Cheniere Energy Posts Financial Results for 1Q10
Cheniere Energy reported a net loss of $35.2 million, or $0.64 per share (basic and diluted), for the first quarter 2010 compared with a net loss of $82.7 million, or $1.70 per share (basic and diluted), for the comparable 2009 period. Results are reported on a consolidated basis and include our 90.6 percent ownership interest in Cheniere Energy Partners, L.P. ("Cheniere Partners").
Overview of Significant 2010 Events:
- In March 2010, Cheniere Marketing, a subsidiary of Cheniere, entered into an arrangement with JPMorgan LNG that will allow us to source liquefied natural gas and provide LNGCo access to our capacity at the Sabine Pass LNG receiving terminal.
- In April 2010, we agreed to sell our 30% interest in Freeport LNG Development, L.P. ("Freeport LNG") for net proceeds of approximately $104 million. This transaction is expected to close during the second quarter of 2010, subject to certain approvals, and proceeds will be used to pay down a portion of the $400 million, 9.75% term loan ("2007 term loan").
Cheniere reported income from operations of $31.0 million for the quarter ended March 31, 2010 compared to a loss from operations of $37.4 million for the comparable period in 2009. Total revenues were $79.5 million in the first quarter of 2010, an increase of $78.3 million compared to the comparable 2009 period. LNG receiving terminal revenues increased $66.8 million compared to the comparable 2009 period as a result of the commencement of capacity payments under two third-party terminal use agreements ("TUAs") that became effective on April 1, 2009 and July 1, 2009. Marketing and trading revenues for the first quarter 2010 increased $11.6 million compared to the first quarter of 2009 due to an increase in physical gas sales and gains on derivative instruments.
Total operating costs and expenses were $48.5 million for the first quarter 2010, an increase of $9.8 million compared to the comparable 2009 period. LNG receiving terminal and pipeline operating expenses increased $4.1 million as compared to the comparable 2009 period due to increased commercial activities at the Sabine Pass LNG receiving terminal during the second quarter of 2009. Depreciation, depletion and amortization expense increased $3.6 million in the first quarter of 2010 compared to the comparable 2009 period due to the achievement of full operability of the Sabine Pass LNG receiving terminal. Included in general and administrative expenses were non-cash compensation expenses of approximately $6.3 million for the first quarter 2010 and $3.9 million in the comparable 2009 period.
Interest expense, net increased $13.9 million in the first quarter of 2010 compared to the first quarter of 2009 primarily due to less interest subject to capitalization. Derivative gains decreased $2.1 million to $0.5 million in the first quarter 2010 compared to the comparable 2009 period due to the change in the fair value of derivatives instruments tied to our LNG inventory.
Unrestricted cash and cash equivalents held by Cheniere at March 31, 2010 were $95.1 million. In addition, as of March 31, 2010, we expected to receive approximately $18 million as a result of monetizing our LNG inventory and hedging activities.
Restricted cash and cash equivalents at March 31, 2010 were $259.0 million, which were designated for the following purposes: $85.4 million and $33.0 million for Sabine Pass LNG, L.P. ("Sabine Pass LNG") and Cheniere Partners working capital, respectively; $137.3 million for interest payments related to the Sabine Pass LNG senior notes indenture and $3.3 million for other restricted purposes.
LNG Marketing and Trading
During 2009, Cheniere Marketing began successfully trading in the LNG markets. Cheniere Marketing purchases LNG and enters into derivative contracts to hedge the cash flows from future sales of the LNG inventory. Due to the nature of the hedging strategy, earnings are recognized in operating results as physical sales occur, derivatives are settled or the fair value of the derivatives change due to changes in natural gas prices. In the interim, the LNG held in the storage tanks at the Sabine Pass LNG receiving terminal is recorded at the lower of cost or market based on the NYMEX natural gas index price for the last day of the period less basis differentials.
Net revenues from marketing and trading for the first quarter of 2010 were $12.1 million compared to $0.5 million in the comparable 2009 period. The increase in revenues period over period was related to physical sales of inventory and roll off of hedges.
As of March 31, 2010 and December 31, 2009, Cheniere Marketing and Sabine Pass LNG had approximately 2,725,000 million British thermal units ("MMBtu") and 7,778,000 MMBtu of LNG inventory, respectively. As of March 31, 2010, there were a total of approximately 2,635,000 MMBtu of natural gas swaps through January 31, 2011 for which we will receive fixed prices of $3.93 to $7.15 per MMBtu.
Our strategic focus is to safely manage and operate the Sabine Pass LNG receiving terminal and Creole Trail pipeline, serve our customers and monetize the 2.0 Bcf/d of regasification capacity we have reserved through Cheniere Marketing at the Sabine Pass LNG receiving terminal. We are also in various stages of developing our other LNG receiving terminal and pipeline related projects.
Our strategy to monetize our TUA capacity includes entering into long-term TUAs with third parties, developing a portfolio of long-term, short-term and spot LNG purchase agreements and entering into business relationships for the domestic marketing of natural gas that is imported by Cheniere Marketing into the Sabine Pass LNG receiving terminal. During the first quarter of 2010, Cheniere Marketing entered into a multi-year services agreement with LNGCo. We believe this arrangement strengthens our ability to participate in the LNG markets by allowing us to source LNG and utilize our capacity at the Sabine Pass LNG receiving terminal and our network of relationships in the most effective way. This arrangement reduces our working capital requirements to purchase and hedge LNG.
Our strategy to improve our capital structure and address maturities of our existing indebtedness may include entering into long-term TUAs or LNG purchase agreements, refinancing our existing debt, issuing equity or other securities, selling assets or a combination of the foregoing. During the first quarter of 2010, we agreed to sell our 30 percent interest in Freeport LNG which allows us to pay down a portion of our 2007 term loan.
- Cheniere Signs 15-year LNG Supply Pact with Trader Trafigura (Jan 16)
- Cheniere Boosts LNG Tanker Fleet Amid Asian Demand Boom (Dec 05)
- Fourth Train Complete At Cheniere's Sabine Pass LNG Plant (Oct 13)