Cheniere Reports Strong First Quarter 2021 Results

Source: 5/4/2021, Location: North America

Cheniere Energy, Inc. announced its financial results for first quarter 2021.

• Consolidated Adjusted EBITDA1 of approximately $1.5 billion for first quarter 2021, an increase of approximately 40% compared to first quarter 2020. Distributable Cash Flow1 of approximately $750 million for first quarter 2021, an increase of approximately 200% compared to first quarter 2020. Net income2 of $393 million, or $1.56 per share—basic and $1.54 per share—diluted, for first quarter 2021.
• Increasing full year 2021 Consolidated Adjusted EBITDA guidance to $4.3 - $4.6 billion and full year 2021 Distributable Cash Flow guidance to $1.6 - $1.9 billion due primarily to improved market margins.
• Prepaid $148 million of outstanding borrowings under the Cheniere Term Loan Facility with available cash in first quarter 2021, in line with previously announced capital allocation priorities.
• Commenced 25-year LNG Sale and Purchase Agreement (“SPA”) with CPC Corporation, Taiwan in January.
• Achieved substantial completion of Train 3 of the CCL Project (defined below) in March, ahead of schedule and within project budgets.
• Accelerated the estimated timeline for substantial completion of Train 6 of the SPL Project (defined below) to the first half of 2022 from the second half of 2022. This follows a previous acceleration of the estimated Train 6 substantial completion timeline in July 2020 from the first half of 2023 to the second half of 2022.
• Entered into fixed-fee LNG sales agreements with multiple counterparties for portfolio volumes aggregating approximately 1.7 million tonnes of LNG across 2022 and 2023.
• Supplied a carbon neutral LNG cargo to Shell. Together with Shell, the complete lifecycle greenhouse gas emissions associated with the LNG cargo were offset using nature-based credits by accounting for all estimated CO2 equivalent emissions produced through the entire value chain, from production through use by the final consumer.

“We are off to a great start in 2021, with reliable production of LNG and our continued ardent focus on execution, as well as sustained strength in LNG markets, helping drive our strong first quarter results and positive outlook for the future,” said Jack Fusco, Cheniere’s President and Chief Executive Officer. “We placed Corpus Christi Train 3 into service ahead of schedule and within budget and commenced our 25-year SPA with CPC Corporation, further reinforcing our reputation for delivering on our promises to our customers.”

“Continued strength in global LNG market fundamentals, together with the strong first quarter results we reported today, improves our outlook for the balance of the year and enables us to increase our full year 2021 financial guidance for the second consecutive quarter. For the balance of the year, our focus is on delivering results within the increased guidance ranges and leveraging the Cheniere platform to commercialize additional LNG capacity.”

Net income increased $18 million during first quarter 2021 as compared to first quarter 2020, as increased total margins3 excluding non-cash impacts from derivatives, decreased income tax provision, and decreased net income attributable to non-controlling interest were substantially offset by an approximately $450 million decrease in non-cash net gains from changes in fair value of commodity, foreign exchange (“FX”), and interest rate derivatives. Increases in total margins excluding non-cash impacts from derivatives were primarily related to increased margins per MMBtu of LNG delivered to customers, as well as a higher than normal contribution from LNG and natural gas portfolio optimization activities due to significant volatility in LNG and natural gas markets during first quarter 2021, partially offset by a slight decrease in LNG volumes recognized in income.

During first quarter 2021, total margins were negatively impacted by approximately $120 million related to changes in fair value of commodity and FX derivatives, primarily related to the impact of commodity curve shifts on our agreements for the purchase of natural gas, including our long-term Integrated Production Marketing (“IPM”) agreements, and on our forward sales of LNG. During first quarter 2020, changes in fair value of commodity and FX derivatives positively impacted total margins by over $575 million. The changes in fair value of commodity and FX derivatives were substantially all non-cash for both first quarter 2021 and first quarter 2020.

