CHENIERE ENERGY PARTNERS, L.P. Information Regarding Forward-Looking Statements
This quarterly report contains certain statements that are, or may be deemed to be, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements, other than statements of historical or present facts or conditions, included herein or incorporated herein by reference are "forward-looking statements." Included among "forward-looking statements" are, among other things:
•statements regarding our ability to pay distributions to our unitholders;
•statements regarding our expected receipt of cash distributions from SPLNG, SPL or CTPL;
•statements that we expect to commence or complete construction of our proposed LNG terminal, liquefaction facility, pipeline facility or other projects, or any expansions or portions thereof, by certain dates, or at all; •statements regarding future levels of domestic and international natural gas production, supply or consumption or future levels of LNG imports into or exports fromNorth America and other countries worldwide or purchases of natural gas, regardless of the source of such information, or the transportation or other infrastructure or demand for and prices related to natural gas, LNG or other hydrocarbon products;
•statements regarding any financing transactions or arrangements, or our ability to enter into such transactions;
•statements regarding our future sources of liquidity and cash requirements;
•statements relating to the construction of our Trains, including statements concerning the engagement of any EPC contractor or other contractor and the anticipated terms and provisions of any agreement with any EPC or other contractor, and anticipated costs related thereto;
•statements regarding any SPA or other agreement to be entered into or performed substantially in the future, including any revenues anticipated to be received and the anticipated timing thereof, and statements regarding the amounts of total LNG regasification, natural gas liquefaction or storage capacities that are, or may become, subject to contracts;
•statements regarding counterparties to our commercial contracts, construction contracts and other contracts;
•statements regarding our planned development and construction of additional Trains, including the financing of such Trains;
•statements that our Trains, when completed, will have certain characteristics, including amounts of liquefaction capacities;
•statements regarding our business strategy, our strengths, our business and operation plans or any other plans, forecasts, projections, or objectives, including anticipated revenues, capital expenditures, maintenance and operating costs and cash flows, any or all of which are subject to change;
•statements regarding legislative, governmental, regulatory, administrative or other public body actions, approvals, requirements, permits, applications, filings, investigations, proceedings or decisions; and
•any other statements that relate to non-historical or future information.
All of these types of statements, other than statements of historical or present
facts or conditions, are forward-looking statements. In some cases,
forward-looking statements can be identified by terminology such as "may,"
"will," "could," "should," "achieve," "anticipate," "believe," "contemplate,"
"continue," "estimate," "expect," "intend," "plan," "potential," "predict,"
"project," "pursue," "target," the negative of such terms or other comparable
terminology. The forward-looking statements contained in this quarterly report
are largely based on our expectations, which reflect estimates and assumptions
made by our management. These estimates and assumptions reflect our best
judgment based on currently known market conditions and other factors. Although
we believe that such estimates are reasonable, they are inherently uncertain and
involve a number of risks and uncertainties beyond our control. In addition,
assumptions may prove to be inaccurate. We caution that the forward-looking
statements contained in this quarterly report are not guarantees of future
performance and that such statements may not be realized or the forward-looking
statements or events may not occur. Actual results may differ materially
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from those anticipated or implied in forward-looking statements as a result of a variety of factors described in this quarterly report and in the other reports and other information that we file with theSEC , including those discussed under "Risk Factors" in our annual report on Form 10-K for the fiscal year endedDecember 31, 2022 . All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these risk factors. These forward-looking statements speak only as of the date made, and other than as required by law, we undertake no obligation to update or revise any forward-looking statement or provide reasons why actual results may differ, whether as a result of new information, future events or otherwise.
Introduction
The following discussion and analysis presents management's view of our business, financial condition and overall performance and should be read in conjunction with our Consolidated Financial Statements and the accompanying notes. This information is intended to provide investors with an understanding of our past performance, current financial condition and outlook for the future.
