UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20162017
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
CHENIERE ENERGY, INC.
(Exact name of registrant as specified in its charter)
|
| | |
Delaware | 001-16383 | 95-4352386 |
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) |
| | |
700 Milam Street, Suite 1900 | | |
Houston, Texas | | 77002 |
(Address of principal executive offices) | | (Zip code)Code) |
(713) 375-5000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
|
| | | | | | |
Large accelerated filer x | Accelerated filer ¨ |
Non-accelerated filer ¨(Do not check if a smaller reporting company) | Smaller reporting company ¨ |
(Do not check if a smaller reporting company) | | | Emerging growth company ¨
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of October 27, 2016,November 3, 2017, the issuer had 234,985,131237,664,678 shares of Common Stock outstanding.
CHENIERE ENERGY, INC.
TABLE OF CONTENTS
DEFINITIONS
As commonly used in the liquefied natural gas industry, to the extent applicable and as used in this quarterly report, the terms listed below have the following meanings:
Common Industry and Other Terms
|
| | |
Bcf | | billion cubic feet |
Bcf/d | | billion cubic feet per day |
Bcf/yr | | billion cubic feet per year |
Bcfe | | billion cubic feet equivalent |
DOE | | U.S. Department of Energy |
EPC | | engineering, procurement and construction |
FERC | | Federal Energy Regulatory Commission |
FTA countries | | countries with which the United States has a free trade agreement providing for national treatment for trade in natural gas |
GAAP | | generally accepted accounting principles in the United States |
Henry Hub | | the final settlement price (in USD per MMBtu) for the New York Mercantile Exchange’s Henry Hub natural gas futures contract for the month in which a relevant cargo’s delivery window is scheduled to begin |
LIBOR | | London Interbank Offered Rate |
LNG | | liquefied natural gas, a product of natural gas consisting primarily of methane (CH4)that, through a refrigeration process, has been cooled to a liquid state, which occupies a volume that is in liquid form at near atmospheric pressure approximately 1/600th of its gaseous state |
MMBtu | | million British thermal units, an energy unit |
mtpa | | million tonnes per annum |
non-FTA countries | | countries with which the United States does not have a free trade agreement providing for national treatment for trade in natural gas and with which trade is permitted |
SEC | | U.S. Securities and Exchange Commission |
SPA | | LNG sale and purchase agreement |
TBtu | | trillion British thermal units, an energy unit |
Train | | an industrial facility comprised of a series of refrigerant compressor loops used to cool natural gas into LNG |
TUA | | terminal use agreement |
Abbreviated Organizational Structure
The following diagram depicts our abbreviated organizational structure as of September 30, 2016,2017, including our ownership of certain subsidiaries, and the references to these entities used in this quarterly report:
Unless the context requires otherwise, references to “Cheniere,” the “Company,” “we,” “us” and “our” refer to Cheniere Energy, Inc. (NYSE MKT:American: LNG) and its consolidated subsidiaries, including our publicly traded subsidiaries, Cheniere Partners (NYSE MKT:American: CQP) and Cheniere Holdings (NYSE MKT:American: CQH).
Unless the context requires otherwise, references to the “CCH Group” refer to CCH HoldCo II, CCH HoldCo I, CCH, CCL and CCP, collectively.
| |
PART I. | FINANCIAL INFORMATION |
| |
ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands,millions, except share data)
| | | September 30, | | December 31, | September 30, | | December 31, |
| 2016 | | 2015 | 2017 | | 2016 |
ASSETS | (unaudited) | | | (unaudited) | | |
Current assets | | | | | | |
Cash and cash equivalents | $ | 990,132 |
| | $ | 1,201,112 |
| $ | 919 |
| | $ | 876 |
|
Restricted cash | 827,545 |
| | 503,397 |
| 1,590 |
| | 860 |
|
Accounts and other receivables | 154,167 |
| | 5,749 |
| 264 |
| | 218 |
|
Accounts receivable—related party | | 1 |
| | — |
|
Inventory | 63,853 |
| | 18,125 |
| 133 |
| | 160 |
|
Derivative assets | | 12 |
| | 24 |
|
Other current assets | 69,030 |
| | 54,203 |
| 112 |
| | 100 |
|
Total current assets | 2,104,727 |
| | 1,782,586 |
| 3,031 |
| | 2,238 |
|
| | | | | | |
Non-current restricted cash | 31,128 |
| | 31,722 |
| 66 |
| | 91 |
|
Property, plant and equipment, net | 19,891,666 |
| | 16,193,907 |
| 23,466 |
| | 20,635 |
|
Debt issuance costs, net | 294,059 |
| | 378,677 |
| 159 |
| | 277 |
|
Non-current derivative assets | 11,247 |
| | 30,887 |
| 37 |
| | 83 |
|
Goodwill | 76,819 |
| | 76,819 |
| 77 |
| | 77 |
|
Other non-current assets | 279,434 |
| | 314,455 |
| |
Other non-current assets, net | | 298 |
| | 302 |
|
Total assets | $ | 22,689,080 |
| | $ | 18,809,053 |
| $ | 27,134 |
| | $ | 23,703 |
|
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | |
| |
| | |
|
Current liabilities | |
| | |
| |
| | |
|
Accounts payable | $ | 38,569 |
| | $ | 22,820 |
| $ | 59 |
| | $ | 49 |
|
Accrued liabilities | 699,996 |
| | 427,199 |
| 722 |
| | 637 |
|
Current debt, net | 1,781,511 |
| | 1,673,379 |
| |
Current debt | | 41 |
| | 247 |
|
Deferred revenue | 26,709 |
| | 26,669 |
| 134 |
| | 73 |
|
Derivative liabilities | 61,829 |
| | 35,201 |
| 55 |
| | 71 |
|
Other current liabilities | 264 |
| | — |
| |
Total current liabilities | 2,608,878 |
| | 2,185,268 |
| 1,011 |
| | 1,077 |
|
| | | | | | |
Long-term debt, net | 19,033,513 |
| | 14,920,427 |
| 24,923 |
| | 21,688 |
|
Non-current deferred revenue | 6,500 |
| | 9,500 |
| 2 |
| | 5 |
|
Non-current derivative liabilities | 268,601 |
| | 79,387 |
| 52 |
| | 45 |
|
Other non-current liabilities | 65,849 |
| | 53,068 |
| 63 |
| | 49 |
|
| | | | | | |
Commitments and contingencies (see Note 16) |
|
| |
|
| |
Commitments and contingencies (see Note 15) | |
|
| |
|
|
| | | | | | |
Stockholders’ equity | |
| | |
| |
| | |
|
Preferred stock, $0.0001 par value, 5.0 million shares authorized, none issued | — |
| | — |
| — |
| | — |
|
Common stock, $0.003 par value | | | |
| | | |
|
Authorized: 480.0 million shares at September 30, 2016 and December 31, 2015 | | | | |
Issued and outstanding: 235.1 million shares and 235.6 million shares at September 30, 2016 and December 31, 2015, respectively | 705 |
| | 708 |
| |
Treasury stock: 12.1 million shares and 11.6 million shares at September 30, 2016 and December 31, 2015, respectively, at cost | (372,531 | ) | | (353,927 | ) | |
Authorized: 480.0 million shares at September 30, 2017 and December 31, 2016 | | | | |
Issued: 250.1 million shares at September 30, 2017 and December 31, 2016 | |
|
| |
|
|
Outstanding: 237.8 million shares and 238.0 million shares at September 30, 2017 and December 31, 2016, respectively | | 1 |
| | 1 |
|
Treasury stock: 12.3 million shares and 12.2 million shares at September 30, 2017 and December 31, 2016, respectively, at cost | | (378 | ) | | (374 | ) |
Additional paid-in-capital | 3,112,753 |
| | 3,075,317 |
| 3,238 |
| | 3,211 |
|
Accumulated deficit | (4,343,646 | ) | | (3,623,948 | ) | (4,754 | ) | | (4,234 | ) |
Total stockholders’ deficit | (1,602,719 | ) | | (901,850 | ) | (1,893 | ) | | (1,396 | ) |
Non-controlling interest | 2,308,458 |
| | 2,463,253 |
| 2,976 |
| | 2,235 |
|
Total equity | 705,739 |
| | 1,561,403 |
| 1,083 |
| | 839 |
|
Total liabilities and equity | $ | 22,689,080 |
| | $ | 18,809,053 |
| $ | 27,134 |
| | $ | 23,703 |
|
The accompanying notes are an integral part of these consolidated financial statements.
3
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands,millions, except per share data)
(unaudited)
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, | September 30, | | September 30, |
| 2016 | | 2015 | | 2016 | | 2015 | 2017 | | 2016 | | 2017 | | 2016 |
Revenues | | | | | | | | | | | | | | |
LNG revenues | | $ | 1,332 |
| | $ | 399 |
| | $ | 3,646 |
| | $ | 512 |
|
Regasification revenues | $ | 66,970 |
| | $ | 66,597 |
| | $ | 198,143 |
| | $ | 199,888 |
| 65 |
| | 64 |
| | 195 |
| | 194 |
|
LNG revenues (losses) | 398,554 |
| | (1,557 | ) | | 511,993 |
| | (1,601 | ) | |
Other revenues | 149 |
| | 1,019 |
| | 1,445 |
| | 4,166 |
| 5 |
| | 2 |
| | 12 |
| | 5 |
|
Other—related party | | 1 |
| | — |
| | 2 |
| | — |
|
Total revenues | 465,673 |
| | 66,059 |
| | 711,581 |
| | 202,453 |
| 1,403 |
| | 465 |
| | 3,855 |
| | 711 |
|
| | | | | | | | | | | | | | |
Operating costs and expenses | | | | | | | | | | | | | | |
Cost (cost recovery) of sales (excluding depreciation and amortization expense shown separately below) | 252,343 |
| | (24,214 | ) | | 352,559 |
| | (22,077 | ) | |
Cost of sales (excluding depreciation and amortization expense shown separately below) | | 824 |
| | 253 |
| | 2,140 |
| | 353 |
|
Operating and maintenance expense | 61,610 |
| | 17,963 |
| | 143,489 |
| | 71,396 |
| 114 |
| | 61 |
| | 309 |
| | 143 |
|
Development expense | 1,546 |
| | 4,935 |
| | 4,709 |
| | 37,640 |
| 3 |
| | 2 |
| | 7 |
| | 5 |
|
Selling, general and administrative expense | 59,418 |
| | 97,332 |
| | 196,999 |
| | 263,205 |
| 64 |
| | 59 |
| | 179 |
| | 197 |
|
Depreciation and amortization expense | 49,212 |
| | 21,638 |
| | 106,082 |
| | 59,561 |
| 92 |
| | 49 |
| | 252 |
| | 106 |
|
Restructuring expense | 26,241 |
| | — |
| | 49,196 |
| | — |
| — |
| | 26 |
| | 6 |
| | 49 |
|
Impairment expense | — |
| | 396 |
| | 10,095 |
| | 572 |
| |
Other | 27 |
| | 83 |
| | 189 |
| | 348 |
| |
Impairment expense and loss on disposal of assets | | 9 |
| | — |
| | 15 |
| | 10 |
|
Total operating costs and expenses | 450,397 |
| | 118,133 |
| | 863,318 |
| | 410,645 |
| 1,106 |
| | 450 |
| | 2,908 |
| | 863 |
|
| | | | | | | | | | | | | | |
Income (loss) from operations | 15,276 |
| | (52,074 | ) | | (151,737 | ) | | (208,192 | ) | 297 |
| | 15 |
| | 947 |
| | (152 | ) |
| | | | | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | | | | |
Interest expense, net of capitalized interest | (148,053 | ) | | (93,566 | ) | | (330,357 | ) | | (238,664 | ) | (186 | ) | | (148 | ) | | (539 | ) | | (330 | ) |
Loss on early extinguishment of debt | (25,765 | ) | | — |
| | (82,537 | ) | | (96,273 | ) | (25 | ) | | (26 | ) | | (100 | ) | | (83 | ) |
Derivative gain (loss), net | 29,327 |
| | (161,482 | ) | | (242,228 | ) | | (242,123 | ) | (2 | ) | | 30 |
| | (37 | ) | | (242 | ) |
Other income (expense) | 437 |
| | (39 | ) | | (5,564 | ) | | 616 |
| 4 |
| | — |
| | 11 |
| | (6 | ) |
Total other expense | (144,054 | ) | | (255,087 | ) | | (660,686 | ) | | (576,444 | ) | (209 | ) | | (144 | ) | | (665 | ) | | (661 | ) |
| | | | | | | | | | | | | | |
Loss before income taxes and non-controlling interest | (128,778 | ) |
| (307,161 | ) |
| (812,423 | ) |
| (784,636 | ) | |
Income (loss) before income taxes and non-controlling interest | | 88 |
|
| (129 | ) |
| 282 |
|
| (813 | ) |
Income tax benefit (provision) | (1,638 | ) |
| 69 |
|
| (1,911 | ) |
| (102 | ) | 2 |
|
| (2 | ) |
| 1 |
|
| (2 | ) |
Net loss | (130,416 | ) |
| (307,092 | ) |
| (814,334 | ) |
| (784,738 | ) | |
Less: net loss attributable to non-controlling interest | (29,974 | ) |
| (9,284 | ) |
| (94,636 | ) |
| (100,726 | ) | |
Net income (loss) | | 90 |
|
| (131 | ) |
| 283 |
|
| (815 | ) |
Less: net income (loss) attributable to non-controlling interest | | 379 |
|
| (30 | ) |
| 803 |
|
| (95 | ) |
Net loss attributable to common stockholders | $ | (100,442 | ) |
| $ | (297,808 | ) |
| $ | (719,698 | ) |
| $ | (684,012 | ) | $ | (289 | ) |
| $ | (101 | ) |
| $ | (520 | ) |
| $ | (720 | ) |
| Net loss per share attributable to common stockholders—basic and diluted | $ | (0.44 | ) |
| $ | (1.31 | ) |
| $ | (3.15 | ) |
| $ | (3.02 | ) | $ | (1.24 | ) |
| $ | (0.44 | ) |
| $ | (2.24 | ) |
| $ | (3.15 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding—basic and diluted | 228,924 |
|
| 227,126 |
|
| 228,463 |
|
| 226,648 |
| 232.6 |
|
| 228.9 |
|
| 232.5 |
|
| 228.5 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands)millions)
(unaudited)
| | | Total Stockholders’ Equity | | | | Total Stockholders’ Equity | | | |
| Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Non-controlling Interest | | Total Equity | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Non-controlling Interest | | Total Equity |
| Shares | | Par Value Amount | | Shares | | Amount | | Shares | | Par Value Amount | | Shares | | Amount | |
Balance at December 31, 2015 | 235,639 |
| | $ | 708 |
| | 11,649 |
| | $ | (353,927 | ) | | $ | 3,075,317 |
| | $ | (3,623,948 | ) | | $ | 2,463,253 |
| | $ | 1,561,403 |
| |
Exercise of stock options | 2 |
| | — |
| | — |
| | — |
| | 50 |
| | — |
| | — |
| | 50 |
| |
Balance at December 31, 2016 | | 238.0 |
| | $ | 1 |
| | 12.2 |
| | $ | (374 | ) | | $ | 3,211 |
| | $ | (4,234 | ) | | $ | 2,235 |
| | $ | 839 |
|
Issuance of stock to acquire additional interest in Cheniere Holdings | | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | (2 | ) | | — |
|
Issuances of restricted stock | 273 |
| | 1 |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| 0.1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Forfeitures of restricted stock | (377 | ) | | (2 | ) | | 10 |
| | — |
| | 2 |
| | — |
| | — |
| | — |
| (0.2 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Share-based compensation | — |
| | — |
| | — |
| | — |
| | 36,526 |
| | — |
| | — |
| | 36,526 |
| — |
| | — |
| | — |
| | — |
| | 25 |
| | — |
| | — |
| | 25 |
|
Shares repurchased related to share-based compensation | (464 | ) | | (2 | ) | | 464 |
| | (18,604 | ) | | 2 |
| | — |
| | — |
| | (18,604 | ) | (0.1 | ) | | — |
| | 0.1 |
| | (4 | ) | | — |
| | — |
| | — |
| | (4 | ) |
Loss attributable to non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (94,636 | ) | | (94,636 | ) | |
Equity portion of convertible notes, net | — |
| | — |
| | — |
| | — |
| | 857 |
| | — |
| | — |
| | 857 |
| |
Net income attributable to non-controlling interest | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 803 |
| | 803 |
|
Distributions to non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (60,159 | ) | | (60,159 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (60 | ) | | (60 | ) |
Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | (719,698 | ) | | — |
| | (719,698 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | (520 | ) | | — |
| | (520 | ) |
Balance at September 30, 2016 | 235,073 |
| | $ | 705 |
| | 12,123 |
| | $ | (372,531 | ) | | $ | 3,112,753 |
| | $ | (4,343,646 | ) | | $ | 2,308,458 |
| | $ | 705,739 |
| |
Balance at September 30, 2017 | | 237.8 |
| | $ | 1 |
| | 12.3 |
| | $ | (378 | ) | | $ | 3,238 |
| | $ | (4,754 | ) | | $ | 2,976 |
| | $ | 1,083 |
|
The accompanying notes are an integral part of these consolidated financial statements.
5
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)millions)
(unaudited)
| | | Nine Months Ended September 30, | Nine Months Ended September 30, |
| 2016 | | 2015 | 2017 | | 2016 |
Cash flows from operating activities | | | | | | |
Net loss | $ | (814,334 | ) | | $ | (784,738 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | |
Non-cash LNG inventory write-downs | — |
| | 17,826 |
| |
Net income (loss) | | $ | 283 |
| | $ | (815 | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | |
Depreciation and amortization expense | 106,082 |
| | 59,561 |
| 252 |
| | 106 |
|
Share-based compensation | 85,128 |
| | 92,627 |
| |
Amortization of debt issuance costs and discount | 38,826 |
| | 28,552 |
| |
Share-based compensation expense | | 64 |
| | 85 |
|
Non-cash interest expense | | 54 |
| | 60 |
|
Amortization of debt issuance costs, deferred commitment fees, premium and discount | | 53 |
| | 45 |
|
Loss on early extinguishment of debt | 82,537 |
| | 96,273 |
| 100 |
| | 83 |
|
Total losses on derivatives, net | 269,399 |
| | 208,769 |
| 108 |
| | 269 |
|
Net cash used for settlement of derivative instruments | (34,567 | ) | | (94,170 | ) | (59 | ) | | (34 | ) |
Impairment expense | 10,095 |
| | 572 |
| |
Impairment expense and loss on disposal of assets | | 15 |
| | 10 |
|
Other | 9,803 |
| | 834 |
| (2 | ) | | 10 |
|
Changes in restricted cash for certain operating activities | 119,831 |
| | 92,589 |
| |
Changes in operating assets and liabilities: | | | | | | |
Accounts and other receivables | (128,042 | ) | | (2,226 | ) | (33 | ) | | (128 | ) |
Accounts receivable—related party | | (1 | ) | | — |
|
Inventory | (28,051 | ) | | (25,966 | ) | 35 |
| | (28 | ) |
Accounts payable and accrued liabilities | 39,599 |
| | 16,671 |
| 20 |
| | 34 |
|
Deferred revenue | (2,960 | ) | | (3,003 | ) | 58 |
| | (3 | ) |
Other, net | 47,627 |
| | 21,252 |
| (52 | ) | | (13 | ) |
Net cash used in operating activities | (199,027 | ) | | (274,577 | ) | |
Net cash provided by (used in) operating activities | | 895 |
| | (319 | ) |
| | | | | | |
Cash flows from investing activities | | | | | | |
Property, plant and equipment, net | (3,449,161 | ) | | (5,747,596 | ) | (2,903 | ) | | (3,449 | ) |
Use of restricted cash for the acquisition of property, plant and equipment | 3,488,263 |
| | 5,330,526 |
| |
Investment in equity method investment | | (41 | ) | | — |
|
Other | (51,308 | ) | | (111,518 | ) | 18 |
| | (50 | ) |
Net cash used in investing activities | (12,206 | ) | | (528,588 | ) | (2,926 | ) | | (3,499 | ) |
| | | | | | |
Cash flows from financing activities | | | | | | |
Proceeds from issuances of debt | 8,308,306 |
| | 6,178,000 |
| 6,537 |
| | 8,308 |
|
Repayments of debt | (4,180,660 | ) | | — |
| (3,609 | ) | | (4,181 | ) |
Debt issuance and deferred financing costs | (116,715 | ) | | (519,699 | ) | (85 | ) | | (117 | ) |
Investment in restricted cash | (3,931,648 | ) | | (5,161,701 | ) | |
Distributions and dividends to non-controlling interest | (60,159 | ) | | (60,154 | ) | (60 | ) | | (60 | ) |
Proceeds from exercise of stock options | 50 |
| | 2,279 |
| |
Payments related to tax withholdings for share-based compensation | (18,604 | ) | | (44,305 | ) | (4 | ) | | (19 | ) |
Other | (317 | ) | | 1,424 |
| |
Net cash provided by financing activities | 253 |
| | 395,844 |
| 2,779 |
| | 3,931 |
|
| | | | | | |
Net decrease in cash and cash equivalents | (210,980 | ) | | (407,321 | ) | |
Cash and cash equivalents—beginning of period | 1,201,112 |
| | 1,747,583 |
| |
Cash and cash equivalents—end of period | $ | 990,132 |
| | $ | 1,340,262 |
| |
Net increase in cash, cash equivalents and restricted cash | | 748 |
| | 113 |
|
Cash, cash equivalents and restricted cash—beginning of period | | 1,827 |
| | 1,736 |
|
Cash, cash equivalents and restricted cash—end of period | | $ | 2,575 |
| | $ | 1,849 |
|
Balances per Consolidated Balance Sheet:
|
| | | |
| September 30, 2017 |
Cash and cash equivalents | $ | 919 |
|
Restricted cash | 1,590 |
|
Non-current restricted cash | 66 |
|
Total cash, cash equivalents and restricted cash | $ | 2,575 |
|
The accompanying notes are an integral part of these consolidated financial statements.
