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Cheniere Focusing on Long-Term LNG Contracts; Posts $298M 2Q2016 Loss

Awash in red ink, Cheniere Energy officials said Tuesday the liquefied natural gas (LNG) operations are adding to earnings and improving cash flow, and they plan to pursue long-term LNG contracts to keep that trend on the ascent.

The first train of the Houston-based company's Sabine Pass Liquefaction project in Cameron Parish, LA, reached "substantial completion" months ahead of time in May (see Daily GPIMay 31). The first commercial delivery for Train 1 is expected to occur in November.

"With the start-up of operations of Train 1, we have begun reporting revenues from LNG sales from liquefaction," CEO Jack Fusco said during a conference call with analysts Tuesday. "Revenues from the second quarter were $177 million and $246 million year-to-date, of which $111 million and $113 million, respectively, were related to LNG sales...

"However, our earnings and cash flow from liquefaction have just begun. Our ramp-up in earnings, performance, and cash flow generation is tied to construction completion of the trains over the next several years."

Cheniere has exported a total of 22 cargoes from Sabine Pass, with LNG delivered to destinations including South America, Europe, Asia and the Middle East. The company said it sees "evidence of price elasticity of demand," with two key long-term LNG growth markets, China and India, importing about 30% more LNG in the first six months of 2016 than during the same period last year.

And, "while traditional LNG buyers like Japan and Korea have been importing less, the rapid emergence of new market entrants -- such as Egypt, Jordan, [and] Pakistan -- has more than made up the difference, and there are currently about 30 new markets considering LNG import projects," said Senior Vice President Anatol Feygin, who runs strategy and corporate development.

The second quarter saw Cheniere continuing its transition from a development company into an operating one, Fusco said.

"On the commercial front, we will continue to monetize cargoes produced during the commissioning of our trains," he said. "Our commercial team did an outstanding job on Train 1 commissioning cargoes, and we expect that success to continue.

“As trains enter into commercial operations, we expect to fulfill our contractual obligations to our long-term foundation customers. Cheniere will continue to optimize our excess cargoes, and our marketing efforts are focused on building a portfolio of short-, mid- and long-term contracts. And we will continue to pursue long-term contracts necessary to support the financing of our next trains, Corpus Christi 3 and Sabine Pass Train 6."

Investors "should expect us to be very aggressive with our marketing and our contracting efforts going forward," Fusco said.

But all of the LNG silver linings weren't enough to overcome 2Q2016's economic dark cloud for Cheniere, which reported a net loss of $298.4 million (minus $1.31/share), compared with a net loss of $118.5 million (minus 52 cents) in 2Q2015. The loss excludes several items, including early debt extinguishment associated with writing off debt issuance costs by Sabine Pass Liquefaction and Cheniere Corpus Christi Holdings LLC in connection with refinancing a portion of their credit facilities by Cheniere Creole Trail Pipeline LP as a result of prepaying an outstanding term loan.

Stay up to date on 2Q2016 earnings and projections for the remainder of the year with NGI's Earnings Call and Coverage sheet.

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