Our discussion and analysis includes the following subjects:
• Overview
• Overview of Significant Events
• Results of Operations
• Liquidity and Capital Resources
• Summary of Critical Accounting Estimates
• Recent Accounting Standards
Overview
We are a publicly tradedDelaware limited partnership formed in 2006 by Cheniere. We provide clean, secure and affordable LNG to integrated energy companies, utilities and energy trading companies around the world. We aspire to conduct our business in a safe and responsible manner, delivering a reliable, competitive and integrated source of LNG to our customers. LNG is natural gas (methane) in liquid form. The LNG we produce is shipped all over the world, turned back into natural gas (called "regasification") and then transported via pipeline to homes and businesses and used as an energy source that is essential for heating, cooking and other industrial uses. Natural gas is a cleaner-burning, abundant and affordable source of energy. When LNG is converted back to natural gas, it can be used instead of coal, which reduces the amount of pollution traditionally produced from burning fossil fuels, like sulfur dioxide and particulate matter that enters the air we breathe. Additionally, compared to coal, it produces significantly fewer carbon emissions. By liquefying natural gas, we are able to reduce its volume by 600 times so that we can load it onto special LNG carriers designed to keep the LNG cold and in liquid form for efficient transport overseas. We own a natural gas liquefaction and export facility located inCameron Parish, Louisiana atSabine Pass (the "Sabine Pass LNG Terminal "), one of the largest LNG production facilities in the world, which has six operational Trains, for a total production capacity of approximately 30 mtpa of LNG (the "Liquefaction Project ").The Sabine Pass LNG Terminal also has three marine berths, two of which can accommodate vessels with nominal capacity of up to 266,000 cubic meters and the third berth which can accommodate vessels with nominal capacity of up to 200,000 cubic meters, operational regasification facilities that include five LNG storage tanks with aggregate capacity of approximately 17 Bcfe and vaporizers with regasification capacity of approximately 4 Bcf/d. We also own a 94-mile pipeline through our subsidiary, CTPL, that interconnects our facilities to several interstate and intrastate pipelines (the "Creole Trail Pipeline"). Our long-term customer arrangements form the foundation of our business and provide us with significant, stable, long-term cash flows. We have contracted most of our anticipated production capacity under SPAs, in which our customers are generally required to pay a fixed fee with respect to the contracted volumes irrespective of their election to cancel or suspend deliveries of LNG cargoes, and under IPM agreements, in which the gas producer sells natural gas to us on a global LNG index price, less a fixed liquefaction fee, shipping and other costs. Through our SPAs and IPM agreement, we have contracted 21 -------------------------------------------------------------------------------- Table of Contents approximately 85% of the total production capacity from theLiquefaction Project with approximately 15 years of weighted average remaining life as ofMarch 31, 2023 . We remain focused on safety, operational excellence and customer satisfaction. Increasing demand for LNG has allowed us to expand our liquefaction infrastructure in a financially disciplined manner. We have increased available liquefaction capacity at ourLiquefaction Project as a result of debottlenecking and other optimization projects. We hold a significant land position at theSabine Pass LNG Terminal , which provides opportunity for further liquefaction capacity expansion. InFebruary 2023 , certain of our subsidiaries initiated the pre-filing review process with theFERC under the National Environmental Policy Act ("NEPA") for an expansion adjacent to theLiquefaction Project consisting of up to three Trains with an expected total production capacity of approximately 20 mtpa of LNG (the "SPL Expansion Project "). The development of this site or other projects, including infrastructure projects in support of natural gas supply and LNG demand, will require, among other things, acceptable commercial and financing arrangements before we make a positive final investment decision. Additionally, we are committed to the responsible and proactive management of our most important environmental, social and governance ("ESG") impacts, risks and opportunities. In 2022, Cheniere published Acting Today, Securing Tomorrow, its third Corporate Responsibility ("CR") report, which details its approach and progress on ESG issues, including its collaboration with natural gas midstream companies, technology providers and leading academic institutions on life-cycle assessment ("LCA") models, quantification, monitoring, reporting and verification ("QMRV") of greenhouse gas emissions and other research and development projects. Cheniere also co-founded and sponsored theEnergy Emissions Modeling and Data Lab ("EEMDL"), a multidisciplinary research and education initiative led by theUniversity of Texas at Austin in collaboration withColorado State University and theColorado School of Mines . In addition, Cheniere commenced providing Cargo Emissions Tags ("CE Tags") to our long-term customers inJune 2022 and joined theOil and Gas Methane Partnership ("OGMP") 2.0, the United Nations Environment Programme's ("UNEP") flagship oil and gas methane emissions reporting and mitigation initiative, inOctober 2022 . Cheniere's CR report is available at cheniere.com/our-responsibility/reporting-center. Information on Cheniere's website, including the CR report, is not incorporated by reference into this Quarterly Report on Form 10-Q.
