Image source: Cheniere Energy annual report

This second quarter was a pivotal moment for Cheniere Energy (NYSEMKT:LNG). Now that part of its Sabine Pass facility is up and running, the company started to actually generate revenue from making Liquefied Natural Gas -- LNG -- and selling it to customers under its previously negotiated contract structure. Unfortunately, that didn't necessarily translate to a bump in bottom line results. Let's take a look at how this change in operations impacted the company's earnings for the quarter and how investors should view this change going forward. 

By the numbers

Results (in millions, except per share data) Q2 2016 Q1 2016 Q2 2015
Revenue $176.8 $69.1 $68.0
Operational income ($76.4) ($90.5) ($95.8)
Net income attributable to common shareholders ($298.4) ($320.8) ($118.5)
EPS ($1.31) ($1.40) ($0.52)

Source: Cheniere Energy earnings release

The reason that we saw a large uptick in revenue from the prior quarter is that the second quarter was when Cheniere started generating revenue from the first complete liquefaction train at the Sabine Pass terminal. The company loaded 5 cargoes in the quarter from the first train. With that added revenue also came some higher expenses for both operations and to start depreciating the value of that first train. 

One thing to keep in mind is that this is just one liquefaction train of the six that will be completed at the facility. So the fixed costs for the company are spread over only a small fraction of the company's total operations once fully operational. As more and more trains come online, we should see those fixed costs become a smaller and smaller part of the equation.

The highlights

The past quarter was a very busy one for Cheniere. To start, it found a new CEO in Jack Fusco. Fusco is replacing founder and former CEO Charif Souki after he was ousted from the position late last year by activist investor Carl Icahn. Souki was ousted from his post because investors were worried that Souki was pursuing growth too quickly. So the goal of Fusco will be to develop the planned assets and focus on being a stable cash generating enterprise. 

The company made its first steps toward that goal in the quarter when train 1 of the Sabine Pass facility became fully operational. The company had manufactured some test cargoes in the fist quarter, but this quarter was where the rubber really hit the road in terms of operations for that part of the facility. Cheniere also announced that it began commissioning Train 2 and expects to have that part of the facility up and running by the end of September. Trains 3 and 4 -- the parts of the original design for the facility -- will both be fully operational by the end of 2017.

Cheniere's Corpus Christi facility was also showing progress. Management said that the facility is now 36% complete and is actually ahead of schedule. The first two trains at that facility should come online in 2019.

On the financing side of things, clearly the company isn't making enough money to cover its construction costs. In that regard, Cheniere was able to raise $2.75 billion in senior notes to pay off credit facilities that were used to pay for construction. The two debt issuances, one for $1.25 billion and another for $1.5 billion, will come due in 2024 and 2026, respectively. By then, all of the company's original facilities and expansions should be operational. 

From the mouth of management

One thing that Fusco wanted to point out is that he was taking control of a company that is in the middle of a major transition. No longer is the company just a developer of projects, but now has to oversee the operations of a fully functioning LNG export facility. Despite this change, his statement does remind investors that we are a long ways away from bringing all of Cheniere's plans to fruition.

The second quarter of 2016 saw Cheniere's continued transition from a development company into an operating one. During the quarter we took over care, custody, and control of Train 1 of the Sabine Pass Liquefaction Project and commenced commercial sales of LNG. After substantial completion, we exported 5 cargoes of LNG under our contract with BG Gulf Coast LNG, LLC (Shell) as of the end of the second quarter. Commissioning activities at Train 2 continue with first LNG achieved in late July, and our remaining Trains under construction continue on time and on budget. On the financial front, we continued to manage our debt maturity profile by successfully issuing bonds to prepay a portion of the outstanding borrowings under credit facilities for both the Sabine Pass Liquefaction Project and the [Corpus Christi Liquefaction] Project.

What a Fool believes

It is certainly promising to see Cheniere start up full operations of train 1 and see the impact it had on revenue and net income, but it doesn't quite give us a full picture of the company's operations. So much of the company's costs are being spread over what is less than 10% of the company's total export capacity once all of its facilities are complete. Once investors start to see how the company's financials look once Trains 3 and 4 are up and running in 2017, we should have a much clearer picture of what to expect from Cheniere in terms of generating profits. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.