A Closer Look at Cheniere Energy's Earnings

Cheniere Energy (NYSEMKT: LNG  ) reported earnings after the market close on Friday. Analysts were expecting a loss of $0.27 per share, but Cheniere came in much lower than that, recording a loss of $0.52 per share. Revenue was just shy of $66 million, which was at least close to the $68 million analysts anticipated.

These numbers don't tell the whole story, especially in the case of Cheniere, so let's take a closer look.

The bad
As expected, LNG terminal and pipeline operating expenses, as well as development expenses, are up year over year. However, the differences, particularly with the development expenses at less than $600 million, are not incredibly significant.

Pipeline costs jumped a little, but people costs jumped a lot. General and administrative expenses were up $63.2 million over the third-quarter last year, mostly because of Cheniere's long-term-incentive plan related to its Sabine Pass project. Yes, it's a lot of money, but it also means that Cheniere is meeting its development targets on the one project that will hopefully, one day, make this company profitable. Non-cash compensation was also way up over the $2.3 million Cheniere spent in 2011, to $49.8 million this year.

The company also suffered marketing and trading losses of $292,000, though that was actually an improvement over 2011's number.

Overall, total revenue was just barely higher than that of the third quarter of 2011; again, Cheniere got killed on its G&A expenses, which were almost five times higher than last year, erasing any improvement in revenue.

Though things look pretty terrible year over year, there have been improvements sequentially. Oil and gas sales are up over last quarter, and marketing and trading losses are down. On that note, let's look at what is going right for Cheniere.

The good
Cheniere is making progress toward a more fiscally fit future. Construction has begun on the first two LNG trains at the Sabine Pass facility. Exports from these two trains are expected to begin by the end of 2015.

The company is also in the midst of negotiating a similar contract with Bechtel, the same company constructing trains one and two, for the construction of trains three and four. The agreement should be finalized by the end of this year. If everything goes according to plan, construction on those trains should begin next year.

Additionally, Cheniere has received permission from the Department of Energy to export 767 billion cubic feet of gas per year of domestically produced gas from its Corpus Christi liquefaction project to countries that have a free trade agreement with the U.S. The distinction there of course is the "domestically produced" phrase, which addresses an importers' ability to reexport gas if it isn't needed at home. The Corpus Christi project also has a pending application with FERC to begin to construct and later operate the facility.

All of this expansion is heavily dependent on outside financing, which Cheniere has been able to secure by issuing new shares and enticing groups like Blackstone, which purchased its initial $500 million units from Cheniere Energy Partners (NYSEMKT: CQP  ) in August. Cheniere also has used stock offerings to pay off debt, taking care of $206.9 million this summer, leaving no debt outstanding on a stand-alone basis.

Foolish takeaway
All told, it was a mixed quarter for Cheniere. The company might make money one day, and it has certainly shown that it is moving toward that goal with the progress of its liquefaction projects, though it remains a somewhat speculative play for now.


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