6
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1—NATURE OF OPERATIONS AND BASIS OF PRESENTATION
We are currently developing and constructing two natural gas liquefaction and export facilities. The Sabine Pass LNG terminal is located in Cameron Parish, Louisiana, on the Sabine-Neches Waterway less than four miles from the Gulf Coast. Cheniere Partners is developing, constructing and operating natural gas liquefaction facilities (the “SPL Project”) at the Sabine Pass LNG terminal adjacent to the existing regasification facilities (described below) through a wholly owned subsidiary, SPL. Cheniere Partners plans to construct up to six Trains, which are in various stages of development, construction and operations. Trains 1 through 3 are operational, Train 4 became operational in October 2017, Train 5 is under construction and Train 6 is being commercialized and has all necessary regulatory approvals in place. In the second quarter of 2016, we started production at the SPL Project and began recognizing LNG revenues, which include fees that are received pursuant to our long-term SPAs and our integrated LNG marketing activities and other related revenues.
The Sabine Pass LNG terminal has operational regasification facilities owned by Cheniere Partners’ wholly owned subsidiary, SPLNG, and a 94-mile pipeline that interconnects the Sabine Pass LNG terminal with a number of large interstate pipelines owned by Cheniere Partners’ wholly owned subsidiary, CTPL. Regasification revenues include LNG regasification capacity reservation fees that are received from our two long-term TUA customers. We also recognize tug services fees, which were historically included in regasification revenues but are now included within other revenues on our Consolidated Statements of Operations, that are received by Sabine Pass Tug Services, LLC, a wholly owned subsidiary of SPLNG.
We are developing and constructing a second natural gas liquefaction and export facility at the Corpus Christi LNG terminal, which is on nearly 2,000 acres of land that we own or control near Corpus Christi, Texas, and a pipeline facility (collectively, the “CCL Project”) through wholly owned subsidiaries CCL and CCP, respectively. The CCL Project is being developed in two stages for up to three Trains. Trains 1 and 2 are currently under construction, and Train 3 is being commercialized and has all necessary regulatory approvals in place.
Additionally, we are developing an expansion of the Corpus Christi LNG terminal adjacent to the CCL Project and recently amended our regulatory filings with FERC to incorporate a project design change, from two Trains with an expected aggregate nominal production capacity of approximately 9.0 mtpa to up to seven midscale Trains with an expected aggregate nominal production capacity of approximately 9.5 mtpa. We remain focused on leveraging infrastructure through the expansion of our existing sites. We are also in various stages of developing other projects, including infrastructure projects in support of natural gas supply and LNG demand, which, among other things, will require acceptable commercial and financing arrangements before we make a final investment decision (“FID”).
Basis of Presentation
The accompanying unaudited Consolidated Financial Statements of Cheniere have been prepared in accordance with GAAP for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.statements and should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our annual report on Form 10-K for the year ended December 31, 2016. In our opinion, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation, have been included. Certain reclassifications have been made to conform prior period information to the current presentation. The reclassifications had no effect on our overall consolidated financial position, operating results of operations or cash flows.
Directly and through our subsidiary, Cheniere Partners, we are developing, constructing and operating liquefaction projects near Corpus Christi, Texas (the “CCL Project”) and at the Sabine Pass LNG terminal located in Cameron Parish, Louisiana (the “SPL Project”), respectively. In 2016, we started production at the SPL Project. As a result, we introduced a new line item entitled “cost of sales” and modified the components of activity included in “operating and maintenance expense” on our Consolidated Statements of Operations. To conform to the new presentation, reclassifications were made to the prior periods. Cost of sales includes costs incurred directly for the production and delivery of LNG from the SPL Project such as natural gas feedstock, variable transportation and storage costs, derivative gains and losses associated with economic hedges to secure natural gas feedstock for the SPL Project, vessel chartering costs and other costs related to converting natural gas into LNG, all to the extent not utilized for the commissioning process. These costs were reclassified from operating and maintenance expense. Also included in cost of sales are purchase and delivery costs of our LNG and natural gas marketing business incurred by Cheniere Marketing. Operating and maintenance expense now primarily includes costs associated with operating and maintaining the SPL Project such as third-party service and maintenance contract costs, payroll and benefit costs of operations personnel, natural gas transportation and storage capacity demand charges, derivative gains and losses related to the sale and purchase of LNG associated with the regasification terminal, insurance and regulatory costs.
Additionally, we distinguished and reclassified our historical “LNG terminal revenues” line item into “regasification revenues” and “LNG revenues.” Regasification revenues include LNG regasification capacity reservation fees that are received pursuant to our TUAs and tug services fees that are received by Sabine Pass Tug Services, LLC, a wholly owned subsidiary of SPLNG. Substantially all of our regasification revenues, which are generated by our LNG terminal segment, are received from our two long-term TUA customers. LNG revenues include fees that are received pursuant to our SPAs and related LNG marketing activities. During the three and nine months ended September 30, 2016, we received 44% and 50%, respectively, of our net LNG revenues from one SPA customer, which were generated by our LNG terminal segment.
Results of operations for the three and nine months ended September 30, 20162017 are not necessarily indicative of the operating results of operations that will be realized for the year ending December 31, 2016.2017.
For furtherDuring the first quarter of 2017, we finalized organizational changes to simplify our corporate structure, improve our operational efficiencies and implement a strategy for sustainable, long-term stockholder value creation through financially disciplined development, construction, operation and investment. As a result of these efforts, we revised the way we manage our business, which resulted in a change to our reportable segments. We previously had two reportable segments: LNG terminal segment and LNG and natural gas marketing segment. We have now determined that we operate as a single operating and reportable segment. Our chief operating decision maker makes resource allocation decisions and assesses performance based on financial information referpresented on a consolidated basis in the delivery of an integrated source of LNG to the Consolidated Financial Statements and accompanying notes included in our annual report on Form 10-K for the year ended December 31, 2015.customers.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 2—RESTRICTED CASH
Restricted cash consists of funds that are contractually restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on our Consolidated Balance Sheets. As of September 30, 20162017 and December 31, 2015,2016, restricted cash consisted of the following (in thousands)millions):
|
| | | | | | | | |
| | September 30, | | December 31, |
| | 2016 | | 2015 |
Current restricted cash | | | | |
SPLNG debt service and interest payment | | $ | 115,490 |
| | $ | 77,415 |
|
SPL Project | | 325,630 |
| | 189,260 |
|
CTPL construction and interest payment | | — |
| | 7,882 |
|
CQP and cash held by guarantor subsidiaries | | 127,429 |
| | — |
|
CCL Project | | 192,812 |
| | 46,770 |
|
Cash held by our subsidiaries restricted to Cheniere | | 12,930 |
| | 147,138 |
|
Other | | 53,254 |
| | 34,932 |
|
Total current restricted cash | | $ | 827,545 |
| | $ | 503,397 |
|
| | | | |
Non-current restricted cash | | | | |
SPLNG debt service | | $ | 13,650 |
| | $ | 13,650 |
|
Other | | 17,478 |
| | 18,072 |
|
Total non-current restricted cash | | $ | 31,128 |
| | $ | 31,722 |
|
Under the indentures governing the senior notes issued by SPLNG (the “SPLNG Indentures”), except for permitted tax distributions, SPLNG may not make distributions until certain conditions are satisfied, including: (1) there must be on deposit in an interest payment account an amount equal to one-sixth of the semi-annual interest payment multiplied by the number of elapsed months since the last semi-annual interest payment, and (2) there must be on deposit in a permanent debt service reserve fund an amount equal to one semi-annual interest payment. Distributions are permitted only after satisfying the foregoing funding requirements, a fixed charge coverage ratio test of 2:1 and other conditions specified in the SPLNG Indentures. During the nine months ended September 30, 2016 and 2015, SPLNG made distributions of $230.4 million and $267.9 million, respectively, after satisfying all the applicable conditions in the SPLNG Indentures.
In February 2016, Cheniere Partners entered into a $2.8 billion credit facility (the “2016 CQP Credit Facilities”). Cheniere Partners, and Cheniere Investments and CTPL as Cheniere Partners’ guarantor subsidiaries, are subject to limitations on the use of cash under the terms of the 2016 CQP Credit Facilities and the related depositary agreement governing the extension of credit to Cheniere Partners. Specifically, Cheniere Partners, Cheniere Investments and CTPL may only withdraw funds from collateral accounts held at a designated depositary bank on a monthly basis and for specific purposes, including for the payment of operating expenses. In addition, distributions and capital expenditures may only be made quarterly and are subject to certain restrictions. |
| | | | | | | | |
| | September 30, | | December 31, |
| | 2017 | | 2016 |
Current restricted cash | | | | |
SPL Project | | $ | 579 |
| | $ | 358 |
|
CQP and cash held by guarantor subsidiaries | | 816 |
| | 247 |
|
CCL Project | | 117 |
| | 197 |
|
Cash held by our subsidiaries restricted to Cheniere | | 78 |
| | 58 |
|
Total current restricted cash | | $ | 1,590 |
| | $ | 860 |
|
| | | | |
Non-current restricted cash | | | | |
SPL Project | | $ | 48 |
| | $ | — |
|
CCL Project | | — |
| | 73 |
|
Other | | 18 |
| | 18 |
|
Total non-current restricted cash | | $ | 66 |
| | $ | 91 |
|
NOTE 3—ACCOUNTS AND OTHER RECEIVABLES
As of September 30, 20162017 and December 31, 2015,2016, accounts and other receivables consisted of the following (in thousands)millions):
|
| | | | | | | | |
| | September 30, | | December 31, |
| | 2016 | | 2015 |
SPL trade receivable | | $ | 38,432 |
| | $ | — |
|
Cheniere Marketing trade receivable | | 100,555 |
| | — |
|
Interest receivable | | 234 |
| | 95 |
|
Other accounts receivable | | 14,946 |
| | 5,654 |
|
Total accounts and other receivables | | $ | 154,167 |
| | $ | 5,749 |
|
|
| | | | | | | | |
| | September 30, | | December 31, |
| | 2017 | | 2016 |
Trade receivables | | | | |
SPL | | $ | 154 |
| | $ | 88 |
|
Cheniere Marketing | | 87 |
| | 121 |
|
Other accounts receivable | | 23 |
| | 9 |
|
Total accounts and other receivables | | $ | 264 |
| | $ | 218 |
|
Pursuant to the accounts agreement entered into with the collateral trustee for the benefit of SPL’s debt holders, SPL is required to deposit all cash received into reserve accounts controlled by the collateral trustee. The usage or withdrawal of such cash is restricted to the payment of liabilities related to the SPL Project and other restricted payments.
NOTE 4—INVENTORY
As of September 30, 2017 and December 31, 2016, inventory consisted of the following (in millions):
|
| | | | | | | | |
| | September 30, | | December 31, |
| | 2017 | | 2016 |
Natural gas | | $ | 16 |
| | $ | 15 |
|
LNG | | 24 |
| | 50 |
|
LNG in-transit | | 45 |
| | 58 |
|
Materials and other | | 48 |
| | 37 |
|
Total inventory | | $ | 133 |
| | $ | 160 |
|
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 4—INVENTORY
As of September 30, 2016 and December 31, 2015, inventory consisted of the following (in thousands):
|
| | | | | | | | |
| | September 30, | | December 31, |
| | 2016 | | 2015 |
Natural gas | | $ | 4,181 |
| | $ | 5,724 |
|
LNG | | 29,111 |
| | 5,148 |
|
Materials and other | | 30,561 |
| | 7,253 |
|
Total inventory | | $ | 63,853 |
| | $ | 18,125 |
|
NOTE 5—PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consists of LNG terminal costs and fixed assets and other, as follows (in thousands)millions):
| | | | September 30, | | December 31, | | September 30, | | December 31, |
| | 2016 | | 2015 | | 2017 | | 2016 |
LNG terminal costs | | | | | | | | |
LNG terminal | | $ | 7,976,737 |
| | $ | 2,487,759 |
| | $ | 10,548 |
| | $ | 7,978 |
|
LNG terminal construction-in-process | | 12,176,899 |
| | 13,875,204 |
| | 13,461 |
| | 12,995 |
|
LNG site and related costs, net | | 38,752 |
| | 33,512 |
| |
LNG site and related costs | | | 86 |
| | 41 |
|
Accumulated depreciation | | (498,934 | ) | | (413,545 | ) | | (784 | ) | | (555 | ) |
Total LNG terminal costs, net | | 19,693,454 |
| | 15,982,930 |
| | 23,311 |
| | 20,459 |
|
Fixed assets and other | | |
| | |
| | |
| | |
|
Computer and office equipment | | 13,241 |
| | 12,153 |
| | 14 |
| | 13 |
|
Furniture and fixtures | | 17,393 |
| | 17,101 |
| | 18 |
| | 17 |
|
Computer software | | 78,942 |
| | 69,340 |
| | 89 |
| | 85 |
|
Leasehold improvements | | 46,351 |
| | 40,136 |
| | 41 |
| | 43 |
|
Land | | 60,582 |
| | 60,612 |
| | 59 |
| | 61 |
|
Other | | 36,369 |
| | 49,376 |
| | 17 |
| | 22 |
|
Accumulated depreciation | | (54,666 | ) | | (37,741 | ) | | (83 | ) | | (65 | ) |
Total fixed assets and other, net | | 198,212 |
| | 210,977 |
| | 155 |
| | 176 |
|
Property, plant and equipment, net | | $ | 19,891,666 |
| | $ | 16,193,907 |
| | $ | 23,466 |
| | $ | 20,635 |
|
DuringDepreciation expense was $91 million and $49 million in the three months ended September 30, 2017 and 2016, respectively, and $250 million and $105 million in the nine months ended September 30, 2017 and 2016, werespectively.
We realized offsets to LNG terminal costs of $68.3$82 million and $214.3$68 million in the three months ended September 30, 2017 and 2016, respectively, and $252 million and $214 million in the nine months ended September 30, 2017 and 2016, respectively, that were related to the sale of commissioning cargoes because these amounts were earned or loaded prior to the start of commercial operations of the respective Train of the SPL Project, during the testing phase for the construction of Trains 1 and 2 of the SPL Project.its construction.
NOTE 6—DERIVATIVE INSTRUMENTS
We have entered into the following derivative instruments that are reported at fair value:
interest rate swaps to hedge the exposure to volatility in a portion of the floating-rate interest payments under certain of our credit facilities (“Interest Rate Derivatives”);
commodity derivatives to hedge the exposure to price risk attributable to future: (1) sales of our LNG inventory and (2) purchases of natural gas to operate the Sabine Pass LNG terminal (“Natural Gas Derivatives”);
commodity derivatives consisting of natural gas supply contracts for the commissioning and operation of the SPL Project and the CCL Project (“Physical Liquefaction Supply Derivatives”) and associated economic hedges (“Financial Liquefaction Supply Derivatives”, and collectively with the Physical Liquefaction Supply Derivatives,(collectively, the “Liquefaction Supply Derivatives”);
financial derivatives to hedge the exposure to the commodity markets in which we have contractual arrangements to purchase or sell physical LNG (“LNG Trading Derivatives”); and
foreign currency exchange (“FX”) contracts to hedge exposure to currency risk associated with operations in countries outside of the United States (“FX Derivatives”).
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
None of our derivative instruments are designated as cash flow hedging instruments, and changes in fair value are recorded within our Consolidated Statements of Operations.Operations to the extent not utilized for the commissioning process.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table (in thousands)millions) shows the fair value of our derivative instruments that are required to be measured at fair value on a recurring basis as of September 30, 20162017 and December 31, 2015,2016, which are classified as other currentderivative assets, non-current derivative assets, derivative liabilities or non-current derivative liabilities in our Consolidated Balance Sheets.
| | | Fair Value Measurements as of | Fair Value Measurements as of |
| September 30, 2016 | | December 31, 2015 | September 30, 2017 | | December 31, 2016 |
| Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
SPL Interest Rate Derivatives liability | $ | — |
| | $ | (15,948 | ) | | $ | — |
| | $ | (15,948 | ) | | $ | — |
| | $ | (8,740 | ) | | $ | — |
| | $ | (8,740 | ) | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (6 | ) | | $ | — |
| | $ | (6 | ) |
CQP Interest Rate Derivatives liability | — |
| | (12,166 | ) | | — |
| | (12,166 | ) | | — |
| | — |
| | — |
| | — |
| |
CQP Interest Rate Derivatives asset | | — |
| | 14 |
| | — |
| | 14 |
| | — |
| | 13 |
| | — |
| | 13 |
|
CCH Interest Rate Derivatives liability | — |
| | (297,539 | ) | | — |
| | (297,539 | ) | | — |
| | (104,999 | ) | | — |
| | (104,999 | ) | — |
| | (79 | ) | | — |
| | (79 | ) | | — |
| | (86 | ) | | — |
| | (86 | ) |
Liquefaction Supply Derivatives asset (liability) | (105 | ) | | (275 | ) | | 12,480 |
| | 12,100 |
| | — |
| | (25 | ) | | 32,492 |
| | 32,467 |
| — |
| | (1 | ) | | 29 |
| | 28 |
| | (4 | ) | | (2 | ) | | 79 |
| | 73 |
|
LNG Trading Derivatives asset (liability) | 284 |
| | (632 | ) | | — |
| | (348 | ) | | — |
| | 1,053 |
| | — |
| | 1,053 |
| (21 | ) | | — |
| | — |
| | (21 | ) | | 2 |
| | (5 | ) | | — |
| | (3 | ) |
Natural Gas Derivatives liability | — |
| | — |
| | — |
| | — |
| | — |
| | (66 | ) | | — |
| | (66 | ) | |
FX Derivatives liability | — |
| | (1,193 | ) | | — |
| | (1,193 | ) | | — |
| | — |
| | — |
| | — |
| |
FX Derivatives asset (liability) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
There have been no changes to our evaluation of and accounting for our derivative positions during the nine months ended September 30, 2017. See Note 7—Derivative Instruments of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended December 31, 2016 for additional information.
We value our Interest Rate Derivatives using valuations based on the initial trade prices. Using an income-based approach, subsequent valuations are based on observable inputs to the valuation model including interest rate curves, risk adjusted discount rates, credit spreads and other relevant data. The estimated fair values of our economic hedges related to the LNG Trading Derivatives and our Natural Gas Derivatives are the amounts at which the instruments could be exchanged currently between willing parties. We value these derivatives using observable commodity price curves and other relevant data. We estimate the fair valuesvalue of our FX Derivatives with a market approach using observable FX rates and other relevant data.
We acquired $0.8 millionThe fair value of certain LNG Tradingour Physical Liquefaction Supply Derivatives duringis predominantly driven by market commodity basis prices and our assessment of the first quarterassociated conditions precedent, including evaluating whether the respective market is available as pipeline infrastructure is developed. Upon the satisfaction of 2016, whichconditions precedent, including completion and placement into service of relevant pipeline infrastructure to accommodate marketable physical gas flow, we transferred into Level 1 during the second quarter of 2016. We transferred these LNG Trading Derivatives to Level 1 due to the use of unadjusted quoted exchange prices to calculaterecognize a gain or loss based on the fair value of these LNG Trading derivative positions, which were previously Level 2the respective natural gas supply contracts as of the fair value was calculated using adjusted quoted exchange prices. There were no transfers in and out of Level 2 during the three months ended September 30, 2016.reporting date.