Our IPM agreements and certain gas supply agreements qualify as derivatives, requiring mark-to-market (“MTM”) accounting. From period to period, we will experience non-cash gains and losses as price movements occur in the underlying commodity curves related to these forward purchases of natural gas. The long-term duration and international price basis of our IPM agreements make them particularly susceptible to fluctuations in fair market value from period to period. While operationally we seek to eliminate commodity risk by matching our natural gas purchases and LNG sales on the same pricing index, our long-term LNG SPAs do not currently qualify for MTM accounting, meaning that the fair market value impact of only one side of the transaction is recognized on our financial statements until the delivery of natural gas and sale of LNG occurs. Our IPM agreements are designed to provide stable margins on purchases of natural gas and sales of LNG over the life of the agreement and have a fixed fee component, similar to that of LNG sold under our long-term, fixed fee LNG SPAs.

Consolidated Adjusted EBITDA increased $413 million, or 40%, during first quarter 2021 as compared to first quarter 2020, primarily due to increased margins per MMBtu of LNG recognized in income, primarily related to increased LNG pricing realized on cargoes sold on a short-term basis by our marketing affiliate, and a higher than normal contribution from LNG and natural gas portfolio optimization activities, partially offset by a slight decrease in LNG volumes recognized in income.

During first quarter 2020, we recognized $53 million in LNG revenues associated with LNG cargoes for which customers notified us that they would not take delivery, which would have been recognized subsequent to March 31, 2020 had the cargoes been lifted pursuant to the delivery schedules with the customers. We did not have such revenues during first quarter 2021.

Share-based compensation expenses included in income totaled $32 million for first quarter 2021, compared to $29 million for first quarter 2020.

Our financial results are reported on a consolidated basis. Our ownership interest in Cheniere Energy Partners, L.P. (“Cheniere Partners”) (NYSE American: CQP) as of March 31, 2021 consisted of 100% ownership of the general partner and a 48.6% limited partner interest.

Capital Resources
As of March 31, 2021, our total consolidated liquidity position was over $6 billion. We had cash and cash equivalents of $1.7 billion on a consolidated basis, of which $1.2 billion was held by Cheniere Partners. In addition, we had current restricted cash of $731 million, $372 million of available commitments under our Term Loan Facility, $1.25 billion of available commitments under our Revolving Credit Facility, $907 million of available commitments under the Cheniere Corpus Christi Holdings, LLC Working Capital Facility, $750 million of available commitments under Cheniere Partners’ credit facilities, and $787 million of available commitments under the Sabine Pass Liquefaction, LLC (“SPL”) Working Capital Facility.

Key Financial Transactions and Updates
SPL entered into a note purchase agreement with Allianz Global Investors GmbH in February to issue an aggregate principal amount of $147 million of 2.95% Senior Secured Notes due 2037. The notes are expected to be issued in December 2021, and net proceeds are expected to be used to refinance a portion of SPL’s outstanding Senior Secured Notes due 2022. The Senior Secured Notes due 2037 will be fully amortizing, with a weighted average life of over 10 years.

Cheniere Partners issued an aggregate principal amount of $1.5 billion of 4.00% Senior Notes due 2031 in March. The proceeds of these notes, together with cash on hand, were used to refinance all of Cheniere Partners’ 5.25% Senior Notes due 2025 and to pay fees and expenses in connection with the refinancing.

In February, Fitch Ratings changed the outlook of SPL’s senior secured notes rating to positive from stable and the outlook of Cheniere Partners’ long-term issuer default rating and senior unsecured rating to positive from stable. S&P Global Ratings changed the outlook of both Cheniere and Cheniere Partners’ ratings to positive from negative in April.

As of April 30, 2021, more than 1,525 cumulative LNG cargoes totaling approximately 105 million tonnes of LNG have been produced, loaded and exported from our liquefaction projects.

Liquefaction Projects Overview

SPL Project
Through Cheniere Partners, we operate five natural gas liquefaction Trains and are constructing one additional Train for a total production capacity of approximately 30 million tonnes per annum (“mtpa”) of LNG at the Sabine Pass LNG terminal (the “SPL Project”).

CCL Project
We operate three Trains for a total production capacity of approximately 15 mtpa of LNG near Corpus Christi, Texas (the “CCL Project”).

Corpus Christi Stage 3
We are developing an expansion adjacent to the CCL Project for up to seven midscale Trains with an expected total production capacity of approximately 10 mtpa of LNG (“Corpus Christi Stage 3”). We expect to commence construction of the Corpus Christi Stage 3 project upon, among other things, entering into an engineering, procurement, and construction contract and additional commercial agreements, and obtaining adequate financing.

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