventory needed to restore the heating value of vaporized LNG to meet natural gas pipeline specifications.

Increases in operating and maintenance expense (including affiliate expense) resulted from the loss incurred to purchase LNG to maintain the cryogenic readiness of the Sabine Pass LNG terminal and increased dredging services in 2012.

Liquefaction Project Update

Cheniere continues to make progress on the Liquefaction Project, which is being developed for up to six natural gas liquefaction trains (Trains), each with a nominal production capacity of approximately 4.5 mmtpa.  The Trains are in various stages of development.

• Train 1 and Train 2 have received all Federal Energy Regulatory Commission (FERC) and U.S. Department of Energy (DOE) approvals. Cheniere has secured approximately $5.7 billion of required financing to construct Train 1 and Train 2.  Cheniere has issued a full notice to proceed to Bechtel and have commenced construction of Train 1 and Train 2 and the related new facilities needed to treat, liquefy, store and export natural gas.  As of December 31, 2012, the overall project for Train 1 and Train 2 was approximately 18% complete.  The estimated substantial completion dates for Train 1 and Train 2 are ahead of the contractual schedule for guaranteed substantial completion, and Cheniere anticipates that Train 1 will achieve initial LNG production in late 2015.
• Train 3 and Train 4 have received all FERC and DOE approvals, and Cheniere has entered into a lump sum turnkey EPC contract with Bechtel for Train 3 and Train 4.  Construction of Train 3 and Train 4 and the related facilities is expected to commence upon, among other things, obtaining financing commitments sufficient to fund construction and making a positive final investment decision.  Cheniere is in the process of securing the required financing for the construction of Train 3 and Train 4 and expect construction to begin in 2013.
• Cheniere recently began the development of Train 5 and Train 6.  In September 2012, Cheniere entered into an agreement with Total whereby Sabine Pass Liquefaction will gradually obtain access to Total’s send-out capacity and other services provided under its terminal use agreement with Sabine Pass LNG that may be used to accommodate the development of Train 5 and Train 6.  Bechtel has begun preliminary engineering on Train 5 and Train 6, and Cheniere expects to initiate the regulatory approval process in the first half of 2013.  In December 2012, company entered into an SPA with Total under which Total has agreed to purchase approximately 2.0 mmtpa of LNG volumes upon the commencement of Train 5 operations.

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LNG World News Staff, February 22, 2013