The fair value of substantially all of our Physical Liquefaction Supply Derivatives is developed through the use of internal models which are impacted by inputs that are unobservable in the marketplace. As a result, the fair value of our Physical Liquefaction Supply Derivatives is designated as Level 3 within the valuation hierarchy. The curves used to generate the fair value of our Physical Liquefaction Supply Derivatives are based on basis adjustments applied to forward curves for a liquid trading point. In addition, there may be observable liquid market basis information in the near term, but terms of a particular Physical Liquefaction Supply Derivatives contract may exceed the period for which such information is available, resulting in a Level 3 classification. In these instances, the fair value of the contract incorporates extrapolation assumptions made in the determination of the market basis price for future delivery periods in which applicable commodity basis prices were either not observable or lacked corroborative market data. Internal fair value models include conditions precedent to the respective long-term natural gas supply contracts. As of September 30, 20162017 and December 31, 2015,2016, some of our Physical Liquefaction Supply Derivatives existed within markets for which the pipeline infrastructure is under development to accommodate marketable physical gas flow. Accordingly, our internal fair value models are based on market prices that equate to our own contractual pricing due to: (1) the inactive and unobservable market and (2) conditions precedent and their impact on the uncertainty in the timing of our actual receipt of the physical volumes associated with each forward. The fair value of our Physical Liquefaction Supply Derivatives is predominantly driven by market commodity basis prices and our assessment of the associated conditions precedent, including evaluating whether the respective market is available as pipeline infrastructure is developed. Upon the completion and placement into service of relevant pipeline
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
infrastructure to accommodate marketable physical gas flow, we recognize a gain or loss based on the fair value of the respective natural gas supply contracts as of the reporting date.
As all of our Physical Liquefaction Supply Derivatives are either purely index-priced or index-priced with a fixed basis, we do not believe that a significant change in market commodity prices would have a material impact on our Level 3 fair value measurements. The following table includes quantitative information for the unobservable inputs for our Level 3 Physical Liquefaction Supply Derivatives as of September 30, 2016:2017:
|
| | | | | | | | |
| | Net Fair Value Asset (in thousands)millions) | | Valuation Technique | | Significant Unobservable Input | | Significant Unobservable Inputs Range |
Physical Liquefaction Supply Derivatives | | $12,48029 | | Income Approach | | Basis Spread | | $(0.35)(0.370) - $(0.03)$0.081 |
The following table (in thousands)millions) shows the changes in the fair value of our Level 3 Physical Liquefaction Supply Derivatives during the three and nine months ended September 30, 20162017 and 2015:2016:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2016 | | 2015 | | 2016 | | 2015 | | 2017 | | 2016 | | 2017 | | 2016 |
Balance, beginning of period | | $ | 22,434 |
| | $ | 440 |
| | $ | 32,492 |
| | $ | 342 |
| | $ | 40 |
| | $ | 22 |
| | $ | 79 |
| | $ | 32 |
|
Realized and mark-to-market losses: | | | | | | | | | | | | | | | | |
Included in cost of sales (1) | | (10,567 | ) | | 32,177 |
| | (20,482 | ) | | 32,204 |
| | (8 | ) | | (11 | ) | | (43 | ) | | (20 | ) |
Purchases and settlements: | | | | | | | | | | | | | | | | |
Purchases | | 968 |
| | — |
| | 968 |
| | — |
| | (1 | ) | | 1 |
| | 1 |
| | 1 |
|
Settlements (1) | | (308 | ) | | (71 | ) | | (741 | ) | | — |
| | (2 | ) | | — |
| | (8 | ) | | (1 | ) |
Transfers out of Level 3 (2) | | (47 | ) | | — |
| | 243 |
| | — |
| |
Balance, end of period | | $ | 12,480 |
| | $ | 32,546 |
| | $ | 12,480 |
| | $ | 32,546 |
| | $ | 29 |
| | $ | 12 |
| | $ | 29 |
| | $ | 12 |
|
Change in unrealized gains relating to instruments still held at end of period | | $ | (10,567 | ) | | $ | — |
| | $ | (19,763 | ) | | $ | — |
| | $ | (8 | ) | | $ | (11 | ) | | $ | (43 | ) | | $ | (20 | ) |
| |
(1) | Does not include the decrease in fair value of $0.7$1 million related to the realized gains capitalized during the nine months ended September 30, 2016. |
| |
(2) | Transferred to Level 2 as a result of observable market for the underlying natural gas supply contracts. |
Derivative assets and liabilities arising from our derivative contracts with the same counterparty are reported on a net basis, as all counterparty derivative contracts provide for net settlement. The use of derivative instruments exposes us to counterparty credit risk, or the risk that a counterparty will be unable to meet its commitments in instances when our derivative instruments are in an asset position. Our derivative instruments are subject to contractual provisions which provide for the unconditional right of set-off for all derivative assets and liabilities with a given counterparty in the event of default.
Interest Rate Derivatives
SPL Interest Rate Derivatives
SPL hashad entered into interest rate swaps (“SPL Interest Rate Derivatives”) to protect against volatility of future cash flows and hedge a portion of the variable interest payments on the credit facilities it entered into in June 2015 (the “2015 SPL Credit Facilities”). The SPL Interest Rate Derivatives hedge a portion of the expected outstanding borrowings over the term of the 2015 SPL Credit Facilities.
In March 2015,2017, SPL settled a portion of the SPL Interest Rate Derivatives and recognized a derivative loss of $34.7$7 million within our Consolidated Statements of Operations in conjunction with the termination of approximately $1.8$1.6 billion of commitments under the previous credit facilities.
2015 SPL Credit Facilities, as discussed in Note 10—DebtCQP Interest Rate Derivatives.
In March 2016, Cheniere Partners entered into interest rate swaps (“CQP Interest Rate Derivatives”) to protect against volatility of future cash flows and hedge a portion of the variable interest payments on the 2016 CQP Credit Facilities. The CQP Interest Rate Derivatives hedge a portion of the expected outstanding borrowings over the term of the 2016 CQP Credit Facilities.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
CCH Interest Rate Derivatives
CCH has entered into interest rate swaps (“CCH Interest Rate Derivatives”) to protect against volatility of future cash flows and hedge a portion of the variable interest payments on its credit facility (the “2015 CCH Credit Facility”).
TheIn May 2017, CCH settled a portion of the CCH Interest Rate Derivatives
and recognized a derivative loss of $13 million in conjunction with the termination of approximately $1.4 billion of commitments under the 2015 CCH Credit Facility, as discussed in Note 10—Debt.
During the nine months ended September 30, 2017, there were no changes to the terms of the interest rate swaps (“CQP Interest Rate Derivatives”) entered into by CQP to hedge a portion of the expected outstanding borrowings overvariable interest payments on the termcredit facilities it entered into in February 2016 (the “2016 CQP Credit Facilities”). See Note 7—Derivative Instruments of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the 2015 CCH Credit Facility. The CCH Interest Rate Derivatives have a seven-year term and were contingent upon reaching a final investment decision with respect to the CCL Project, which was reached in May 2015. Upon meeting the contingency related to the CCH Interest Rate Derivatives in May 2015, we paid $50.1 million related to contingency and syndication premiums, which is included in derivative gain (loss), net on our Consolidated Statements of Operations.year ended December 31, 2016 for additional information.
As of September 30, 2016,2017, we had the following Interest Rate Derivatives outstanding:
|
| | | | | | | | | | | | |
| | Initial Notional Amount | | Maximum Notional Amount | | Effective Date | | Maturity Date | | Weighted Average Fixed Interest Rate Paid | | Variable Interest Rate Received |
SPL Interest Rate Derivatives | | $20.0 million | | $628.8 million | | August 14, 2012 | | July 31, 2019 | | 1.98% | | One-month LIBOR |
CQP Interest Rate Derivatives | | $225.0225 million | | $1.3 billion | | March 22, 2016 | | February 29, 2020 | | 1.19% | | One-month LIBOR |
CCH Interest Rate Derivatives | | $28.829 million | | $5.54.9 billion | | May 20, 2015 | | May 31, 2022 | | 2.29% | | One-month LIBOR |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table (in thousands)millions) shows the fair value and location of our Interest Rate Derivatives on our Consolidated Balance Sheets:
| | | | September 30, 2016 | | December 31, 2015 | | September 30, 2017 | | December 31, 2016 |
| | SPL Interest Rate Derivatives | | CQP Interest Rate Derivatives | | CCH Interest Rate Derivatives | | Total | | SPL Interest Rate Derivatives | | CQP Interest Rate Derivatives | | CCH Interest Rate Derivatives | | Total | | SPL Interest Rate Derivatives | | CQP Interest Rate Derivatives | | CCH Interest Rate Derivatives | | Total | | SPL Interest Rate Derivatives | | CQP Interest Rate Derivatives | | CCH Interest Rate Derivatives | | Total |
Balance Sheet Location | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative assets | | | $ | — |
| | $ | 3 |
| | $ | — |
| | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Non-current derivative assets | | | — |
| | 11 |
| | — |
| | 11 |
| | — |
| | 16 |
| | — |
| | 16 |
|
Total derivative assets | | | — |
| | 14 |
| | — |
| | 14 |
| | — |
| | 16 |
| | — |
| | 16 |
|
| | | | | | | | | | | | | | | | | |
Derivative liabilities | | $ | (6,376 | ) | | $ | (5,248 | ) | | $ | (45,481 | ) | | $ | (57,105 | ) | | $ | (5,940 | ) | | $ | — |
| | $ | (28,559 | ) | | $ | (34,499 | ) | | — |
| | — |
| | (30 | ) | | (30 | ) | | (4 | ) | | (3 | ) | | (43 | ) | | (50 | ) |
Non-current derivative liabilities | | (9,572 | ) | | (6,918 | ) | | (252,058 | ) | | (268,548 | ) | | (2,800 | ) | | — |
| | (76,440 | ) | | (79,240 | ) | | — |
| | — |
| | (49 | ) | | (49 | ) | | (2 | ) | | — |
| | (43 | ) | | (45 | ) |
Total derivative liabilities | | $ | (15,948 | ) | | $ | (12,166 | ) | | $ | (297,539 | ) | | $ | (325,653 | ) | | $ | (8,740 | ) | | $ | — |
| | $ | (104,999 | ) | | $ | (113,739 | ) | | — |
| | — |
| | (79 | ) | | (79 | ) | | (6 | ) | | (3 | ) | | (86 | ) | | (95 | ) |
| | | | | | | | | | | | | | | | | |
Derivative asset (liability), net | | | $ | — |
| | $ | 14 |
| | $ | (79 | ) | | $ | (65 | ) | | $ | (6 | ) | | $ | 13 |
| | $ | (86 | ) | | $ | (79 | ) |
The following table (in thousands)millions) shows the changes in the fair value and settlements of our Interest Rate Derivatives recorded in derivative gain (loss), net on our Consolidated Statements of Operations during the three and nine months ended September 30, 20162017 and 2015:2016:
| | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, | | September 30, | | September 30, |
| | 2016 | | 2015 | | 2016 | | 2015 | | 2017 | | 2016 | | 2017 | | 2016 |
SPL Interest Rate Derivatives gain (loss) | | $ | 2,557 |
| | $ | (10,872 | ) | | $ | (13,473 | ) | | $ | (46,541 | ) | | $ | — |
| | $ | 3 |
| | $ | (2 | ) | | $ | (13 | ) |
CQP Interest Rate Derivatives gain (loss) | | 6,626 |
| | — |
| | (12,944 | ) | | — |
| | 1 |
| | 7 |
| | — |
| | (13 | ) |
CCH Interest Rate Derivatives gain (loss) | | 20,113 |
| | (150,610 | ) | | (215,940 | ) | | (195,582 | ) | | (3 | ) | | 20 |
| | (35 | ) | | (216 | ) |
Commodity Derivatives
Liquefaction Supply Derivatives
SPL has entered into index-based physical natural gas supply contracts and associated economic hedges to purchase natural gas for the commissioning and operation of the SPL Project. The terms of the physical natural gas supply contracts primarily range from approximately one to seven years and commence upon the satisfaction of certain conditions precedent, including but not limited to the date of first commercial operation of specified Trains of the SPL Project. We recognize our Physical Liquefaction Supply Derivatives as either assets or liabilities and measure those instruments at fair value. Changes in the fair value of our Physical Liquefaction Supply Derivatives are reported in earnings. As of September 30, 2016, SPL has secured up to approximately
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
1,982.0 million MMBtu of natural gas feedstock through natural gas supply contracts. The notional natural gas position of our Physical Liquefaction Supply Derivatives was approximately 1,069.0 million MMBtu as of September 30, 2016.
Our Financial Liquefaction Supply Derivatives are executed through over-the-counter contracts which are subject to nominal credit risk as these transactions are settled on a daily margin basis with investment grade financial institutions. We are required by these financial institutions to use margin deposits as credit support for our Financial Liquefaction Supply Derivatives activities.
LNG Trading Derivatives
As of September 30, 2016, we have entered into certain LNG Trading Derivatives representing a short position of 12.6 million MMBtu, and we may from time to time enter into certain financial derivatives in the form of swaps, forwards, options or futures to economically hedge exposure to the commodity markets in which we have contractual arrangements to purchase or sell physical LNG. We have entered into LNG Trading Derivatives to secure a fixed price position to minimize future cash flow variability associated with such LNG transactions.
Natural Gas Derivatives
Our Natural Gas Derivatives were executed through over-the-counter contracts which were subject to nominal credit risk as these transactions settled on a daily margin basis with investment grade financial institutions. We were required by these financial institutions to use margin deposits as credit support for our Natural Gas Derivatives activities. As of September 30, 2016, we did not have any open Natural Gas Derivatives positions or margin deposits at financial institutions.
We recognize all commodity derivative instruments, including our Liquefaction Supply Derivatives, LNG Trading Derivatives and Natural Gas Derivatives (collectively, “Commodity Derivatives”), as either assets or liabilities and measure those instruments at fair value. Changes in the fair value of our Commodity Derivatives are reported in earnings.
The following table (in thousands)millions, except notional amount) shows the fair value and location of our CommodityLiquefaction Supply Derivatives and LNG Trading Derivatives (collectively, “Commodity Derivatives”) on our Consolidated Balance Sheets:
| | | September 30, 2016 | | December 31, 2015 | September 30, 2017 | | December 31, 2016 |
| Liquefaction Supply Derivatives (1) | | LNG Trading Derivatives (2) | | Natural Gas Derivatives | | Total | | Liquefaction Supply Derivatives | | LNG Trading Derivatives (2) | | Natural Gas Derivatives (3) | | Total | Liquefaction Supply Derivatives (1) | | LNG Trading Derivatives (2) | | Total | | Liquefaction Supply Derivatives (1) | | LNG Trading Derivatives (2) | | Total |
Balance Sheet Location | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other current assets | $ | 1,947 |
| | $ | 2,142 |
| | $ | — |
| | $ | 4,089 |
| | $ | 2,737 |
| | $ | 640 |
| | $ | — |
| | $ | 3,377 |
| |
Derivative assets | | $ | 8 |
| | $ | 1 |
| | $ | 9 |
| | $ | 13 |
| | $ | 7 |
| | $ | 20 |
|
Non-current derivative assets | 11,247 |
| | — |
| | — |
| | 11,247 |
| | 30,304 |
| | 583 |
| | — |
| | 30,887 |
| 26 |
| | — |
| | 26 |
| | 67 |
| | — |
| | 67 |
|
Total derivative assets | 13,194 |
| | 2,142 |
| | — |
| | 15,336 |
| | 33,041 |
| | 1,223 |
| | — |
| | 34,264 |
| 34 |
| | 1 |
| | 35 |
| | 80 |
| | 7 |
| | 87 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative liabilities | (1,083 | ) | | (2,490 | ) | | — |
| | (3,573 | ) | | (490 | ) | | (107 | ) | | (66 | ) | | (663 | ) | (4 | ) | | (21 | ) | | (25 | ) | | (7 | ) | | (10 | ) | | (17 | ) |
Non-current derivative liabilities | (11 | ) | | — |
| | — |
| | (11 | ) | | (84 | ) | | (63 | ) | | — |
| | (147 | ) | (2 | ) | | (1 | ) | | (3 | ) | | — |
| | — |
| | — |
|
Total derivative liabilities | (1,094 | ) | | (2,490 | ) | | — |
| | (3,584 | ) | | (574 | ) | | (170 | ) | | (66 | ) | | (810 | ) | (6 | ) | | (22 | ) | | (28 | ) | | (7 | ) | | (10 | ) | | (17 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative asset (liabilities), net | $ | 12,100 |
| | $ | (348 | ) | | $ | — |
| | $ | 11,752 |
| | $ | 32,467 |
| | $ | 1,053 |
| | $ | (66 | ) | | $ | 33,454 |
| |
Derivative asset (liability), net | | $ | 28 |
| | $ | (21 | ) | | $ | 7 |
| | $ | 73 |
| | $ | (3 | ) | | $ | 70 |
|
| | | | | | | | | | | | |
Notional amount (in TBtu) (3) | | 1,911 |
| | 20 |
| | | | 1,117 |
| | — |
| | |
| |
(1) | Does not include collateral of $1.5 million deposited for such contracts, which is included in other current assets in our Consolidated Balance Sheet as of September 30, 2016. |
| |
(2) | Does not include collateral of $13.4$2 million and $11.0$6 million deposited for such contracts, which are included in other current assets in our Consolidated Balance Sheets as of September 30, 20162017 and December 31, 2015,2016, respectively. |
| |
(3) | Does not include collateral of $5.5 million deposited for such contracts, which is included in other current assets in our Consolidated Balance Sheet as of December 31, 2015. |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
| |
(2) | Does not include collateral of $42 million and $10 million deposited for such contracts, which are included in other current assets in our Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, respectively. |
| |
(3) | SPL had secured up to approximately 2,462 TBtu and 1,994 TBtu and CCL has secured up to approximately 362 TBtu and zero TBtu of natural gas feedstock through natural gas supply contracts as of September 30, 2017 and December 31, 2016, respectively. |
The following table (in thousands)millions) shows the changes in the fair value, settlements and location of our Commodity Derivatives recorded on our Consolidated Statements of Operations during the three and nine months ended September 30, 20162017 and 2015:2016:
|
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | September 30, | | September 30, |
| Statement of Operations Location | | 2016 | | 2015 | | 2016 | | 2015 |
Liquefaction Supply Derivatives gain | LNG revenues (losses) | | $ | 374 |
| | $ | — |
| | $ | 368 |
| | $ | — |
|
Liquefaction Supply Derivatives gain (loss) (1) | Cost (cost recovery) of sales | | (10,416 | ) | | 32,103 |
| | (22,680 | ) | | 32,184 |
|
LNG Trading Derivatives gain (loss) | LNG revenues (losses) | | 8,617 |
| | 113 |
| | (3,597 | ) | | 113 |
|
Natural Gas Derivatives loss | LNG revenues (losses) | | — |
| | (152 | ) | | (5 | ) | | (260 | ) |
Natural Gas Derivatives gain | Operating and maintenance expense | | — |
| | 857 |
| | 174 |
| | 1,317 |
|
|
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| Statement of Operations Location (1) | | September 30, | | September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
LNG Trading Derivatives gain (loss) | LNG revenues | | $ | (16 | ) | | $ | 9 |
| | $ | (20 | ) | | $ | (3 | ) |
Liquefaction Supply Derivatives loss (2) | Cost of sales | | 11 |
| | 11 |
| | 51 |
| | 23 |
|
(1) Does not include the realized value associated with derivative instruments that settle through physical delivery.
The use of Commodity Derivatives exposes us to counterparty credit risk, or the risk that a counterparty will be unable to meet its commitments in instances when our Commodity Derivatives are in an asset position.
| |
(1) | Fair value fluctuations associated with commodity derivative activities are classified and presented consistently with the item economically hedged and the nature and intent of the derivative instrument. |
| |
(2) | Does not include the realized value associated with derivative instruments that settle through physical delivery. |
FX Derivatives
Cheniere Marketing has entered into FX Derivatives to protect against the volatility in future cash flows attributable to changes in international currency exchange rates. The FX Derivatives economically hedge the foreign currency exposure arising from cash flows expended for both physical and financial LNG transactions and general and administrative expenses related to operations in countries outside of the United States. The total notional amount of our FX Derivatives was $14.6 million as of September 30, 2016.
The following table (in thousands)millions) shows the fair value and location of our FX Derivatives on our Consolidated Balance Sheets:
| | | | Fair Value Measurements as of | | Fair Value Measurements as of |
| Balance Sheet Location | | September 30, 2016 | | December 31, 2015 | Balance Sheet Location | | September 30, 2017 | | December 31, 2016 |
FX Derivatives | Derivative liabilities | | $ | (1,151 | ) | | $ | — |
| Derivative assets | | $ | — |
| | $ | 4 |
|
FX Derivatives | Non-current derivative liabilities | | (42 | ) | | — |
| Derivative liabilities | | — |
| | (4 | ) |
The total notional amount of our FX Derivatives was $7 million and $11 million as of September 30, 2017 and December 31, 2016, respectively.