Overview of Significant Events
Our significant events since
Strategic
•InFebruary 2023 , certain of our subsidiaries initiated the pre-filing review process with theFERC under NEPA for theSPL Expansion Project , and inApril 2023 , one of our subsidiaries executed a contract withBechtel Energy Inc. to provide the Front End Engineering and Design ("FEED") work on the project. •OnJanuary 2, 2023 ,Corey Grindal , formerly Executive Vice President, Worldwide Trading, was promoted to Executive Vice President and Chief Operating Officer ofCheniere Energy Partners GP, LLC ("Cheniere GP").
Operational
•As ofApril 26, 2023 , approximately 2,070 cumulative LNG cargoes totaling approximately 142 million tonnes of LNG have been produced, loaded and exported from theLiquefaction Project .
Financial
•In
•OnApril 28, 2023 , we declared a cash distribution of$1.03 per common unit to unitholders of record as ofMay 8, 2023 and the related general partner distribution to be paid onMay 15, 2023 . These distributions consist of a base amount of$0.775 per unit and a variable amount of$0.255 per unit. 22 -------------------------------------------------------------------------------- Table of Contents Results of Operations Three Months Ended March 31, (in millions, except per unit data) 2023 2022 Variance Revenues LNG revenues$ 2,106 $ 2,488 $ (382) LNG revenues-affiliate 761 757 4 Regasification revenues 34 68 (34) Other revenues 16 15 1 Total revenues 2,917 3,328 (411) Operating costs and expenses Cost of sales (excluding items shown separately below) 313 2,562 (2,249) Cost of sales-affiliate 17 5 12 Operating and maintenance expense 206 170 36 Operating and maintenance expense-affiliate 44 38 6 Operating and maintenance expense-related party 16 12 4 General and administrative expense 3 3 - General and administrative expense-affiliate 22 23 (1) Depreciation and amortization expense 167 153 14 Total operating costs and expenses 788 2,966 (2,178) Income from operations 2,129 362 1,767 Other income (expense) Interest expense, net of capitalized interest (208) (203) (5) Other income, net 14 - 14 Total other expense (194) (203) 9 Net income$ 1,935 $ 159 $ 1,776 Basic and diluted net income (loss) per common unit
Operational volumes loaded and recognized from the
Three Months Ended March 31,
2023 2022 Variance
LNG volumes loaded and recognized as revenues (in
TBtu) 403 372 31
Net income.
Substantially all of the favorable variance of $1.8 billion for the three months
ended March 31, 2023 as compared to the same period of 2022 was attributable to
the favorable variance of $1.8 billion from changes in fair value and
settlements of derivatives in the three months ended March 31, 2023 as compared
to the same period of 2022. During the three months ended March 31, 2023 we
incurred a gain of $1.0 billion due to non-cash favorable changes in fair value
of the Tourmaline IPM agreement as a result of favorable shifts in international
forward commodity curves, as compared to a loss of $431 million in the three
months ended March 31, 2022 following the assignment to SPL from CCL Stage III
in March 2022 . The loss following the assignment was primarily attributed to
SPL's lower credit risk profile relative to that of CCL Stage III, resulting in
a higher derivative liability given reduced risk of SPL's own nonperformance and
unfavorable shifts in the international forward commodity curve.
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The following is an additional discussion of the significant variance drivers of
the change in net income by line item:
Revenues.
•$604 million decrease due to lower pricing per MMBtu, from decreased
•$34 million decrease in regasification revenues due to the termination of
revenue recognized with one of our TUA agreements in
These decreases were offset by:
•$267 million increase due to higher volumes of LNG delivered between the
periods, which increased 29 TBtu or 8%, primarily due to the Train 6 Completion
in
Operating costs and expenses.
