Rising Costs Crush Earnings at Cheniere Energy

Cheniere Energy (NYSEMKT: LNG  ) reported earnings this week and badly missed analyst estimates on earnings per share and revenue. Analysts projected an earnings loss of $0.32 and $74 million in revenue. Cheniere posted an earnings loss of $0.74 and revenue of $66.4 million.

Costs are up
A net loss of $154.8 million has to come from somewhere. Cheniere's management attributes the widening losses to the same reasons it gave in the first quarter:

  • 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, Texas.
  • 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.

But there were some new contributors to this quarter's loss as well:

  • Early extinguishment of debt by Sabine Pass Liquefaction.
  • Costs related to the purchase of LNG for maintenance of the regasification facilities at the Sabine Pass LNG terminal.
  • Increases in non-cash compensation expenses.

This certainly looks terrible, but it's to be expected, given that Cheniere doesn't really do anything right now, outside of fulfilling the meager LNG import contracts. The company had revenues of $66 million from its LNG terminal business, and $416 million from its marketing and trading business. Those numbers were both up year-over-year.

Operational update
Cheniere doesn't play fast and loose with its press releases, so the quarterly earnings report is a great time to check in on the progress of its liquefaction buildout.

Liquefaction trains 1 and 2 are 38% complete, which is ahead of schedule, and management believes the earliest we could see LNG move for export will be the end of 2015. Financing is now complete for trains 3 and 4, and engineering company Bechtel has been given the go-ahead to begin construction. These two trains are expected to be operational by the end of 2016, and 2017.

Trains 5 and 6, as well as the Corpus Christi facility, remain in the development stages.

Also of note, though not mentioned in the earnings release, is that Cheniere has filled the last vacancy on its board of directors. The company has added Randy Foutch, a longtime oil-and-gas man, with more than 30 years of experience in the industry. This move brings the board up to 11 members.

Bottom line
Cheniere posted lackluster first-quarter results, and the market didn't seem to mind. Shares were up more than 60% from January through the middle of May, before falling and rising one more time so that year-to-date gains now stand at about 53%. Shares ended Friday down less than 1%, more or less confirming that the Cheniere investment thesis is predicated solely on potential future gains and nothing else.

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