The following table (in thousands)millions) shows the changes in the fair value of our FX Derivatives recorded on our Consolidated Statements of Operations during the three and nine months ended September 30, 20162017 and 2015:2016:
|
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | Nine Months Ended |
| | | | September 30, | | September 30, |
| | Statement of Operations Location | | 2016 | | 2015 | | 2016 | | 2015 |
FX Derivatives loss | | LNG revenues (losses) | | $ | (1,385 | ) | | $ | — |
| | $ | (1,345 | ) | | $ | — |
|
FX Derivatives gain | | Derivative gain (loss), net | | 31 |
| | — |
| | 129 |
| | — |
|
FX Derivatives gain (loss) | | Other income (expense) | | 2 |
| | — |
| | (86 | ) | | — |
|
|
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | September 30, | | September 30, |
| Statement of Operations Location | | 2017 | | 2016 | | 2017 | | 2016 |
FX Derivatives loss | LNG revenues | | $ | — |
| | $ | (1 | ) | | $ | — |
| | $ | (1 | ) |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Balance Sheet Presentation
Our derivative instruments are presented on a net basis on our Consolidated Balance Sheets as described above. The following table (in thousands)millions) shows the fair value of our derivatives outstanding on a gross and net basis:
| | | | Gross Amounts Recognized | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amounts Presented in the Consolidated Balance Sheets | | Gross Amounts Recognized | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amounts Presented in the Consolidated Balance Sheets |
Offsetting Derivative Assets (Liabilities) | | |
As of September 30, 2016 | | | | | | | |
As of September 30, 2017 | | | | | | | |
CQP Interest Rate Derivatives | | | $ | 14 |
| | $ | — |
| | $ | 14 |
|
CCH Interest Rate Derivatives | | | (80 | ) | | 1 |
| | (79 | ) |
Liquefaction Supply Derivatives | | | 35 |
| | (1 | ) | | 34 |
|
Liquefaction Supply Derivatives | | | (8 | ) | | 2 |
| | (6 | ) |
LNG Trading Derivatives | | | 2 |
| | (1 | ) | | 1 |
|
LNG Trading Derivatives | | | (24 | ) | | 2 |
| | (22 | ) |
As of December 31, 2016 | | | | | | |
|
|
SPL Interest Rate Derivatives | | $ | (15,948 | ) | | $ | — |
| | $ | (15,948 | ) | | $ | (6 | ) | | $ | — |
| | $ | (6 | ) |
CQP Interest Rate Derivatives | | | 16 |
| | — |
| | 16 |
|
CQP Interest Rate Derivatives | | (12,166 | ) | | — |
| | (12,166 | ) | | (3 | ) | | — |
| | (3 | ) |
CCH Interest Rate Derivatives | | (297,539 | ) | | — |
| | (297,539 | ) | | (95 | ) | | 9 |
| | (86 | ) |
Liquefaction Supply Derivatives | | 13,740 |
| | (546 | ) | | 13,194 |
| | 82 |
| | (2 | ) | | 80 |
|
Liquefaction Supply Derivatives | | (2,803 | ) | | 1,709 |
| | (1,094 | ) | | (11 | ) | | 4 |
| | (7 | ) |
LNG Trading Derivatives | | 6,829 |
| | (4,687 | ) | | 2,142 |
| | 21 |
| | (15 | ) | | 6 |
|
LNG Trading Derivatives | | (5,712 | ) | | 3,222 |
| | (2,490 | ) | | (17 | ) | | 8 |
| | (9 | ) |
FX Derivatives | | (2,036 | ) | | 843 |
| | (1,193 | ) | | 5 |
| | (1 | ) | | 4 |
|
As of December 31, 2015 | | | | | |
|
| |
SPL Interest Rate Derivatives | | $ | (8,740 | ) | | $ | — |
| | $ | (8,740 | ) | |
CCH Interest Rate Derivatives | | (104,999 | ) | | — |
| | (104,999 | ) | |
Liquefaction Supply Derivatives | | 33,636 |
| | (595 | ) | | 33,041 |
| |
Liquefaction Supply Derivatives | | (574 | ) | | — |
| | (574 | ) | |
LNG Trading Derivatives | | 1,922 |
| | (699 | ) | | 1,223 |
| |
LNG Trading Derivatives | | (2,826 | ) | | 2,656 |
| | (170 | ) | |
Natural Gas Derivatives | | 188 |
| | (254 | ) | | (66 | ) | |
FX Derivatives | | | (4 | ) | | — |
| | (4 | ) |
NOTE 7—OTHER NON-CURRENT ASSETS
As of September 30, 20162017 and December 31, 2015,2016, other non-current assets, net consisted of the following (in thousands)millions):
| | | | September 30, | | December 31, | | September 30, | | December 31, |
| | 2016 | | 2015 | | 2017 | | 2016 |
Advances made under EPC and non-EPC contracts | | $ | 13,678 |
| | $ | 83,579 |
| | $ | 21 |
| | $ | 69 |
|
Advances made to municipalities for water system enhancements | | 98,958 |
| | 89,953 |
| | 97 |
| | 99 |
|
Collateral payments for the CCL Project | | 36,341 |
| | 4,994 |
| |
Advances and other asset conveyances to third parties to support LNG terminals | | | 49 |
| | 53 |
|
Tax-related payments and receivables | | 31,218 |
| | 31,712 |
| | 40 |
| | 31 |
|
Equity method investments | | 11,058 |
| | 20,295 |
| | 64 |
| | 10 |
|
Cost method investments | | | 5 |
| | 5 |
|
Other | | 88,181 |
| | 83,922 |
| | 22 |
| | 35 |
|
Total other non-current assets | | $ | 279,434 |
| | $ | 314,455 |
| |
Total other non-current assets, net | | | $ | 298 |
| | $ | 302 |
|
NOTE 8—VARIABLE INTEREST ENTITYEquity Method Investments
CheniereAs of December 31, 2016, our equity method investments consisted of interests in privately-held companies. During the second quarter of 2017, we acquired an equity interest in Midship Holdings,
On January 1, 2016, we adopted ASU 2015-02, Consolidation (Topic 810): Amendments LLC (“Midship Holdings”), which manages the business and affairs of Midship Pipeline Company, LLC (“Midship Pipeline”). Midship Pipeline is pursuing the development, construction, operation and maintenance of an approximately 230-mile natural gas pipeline project (the “Midship Project”) that connects new production in the Anadarko Basin to Gulf Coast markets. Midship Holdings entered into agreements with investment funds managed by EIG Global Energy Partners (“EIG”) under which EIG-managed funds committed to make an investment of up to $500 million (the “EIG Investment”) in the Midship Project, subject to the Consolidation Analysis. This guidance changed (1)terms and conditions contained in the identificationapplicable agreements. The EIG Investment, when combined with equity contributed by us, is intended to ensure the Midship Project has the equity funding expected to be required to develop and construct the project. Midship Holdings requires acceptable financing arrangements and regulatory and other approvals before construction of variable interests, (2) the proposed Midship Project commences.
We have determined that Midship Holdings is a variable interest entity characteristics for a limited partnership or similar(“VIE”) because it is thinly capitalized at formation such that the total equity investment at risk is not sufficient to permit the entity and (3) the primary beneficiary determination.
Cheniere Holdings is a limited liability company formed by us in 2013 to hold our Cheniere Partners limited partner interests. As of September 30, 2016, we owned 80.1% of Cheniere Holdings as well as the director voting share. The director voting share is the sole share entitled to vote in the election of Cheniere Holdings’ board of directors and allows us to remove members of the board of directors at any time and for any reason. If we cease to own greater than 25% of the common shares of Cheniere Holdings or if we choose to relinquish the director voting share, the director voting share will be extinguished.
The board of directors makes all major operating and financial decisions on behalf of Cheniere Holdings. Because ownership of the director voting share allows us to control Cheniere Holdings, irrespective of our majority ownership interest, and the director voting share cannot be removed from our control by the other equity holders of Cheniere Holdings, we have determined thatfinance its activities without additional subordinated
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
financial support. We do not consolidate Midship Holdings because we do not have power to direct the activities that most significantly impact its economic performance. We continually monitor both consolidated and unconsolidated VIEs to determine if any events have occurred that could cause a change in our identification of a VIE or determination of the primary beneficiary to a VIE. We account for our investment in Midship Holdings under the equity method as we have the ability to exercise significant influence over the operating and financial policies of Midship Holdings through our non-controlling voting rights on its board of managers. Our investment in Midship Holdings at September 30, 2017 was $55 million. Obligations to make additional investments in Midship Holdings are not significant and we have not provided financial support to Midship Holdings beyond amounts contractually required.
Cheniere Holdings is nowLNG O&M Services, LLC (“O&M Services”), our wholly owned subsidiary, provides the development, construction, operation and maintenance services associated with the Midship Project pursuant to agreements in which O&M Services receives an agreed upon fee and reimbursement of costs incurred. O&M Services recorded $1 million and $2 million of income in other—related party during the three and nine months ended September 30, 2017, respectively, and $1 million of accounts receivable—related party as of September 30, 2017 for services provided to Midship Pipeline under these agreements. CCL has entered into transportation precedent agreements with Midship Pipeline to secure firm pipeline transportation capacity for a variable interest entity. However, this determination has not changedperiod of 10 years following commencement of the consolidationMidship Project.
Cost Method Investments
Our cost method investments consist of Cheniere Holdings as we haveinterests in privately-held companies without a readily determinable fair value. The Company’s cost method investments are assessed for impairment quarterly. We determined that weit is not practicable to estimate the fair value of these investments on a regular basis and do not reassess the fair value of cost method investments if there are its primary beneficiary. Therefore,no identified events or changes in circumstances that may have a significant adverse effect on the determinationfair value of the investment. We did not identify events or changes in circumstances that Cheniere Holdings is nowmay have a variable interest entity had no impactsignificant adverse effect on our Consolidated Financial Statements.the fair value of these investments during the three and nine months ended September 30, 2017.
NOTE 9—8—NON-CONTROLLING INTEREST
As of both September 30, 20162017 and December 31, 2015,2016, we owned 80.1%82.7% and 82.6%, respectively, of Cheniere Holdings as well as the director voting share, with the remaining non-controlling interest held by the public. As a result of the mandatory conversion of Cheniere Partners’ Class B units on August 2, 2017, as of September 30, 2017, Cheniere Holdings ownsowned a 48.6% limited partner interest in Cheniere Partners in the form of 104.5 million common units and 135.4 million subordinated units, with the remaining non-controlling interest held by Blackstone CQP Holdco LP (“Blackstone CQP Holdco”) and the public. Prior to the conversion, as of December 31, 2016, Cheniere Holdings owned a 55.9% limited partner interest in Cheniere Partners in the form of 12.0 million common units, 45.3 million Class B units and 135.4 million subordinated units, with the remaining non-controlling interest held by Blackstone CQP Holdco LP and the public. We also own 100% of the general partner interest and the incentive distribution rights in Cheniere Partners. Both Cheniere Holdings and Cheniere Partners are accounted for as variable interest entities. For further information regarding variable interest entities, refer to our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended December 31, 2016.
NOTE 10—9—ACCRUED LIABILITIES
As of September 30, 20162017 and December 31, 2015,2016, accrued liabilities consisted of the following (in thousands)millions):
| | | | September 30, | | December 31, | | September 30, | | December 31, |
| | 2016 | | 2015 | | 2017 | | 2016 |
Interest costs and related debt fees | | $ | 228,434 |
| | $ | 159,968 |
| | $ | 220 |
| | $ | 273 |
|
Compensation and benefits | | 104,318 |
| | 99,511 |
| | 110 |
| | 56 |
|
SPL Project and CCL Project costs | | 343,782 |
| | 145,759 |
| |
LNG terminal costs | | 4,430 |
| | 3,918 |
| |
LNG terminals and related pipeline costs | | | 359 |
| | 284 |
|
Other accrued liabilities | | 19,032 |
| | 18,043 |
| | 33 |
| | 24 |
|
Total accrued liabilities | | $ | 699,996 |
| | $ | 427,199 |
| | $ | 722 |
| | $ | 637 |
|
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 11—10—DEBT
As of September 30, 20162017 and December 31, 2015,2016, our debt consisted of the following (in thousands)millions):
| | | | September 30, | | December 31, | | September 30, | | December 31, |
| | 2016 | | 2015 | | 2017 | | 2016 |
Long-term debt: | | | | | | | | |
SPLNG | | | | | |
6.50% Senior Secured Notes due 2020 (“2020 SPLNG Senior Notes”) (1) | | $ | 420,000 |
| | $ | 420,000 |
| |
SPL | | | |
|
| | | |
|
|
5.625% Senior Secured Notes due 2021 (“2021 SPL Senior Notes”), net of unamortized premium of $7,573 and $8,718 | | 2,007,573 |
| | 2,008,718 |
| |
5.625% Senior Secured Notes due 2021 (“2021 SPL Senior Notes”), net of unamortized premium of $6 and $7 | | | $ | 2,006 |
| | $ | 2,007 |
|
6.25% Senior Secured Notes due 2022 (“2022 SPL Senior Notes”) | | 1,000,000 |
| | 1,000,000 |
| | 1,000 |
| | 1,000 |
|
5.625% Senior Secured Notes due 2023 (“2023 SPL Senior Notes”), net of unamortized premium of $5,844 and $6,392 | | 1,505,844 |
| | 1,506,392 |
| |
5.625% Senior Secured Notes due 2023 (“2023 SPL Senior Notes”), net of unamortized premium of $5 and $6 | | | 1,505 |
| | 1,506 |
|
5.75% Senior Secured Notes due 2024 (“2024 SPL Senior Notes”) | | 2,000,000 |
| | 2,000,000 |
| | 2,000 |
| | 2,000 |
|
5.625% Senior Secured Notes due 2025 (“2025 SPL Senior Notes”) | | 2,000,000 |
| | 2,000,000 |
| | 2,000 |
| | 2,000 |
|
5.875% Senior Secured Notes due 2026 (“2026 SPL Senior Notes”) | | 1,500,000 |
| | — |
| | 1,500 |
| | 1,500 |
|
5.00% Senior Secured Notes due 2027 (“2027 SPL Senior Notes”) | | 1,500,000 |
| | — |
| | 1,500 |
| | 1,500 |
|
4.200% Senior Secured Notes due 2028 (“2028 SPL Senior Notes”), net of unamortized discount of $1 and zero | | | 1,349 |
| | — |
|
5.00% Senior Secured Notes due 2037 (“2037 SPL Senior Notes”) | | | 800 |
| | — |
|
2015 SPL Credit Facilities | | — |
| | 845,000 |
| | — |
| | 314 |
|
CTPL | | | | | |
$400.0 million Term Loan Facility (“CTPL Term Loan”), net of unamortized discount of zero and $1,429 | | — |
| | 398,571 |
| |
Cheniere Partners | | | | | | | | |
5.250% Senior Notes due 2025 (“2025 CQP Senior Notes”) | | | 1,500 |
| | — |
|
2016 CQP Credit Facilities | | 450,000 |
| | — |
| | 1,090 |
| | 2,560 |
|
CCH | | | | | | | | |
7.000% Senior Secured Notes due 2024 (“2024 CCH Senior Notes”) | | 1,250,000 |
| | — |
| | 1,250 |
| | 1,250 |
|
5.875% Senior Secured Notes due 2025 (“2025 CCH Senior Notes”) | | | 1,500 |
| | 1,500 |
|
5.125% Senior Secured Notes due 2027 (“2027 CCH Senior Notes”) | | | 1,500 |
| | — |
|
2015 CCH Credit Facility | | 3,283,340 |
| | 2,713,000 |
| | 2,151 |
| | 2,381 |
|
CCH HoldCo II | | | | | | | | |
11.0% Convertible Senior Notes due 2025 (“2025 CCH HoldCo II Convertible Senior Notes”) | | 1,139,667 |
| | 1,050,588 |
| | 1,270 |
| | 1,171 |
|
Cheniere | | | | | | | | |
4.875% Convertible Unsecured Notes due 2021 (“2021 Cheniere Convertible Unsecured Notes”), net of unamortized discount of $151,996 and $174,095 | | 927,729 |
| | 879,938 |
| |
4.25% Convertible Senior Notes due 2045 (“2045 Cheniere Convertible Senior Notes”), net of unamortized discount of $317,441 and $319,062 | | 307,559 |
| | 305,938 |
| |
Unamortized debt issuance costs (2) | | (258,199 | ) | | (207,718 | ) | |
4.875% Convertible Unsecured Notes due 2021 (“2021 Cheniere Convertible Unsecured Notes”), net of unamortized discount of $127 and $146 | | | 1,006 |
| | 960 |
|
4.25% Convertible Senior Notes due 2045 (“2045 Cheniere Convertible Senior Notes”), net of unamortized discount of $315 and $317 | | | 310 |
| | 308 |
|
$750 million Cheniere Revolving Credit Facility (“Cheniere Revolving Credit Facility”) | | | — |
| | — |
|
Unamortized debt issuance costs | | | (314 | ) | | (269 | ) |
Total long-term debt, net | | 19,033,513 |
| | 14,920,427 |
| | 24,923 |
| | 21,688 |
|
| | | | | | | | |
Current debt: | | | | | | | | |
7.50% Senior Secured Notes due 2016 (“2016 SPLNG Senior Notes”), net of unamortized discount of $782 and $4,303 (3) | | 1,664,718 |
| | 1,661,197 |
| |
$1.2 billion SPL Working Capital Facility (“SPL Working Capital Facility”) | | 98,500 |
| | 15,000 |
| | — |
| | 224 |
|
$350 million CCH Working Capital Facility (“CCH Working Capital Facility”) | | | — |
| | — |
|
Cheniere Marketing trade finance facilities | | 18,807 |
| | — |
| | 41 |
| | 23 |
|
Unamortized debt issuance costs (2) | | (514 | ) | | (2,818 | ) | |
Total current debt, net | | 1,781,511 |
| | 1,673,379 |
| |
Total current debt | | | 41 |
| | 247 |
|
| | | | | | | | |
Total debt, net | | $ | 20,815,024 |
| | $ | 16,593,806 |
| | $ | 24,964 |
| | $ | 21,935 |
|
2017 Debt Issuances and Redemptions | |
(1) | Must be redeemed or repaid concurrently with the 2016 SPLNG
SPL Senior Notes
In February 2017, SPL issued an aggregate principal amount of $800 million of the 2037 SPL Senior Notes on a private placement basis in reliance on the exemption from registration provided for under Section 4(a)(2) of the Securities Act of 1933, as amended. In March 2017, SPL issued an aggregate principal amount of $1.35 billion, before discount, of the 2028 SPL Senior Notes under the terms of the 2016 CQP Credit Facilities if the obligations under the 2016 SPLNG Senior Notes are satisfied with borrowings under the 2016 CQP Credit Facilities. See Note 20—Subsequent Events for additional details about the redemption of the 2020 SPLNG Senior Notes. |
| |
(2) | Effective January 1, 2016, we adopted ASU 2015-03 and ASU 2015-15, which require debt issuance costs related to term notes to be presented in the balance sheet as a direct deduction from the debt liability, rather than as an asset, retrospectively |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
for each reporting period presented. As a result, we reclassified $207.7 million and $2.8 million from debt issuance costs, net to long-term debt, net and current debt, net, respectively, as of December 31, 2015.
| |
(3) | Matures on November 30, 2016. We currently anticipate satisfying this obligation with borrowings under the 2016 CQP Credit Facilities. See Note 20—Subsequent Events for additional details about the intended repayment of the 2016 SPLNG Senior Notes. |
2016 Debt Issuances and Redemptions
SPL Senior Notes
In June and September 2016, SPL issued the 2026 SPL Senior Notes and the 2027 SPL Senior Notes, respectively, for aggregate principal amounts of $1.5 billion each. Net proceeds of the offerings of the 20262037 SPL Senior Notes and 2027the 2028 SPL Senior Notes were approximately $1.3 billion$789 million and $1.4$1.33 billion, respectively, after deducting the initial purchasers’ commissions (for the 2028 SPL Senior Notes) and estimated fees and expenses andexpenses. The net proceeds of the 2037 SPL Senior Notes, after provisioning for incremental interest required under the respective senior notes during construction. The net proceedsconstruction, were used to prepay a portion (forrepay the 2026 SPL Senior Notes) or all (for the 2027 SPL Senior Notes) of thethen outstanding borrowings and terminate commitmentsof $369 million under the 2015 SPL Credit Facilities resulting in a write-off of debt issuance costs associatedand, along with the 2015 SPL Credit Facilitiesnet proceeds of $25.8 million and $51.8 million during the three and nine months ended September 30, 2016, respectively. The remaining proceeds from the 20272028 SPL Senior Notes, arethe remainder is being used to pay a portion of the capital costs in connection with the construction of Trains 1 through 5 of the SPL Project in lieu of the terminated portion of the commitments under the 2015 SPL Credit Facilities. The 2026
In connection with the issuance of the 2037 SPL Senior Notes and 2027the 2028 SPL Senior Notes, SPL terminated the remaining available balance of $1.6 billion under the 2015 SPL Credit Facilities, resulting in a write-off of debt issuance costs associated with the 2015 SPL Credit Facilities of $42 million during the nine months ended September 30, 2017.