•$1.8 billion favorable variance from changes in fair value of derivatives included in cost of sales, from losses of$516 million in the three months endedMarch 31, 2022 to gains of$1.3 billion in the three months endedMarch 31, 2023 , primarily due to decreased international gas prices resulting in non-cash favorable changes in fair value of our commodity derivatives indexed to such prices, specifically associated with the Tourmaline IPM agreement as discussed above under Net income; and •$452 million decrease in cost of sales excluding the effect of derivative changes described above, primarily as a result of$425 million in decreased cost of natural gas feedstock largely due to lowerU.S. natural gas prices, which was partially offset by increased volume of LNG delivered, as discussed above under the caption Revenues.
Significant factors affecting our results of operations
Below are significant factors that affect our results of operations.
Gains and losses on derivative instruments
Derivative instruments are utilized to manage our exposure to commodity-related marketing and price risks and are reported at fair value on our Consolidated Financial Statements. For commodity derivative instruments related to our IPM agreement, the underlying LNG sales being economically hedged are accounted for under the accrual method of accounting, whereby revenues expected to be derived from the future LNG sales are recognized only upon delivery or realization of the underlying transaction. Because the recognition of derivative instruments at fair value has the effect of recognizing gains or losses relating to future period exposure, and given the significant volumes, long-term duration and volatility in price basis for certain of our derivative contracts, use of derivative instruments may result in continued volatility of our results of operations based on changes in market pricing, counterparty credit risk and other relevant factors that may be outside of our control, notwithstanding the operational intent to mitigate risk exposure over time.
Commissioning cargoes
Prior to substantial completion of a Train, amounts received from the sale of commissioning cargoes from that Train are offset against LNG terminal construction-in-process, because these amounts are earned or loaded during the testing phase for the construction of that Train. During the three months endedMarch 31, 2022 , we realized offsets to LNG terminal costs of$148 million corresponding to 13 TBtu attributable to the sale of commissioning cargoes from Train 6 of theLiquefaction Project . We did not have any commissioning cargoes during the three months endedMarch 31, 2023 . 24 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources The following information describes our ability to generate and obtain adequate amounts of cash to meet our requirements in the short term and the long term. In the short term, we expect to meet our cash requirements using operating cash flows and available liquidity, consisting of cash and cash equivalents, restricted cash and cash equivalents and available commitments under our credit facilities. Additionally, we expect to meet our long term cash requirements by using operating cash flows and other future potential sources of liquidity, which may include debt offerings by us or our subsidiaries and equity offerings by us. The table below provides a summary of our available liquidity (in millions). Future material sources of liquidity are discussed below. March 31, 2023 Cash and cash equivalents $ 834
Restricted cash and cash equivalents designated for the
160
Available commitments under our credit facilities (1):
SPL's working capital revolving credit and letter of credit reimbursement agreement 871 CQP's credit facilities 750 Total available commitments under our credit facilities 1,621 Total available liquidity $ 2,615 (1)Available commitments represent total commitments less loans outstanding and letters of credit issued under each of our credit facilities as of March 31, 2023. See Note 9 -Debt of our Notes to Consolidated Financial Statements for additional information on our credit facilities and other debt instruments. Our liquidity position subsequent toMarch 31, 2023 will be driven by future sources of liquidity and future cash requirements. Future sources of liquidity are expected to be composed of (1) cash receipts from executed contracts, under which we are contractually entitled to future consideration, and (2) additional sources of liquidity, from which we expect to receive cash although the cash is not underpinned by executed contracts. Future cash requirements are expected to be composed of (1) cash payments under executed contracts, under which we are contractually obligated to make payments, and (2) additional cash requirements, under which we expect to make payments although we are not contractually obligated to make the payments under executed contracts. For further discussion of our future sources and uses of liquidity, see the liquidity and capital resources disclosures in our annual report on Form 10-K for the fiscal year ended December 31, 202 2 . Although our sources and uses of cash are presented below from a consolidated standpoint, we and our subsidiary SPL operate with independent capital structures. Certain restrictions under debt instruments executed by SPL limit its ability to distribute cash, including the following: •SPL is required to deposit all cash received into restricted cash and cash equivalents accounts under certain of their debt agreements. The usage or withdrawal of such cash is restricted to the payment of liabilities related to theLiquefaction Project and other restricted payments. In addition, SPL's operating expenses are managed by subsidiaries of Cheniere under affiliate agreements, which may require SPL to advance cash to the respective affiliates, however the cash remains restricted to CQP for operation and construction of theLiquefaction Project ; and
•SPL is restricted by affirmative and negative covenants included in certain of its debt agreements in its ability to make certain payments, including distributions, unless specific requirements are satisfied.
