The revenue stream for CQP is the reservation payments from Chevron, Total and CMI. These add up to approximately $500 million per year. CQP does not receive any incremental revenue from LNG deliveries, whether by Chevron, Total or CMI and they don’t receive any incremental revenue for storage and re-export activities. Any benefits associated with these activities are retained by CMI, Chevron or Total. Sabine Pass does keep 2% of each LNG delivery as Retainage to cover the fuel requirements and any loss associated with storing and vaporizing the LNG but this essentially a breakeven activity.
CQP’s annual expenses include: 1) $165m per year in interest, 2) $39m per year in operating expenses, 3) $10m per year in “management contract expenses” to the parent, 4) $45m per year in dividends to common stockholders, 5) $6m per year in dividends to the general partner and 6) $230m per year in dividends to the subordinated stockholder (i.e. the parent). This all adds up to approximately $495m per year in costs, leaving Cheniere Energy Partners with a net positive cash flow of $5m to $8m per year.
That would be sustainable except for the fact that CQP owes $2.2 billion in debt that is not addressed by the above payments. The $165m paid each year is just the interest on the debt and does not reduce the original loan amount. The first loan payment of $550m is due in November 2013. Another $1.67 billion is due in November 2016. Obviously building a cash reserve at a rate of only $8m per year will not allow CQP to make these debt payments. Something has to give. Options for addressing the problem include, but may not be limited to, bankruptcy or restructuring the debt. Option #1 is obviously bad for CQP stockholders. Option #2 would result in a reduction in dividend payments to enable CQP to make payments on the interest and the debt. I would think Option #2 is the most likely.
I think the stock price reflects much or all of the above. The uncertainty is when, not if, the dividend will be cut or eliminated. CQP could continue to pay the current dividend rate all the way to 2013, in which case a stockholder would accumulate $5.87/share in dividends. The stock price at that point, however, might be close to zero since CQP would be facing a $550m loan payment with no cash reserves. Another alternative is that Cheniere Energy, the parent, runs out of money in 2011 or 2012 and the company implodes at that time. Another alternative is that the Sabine Pass board cuts the dividend to CQP effective 3Q of 2009 since Sabine Pass, not Cheniere Energy, will be responsible for all dividend payments starting in the 3rd quarter. The board may have a fiduciary responsibility to manage the company in such a way as to avoid the train wreck looming in 2013.
The value of CQP is not impacted by physical LNG deliveries by Chevron or Total or CMI, or from storage/re-export by CMI or by changes in the price of natural gas or by changes in the value of LNG.
Love your scenario, but you are wrong. The 2% is theirs to keep, and pays for operating expenses, plus profit. You also forgot stage 2 coming on line this fall. How about if congress passes the act changing natural gas to a clean fuel, and lng gets shipped to every gas station in the country- who do you think benefits- cqp-the 2% can have a major impact. With regards to long term debt- have you ever heard of refinancing, bond issue, etc. still 4 years away.
I don’t disagree with you that the 2% is theirs to keep. I stated in my post: “Sabine Pass does keep 2% of each LNG delivery as Retainage to cover the fuel requirements and any loss associated with storing and vaporizing the LNG but this essentially a breakeven activity.”
They currently have roughly 14 bcf of LNG in storage. 2% of that amount is 280,000 mmbtu. At $3/mmbtu, that is worth $840,000. However, even at full utilization rates they were expected to need at least 1.5% to cover fuel requirements for vaporization and loss during operations. If they were able to keep the delta between the 2% they retain and the 1.5% they hoped to use, that would equate to 70,000 mmbtu or $210,000, so not a significant amount. However, since they are running at well (well) below full utilization rates, the amount of loss associated with each cargo will exceed 2%. Either way, it is not leveraging.
I had not forgotten about stage 2. However, Sabine Pass/CQP’s revenue stream is fixed. Cheniere confirms this in their external presentations and their 10Q. On the Cheniere website they list their external presentations. Each of them shows how the TUAs bring in a total revenue stream of $500m from the combination of Total ($123m), Chevron ($128m) and Cheniere Marketing ($252m). This represents the full 4 bcf/d of capacity, which includes stage 2.
I have not heard of any bills in congress that would declare natural gas as a clean fuel. The Waxman/Markey Energy Bill does not include that proposal. However, even if LNG demand increases in the US, any economic benefit does not flow to CQP. CQP’s revenue stream would remain $500m per year due to the fact that it has contracted out all of its capacity at a contract rate. The beneficiaries of increased LNG demand would be the capacity holders at Sabine Pass (Total, Chevron and CMI).
I have heard of refinancing, bond issues, etc. However, there is no such thing as a free lunch. CQP will have to pay the principle at some point and there is just not enough cash flow to allow that to occur without restructuring the dividend payment.
I don't mind fair dialogue, but what I don't care for are points put forth which are unfairly biased and ignorant. That's obviously the case with woecqp/lng. There's two sides to every coin, and when someone like woecqp/lng looks at only one side at the complete disregard for, or oblivion to, the other, I take exception to that approach.
By the way, who is ever 100% sure of anything?
I'm sort of having fun at woecqp/lng's expense. Since he's hellbent on badmouthing the enterprise, why not take shots at him? As I pointed out in this thread yesterday, he took a narrow view on the subject of revenue and subletting of capacity, for obvious reasons, while the bigger picture is far different than what he attempts to convey. When one is as hellbent on destruction as he is, he deserves to have shots taken at him, and I won't apologize for, nor refrain from, doing so.
If woelng and woecqp are one and the same, I, for one, enjoy the differences of opinion and he truly is the most learned contributor to this site.
By the way, nothing is accomplished by making smart a__ remarks on this site, in my opinion.
My analysis suggests that the economics are better than he sees with all his wisdom.
There are too many smart people associated with both the LNG and CQP to let this $1.b bil facility fail for it's partners, the largest of which has control of our and it's future in it's hands and minds. Why have GSO and John Paulson invested unless they see something bigger than we can imagine.
Loans will be available when we need them, the big question will be the terms.