The 2037 SPL Senior Notes and the 2028 SPL Senior Notes accrue interest at fixed rates of 5.875%5.00% and 5.00%4.200%, respectively, and interest is payable semi-annually in arrears. The terms of the 20262037 SPL Senior Notes are governed by an indenture which contains customary terms and 2027events of default and certain covenants that, among other things, limit SPL’s ability and the ability of SPL’s restricted subsidiaries to incur additional indebtedness or issue preferred stock, make certain investments or pay dividends or distributions on capital stock or subordinated indebtedness or purchase, redeem or retire capital stock, sell or transfer assets, including capital stock of SPL’s restricted subsidiaries, restrict dividends or other payments by restricted subsidiaries, incur liens, enter into transactions with affiliates, dissolve, liquidate, consolidate, merge, sell or lease all or substantially all of SPL’s assets and enter into certain LNG sales contracts. The 2028 SPL Senior Notes are governed by the same common indenture as the other senior notes of SPL other than the 2037 SPL Senior Notes, which also contains customary terms and events of default, covenants and redemption terms.
In connection withAt any time prior to six months before the issuancerespective dates of maturity of the 20262037 SPL Senior Notes and the 20272028 SPL Senior Notes, SPL may redeem all or part of such notes at a redemption price equal to the “optional redemption” price for the 2037 SPL Senior Notes or the “make-whole” price for the 2028 SPL Senior Notes, as set forth in the respective indentures governing the notes, plus accrued and unpaid interest, if any, to the date of redemption. SPL may also, at any time within six months of the respective maturity dates for the 2037 SPL Senior Notes and the 2028 SPL Senior Notes, redeem all or part of such notes at a redemption price equal to 100% of the principal amount of such notes to be redeemed, plus accrued and unpaid interest, if any, to the date of redemption.
2025 CQP Senior Notes
In September 2017, CQP issued an aggregate principal amount of $1.5 billion of the 2025 CQP Senior Notes, which are jointly and severally guaranteed by each of CQP’s subsidiaries other than SPL and, subject to certain conditions governing the release of its guarantee, Sabine Pass LNG-LP, LLC (the “CQP Guarantors”). Net proceeds of the offering of approximately $1.5 billion, after deducting the initial purchasers’ commissions and estimated fees and expenses, were used to prepay a portion of the outstanding indebtedness under the 2016 CQP Credit Facilities, resulting in a write-off of debt issuance costs associated with the 2016 CQP Credit Facilities of $25 million during the nine months ended September 30, 2017.
Borrowings under the 2025 CQP Senior Notes accrue interest at a fixed rate of 5.250%, and interest on the 2025 CQP Senior Notes is payable semi-annually in arrears. The 2025 CQP Senior Notes are governed by an indenture (the “CQP Indenture”), which contains customary terms and events of default and certain covenants that, among other things, limit the ability of CQP and the CQP Guarantors to incur liens and sell assets, enter into transactions with affiliates, enter into sale-leaseback transactions and consolidate, merge or sell, lease or otherwise dispose of all or substantially all of the applicable entity’s properties or assets.
At any time prior to October 1, 2020, CQP may redeem all or a part of the 2025 CQP Senior Notes at a redemption price equal to 100% of the aggregate principal amount of the 2025 CQP Senior Notes redeemed, plus the “applicable premium” set forth in the CQP Indenture, plus accrued and unpaid interest, if any, to the date of redemption. In addition, at any time prior to October 1, 2020, CQP may redeem up to 35% of the aggregate principal amount of the 2025 CQP Senior Notes with an amount of cash not greater than the net cash proceeds from certain equity offerings at a redemption price equal to 105.250% of the aggregate principal amount of the 2025 CQP Senior Notes redeemed, plus accrued and unpaid interest, if any, to the date of redemption. CQP also may at any time on or after October 1, 2020 through the maturity date of October 1, 2025, redeem the 2025 CQP Senior Notes, in whole or in part, at the redemption prices set forth in the CQP Indenture.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The 2025 CQP Senior Notes are CQP’s senior obligations, ranking equally in right of payment with CQP’s other existing and future unsubordinated debt and senior to any of its future subordinated debt. The 2025 CQP Senior Notes will be secured alongside the 2016 CQP Credit Facilities on a first-priority basis (subject to permitted encumbrances) with liens on (1) substantially all the existing and future tangible and intangible assets and rights of CQP and the CQP Guarantors and equity interests in the CQP Guarantors (except, in each case, for certain excluded properties set forth in the 2016 CQP Credit Facilities) and (2) substantially all of the real property of SPLNG (except for excluded properties referenced in the 2016 CQP Credit Facilities). Upon the release of the liens securing the 2025 CQP Senior Notes, the limitation on liens covenant under the CQP Indenture will continue to govern the incurrence of liens by CQP and the CQP Guarantors.
In connection with the closing of the sale of the 2025 CQP Senior Notes, CQP and the CQP Guarantors entered into a registration rights agreementsagreement (the “SPL“CQP Registration Rights Agreements”Agreement”). Under the terms of the SPLCQP Registration Rights Agreements, SPL hasAgreement, CQP and the CQP Guarantors have agreed and any future guarantors will agree, to use commercially reasonable efforts to file with the SEC and cause to become effective a registration statementsstatement relating to offersan offer to exchange any and all of the 2026 SPL Senior Notes and 2027 SPL2025 CQP Senior Notes for a like aggregate principal amountsamount of debt securities of SPLCQP with terms identical in all material respects to the respective senior notes2025 CQP Senior Notes sought to be exchanged (other than with respect to restrictions on transfer or to any increase in annual interest rate), within 360 days after June 14, 2016 and September 23, 2016, respectively.18, 2017. Under specified circumstances, SPL hasCQP and the CQP Guarantors have also agreed and any future guarantors will also agree, to use commercially reasonable efforts to cause to become effective a shelf registration statementsstatement relating to resales of the 2026 SPL Senior Notes and the 2027 SPL2025 CQP Senior Notes. SPLCQP will be obligated to pay additional interest on these senior notesthe 2025 CQP Senior Notes if it fails to comply with its obligation to register themthe 2025 CQP Senior Notes within the specified time period.
20242027 CCH Senior Notes
In May 2016,2017, CCH issued an aggregate principal amount of $1.25$1.5 billion of the 20242027 CCH Senior Notes, which are jointly and severally guaranteed by its subsidiaries, CCL, CCP and Corpus Christi Pipeline GP, LLC (“CCP GP”, and collectively with CCL and CCP, the “Guarantors”“CCH Guarantors”). Net proceeds of the offering of approximately $1.1$1.4 billion, after deducting commissions, fees and expenses and provisioning for incremental interest required under the 20242027 CCH Senior Notes during construction, were used to prepay a portion of the outstanding borrowings under the 2015 CCH Credit Facility, resulting in a write-off of debt issuance costs associated with the 2015 CCH Credit Facility of $29.0$33 million during the nine months ended September 30, 2016.2017. Borrowings under the 20242027 CCH Senior Notes accrue interest at a fixed rate of 7.000%5.125%, and interest on the 20242027 CCH Senior Notes is payable semi-annually in arrears.
The indenture governing the 20242027 CCH Senior Notes are governed by the same common indenture as the other senior notes of CCH (the “CCH Indenture”), which contains customary terms and events of default, covenants and certain covenants that, among other things, limit CCH’s ability and the ability of CCH’s restricted subsidiaries to: incur additional indebtedness or issue preferred stock; make certain investments or pay dividends or distributions on membership interests or subordinated indebtedness or purchase, redeem or retire membership interests; sell or transfer assets, including membership or partnership interests of CCH’s restricted subsidiaries; restrict dividends or other payments by restricted subsidiaries to CCH or any of CCH’s restricted subsidiaries; incur liens; enter into transactions with affiliates; dissolve, liquidate, consolidate, merge, sell or lease all or substantially all of the properties or assets of CCH and its restricted subsidiaries taken as a whole; or permit any Guarantor to dissolve, liquidate, consolidate, merge, sell or lease all or substantially all of its properties and assets.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
redemption terms.
At any time prior to January 1, 2024,2027, CCH may redeem all or a part of the 20242027 CCH Senior Notes at a redemption price equal to the “make-whole” price set forth in the CCH Indenture, plus accrued and unpaid interest, if any, to the date of redemption. CCH also may at any time on or after January 1, 20242027 through the maturity date of June 30, 2024,2027, redeem the 20242027 CCH Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 20242027 CCH Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to the date of redemption.
In connection with the closing of the sale of the 20242027 CCH Senior Notes, CCH and the CCH Guarantors entered into a Registration Rights Agreement dated May 18, 2016registration rights agreement (the “CCH Registration Rights Agreement”). Under the terms of the CCH Registration Rights Agreement, CCH and the CCH Guarantors have agreed, and any future guarantors of the 20242027 CCH Senior Notes will agree, to use commercially reasonable efforts to file with the SEC and cause to become effective a registration statement within 360 days after May 18, 2016 with respectrelating to an offer to exchange any and all of the 20242027 CCH Senior Notes for a like aggregate principal amount of debt securities of CCH with terms identical in all material respects to the respective 20242027 CCH Senior Notes sought to be exchanged (other than with respect to restrictions on transfer or to any increase in annual interest rate), and that are registered under the Securities Act.within 360 days after May 19, 2017. Under specified circumstances, CCH and the CCH Guarantors have also agreed, and any future guarantors of the 20242027 CCH Senior Notes will also agree, to use commercially reasonable efforts to cause to become effective a shelf registration statement relating to resales of the 20242027 CCH Senior Notes. CCH will be obligated to pay additional interest on the 2027 CCH Senior Notes if it fails to comply with its obligation to register the 20242027 CCH Senior Notes within the specified time period.
2016 CQPCheniere Revolving Credit FacilitiesFacility
In February 2016, Cheniere PartnersMarch 2017, we entered into the $2.8 billion 2016 CQPCheniere Revolving Credit Facilities, which consist of: (1) a $450.0 million CTPL tranche term loan that was used to prepay the $400.0 million CTPL Term Loan in February 2016, (2) an approximately $2.1 billion SPLNG tranche term loan that will be used to redeem or repay the approximately $2.1 billion of the 2016 SPLNG Senior Notes and the 2020 SPLNG Senior Notes (which must be redeemed or repaid concurrently under the terms of the 2016 CQP Credit Facilities), (3) a $125.0 million debt service reserve credit facility (the “DSR Facility”)Facility that may be used to satisfy a six-month debt service reserve requirementfund, through loans and (4) a $115.0 million revolvingletters of credit, facilityequity capital contributions to CCH HoldCo II and its subsidiaries for the development of the CCL Project and, provided that may be usedcertain conditions are met, for general businesscorporate purposes. No advances or letters of credit under the Cheniere Revolving
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The 2016 CQP Credit FacilitiesFacility were available until either (1) Cheniere’s unrestricted cash and cash equivalents are less than $500 million or (2) Train 4 of the SPL Project has achieved substantial completion. We incurred $16 million of debt issuance costs related to the Cheniere Revolving Credit Facility during the nine months ended September 30, 2017.
Loans under the Cheniere Revolving Credit Facility accrue interest at a variable rate per annum equal to LIBOR or the base rate (equal to the highest of (1) the prime rate, (2) the federal funds effective rate as published by the Federal Reserve Bank of New York, plus 0.50% and adjusted(3) one month LIBOR plus 1.0%1.00%), plus the applicable margin. The applicable margin for LIBOR loans is 2.25%3.25% per annum, and the applicable margin for base rate loans is 1.25%2.25% per annum, in each case with a 0.50% step-up beginning on February 25, 2019.annum. Interest on LIBOR loans is due and payable at the end of each applicable LIBOR period, (and at the end of every three month period within the LIBOR period, if any), and interest on base rate loans is due and payable at the end of each calendar quarter.
Cheniere Partners incurred $48.7 million of debt issuance costs as of September 30, 2016, and We will incur an additional $21.5 million of debt issuance costs when the SPLNG tranche is funded. The prepayment of the CTPL Term Loan resulted in a write-off of unamortized discount and debt issuance costs of $1.5 million during the nine months ended September 30, 2016. Cheniere Partners paysalso pay (1) a commitment fee equal to an annual rate of 40% of the margin for LIBOR loans multiplied byon the average daily amount of the undrawn commitment, payable quarterly in arrears. The DSR Facility and the revolving credit facility are both available for the issuance of letters of credit, which incur a fee equal tocommitments at an annual rate of 2.25%0.75%, payable quarterly in arrears, and (2) a letter of credit fee at an annual rate equal to the applicable margin for LIBOR loans on the undrawn portion with a 0.50% step-up beginningof all letters of credit issued under the Cheniere Revolving Credit Facility. Draws on February 25, 2019.any letters of credit will accrue interest at an annual rate equal to the base rate plus 2.0%.
The 2016 CQPCheniere Revolving Credit Facilities matureFacility matures on February 25, 2020,March 2, 2021 and the outstanding balance may be repaid, in whole or in part, at any time without premium or penalty, except for interest hedgingcontains representations, warranties and interest rate breakage costs. The 2016 CQP Credit Facilities contain conditions precedent for extensions of credit, as well as customary affirmative and negative covenants andcustomary for companies like Cheniere with lenders of the type participating in the Cheniere Revolving Credit Facility that limit Cheniere Partners’our ability to make restricted payments, including distributions, to once per fiscal quarter as long asunless certain conditions are satisfied.satisfied, as well as limitations on indebtedness, guarantees, hedging, liens, investments and affiliate transactions. Under the termsCheniere Revolving Credit Facility, we are required to ensure that the sum of our unrestricted cash and the amount of undrawn commitments under the Cheniere Revolving Credit Facility is at least equal to the lesser of (1) 20% of the 2016 CQPcommitments under the Cheniere Revolving Credit Facilities, Cheniere Partners is required to hedge not less than 50% of the variable interest rate exposure on its projected aggregate outstanding balance, maintain a minimum debt service coverage ratio of at least 1.15x at the end of each fiscal quarter beginning March 31, 2019Facility and have a projected debt service coverage ratio of 1.55x in order to incur additional indebtedness to refinance a portion of the existing obligations.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
(2) $100 million.
The 2016 CQPCheniere Revolving Credit Facilities are unconditionally guaranteedFacility is secured by each subsidiarya first priority security interest (subject to permitted liens and other customary exceptions) in substantially all of Cheniere Partners other than: (1) SPL, (2) SPLNG until funding of its tranche term loan and (3) certain of theour assets, including our interests in our direct subsidiaries of Cheniere Partners owning other development projects, as well as certain other specified subsidiaries and members of the foregoing entities.(excluding CCH HoldCo II).
Credit Facilities
Below is a summary (in millions) of our credit facilities outstanding as of September 30, 2016 (in thousands):2017:
| | | | 2015 SPL Credit Facilities | | SPL Working Capital Facility | | 2016 CQP Credit Facilities | | 2015 CCH Credit Facility | | SPL Working Capital Facility | | 2016 CQP Credit Facilities | | 2015 CCH Credit Facility | | CCH Working Capital Facility | | Cheniere Revolving Credit Facility |
Original facility size | | $ | 4,600,000 |
| | $ | 1,200,000 |
| | $ | 2,800,000 |
| | $ | 8,403,714 |
| | $ | 1,200 |
| | $ | 2,800 |
| | $ | 8,404 |
| | $ | 350 |
| | $ | 750 |
|
Outstanding balance | | — |
| | 98,500 |
| | 450,000 |
| | 3,283,340 |
| | — |
| | 1,090 |
| | 2,151 |
| | — |
| | — |
|
Commitments prepaid or terminated | | 2,643,867 |
| | — |
| | — |
| | 1,050,660 |
| | — |
| | 1,470 |
| | 3,832 |
| | — |
| | — |
|
Letters of credit issued | | — |
| | 337,044 |
| | 7,500 |
| | — |
| | 721 |
| | 50 |
| | — |
| | 163 |
| | — |
|
Available commitment | | $ | 1,956,133 |
| | $ | 764,456 |
| | $ | 2,342,500 |
| | $ | 4,069,714 |
|
| $ | 479 |
|
| $ | 190 |
|
| $ | 2,421 |
|
| $ | 187 |
|
| $ | 750 |
|
| | | | | | | | | | | | | | | | | | |
Interest rate | | LIBOR plus 1.30% - 1.75% or base rate plus 1.75% | | LIBOR plus 1.75% or base rate plus 0.75% | | LIBOR plus 2.25% or base rate plus 1.25% (1) | | LIBOR plus 2.25% or base rate plus 1.25% (2) | | LIBOR plus 1.75% or base rate plus 0.75% | | LIBOR plus 2.25% or base rate plus 1.25% (1) | | LIBOR plus 2.25% or base rate plus 1.25% (2) | | LIBOR plus 1.50% - 2.00% or base rate plus 0.50% - 1.00% | | LIBOR plus 3.25% or base rate plus 2.25% |
Maturity date | | Earlier of December 31, 2020 or second anniversary of SPL Trains 1 through 5 completion date | | December 31, 2020, with various terms for underlying loans | | February 25, 2020, with principals due quarterly commencing on February 19, 2019 | | Earlier of May 13, 2022 or second anniversary of CCL Trains 1 and 2 completion date | | December 31, 2020, with various terms for underlying loans | | February 25, 2020, with principals due quarterly commencing on February 19, 2019 | | Earlier of May 13, 2022 or second anniversary of CCL Trains 1 and 2 completion date | | December 14, 2021, with various terms for underlying loans | | March 2, 2021 |
| |
(1) | There is a 0.50% step-up for both LIBOR and base rate loans beginning on February 25, 2019. |
| |
(2) | There is a 0.25% step-up for both LIBOR and base rate loans following the completion of the first two Trains 1 and 2 of the CCL Project.Project as defined in the common terms agreement. |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Convertible Notes
Below is a summary (in millions) of our convertible notes outstanding as of September 30, 2016 (in thousands):2017:
| | | | 2021 Cheniere Convertible Unsecured Notes | | 2025 CCH HoldCo II Convertible Senior Notes | | 2045 Cheniere Convertible Senior Notes | | 2021 Cheniere Convertible Unsecured Notes | | 2025 CCH HoldCo II Convertible Senior Notes | | 2045 Cheniere Convertible Senior Notes |
Aggregate original principal | | $ | 1,000,000 |
| | $ | 1,000,000 |
| | $ | 625,000 |
| | $ | 1,000 |
| | $ | 1,000 |
| | $ | 625 |
|
Debt component, net of discount | | $ | 927,729 |
| | $ | 1,139,667 |
| | $ | 307,559 |
| | $ | 1,006 |
| | $ | 1,270 |
| | $ | 310 |
|
Equity component | | $ | 203,892 |
| | $ | — |
| | $ | 194,082 |
| | $ | 205 |
| | $ | — |
| | $ | 194 |
|
Interest payment method | | Paid-in-kind |
| | Paid-in-kind (1) |
| | Cash |
| | Paid-in-kind |
| | Paid-in-kind (1) |
| | Cash |
|
Conversion by us (2) | | — |
| | (3) |
| | (4) |
| | — |
| | (3) |
| | (4) |
|
Conversion by holders (2) | | (5) |
| | (6) |
| | (7) |
| | (5) |
| | (6) |
| | (7) |
|
Conversion basis | | Cash and/or stock |
| | Stock |
| | Cash and/or stock |
| | Cash and/or stock |
| | Stock |
| | Cash and/or stock |
|
Conversion value in excess of principal | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Maturity date | | May 28, 2021 |
| | March 1, 2025 |
| | March 15, 2045 |
| | May 28, 2021 |
| | March 1, 2025 |
| | March 15, 2045 |
|
Contractual interest rate | | 4.875 | % | | 11.0 | % | | 4.25 | % | | 4.875 | % | | 11.0 | % | | 4.25 | % |
Effective interest rate(8) | | 8.3 | % | | 11.9 | % | | 9.4 | % | | 8.2 | % | | 11.9 | % | | 9.4 | % |
Remaining debt discount and debt issuance costs amortization period (8)(9) | | 4.7 years |
| | 4.0 years |
| | 28.5 years |
| | 3.7 years |
| | 3.0 years |
| | 27.5 years |
|
| |
(1) | Prior to the substantial completion of Train 2 of the CCL Project, interest will be paid entirely in kind. Following this date, the interest generally must be paid in cash; however, a portion of the interest may be paid in kind under certain specified circumstances. |
| |
(2) | Conversion is subject to various limitations and conditions. |
| |
(3) | Convertible on or after the later of March 1, 2020 and the substantial completion of Train 2 of the CCL Project, provided that our market capitalization is not less than $10.0 billion (“Eligible Conversion Date”). The conversion price is the lower of (1) a 10% discount to the average of the daily volume-weighted average price (“VWAP”) of our common stock for the 90 trading day period prior to the date notice is provided, and (2) a 10% discount to the closing price of our common stock on the trading day preceding the date notice is provided. |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
lower of (1) a 10% discount to the average of the daily volume-weighted average price (“VWAP”) of our common stock for the 90 trading day period prior to the date notice is provided, and (2) a 10% discount to the closing price of our common stock on the trading day preceding the date notice is provided.