Notwithstanding the restrictions noted above, we believe that sufficient flexibility exists to enable each independent capital structure to meet its currently anticipated cash requirements. The sources of liquidity at SPL primarily fund the cash requirements of SPL, and any remaining liquidity not subject to restriction, as supplemented by liquidity provided by SPLNG, is available to enable CQP to meet its cash requirements.
Supplemental Guarantor Information
The$1.5 billion of 4.500% Senior Notes due 2029,$1.5 billion of 4.000% Senior Notes due 2031 (the "2031 CQP Senior Notes") and$1.2 billion of 3.25% Senior Notes due 2032 (collectively, the "CQP Senior Notes") are jointly and severally guaranteed by each of our subsidiaries other than SPL and, subject to certain conditions governing its guarantee,Sabine Pass LP (each a "Guarantor" and collectively, the "CQP Guarantors"). 25 -------------------------------------------------------------------------------- Table of Contents The CQP Guarantors' guarantees are full and unconditional, subject to certain release provisions including (1) the sale, disposition or transfer (by merger, consolidation or otherwise) of the capital stock or all or substantially all of the assets of the CQP Guarantors, (2) upon the liquidation or dissolution of a Guarantor, (3) following the release of a Guarantor from its guarantee obligations and (4) upon the legal defeasance or satisfaction and discharge of obligations under the indenture governing the CQP Senior Notes. In the event of a default in payment of the principal or interest by us, whether at maturity of the CQP Senior Notes or by declaration of acceleration, call for redemption or otherwise, legal proceedings may be instituted against the CQP Guarantors to enforce the guarantee. The rights of holders of the CQP Senior Notes against the CQP Guarantors may be limited under theU.S. Bankruptcy Code or state fraudulent transfer or conveyance law. Each guarantee contains a provision intended to limit the Guarantor's liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent conveyance or transfer underU.S. federal or state law. However, there can be no assurance as to what standard a court will apply in making a determination of the maximum liability of the CQP Guarantors. Moreover, this provision may not be effective to protect the guarantee from being voided under fraudulent conveyance laws. There is a possibility that the entire guarantee may be set aside, in which case the entire liability may be extinguished. The following tables include summarized financial information of CQP (the "Parent Issuer"), and the CQP Guarantors (together with the Parent Issuer, the "Obligor Group ") on a combined basis. Investments in and equity in the earnings of SPL and, subject to certain conditions governing its guarantee,Sabine Pass LP (collectively with SPL, the "Non-Guarantors"), which are not currently members of theObligor Group , have been excluded. Intercompany balances and transactions between entities in theObligor Group have been eliminated. Although the creditors of theObligor Group have no claim against the Non-Guarantors, theObligor Group may gain access to the assets of the Non-Guarantors upon bankruptcy, liquidation or reorganization of the Non-Guarantors due to its investment in these entities. However, such claims to the assets of the Non-Guarantors would be subordinated to the any claims by the Non-Guarantors' creditors, including trade creditors. Summarized Balance Sheets (in millions) March 31, December 31, 2023 2022 ASSETS Current assets Cash and cash equivalents $ 834 $ 904 Accounts receivable from Non-Guarantors 30 55 Other current assets 35 40 Current assets-affiliate 155 171 Total current assets 1,054 1,170 Property, plant and equipment, net of accumulated depreciation 2,923 2,946 Other non-current assets, net 108 109 Total assets $ 4,085 $ 4,225 LIABILITIES Current liabilities Due to affiliates $ 149 $ 193 Deferred revenue from Non-Guarantors 22 24 Other current liabilities 94 95 Other current liabilities from Non-Guarantors - 2 Total current liabilities 265 314
Long-term debt, net of premium, discount and debt issuance costs
4,160 4,159
Finance lease liabilities 16 18
Other non-current liabilities 73 78
Non-current liabilities-affiliate 18 18
Total liabilities $ 4,532 $ 4,587
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Table of Contents Summarized Statement of Income (in millions) Three Months Ended March 31, 2023 Revenues $ 50 Revenues from Non-Guarantors 139 Total revenues 189 Operating costs and expenses 58 Operating costs and expenses-affiliate
52
Total operating costs and expenses 110
Income from operations 79
Net income 42
Sources and Uses of Cash
The following table summarizes the sources and uses of our cash, cash
equivalents and restricted cash and cash equivalents (in millions). The table
presents capital expenditures on a cash basis; therefore, these amounts differ
from the amounts of capital expenditures, including accruals, which are referred
to elsewhere in this report. Additional discussion of these items follows the
table.
