A Closer Look at Cheniere Energy

Cheniere Energy (NYSEMKT: LNG  ) reported earnings last week, and as investors know by now it wasn't pretty. The company reported a first-quarter loss of $117.1 million compared to a loss of $56.4 million a year ago. The loss of $0.54 per share was nowhere near the loss of $0.20 analysts were expecting. There is always more to the story than analyst expectations, so let's take a closer look.

What went wrong 
Cheniere's management attributes the widening losses to several things:

  • LNG terminal and pipeline development expenses for the Cheniere Energy Partners (NYSEMKT: CQP  ) liquefaction facility at Sabine Pass
  • LNG terminal and pipeline development expenses for the proposed liquefaction facility at Corpus Christi
  • Losses on interest rate derivatives purchased in August 2012 in connection with its senior secured credit facility
  • Increases in general and administrative expenses, attributed to awards doled out as part of the company's long-term incentive plan at its Sabine Pass facility

In other words, rising expenses -- some the company can control and some it cannot -- really hurt Cheniere this quarter. Operating costs were up 91% year over year. The loss on derivatives also increased significantly, from $836,000 in 2012 to $17.5 million this year.

After all of this, it doesn't help matters that revenue slid 4% either.

What went right 
There were a few highlights that occurred over the course of the first quarter that the company reiterated in its release. For example, this past March the company secured a contract with the British company Centrica to support liquefaction Train 5. The contract is good for 91.25 million MMbtu and a fixed fee of $3.00 per MMbtu, which will result in annual cash flow of close to $274 million. The deal begins on the date of the first commercial delivery from train five.

Other points to note:

  • As of the last day of the first quarter, trains one and two were 26% complete, ahead of the contracted schedule, and management anticipates that train one will begin LNG production by the end of 2015.
  • Cheniere is in the process of securing financing for trains three and four, and expects construction to begin sometime between now and the end of June.
  • Trains five and six are still in the early stages; preliminary engineering has begun, as has the federal regulatory approval process.
  • The Corpus Christi facility is in the design stages, and management is waiting on cost estimates there. Cheniere will not make a final investment decision until it has secured commercial agreements, obtained financing, and received necessary regulatory approvals.

Perhaps the best news here, is that trains one and two are ahead of schedule. 2015 is still a long way off, but staying on schedule is absolutely crucial to the success of this endeavor.

Foolish takeaway
If you were bullish on Cheniere before this earnings release, there is likely nothing in this report that will dissuade you, likewise if you were bearish. There is very little thesis-refuting information here, as Cheniere is pretty much on the same course it has been for the last two years. Investors looking for more on the Cheniere Energy story should check out Chris Helman's recent article for Forbes, which profiles the company and CEO Charif Souki. It gives good insight on a company that puts out very little press.

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