| |
(4) | Redeemable at any time after March 15, 2020 at a redemption price payable in cash equal to the accreted amount of the 2045 Cheniere Convertible Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to such redemption date. |
| |
(5) | Initially convertible at $93.64 (subject to adjustment upon the occurrence of certain specified events), provided that the closing price of our common stock is greater than or equal to the conversion price on the conversion date. |
| |
(6) | Convertible on or after the six-month anniversary of the Eligible Conversion Date, provided that our total market capitalization is not less than $10.0 billion, at a price equal to the average of the daily VWAP of our common stock for the 90 trading day period prior to the date on which notice of conversion is provided. |
| |
(7) | Prior to December 15, 2044, convertible only under certain circumstances as specified in the indenture; thereafter, holders may convert their notes regardless of these circumstances. The conversion rate will initially equal 7.2265 shares of our common stock per $1,000 principal amount of the 2045 Cheniere Convertible Senior Notes, which corresponds to an initial conversion price of approximately $138.38 per share of our common stock (subject to adjustment upon the occurrence of certain specified events). |
| |
(8) | Rate to accrete the discounted carrying value of the convertible notes to the face value over the remaining amortization period. |
| |
(9) | We amortize any debt discount and debt issuance costs using the effective interest over the period through contractual maturity except for the 2025 CCH HoldCo II Convertible Senior Notes, which are amortized through the date they are first convertible by holders into our common stock. |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Interest Expense
Total interest expense, including interest expense related to our convertible notes, consisted of the following (in thousands)millions):
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2016 | | 2015 | | 2016 | | 2015 | | 2017 | | 2016 | | 2017 | | 2016 |
Interest cost on convertible notes: | | | | | | | | | | | | | | | | |
Interest per contractual rate | | $ | 51,000 |
| | $ | 46,782 |
| | $ | 149,893 |
| | $ | 97,991 |
| | $ | 55 |
| | $ | 51 |
| | $ | 162 |
| | $ | 150 |
|
Amortization of debt discount | | 6,593 |
| | 7,233 |
| | 24,578 |
| | 20,948 |
| | 8 |
| | 7 |
| | 22 |
| | 24 |
|
Amortization of debt issuance costs | | 1,362 |
| | 1,133 |
| | 3,766 |
| | 1,748 |
| | 2 |
| | 1 |
| | 5 |
| | 4 |
|
Total interest cost related to convertible notes | | 58,955 |
|
| 55,148 |
| | 178,237 |
| | 120,687 |
| | 65 |
|
| 59 |
| | 189 |
| | 178 |
|
Interest cost on debt excluding convertible notes | | 281,814 |
|
| 230,807 |
| | 773,032 |
|
| 587,137 |
| | 324 |
|
| 282 |
| | 931 |
|
| 773 |
|
Total interest cost | | 340,769 |
| | 285,955 |
| | 951,269 |
| | 707,824 |
| | 389 |
| | 341 |
| | 1,120 |
| | 951 |
|
Capitalized interest | | (192,716 | ) | | (192,389 | ) | | (620,912 | ) | | (469,160 | ) | | (203 | ) | | (193 | ) | | (581 | ) | | (621 | ) |
Total interest expense, net | | $ | 148,053 |
|
| $ | 93,566 |
| | $ | 330,357 |
| | $ | 238,664 |
| | $ | 186 |
|
| $ | 148 |
| | $ | 539 |
| | $ | 330 |
|
Fair Value Disclosures
The following table (in thousands)millions) shows the carrying amount and estimated fair value of our debt:
| | | | September 30, 2016 | | December 31, 2015 | | September 30, 2017 | | December 31, 2016 |
| | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Senior Notes, net of premium or discount (1) | | $ | 14,848,135 |
| | $ | 15,747,108 |
| | $ | 10,596,307 |
| | $ | 9,525,809 |
| |
CTPL Term Loan, net of discount (2) | | — |
| | — |
| | 398,571 |
| | 400,000 |
| |
Credit facilities (2) (3) | | 3,850,647 |
| | 3,850,647 |
| | 3,573,000 |
| | 3,573,000 |
| |
Senior notes, net of premium or discount (1) | | | $ | 18,610 |
| | $ | 20,140 |
| | $ | 14,263 |
| | $ | 15,210 |
|
2037 SPL Senior Notes (2) | | | 800 |
| | 844 |
| | — |
| | — |
|
Credit facilities (3) | | | 3,282 |
| | 3,282 |
| | 5,502 |
| | 5,502 |
|
2021 Cheniere Convertible Unsecured Notes, net of discount (4)(2) | | 927,729 |
| | 981,520 |
| | 879,938 |
| | 825,413 |
| | 1,006 |
| | 1,096 |
| | 960 |
| | 983 |
|
2025 CCH HoldCo II Convertible Senior Notes (4)(2) | | 1,139,667 |
| | 1,296,440 |
| | 1,050,588 |
| | 914,363 |
| | 1,270 |
| | 1,502 |
| | 1,171 |
| | 1,328 |
|
2045 Cheniere Convertible Senior Notes, net of discount (5)(4) | | 307,559 |
| | 414,063 |
| | 305,938 |
| | 331,919 |
| | 310 |
| | 437 |
| | 308 |
| | 375 |
|
| |
(1) | Includes 2016 SPLNG Senior Notes, net of discount; 2020 SPLNG Senior Notes; 2021 SPL Senior Notes, net of premium; 2022 SPL Senior Notes;Notes, 2023 SPL Senior Notes, net of premium; 2024 SPL Senior Notes;Notes, 2025 SPL Senior Notes;Notes, 2026 |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
SPL Senior Notes; 2027 SPL Senior Notes; and 2024 CCH Senior Notes (collectively, the “Senior Notes”). The Level 2 estimated fair value was based on quotes obtained from broker-dealers or market makers of the Senior Notes, 2027 SPL Senior Notes, 2028 SPL Senior Notes, 2025 CQP Senior Notes, 2024 CCH Senior Notes, 2025 CCH Senior Notes and 2027 CCH Senior Notes. The Level 2 estimated fair value was based on quotes obtained from broker-dealers or market makers of these senior notes and other similar instruments.
| |
(2) | The Level 3 estimated fair value approximates the principal amount because the interest rates are variable and reflective of market rates and the debt may be repaid, in full or in part, at any time without penalty. |
| |
(3) | Includes 2015 SPL Credit Facilities, SPL Working Capital Facility, 2016 CQP Credit Facilities, 2015 CCH Credit Facility and Cheniere Marketing trade finance facilities. |
| |
(4)(2) | The Level 3 estimated fair value was calculated based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including our stock price and interest rates based on debt issued by parties with comparable credit ratings to us and inputs that are not observable in the market. |
| |
(5)(3) | Includes 2015 SPL Credit Facilities, SPL Working Capital Facility, 2016 CQP Credit Facilities, 2015 CCH Credit Facility, CCH Working Capital Facility, Cheniere Revolving Credit Facility and Cheniere Marketing trade finance facilities. The Level 3 estimated fair value approximates the principal amount because the interest rates are variable and reflective of market rates and the debt may be repaid, in full or in part, at any time without penalty. |
| |
(4) | The Level 1 estimated fair value was based on unadjusted quoted prices in active markets for identical liabilities that we had the ability to access at the measurement date. |
NOTE 12—11—RESTRUCTURING EXPENSE
During the fourth quarter of 2015 and 2016, we initiated and implemented certain organizational changes to simplify our corporate structure, improve our operational efficiencies and implement a strategy for sustainable, long-term stockholder value creation through financially disciplined development, construction, operation and investment. These organizational initiatives were completed as of the first quarter of 2017. As a result of these efforts, we recorded $26.2$6 million during the nine months ended September 30, 2017 and $26 million and $49.2$49 million during the three and nine months ended September 30, 2016, respectively, of restructuring charges and other costs associated with restructuring and operational efficiency initiatives during the three and nine months ended September 30, 2016, respectively, for which the majority of these charges required or will require, cash expenditure. Included in these amounts are $20.9were $3 million for share-based compensation during the nine months ended September 30, 2017 and $21 million and $42.9$43 million for share-based compensation during the three and nine months ended September 30,
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
2016, respectively. All charges were recorded within the line item entitled “restructuring expense” on our Consolidated Statements of Operations and substantially all related to severance and other employee-related costs. As of September 30, 2016 and December 31, 2015,2016, we had $14.6$6 million and $33.0 million, respectively, of accrued restructuring charges and other costs that were recorded as part of accrued liabilities on our Consolidated Balance Sheets. Operational efficiency initiatives remain ongoing and are expected to be substantially complete by the end of 2016.
NOTE 13—12—INCOME TAXES
We are not presentlyDue to our cumulative loss position and historical net operating losses (“NOLs”), we have recorded a taxpayer for federal or state incomefull valuation allowance against our U.S. deferred tax purposesassets at September 30, 2017 and haveDecember 31, 2016. Accordingly, the Company has not recorded a provision for federal or state income taxes in any ofduring the periods includedthree and nine months ended September 30, 2017 and 2016. Any provision recorded in the accompanying Consolidated Financial Statements. We have recorded a net benefit (provision) of $(1.6) million and $0.1 million for the three months ended September 30, 2016 and 2015, respectively, and $(1.9) million and $(0.1) million for the nine months ended September 30, 2016 and 2015, respectively,Statements is for foreign income taxes.
We experienced an ownership change within the provisions ofchanges as defined by Internal Revenue Code (“IRC”) Section 382 in 2008, 2010 and 2012. An analysis of the annual limitation on the utilization of our net operating losses (“NOLs”)NOLs was performed in accordance with IRC Section 382. It was determined that IRC Section 382 will not limit the use of our NOLs in full over the carryover period. We will continue to monitor trading activity in our shares whichthat may cause an additional ownership change, which couldmay ultimately affect our ability to fully utilize our existing NOL carryforwards.
NOTE 14—13—SHARE-BASED COMPENSATION
We have granted stock, restricted stock, restricted stock units, performance stock units, phantom units and options to purchase common stock to employees, outside directors and a consultant under the Amended and Restated 2003 Stock Incentive Plan, as amended, (the “2003 Plan”), 2011 Incentive Plan, as amended (the “2011 Plan”), the 2015 Long-Term Cash Incentive Plan (the “2015 Plan”) and the 2015 Employee Inducement Incentive Plan (the “Inducement Plan”).Plan.
The 2003 Plan and 2011 Plan provide forIn January 2017, the issuance of 21.0awards with respect to 7.8 million shares and 35.0 million shares, respectively,of common stock available for issuance under the 2011 Plan was approved at a special meeting of our common stock that may be in the form of non-qualified stock options, incentive stock options, purchased stock, restricted (non-vested) stock, bonus (unrestricted) stock, stock appreciation rights, phantom units and other share-based performance awards deemed by the Compensation Committee ofshareholders. In February 2017, our Board of Directors (the “Compensation Committee”) to be consistent withapproved the purposesaward of the 2003 Plan0.9 million restricted stock units and 2011 Plan. As of September 30, 2016, all of the shares under the 2003 Plan have been granted and
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
26.60.2 million shares, net of cancellations, have been grantedtarget performance stock units under the 2011 Plan. The 2015 Plan generally provides for cash-settled awardsto certain employees as part of the Long-Term Incentive program implemented in the form of2017. Restricted stock appreciation rights, phantom unit awards vest ratably over a three-year service period on each of the first, second and third anniversaries of the grant date, subject to forfeiture upon termination except in certain events and acceleration upon certain events including death or disability. Performance stock units provide for three-year cliff vesting with payouts based on the Company’s cumulative distributable cash flow per share from January 1, 2018 through December 31, 2019 compared to a pre-established performance unit awards, other-stock based awardstarget. The number of shares that may be earned at the end of the vesting period ranges from 50 to 200 percent of the target award amount if the threshold performance is met. Both restricted stock units and cash awards. As of September 30, 2016, 6.3 million phantomperformance stock units have been granted under the 2015 Plan. See Note 20—Subsequent Events regarding the termination of 2014-2018 Long-Term Cash Incentive Program (“2014-2018 LTIP”) under the 2015 Plan. The Inducement Plan provides for the issuance of up to 1.0 millionwill be settled in shares of ourCheniere common stock in the form of non-qualified stock options, restricted stock awards, stock appreciation rights, performance awards, phantom stock awards and other stock-based awards deemed by the Compensation Committee to provide us with an opportunity to attract employees. As of September 30, 2016, 0.2 million shares of restricted stock have been granted under the Inducement Plan.are classified as equity awards.
Total share-based compensation expense consisted of the following (in thousands)millions):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2016 | | 2015 | | 2016 | | 2015 |
Total share-based compensation | | $ | 39,557 |
| | $ | 27,451 |
| | $ | 97,617 |
| | $ | 114,107 |
|
Capitalized share-based compensation | | (6,153 | ) | | (1,202 | ) | | (12,489 | ) | | (21,480 | ) |
Total share-based compensation expense | | $ | 33,404 |
| | $ | 26,249 |
| | $ | 85,128 |
| | $ | 92,627 |
|
The total unrecognized compensation cost at September 30, 2016 relating to non-vested share-based compensation arrangements was $138.0 million, which is expected to be recognized over a weighted average period of 1.4 years. |
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Share-based compensation: | | | | | | | | |
Equity awards | | $ | 10 |
| | $ | 7 |
| | $ | 25 |
| | $ | 37 |
|
Liability awards | | 12 |
| | 33 |
| | 56 |
| | 61 |
|
Total share-based compensation | | 22 |
|
| 40 |
|
| 81 |
|
| 98 |
|
Capitalized share-based compensation | | (4 | ) | | (7 | ) | | (17 | ) | | (13 | ) |
Total share-based compensation expense | | $ | 18 |
|
| $ | 33 |
|
| $ | 64 |
|
| $ | 85 |
|
DuringFor further discussion of our equity incentive plans, see Note 15—Share-Based Compensation of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the three and nine monthsyear ended September 30, 2016, we recognized $4.3 million and $5.6 million, respectively, of share-based compensation expense related to the modification of share-based compensation awards resulting from employee terminations.December 31, 2016.
We received $0.1 million in each of the three and nine months ended September 30, 2016 and $0.4 million and $2.3 million in the three and nine months ended September 30, 2015, respectively, of proceeds from the exercise of stock options.
NOTE 15—14—NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
Basic net loss per share attributable to common stockholders (“EPS”) excludes dilution and is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS reflects potential dilution and is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period increased by the number of additional common shares that would have
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
been outstanding if the potential common shares had been issued. The dilutive effect of stock options and unvested stock is calculated using the treasury-stock method and the dilutive effect of convertible securities is calculated using the if-converted method.
The following table (in thousands,millions, except for loss per share)share data) reconciles basic and diluted weighted average common shares outstanding for the three and nine months ended September 30, 20162017 and 2015:2016:
| | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, | | September 30, | | September 30, |
| | 2016 | | 2015 | | 2016 | | 2015 | | 2017 | | 2016 | | 2017 | | 2016 |
Weighted average common shares outstanding: | | | | | | | | | | | | | | | | |
Basic | | 228,924 |
| | 227,126 |
| | 228,463 |
| | 226,648 |
| | 232.6 |
| | 228.9 |
| | 232.5 |
| | 228.5 |
|
Dilutive common stock options and unvested stock (1) | | — |
| | — |
| | — |
| | — |
| |
Dilutive unvested stock | | | — |
| | — |
| | — |
| | — |
|
Diluted | | 228,924 |
| | 227,126 |
| | 228,463 |
| | 226,648 |
| | 232.6 |
| | 228.9 |
| | 232.5 |
| | 228.5 |
|
| | | | | | | | | | | | | | | | |
Basic and diluted net loss per share attributable to common stockholders | | $ | (0.44 | ) | | $ | (1.31 | ) | | $ | (3.15 | ) | | $ | (3.02 | ) | | $ | (1.24 | ) | | $ | (0.44 | ) | | $ | (2.24 | ) | | $ | (3.15 | ) |
Potentially dilutive securities that were not included in the diluted net loss per share computations because their effects would have been anti-dilutive were as follows (in millions):
|
| | | | | | |
| | Three And Nine Months Ended September 30, |
| | 2017 | | 2016 |
Stock options and unvested stock (1) | | 1.5 |
| | 0.8 |
|
Convertible notes (2) | | 16.8 |
| | 16.2 |
|
Total potentially dilutive common shares | | 18.3 |
| | 17.0 |
|
| |
(1) | Stock options and unvested stock of 5.8 million shares and 5.7 million shares for the three and nine months ended September 30, 2016, respectively, and 8.6 million shares for each of the three and nine months ended September 30, 2015, representing securities that could potentially dilute basic EPS in the future, wereDoes not included in the diluted net loss per share computations because their effect would have been anti-dilutive. Included in these numbers of shares areinclude 5.1 million shares for each of the three and nine months ended September 30, 20162017 and 5.4 million shares for each of the three and nine months ended September 30, 20152016 of unvested stock that havebecause the performance conditions had not yet been satisfied as of September 30, 2017 and 2016, and 2015, respectively. In addition, 16.2 million |
| |
(2) | Includes number of shares in aggregate issuable upon conversion of the 2021 Cheniere Convertible Unsecured Notes and the 2045 Cheniere Convertible Senior Notes. There were no shares included in the computation of diluted net loss per share for the three and nine months2025 CCH HoldCo II Convertible Senior Notes because substantive non-market-based contingencies underlying the eligible conversion date have not been met as of September 30, 2017. |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
ended September 30, 2016 and 15.6 million shares in aggregate for the three and nine months ended September 30, 2015, issuable upon conversion of the 2021 Cheniere Convertible Unsecured Notes and the 2045 Cheniere Convertible Senior Notes, were not included in the computation of diluted net loss per share because the computation of diluted net loss per share utilizing the “if-converted” method would be anti-dilutive. There were no shares included in the computation of diluted net loss per share for the 2025 CCH HoldCo II Convertible Senior Notes because substantive non-market-based contingencies underlying the eligible conversion date have not been met as of September 30, 2016.
NOTE 16—15—COMMITMENTS AND CONTINGENCIES
Cheniere hasWe have various contractual obligations which are recorded as liabilities in our Consolidated Financial Statements. Other items, such as certain purchase commitments and other executed contracts which do not meet the definition of a liability as of September 30, 2016,2017, are not recognized as liabilities.
Obligations under Certain Guarantee Contracts
Cheniere and certain of its subsidiaries enter into guarantee arrangements in the normal course of business to facilitate transactions with third parties. These arrangements include financial guarantees, letters of credit and debt guarantees. As of September 30, 2017 and December 31, 2016, there were no liabilities recognized under these guarantee arrangements.
Legal Proceedings
We may in the future be involved as a party to various legal proceedings, which are incidental to the ordinary course of business. We regularly analyze current information and, as necessary, provide accruals for probable liabilities on the eventual disposition of these matters.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Parallax Litigation
In 2015, our wholly owned subsidiary, Cheniere LNG Terminals, LLC (“CLNGT”), entered into discussions with Parallax Enterprises, LLC (“Parallax Enterprises”) regarding the potential joint development of two liquefaction plants in Louisiana (the “Potential Liquefaction Transactions”). While the parties negotiated regarding the Potential Liquefaction Transactions, CLNGT loaned Parallax Enterprises approximately $46 million, as reflected in a secured note dated April 23, 2015, as amended on June 30, 2015, September 30, 2015 and November 4, 2015 (the “Secured Note”). The Secured Note was secured by all assets of Parallax Enterprises and its subsidiary entities. On June 30, 2015, Parallax Enterprises’ parent entity, Parallax Energy LLC (“Parallax Energy”), executed a Pledge and Guarantee Agreement further securing repayment of the Secured Note by providing a parent guaranty and a pledge of all of the equity of Parallax Enterprises in satisfaction of the Secured Note (the “Pledge Agreement”). CLNGT and Parallax Enterprises never executed a definitive agreement to pursue the Potential Liquefaction Transactions. The Secured Note matured on December 11, 2015, and Parallax Enterprises failed to make payment. On February 3, 2016, CLNGT filed an action against Parallax Energy, Parallax Enterprises, and certain of Parallax Enterprises’ subsidiary entities, styled Cause No. 4:16-cv-00286, Cheniere LNG Terminals, LLC v. Parallax Energy LLC, et al., in the United States District Court for the Southern District of Texas (the “Texas Federal Suit”). CLNGT asserted claims in the Texas Federal Suit for (1) recovery of all amounts due under the Secured Note and (2) declaratory relief establishing that CLNGT is entitled to enforce its rights under the Secured Note and Pledge Agreement in accordance with each instrument’s terms and that CLNGT has no obligations of any sort to Parallax Enterprises concerning the Potential Liquefaction Transactions. On March 11, 2016, Parallax Enterprises and the other defendants in the Texas Federal Suit moved to dismiss the suit for lack of subject matter jurisdiction. On August 2, 2016, the court denied the defendants’ motion to dismiss without prejudice and permitted the parties to pursue jurisdictional discovery, which is ongoing.discovery.