Three Months Ended March 31,
2023 2022
Net cash provided by operating activities $ 847 $ 800
Net cash used in investing activities (94) (87)
Net cash used in financing activities (755) (395)
Net increase (decrease) in cash, cash equivalents and restricted
cash and cash equivalents $ (2) $ 318
Operating Cash Flows
Our operating cash net inflows during the three months ended March 31, 2023 and
2022 were $847 million and $800 million , respectively. The $47 million favorable
variance between the periods was primarily related to increased cash receipts
from higher volume of LNG delivered, which was partially offset by unfavorable
variances due to increased cash outflows for natural gas feedstock as a result
of higher volumes purchased as well as timing of cash receipts and payments.
Investing Cash Flows
Cash outflows for property, plant and equipment during the three months endedMarch 31, 2023 were primarily related to optimization and other site improvement projects. Cash outflows for property, plant and equipment during the three months endedMarch 31, 2022 were primarily related to the construction costs for Train 6 of theLiquefaction Project , which achieved substantial completion onFebruary 4, 2022 . Financing Cash Flows Our financing cash net outflows during the three months endedMarch 31, 2023 and 2022 were$755 million and$395 million , respectively. The$360 million increase in outflows between the periods was primarily related to an increase in cash distributions to unitholders of$359 million as described below. We did not have any debt activity during the three months endedMarch 31, 2023 or 2022.
Cash Distributions to Unitholders
Our partnership agreement requires that, within 45 days after the end of each
quarter, we distribute all of our available cash (as defined in our partnership
agreement). Our available cash is our cash on hand at the end of a quarter less
the amount of any reserves established by our general partner. All distributions
paid to date have been made from accumulated operating surplus.
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The following provides a summary of distributions paid by us during the three
months ended March 31, 2023 and 2022:
Total Distribution (in millions)
Period Covered by Distribution Per General Partner Incentive
Date Paid Distribution Common Unit Common Units Units Distribution Rights
October 1 - December 31,
February 14, 2023 2022 $ 1.070 $ 518 $ 15 $ 220
October 1 - December 31,
February 14, 2022 2021 0.700 339 8 47
In addition, Tug Services distributed $1 million during both the three months
ended March 31, 2023 and 2022 to Cheniere Terminals in accordance with their
terminal marine service agreement, which is recognized as part of the
distributions to the holder of our general partner interest.
On April 28, 2023 , we declared a cash distribution of $1.03 per common unit to
unitholders of record as of May 8, 2023 and the related general partner
distribution to be paid on May 15, 2023 . These distributions consist of a base
amount of $0.775 per unit and a variable amount of $0.255 per unit.
Summary of Critical Accounting Estimates
The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the accompanying notes. There have been no significant changes to our critical accounting estimates from those disclosed in our annual report on Form 10-K for the fiscal year endedDecember 31, 2022 .
Recent Accounting Standards
For a summary of recently issued accounting standards, see Note 1-Nature of Operations and Basis of Presentation of our Notes to Consolidated Financial Statements.
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