On March 11, 2016, Parallax Enterprises filed a suit against us and CLNGT styled Civil Action No. 62-810, Parallax Enterprises LLP v. Cheniere Energy, Inc. and Cheniere LNG Terminals, LLC, in the 25th Judicial District Court of Plaquemines Parish, Louisiana (the “Louisiana Suit”), wherein Parallax Enterprises asserted claims for breach of contract, fraudulent inducement, negligent misrepresentation, detrimental reliance, unjust enrichment and violation of the Louisiana Unfair Trade Practices Act. Parallax Enterprises predicated its claims in the Louisiana Suit on an allegation that we and CLNGT breached a purported agreement to jointly develop the Potential Liquefaction Transactions. Parallax Enterprises sought $400 million in alleged economic damages and rescission of the Secured Note. On April 15, 2016, we and CLNGT removed the Louisiana Suit to the United States District Court for the Eastern District of Louisiana, which subsequently transferred the Louisiana Suit to the United States District Court for the Southern District of Texas, where it was assigned Civil Action No. 4:16-cv-01628 and transferred to the same judge presiding over the Texas Federal Suit for coordinated handling. On August 22, 2016, Parallax Enterprises voluntarily dismissed all claims asserted against CLNGT and us in the Louisiana Suit without prejudice to refiling.
On July 27, 2017, the Parallax entities named as defendants in the Texas Federal Suit reurged their motion to dismiss and simultaneously filed counterclaims against CLNGT and third party claims against us for breach of contract, breach of fiduciary duty, promissory estoppel, quantum meruit, and fraudulent inducement of the Secured Note and Pledge Agreement, based on substantially the same factual allegations Parallax Enterprises made in the Louisiana Suit. These Parallax entities also simultaneously filed an action styled Cause No. 2017-49685, Parallax Enterprises, LLC, et al. v. Cheniere Energy, Inc., et al., in the 61st District Court of Harris County, Texas (the “Texas State Suit”), which asserts substantially the same claims these entities asserted in the Texas Federal Suit. On July 31, 2017, CLNGT withdrew its opposition to the dismissal of the Texas Federal Suit without prejudice on jurisdictional grounds and the federal court subsequently dismissed the Texas Federal Suit without prejudice. We and CLNGT simultaneously filed an answer and counterclaims in the Texas State Suit, asserting the same claims CLNGT had previously asserted in the Texas Federal Suit. Additionally, CLNGT filed third party claims against Parallax principals Martin Houston, Christopher Bowen Daniels, Howard Candelet, and Mark Evans, as well as Tellurian Investments, Inc., Driftwood LNG, LLC, Driftwood Pipeline, LLC and Tellurian Services, LLC f/k/a Parallax Services LLC, including claims for tortious interference with CLNGT’s collateral rights under the Secured Note and Pledge Agreement. The Parallax entities have filed an application for a preliminary injunction prohibiting CLNGT from foreclosing on any of the Parallax entities’ assets pending resolution of the Texas State Suit. The Parallax Entities’ temporary injunction application is presently set for a hearing on November 17, 2017. Discovery in the Texas State Suit is ongoing.
We do not expect that the resolution of this litigation will have a material adverse impact on our financial results.
Obligations under Certain Guarantee Contracts
Cheniere and certain of its subsidiaries enter into guarantee arrangements in the normal course of business to facilitate transactions with third parties. These arrangements include financial guarantees, letters of credit and debt guarantees. As of September 30, 2016 and December 31, 2015, there were no liabilities recognized under these guarantee arrangements.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 17—BUSINESS SEGMENT INFORMATION16—CUSTOMER CONCENTRATION
We have two reportable segments: LNG terminal segment and LNG and natural gas marketing segment. We determine our reportable segments by identifying each segment that engaged in business activities from which it may earn revenues and incur expenses, had operating results regularly reviewed by the entities’ chief operating decision maker for purposes of resource allocation and performance assessment and had discrete financial information. Revenues from external customers that were derived from customers outside of the United States were $224.3 million and $255.7 million for the three and nine months ended September 30, 2016, respectively. We attribute revenues from external customers to the country in which the party to the applicable agreement has its principal place of business. Substantially all of our long-lived assets are located in the United States.
Our LNG terminal segment consists of the Sabine Pass and Corpus Christi LNG terminals. We own and operate the Sabine Pass LNG terminal located in Cameron Parish, Louisiana, on the Sabine-Neches Waterway less than four miles from the Gulf Coast through our ownership interest in and management agreements with Cheniere Partners. We own 100% of the general partner interest in Cheniere Partners and 80.1% of the common shares of Cheniere Holdings, which owns a 55.9% limited partner interest in Cheniere Partners. We are also developing and constructing a second natural gas liquefaction and export facility at the Corpus Christi LNG terminal near Corpus Christi, Texas.
Our LNG and natural gas marketing segment consists of LNG and natural gas marketing activities by Cheniere Marketing. Cheniere Marketing is developing a portfolio of long-term, short-term and spot LNG SPAs with professional staff based in the United States, United Kingdom, Singapore and Chile.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table (in thousands) summarizesshows customers with revenues (losses)of 10% or greater of total third-party revenues and income (loss)customers with accounts receivable balances of 10% or greater of total accounts receivable from operations for each of our reporting segments: third parties:
|
| | | | | | | | | | | | | | | |
| Segments |
| LNG Terminal | | LNG & Natural Gas Marketing | | Corporate and Other (1) | | Total Consolidation |
Three Months Ended September 30, 2016 | | | | | | | |
Revenues (losses) from external customers | $ | 314,917 |
| | $ | 179,188 |
| | $ | (28,432 | ) | | $ | 465,673 |
|
Intersegment revenues (losses) (2) | 16,244 |
| | 8,692 |
| | (24,936 | ) | | — |
|
Depreciation and amortization expense | 43,014 |
| | 344 |
| | 5,854 |
| | 49,212 |
|
Income (loss) from operations (3) | 44,346 |
| | 26,614 |
| | (55,684 | ) | | 15,276 |
|
Interest expense, net of capitalized interest | (121,636 | ) | | — |
| | (26,417 | ) | | (148,053 | ) |
Income (loss) before income taxes and non-controlling interest (4) | (68,345 | ) | | 26,736 |
| | (87,169 | ) | | (128,778 | ) |
Share-based compensation | 9,183 |
| | 5,434 |
| | 24,940 |
| | 39,557 |
|
Expenditures for additions to long-lived assets | 1,213,662 |
| | 1,103 |
| | 170 |
| | 1,214,935 |
|
| | | | | | | |
Three Months Ended September 30, 2015 | | | | | | | |
Revenues (losses) from external customers | $ | 67,212 |
| | $ | (1,557 | ) |
| $ | 404 |
| | $ | 66,059 |
|
Intersegment revenues (losses) (2) | 233 |
| | 11,354 |
| | (11,587 | ) | | — |
|
Depreciation and amortization expense | 16,775 |
| | 320 |
| | 4,543 |
| | 21,638 |
|
Income (loss) from operations | 27,072 |
| | (27,117 | ) | | (52,029 | ) | | (52,074 | ) |
Interest expense, net of capitalized interest | (67,589 | ) | | (14 | ) | | (25,963 | ) | | (93,566 | ) |
Loss before income taxes and non-controlling interest (4) | (196,693 | ) | | (27,665 | ) | | (82,803 | ) | | (307,161 | ) |
Share-based compensation | 1,316 |
| | 2,051 |
| | 24,084 |
| | 27,451 |
|
Expenditures for additions to long-lived assets | 1,429,808 |
| | 403 |
| | 21,258 |
| | 1,451,469 |
|
| | | | | | | |
Nine Months Ended September 30, 2016 | | | | | | |
|
Revenues (losses) from external customers | $ | 530,526 |
| | $ | 222,418 |
| | $ | (41,363 | ) | | $ | 711,581 |
|
Intersegment revenues (losses) (2) | 17,168 |
| | 29,259 |
| | (46,427 | ) | | — |
|
Depreciation and amortization expense | 87,698 |
| | 965 |
| | 17,419 |
| | 106,082 |
|
Income (loss) from operations (3) | 41,912 |
| | (35,850 | ) | | (157,799 | ) | | (151,737 | ) |
Interest expense, net of capitalized interest | (253,129 | ) | | — |
| | (77,228 | ) | | (330,357 | ) |
Loss before income taxes and non-controlling interest (4) | (519,877 | ) | | (35,814 | ) | | (256,732 | ) | | (812,423 | ) |
Share-based compensation | 19,005 |
| | 20,580 |
| | 58,032 |
| | 97,617 |
|
Expenditures for additions to long-lived assets | 3,800,814 |
| | 2,634 |
| | 13,238 |
| | 3,816,686 |
|
| | | | | | |
|
Nine Months Ended September 30, 2015 | | | | | | | |
Revenues (losses) from external customers | $ | 203,324 |
| | $ | (1,601 | ) | | $ | 730 |
| | $ | 202,453 |
|
Intersegment revenues (losses) (2) | 827 |
| | 24,725 |
| | (25,552 | ) | | — |
|
Depreciation and amortization expense | 47,787 |
| | 764 |
| | 11,010 |
| | 59,561 |
|
Loss from operations | (15,324 | ) | | (58,667 | ) | | (134,201 | ) | | (208,192 | ) |
Interest expense, net of capitalized interest | (169,899 | ) | | (14 | ) | | (68,751 | ) | | (238,664 | ) |
Loss before income taxes and non-controlling interest (4) | (507,751 | ) | | (59,871 | ) | | (217,014 | ) | | (784,636 | ) |
Share-based compensation | 30,233 |
| | 12,138 |
| | 71,736 |
| | 114,107 |
|
Expenditures for additions to long-lived assets | 5,964,244 |
| | 2,517 |
| | 70,913 |
| | 6,037,674 |
|
|
| | | | | | | | | | | | |
| | Percentage of Total Third-Party Revenues | | Percentage of Accounts Receivable from Third Parties |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | September 30, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Customer A | | 19% | | 37% | | 25% | | 36% | | 22% | | 34% |
Customer B | | 14% | | * | | 13% | | * | | 18% | | 21% |
Customer C | | 20% | | —% | | 10% | | —% | | 19% | | —% |
Customer D | | 20% | | —% | | 19% | | —% | | 18% | | —% |
Customer E | | * | | 16% | | * | | 16% | | —% | | —% |
Customer F | | * | | 10% | | * | | * | | * | | * |
Customer G | | * | | —% | | * | | —% | | —% | | 28% |
Customer H | | —% | | —% | | —% | | —% | | —% | | 12% |
| |
(1) | Includes corporate activities, business development, strategic activities and certain intercompany eliminations. These activities have been included in the corporate and other column. Also includes $45.1 million and $60.5 million for the three and nine months ended September 30, 2016, respectively, of Cheniere Marketing’s LNG revenues, which is eliminated in consolidation. |
| |
(2) | Intersegment revenues (losses) related to our LNG and natural gas marketing segment are primarily a result of international revenue allocations using a cost plus transfer pricing methodology. These LNG and natural gas marketing segment |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
intersegment revenues (losses) are eliminated with intersegment revenues (losses) in our Consolidated Statements of Operations.
| |
(3) | Includes restructuring expense of $23.1 million and $35.3 million for the three and nine months ended September 30, 2016, respectively, in the corporate and other column and $3.1 million and $13.9 million for the three and nine months ended September 30, 2016, respectively, in the LNG and natural gas marketing segment. |
| |
(4) | Items to reconcile income (loss) from operations and income (loss) before income taxes and non-controlling interest include consolidated other income (expense) amounts as presented on our Consolidated Statements of Operations primarily related to our LNG terminal segment. |
The following table (in thousands) shows total assets for each of our reporting segments:
|
| | | | | | | | |
| | September 30, | | December 31, |
| | 2016 | | 2015 |
LNG Terminal | | $ | 21,365,364 |
| | $ | 17,363,750 |
|
LNG & Natural Gas Marketing | | 631,378 |
| | 550,896 |
|
Corporate and Other | | 692,338 |
| | 894,407 |
|
Total Consolidation | | $ | 22,689,080 |
| | $ | 18,809,053 |
|
* Less than 10%
NOTE 18—17—SUPPLEMENTAL CASH FLOW INFORMATION
The following table (in thousands)millions) provides supplemental disclosure of cash flow information:
| | | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2016 | | 2015 | | 2017 | | 2016 |
Cash paid during the period for interest, net of amounts capitalized | | $ | 29,879 |
| | $ | 48,271 |
| | $ | 360 |
| | $ | 30 |
|
Non-cash conveyance of assets | | — |
| | 13,169 |
| |
Contribution of assets to equity method investment | | | 14 |
| | — |
|
The balance in property, plant and equipment, net funded with accounts payable and accrued liabilities was $491.4$426 million and $356.3$491 million as of September 30, 20162017 and 2015,2016, respectively.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 19—18—RECENT ACCOUNTING STANDARDS
The following table provides a brief description of recent accounting standards that had not been adopted by the Company as of September 30, 2016:2017:
|
| | | | | | |
Standard | | Description | | Expected Date of Adoption | | Effect on our Consolidated Financial Statements or Other Significant Matters |
ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequent amendments thereto | | This standard amendsprovides a single, comprehensive revenue recognition model which replaces and supersedes most existing revenue recognition guidance and requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard requires that the costs to obtain and fulfill contracts with customers should be recognized as assets and amortized to match the pattern of transfer of goods or services to the customer if expected to be recoverable. The standard also requires enhanced disclosures. This guidance may be early adopted beginning January 1, 2017, and may be adopted either retrospectively to each prior reporting period presented subject to allowable practical expedients (“full retrospective approach”) or as a cumulative-effect adjustment as of the date of adoption.adoption (“modified retrospective approach”). | | January 1, 2018 | | We are currently evaluatingcontinue to evaluate the impact of the provisionseffect of this guidancestandard on our Consolidated Financial StatementsStatements. We plan to adopt this standard using the full retrospective approach. Preliminarily, we do not anticipate that the adoption will have a material impact upon our revenues. Furthermore, we routinely enter into new contracts and related disclosures.
|
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
|
| | | | | | |
Standard | | Description | | Expected Date of Adoption | | Effect onwe cannot predict with certainty whether the accounting for any future contract under the new standard would result in a significant change from existing guidance. Because this assessment is preliminary and the accounting for revenue recognition is subject to significant judgment, this conclusion could change as we finalize our Consolidated Financial Statements or Other Significant Matters |
ASU 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
| | This standard requires an entity’s management to evaluate, for each reporting period, whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued. Additional disclosures are required if management concludes that conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. Early adoption is permitted. | | December 31, 2016 | | The adoption of this guidance is not expected to have an impact on our Consolidated Financial Statements or related disclosures.
|
ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory
| | This standard requires inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This guidance may be early adopted and must be adopted prospectively. | | January 1, 2017 | | We are currently evaluating the impact of the provisions of this guidance on our Consolidated Financial Statements and related disclosures.assessment. |
ASU 2016-02, Leases (Topic 842) | | This standard requires a lessee to recognize leases on its balance sheet by recording a lease liability representing the obligation to make future lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term. A lessee is permitted to make an election not to recognize lease assets and liabilities for leases with a term of 12 months or less. The standard also modifies the definition of a lease and requires expanded disclosures. This guidance may be early adopted, and must be adopted using a modified retrospective approach with certain available practical expedients. | | January 1, 2019
| | We are currently evaluatingcontinue to evaluate the effect of this standard on our Consolidated Financial Statements. Preliminarily, we anticipate a material impact from the requirement to recognize all leases upon our Consolidated Balance Sheets. Because this assessment is preliminary and the accounting for leases is subject to significant judgment, this conclusion could change as we finalize our assessment. We have not yet determined the impact of the provisionsadoption of this guidance onstandard upon our Consolidated Financial Statements and related disclosures. |
ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
| | This standard primarily requires the recognition of excess tax benefits for share-based awards in the statementresults of operations and the classification of excess tax benefits as an operating activity within the statement ofor cash flows. The guidance also allows an entity toflows, whether we will elect to account for forfeitures when they occur. This guidance may be early adopted, but all of the guidance must be adopted in the same period. | | January 1, 2017
| | We are currently evaluating the impact of the provisions ofadopt this guidance on our Consolidated Financial Statements and related disclosures.standard or which, if any, practical expedients we will elect upon transition. |
ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory | | This standard requires the immediate recognition of the tax consequences of intercompany asset transfers other than inventory. This guidance may be early adopted, but only at the beginning of an annual period, and must be adopted using a modified retrospective approach. | | January 1, 2018
| | We are currently evaluating the impact of the provisions of this guidance on our Consolidated Financial Statements and related disclosures. |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Additionally, the following table provides a brief description of recent accounting standards that were adopted by the Company during the reporting period:
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| | | | | | |
Standard | | Description | | Date of Adoption | | Effect on our Consolidated Financial Statements or Other Significant Matters |
ASU 2015-02,2015-11, ConsolidationInventory (Topic 810)330): Amendments toSimplifying the Consolidation AnalysisMeasurement of Inventory
| | These amendments primarily affect asset managersThis standard requires inventory to be measured at the lower of cost and reporting entities involved with limited partnerships or similar entities, butnet realizable value. Net realizable value is the analysis is relevantestimated selling prices in the evaluationordinary course of any reporting organization’s requirement to consolidate a legal entity. This guidance changes (1) the identificationbusiness, less reasonably predictable costs of variable interests, (2) the variable interest entity characteristics for a limited partnership or similar entitycompletion, disposal and (3) the primary beneficiary determination.transportation. This guidance may be early adopted and maymust be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption.prospectively. | | January 1, 20162017 | | The adoption of this guidance did not have a material impact on our Consolidated Financial Statements or related disclosures.
|
ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting | | This standard primarily requires the recognition of excess tax benefits for share-based awards in the statement of operations and the classification of excess tax benefits as an operating activity within the statement of cash flows. The guidance also allows an entity to elect to account for forfeitures when they occur. This guidance may be early adopted, but all of the guidance must be adopted in the same period. | | January 1, 2017
| | Upon adoption of this guidance, we made a cumulative effect adjustment to accumulated deficit for all excess tax benefits not previously recognized, offset by the change in valuation allowance, and for our election to account for forfeitures as they occur. The adoption of this guidance did not have a material impact on our Consolidated Financial Statements or related disclosures.
|
ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment | | This standard simplifies the measurement of goodwill impairment by eliminating the requirement for an entity to perform a hypothetical purchase price allocation. An entity will instead measure the impairment as the difference between the carrying amount and the fair value of the reporting unit. This guidance may be early adopted beginning January 1, 2017, and must be adopted prospectively. | | January 1, 2017
| | The adoption of this guidance did not have a material impact on our Consolidated Financial Statements or related disclosures.
|
ASU 2015-03,2017-09, InterestCompensation - ImputationStock Compensation (Topic 718): Scope of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance CostsModification Accounting and ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
| | These standards require debt issuance costs relatedThis standard clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. An entity will not apply modification accounting to a recognized debt liability to be presented inshare-based payment award if the balance sheet as a direct deduction from the debt liability rather thanaward’s fair value, vesting conditions and classification as an asset. Debt issuance costs incurred in connection with line of credit arrangements may be presented as an assetequity or liability award are the same prior to and subsequently amortized ratably overafter the term of the line of credit arrangement.change. This guidance may be early adopted and must be adopted retrospectively to each prior reporting period presented. | | January 1, 2016prospectively. | | Upon adoption of these standards, the balance of debt, net was reduced by the balance of debt issuance costs, net, except for the balance related to line of credit arrangements, on our Consolidated Balance Sheets. See Note 11—Debt for additional disclosures. |
ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing ArrangementJune 30, 2017
| | This standard clarifies the circumstances under which a cloud computing customer would account for the arrangement as a license of internal-use software. This guidance may be early adopted, and may be adopted as either retrospectively or prospectively to arrangements entered into, or materially modified, after the effective date. | | January 1, 2016 | | The adoption of this guidance did not have ana material impact on our Consolidated Financial Statements or related disclosures.
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NOTE 20—SUBSEQUENT EVENTS
SPLNG Senior Notes Redemption
On October 14, 2016, SPLNG issued a notice of redemption to redeem all of its outstanding 2020 SPLNG Senior Notes. The redemption date will be November 30, 2016 (the “Redemption Date”) and the price will be equal to 103.250% of the principal amount of the 2020 SPLNG Senior Notes, plus accrued and unpaid interest and additional interest, if any, on the 2020 SPLNG Senior Notes to, but not including, the Redemption Date. Concurrently with the redemption of the 2020 SPLNG Senior Notes, SPLNG intends to repay all of its outstanding 2016 SPLNG Senior Notes, which mature on the Redemption Date, at a price equal to 100% of the principal amount of the 2016 SPLNG Senior Notes, plus accrued and unpaid interest and additional interest, if any, on the 2016 SPLNG Senior Notes to, but not including, the Redemption Date.
Termination of 2014-2018 LTIP
On October 27, 2016, the Compensation Committee recommended and our Board of Directors approved the termination, effective as of October 31, 2016, of the 2014-2018 LTIP under the 2015 Plan.
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Information Regarding Forward-Looking Statements
This quarterly report contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical or present facts or conditions, included herein or incorporated herein by reference are “forward-looking statements.” Included among “forward-looking statements” are, among other things:
statements that we expect to commence or complete construction of our proposed LNG terminals, liquefaction facilities, pipeline facilities or other projects, or any expansions or portions thereof, by certain dates, or at all;
statements regarding future levels of domestic and international natural gas production, supply or consumption or future levels of LNG imports into or exports from North America and other countries worldwide or purchases of natural gas, regardless of the source of such information, or the transportation or other infrastructure or demand for and prices related to natural gas, LNG or other hydrocarbon products;
statements regarding any financing transactions or arrangements, or our ability to enter into such transactions;
statements relating to the construction of our Trains and pipeline,pipelines, including statements concerning the engagement of any EPC contractor or other contractor and the anticipated terms and provisions of any agreement with any such EPC or other contractor, and anticipated costs related thereto;
statements regarding any SPA or other agreement to be entered into or performed substantially in the future, including any revenues anticipated to be received and the anticipated timing thereof, and statements regarding the amounts of total LNG regasification, natural gas liquefaction or storage capacities that are, or may become, subject to contracts;
statements regarding counterparties to our commercial contracts, construction contracts and other contracts;
statements regarding our planned development and construction of additional Trains and pipelines, including the financing of such Trains;
statements that our Trains, when completed, will have certain characteristics, including amounts of liquefaction capacities;
statements regarding our business strategy, our strengths, our business and operation plans or any other plans, forecasts, projections, or objectives, including anticipated revenues, capital expenditures, maintenance and operating costs and cash flows, any or all of which are subject to change;
statements regarding legislative, governmental, regulatory, administrative or other public body actions, approvals, requirements, permits, applications, filings, investigations, proceedings or decisions;
statements regarding our anticipated LNG and natural gas marketing activities; and
any other statements that relate to non-historical or future information.
All of these types of statements, other than statements of historical fact,or present facts or conditions, are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology. The forward-looking statements contained in this quarterly report are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe that such estimates are reasonable, they are inherently uncertain and involve a number of risks and uncertainties beyond our control. In addition, assumptions may prove to be inaccurate. We caution that the forward-looking statements contained in this quarterly report are not guarantees of future performance and that such statements may not be realized or the forward-looking statements or events may not occur. Actual results may differ materially from those anticipated or implied in forward-looking statements due toas a result of a variety of factors described in this quarterly report and in the other reports and other information that we file with the SEC.SEC, including those discussed under “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2016. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these risk factors. These forward-looking statements speak only as of the date made, and other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statement or provide reasons why actual results may differ, whether as a result of new information, future events or otherwise.
Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed under “Risk Factors” in our annual report on Form 10-K for the year ended December 31,
2015. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these risk factors. Other than as required under the securities laws, we assume no obligation to update or revise these forward-looking statements or provide reasons why actual results may differ.
Introduction
The following discussion and analysis presents management’s view of our business, financial condition and overall performance and should be read in conjunction with our Consolidated Financial Statements and the accompanying notes. This information is intended to provide investors with an understanding of our past performance, current financial condition and outlook for the future. Our discussion and analysis includes the following subjects:
Overview of Business
Overview of Significant Events
Liquidity and Capital Resources
Results of Operations
Off-Balance Sheet Arrangements
Summary of Critical Accounting Estimates
Recent Accounting Standards
Overview of Business
Cheniere, a Delaware corporation, is a Houston-based energy company primarily engaged in LNG-related businesses. Our vision is to be recognized as the premier global LNG company and provide a reliable, competitive and integrated source of LNG to our customers while creating a safe, productive and rewarding work environment for our employees. We own and operate the Sabine Pass LNG terminal in Louisiana through our ownership interest in and management agreements with Cheniere Partners, which is a publicly traded limited partnership that we created in 2007. We own 100% of the general partner interest in Cheniere Partners and 80.1%82.7% of Cheniere Holdings, which is a publicly traded limited liability company formed in 2013 that owns a 55.9%48.6% limited partner interest in Cheniere Partners. We are currently developing and constructing two natural gas liquefaction and export facilities. The liquefaction of natural gas into LNG allows it to be shipped economically from areas of the world where natural gas is abundant and inexpensive to produce to other areas where natural gas demand and infrastructure exist to economically justify the use of LNG.
The Sabine Pass LNG terminal is located in Cameron Parish, Louisiana, on the Sabine-Neches Waterway less than four miles from the Gulf Coast. The Sabine Pass LNG terminal has operational regasification facilities owned by Cheniere Partners’ wholly owned subsidiary, SPLNG, that include existing infrastructure of five LNG storage tanks with capacity of approximately 16.9 Bcfe, two marine berths that can accommodate vessels with nominal capacity of up to 266,000 cubic meters and vaporizers with regasification capacity of approximately 4.0 Bcf/d. Cheniere Partners is developing, constructing and constructingoperating natural gas liquefaction facilities (the “SPL Project”) at the Sabine Pass LNG terminal adjacent to the existing regasification facilities through a wholly owned subsidiary, SPL. Cheniere Partners plans to construct up to six Trains, which are in various stages of development, construction and construction.operations. Trains 1 and 2 have commenced operating activities,through 3 are operational, Train 34 became operational in October 2017, Train 5 is undergoing commissioning, Trains 4 and 5 are under construction and Train 6 is fully permitted.being commercialized and has all necessary regulatory approvals in place. Each Train is expected to have a nominal production capacity, which is prior to adjusting for planned maintenance, production reliability and potential overdesign, of approximately 4.5 mtpa of LNG. The Sabine Pass LNG terminal has operational regasification facilities owned by Cheniere Partners’ wholly owned subsidiary, SPLNG, that include existing infrastructure of five LNG storage tanks with aggregate capacity of approximately 16.9 Bcfe, two marine berths that can accommodate vessels with nominal capacity of up to 266,000 cubic meters and vaporizers with regasification capacity of approximately 4.0 Bcf/d. Cheniere Partners also owns a 94-mile pipeline that interconnects the Sabine Pass LNG terminal with a number of large interstate pipelines (the “Creole Trail Pipeline”) through a wholly owned subsidiary, CTPL.
We are developing and constructing a second natural gas liquefaction and export facility at the Corpus Christi LNG terminal, which is on nearly 2,000 acres of land that we own or control near Corpus Christi, Texas, and a pipeline facility (collectively, the “CCL Project”) through wholly owned subsidiaries CCL and CCP, respectively. The CCL Project is being developed for up to three Trains, with expected aggregate nominal production capacity, which is prior to adjusting for planned maintenance, production reliability and potential overdesign, of approximately 13.5 mtpa of LNG, three LNG storage tanks with aggregate capacity of approximately 10.1 Bcfe and two marine berths that can each accommodate vessels with nominal capacity of up to 266,000 cubic meters. The CCL Project is being developed in stages. The first stage (“Stage 1”) includes Trains 1 and 2, two LNG storage tanks, one complete marine berth and a second partial berth and all of the CCL Project’s necessary infrastructure facilities. The second stage (“Stage 2”) includes Train 3, one LNG storage tank and the completion of the second partial berth. The CCL Project also includes a 23-mile 48-inch natural gas supply pipeline that will interconnect the Corpus Christi LNG terminal with several interstate and intrastate natural gas pipelines (the “Corpus Christi Pipeline”).
Corpus Christi Liquefaction Stage III, LLC1 and Chenierethe Corpus Christi Pipeline Stage III, LLC (the “CCL Stage III entities”), our wholly owned subsidiaries separate from the CCH Group, are alsocurrently under construction, and Train 3 is being commercialized and has all necessary regulatory approvals in place.
Additionally, we are developing two additional Trains and one LNG storage tank atan expansion of the Corpus Christi LNG terminal adjacent to the CCL Project along(the “Corpus Christi Expansion Project”) and recently amended our regulatory filings with FERC to incorporate a second natural gas pipeline.
Cheniere Marketing is engaged inproject design change, from two Trains with an expected aggregate nominal production capacity of approximately 9.0 mtpa to up to seven midscale Trains with an expected aggregate nominal production capacity of approximately 9.5 mtpa. We remain focused on leveraging infrastructure through the LNG and natural gas marketing business and is developing a portfolioexpansion of long-term, short-term and spot SPAs. Cheniere Marketing has entered into SPAs with SPL and CCL to purchase, at Cheniere Marketing’s option, LNG produced by the SPL Project and the CCL Project.
our existing sites. We are also in various stages of developing other projects, including infrastructure projects in support of natural gas supply and LNG demand, which, among other things, will require acceptable commercial and financing arrangements before we make a final investment decision (“FID”). We have proposed the development of a pipeline with expected capacity of up to 1.4 Bcf/d connecting new gas production in the Anadarko Basin to Gulf Coast markets, including markets serving the SPL Project and the CCL Project. We expect the regulatory pre-filing process to commence imminently and to file formal applications for the required regulatory permits in 2017. We are also exploring the development of a midscale liquefaction project using electric drive modular Trains, with an expected aggregate nominal production capacity of approximately 9.5 mtpa of LNG.
Overview of Significant Events
Our significant accomplishments since January 1, 20162017 and through the filing date of this Form 10-Q include the following:
Strategic
As of October 2017, more than 200 cumulative LNG cargoes had been produced, loaded and exported from the SPL Project, with deliveries completed to 25 countries worldwide.
We completed a land acquisition and acquired rights to obtain additional upland and waterfront land adjacent to the CCL Project aggregating more than 500 acres.
We made an equity investment in Midship Pipeline Company, LLC (“Midship Pipeline”) through Midship Holdings, LLC, which is constructing an approximately 230-mile interstate natural gas pipeline with expected capacity of up to 1.44 million Dekatherms per day, to connect new production in the Anadarko Basin to Gulf Coast markets (the “Midship Project”). Additionally, Midship Holdings entered into agreements with investment funds managed by EIG Global Energy Partners (“EIG”) under which EIG-managed funds have committed to make an investment of up to $500 million in the Midship Project, subject to the terms and conditions in the applicable agreements.
In October 2017, we began the process of amending our regulatory filings with FERC related to the Corpus Christi Expansion Project to incorporate a project design change, from two Trains with an expected aggregate nominal production capacity of approximately 9.0 mtpa to up to seven midscale Trains with an expected aggregate nominal production capacity of approximately 9.5 mtpa.
Operational
SPL commenced production and shipment of LNG commissioning cargoes from Trains 1 and 2Train 3 of the SPL Project in February and August 2016, respectively,January 2017 and achieved substantial completion and commenced operating activities in MayMarch 2017.
Commissioning activities for Train 4 of the SPL Project began in March 2017, and September 2016, respectively.substantial completion was achieved in October 2017.
Financial
In September 2016, SPL initiatedJune 2017, the commissioning process fordate of first commercial delivery was reached under the 20-year SPA with Korea Gas Corporation relating to Train 3 of the SPL Project.
In October 2016,August 2017, the previously announced planned outagedate of first commercial delivery relating to improve performanceTrain 2 of the flare systems at the SPL Project as well as to perform scheduled maintenance to Train 1was reached under the respective 20-year SPAs with Gas Natural Fenosa LNG GOM, Limited and other facilities, was completed on schedule and budget.
In May 2016, our Board of Directors appointed Jack Fusco as our President and Chief Executive Officer.BG Gulf Coast LNG, LLC (“BG”).
In February 2016, Cheniere Partners entered into a Credit and Guaranty Agreement for the incurrence of debt of up to an aggregate amount of approximately $2.8 billion (the “2016 CQP Credit Facilities”). The 2016 CQP Credit Facilities consist of: (1) a $450.0 million CTPL tranche term loan that was used to prepay the $400.0 million term loan facility (the “CTPL Term Loan”) in February 2016, (2) an approximately $2.1 billion SPLNG tranche term loan that will be used to redeem or repay the approximately $2.1 billion of the 7.50% Senior Secured Notes due 2016March 2017, SPL issued by SPLNG (the “2016 SPLNG Senior Notes”) and the 6.50% Senior Secured Notes due 2020 issued by SPLNG (the “2020 SPLNG Senior Notes” and collectively with the 2016 SPLNG Senior Notes, the “SPLNG Senior Notes”) (which must be redeemed or repaid concurrently under the terms of the 2016 CQP Credit Facilities ), (3) a $125.0 million debt service reserve credit facility (the “DSR Facility”) that may be used to satisfy a six-month debt service reserve requirement and (4) a $115.0 million revolving credit facility that may be used for general business purposes.
In May 2016, CCH issued an aggregate principal amountamounts of $1.25 billion$800 million of 7.000% Senior Secured Notes due 2024 (the “2024 CCH Senior Notes”). Net proceeds of the offering of approximately $1.1 billion, after deducting commissions, fees and expenses and incremental interest required under the 2024 CCH Senior Notes during construction, were used to prepay a portion of the outstanding borrowings under its credit facility (the “2015 CCH Credit Facility”).
In June and September 2016, SPL issued 5.875% Senior Secured Notes due 2026 (the “2026 SPL Senior Notes”) and 5.00% Senior Secured Notes due 20272037 (the “2027“2037 SPL Senior Notes”) and $1.35 billion, before discount, of 4.200% Senior Secured Notes due 2028 (the “2028 SPL Senior Notes”), respectively, for aggregate principal amounts of $1.5 billion each.respectively. Net proceeds of the offerings of the 20262037 SPL Senior Notes and 20272028 SPL Senior Notes were approximately $1.3 billion$789 million and $1.4$1.33 billion, respectively, after deducting the initial purchasers’ commissions (for the 2028 SPL Senior Notes) and estimated fees and expenses andexpenses. The net proceeds of the 2037 SPL Senior Notes, after provisioning for incremental interest required under the respective senior notes during construction. The net proceedsconstruction, were used to prepay a portion (for the 2026 SPL Senior Notes) or all (for the 2027 SPL Senior Notes) ofrepay the outstanding borrowings under the credit facilities weSPL entered into in June 2015 (the “2015 SPL Credit Facilities”). The remaining and, along with the net proceeds fromof the 20272028 SPL Senior Notes, arethe remainder is being used to pay a portion of the capital costs in connection with the construction of Trains 1 through 5 of the SPL Project in lieu of the terminated portion of the commitments under the 2015 SPL Credit Facilities.
On September 30, 2016,In March 2017, we submittedentered into a proposal to $750 million revolving credit agreement (“Cheniere Holdings’ board of directors to acquire the publicly held shares of Cheniere Holdings not already owned by us in a stock for stock exchange. There can be no assurance that any discussionsRevolving Credit Facility”) that may occur between usbe used to fund the development of the CCL Project and, Cheniere Holdings in connection with our proposal will result in the entryprovided that certain conditions are met, for general corporate purposes.
into a definitive agreement concerning a transaction or, if such a definitive agreement is reached, will result in the consummation of a transaction provided for in such definitive agreement.
In October 2016, SPLNGMay 2017, CCH issued a notice of redemption to redeem all of its outstanding 2020 SPLNG Senior Notes. The redemption date will be November 30, 2016 (the “Redemption Date”) and the price will be equal to 103.250% of thean aggregate principal amount of $1.5 billion of 5.125% Senior Secured Notes due 2027 (the “2027 CCH Senior Notes”). Net proceeds of the 2020 SPLNGoffering of approximately $1.4 billion, after deducting commissions, fees and expenses and after provisioning for incremental interest required under the 2027 CCH Senior Notes plus accrued and unpaid interest and additional interest, if any, on the 2020 SPLNG Senior Notesduring construction, were used to but not including, the Redemption Date. Concurrently with the redemptionprepay a portion of the 2020 SPLNG Senior Notes, SPLNG intends to repay all ofoutstanding borrowings under its outstanding 2016 SPLNG Senior Notes, which mature on the Redemption Date, at a price equal to 100% of thecredit facility (the “2015 CCH Credit Facility”).
In September 2017, CQP issued an aggregate principal amount of the 2016 SPLNG$1.5 billion of 5.250% Senior Notes plus accrueddue 2025 (“the 2025 CQP Senior Notes”). Net proceeds of the offering of approximately $1.5 billion, after deducting commissions, fees and unpaid interestexpenses, were used to prepay a portion of the outstanding indebtedness under CQP’s credit facilities (the “2016 CQP Credit Facilities”).
Fitch Ratings (“Fitch”) assigned SPL’s senior secured debt an investment grade rating of BBB- in January 2017 and additional interest, if any, onan investment-grade issuer default rating of BBB- in June 2017.
In May 2017, Moody’s Investors Service (“Moody’s”) upgraded SPL’s senior secured debt rating from Ba1 to Baa3, an investment-grade rating.
In September 2017, Moody’s, S&P Global Ratings and Fitch assigned ratings of Ba2 / BB / BB, respectively to the 2016 SPLNG2025 CQP Senior Notes to, but not including, the Redemption Date.Notes.
Liquidity and Capital Resources
Although results are consolidated for financial reporting, Cheniere, Cheniere Holdings, Cheniere Partners, SPL SPLNG and the CCH Group operate with independent capital structures. We expect the cash needs for at least the next twelve months will be met for each of these independent capital structures as follows:
•SPLNG through operating cash flows, existing unrestricted cash and debt offerings or equity contributions;
•SPL through project debt and borrowings equity contributions from Cheniere Partners and operating cash flows;
Cheniere Partners through operating cash flows from SPLNG, SPL and CTPL existing unrestricted cash and debt or equity offerings;
•Cheniere Holdings through distributions from Cheniere Partners;
•CCH Group through project financingdebt and borrowings and equity contributions from Cheniere; and
Cheniere through project financing, existing unrestricted cash, debt and equity offerings by us or our subsidiaries, operating cash flows, services fees from Cheniere Holdings, Cheniere Partners and itsour other subsidiaries and distributions from our investments in Cheniere Holdings and Cheniere Partners.
AsThe following table (in millions) provides a summary of our liquidity position at September 30, 2016, we had cash2017 and cash equivalentsDecember 31, 2016:
|
| | | | | | | |
| September 30, | | December 31, |
| 2017 | | 2016 |
Cash and cash equivalents | $ | 919 |
| | $ | 876 |
|
Restricted cash designated for the following purposes: | | | |
SPL Project | 627 |
| | 358 |
|
CQP and cash held by guarantor subsidiaries | 816 |
| | 247 |
|
CCL Project | 117 |
| | 270 |
|
Other | 96 |
| | 76 |
|
Available commitments under the following credit facilities: | | | |
2015 SPL Credit Facilities | — |
| | 1,642 |
|
$1.2 billion SPL Working Capital Facility (“SPL Working Capital Facility”) | 479 |
| | 653 |
|
2016 CQP Credit Facilities | 190 |
| | 195 |
|
2015 CCH Credit Facility | 2,421 |
| | 3,603 |
|
$350 million CCH Working Capital Facility (“CCH Working Capital Facility”) | 187 |
| | 350 |
|
Cheniere Revolving Credit Facility | 750 |
| | — |
|
For additional information regarding our debt agreements, see Note 10—Debt of $990.1 million availableour Notes to Cheniere. In addition, we had currentConsolidated Financial Statements in this quarterly report and non-current restricted cashNote 12—Debt of $858.7 million (which included current and non-current restricted cash availableour Notes to us andConsolidated Financial Statements in our subsidiaries) designatedannual report on Form 10-K for the following purposes: $192.8 million for the CCL Project; $325.6 million for the SPL Project; $127.5 million due to restrictions under the 2016 CQP Credit Facilities; $129.1 million for interest payments related to the SPLNG Senior Notes; and $83.7 million for other restricted purposes.year ended December 31, 2016.
Cheniere
Convertible Notes
In November 2014, we issued an aggregate principal amount of $1.0 billion of Convertible Unsecured Notes due 2021 (the “2021 Cheniere Convertible Unsecured Notes”). The 2021 Cheniere Convertible Unsecured Notes are convertible at the option of the holder into our common stock at the then applicable conversion rate, provided that the closing price of our common stock is greater than or equal to the conversion price on the date of conversion. The initial conversion price was $93.64 and is subject to adjustment upon the occurrence of certain specified events. We have the option to satisfy the conversion obligation with cash, common stock or a combination thereof.
In March 2015, we issued the $625.0 million aggregate principal amount of 4.25% Convertible Senior Notes due 2045 (the “2045 Cheniere Convertible Senior Notes”). We have the right, at our option, at any time after March 15, 2020, to redeem all or any part of the 2045 Cheniere Convertible Senior Notes at a redemption price equal to the accreted amount of the 2045 Cheniere Convertible Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to such redemption date. The conversion rate will initially equal 7.2265 shares of our common stock per $1,000 principal amount of the 2045 Cheniere Convertible Senior Notes, which corresponds to an initial conversion price of approximately $138.38 per share of our common stock. The conversion rate is subject to adjustment upon the occurrence of certain specified events. We have the option to satisfy the conversion obligation for the 2021 Cheniere Convertible Unsecured Notes and the 2045 Cheniere Convertible Senior Notes with cash, common stock or a combination thereof.
Cheniere HoldingsRevolving Credit Facility
In March 2017, we entered into the Cheniere Holdings was formedRevolving Credit Facility that may be used to fund, through loans and letters of credit, equity capital contributions to CCH HoldCo II and its subsidiaries for the development of the CCL Project and, provided that certain conditions are met, for general corporate purposes. No advances or letters of credit under the Cheniere Revolving Credit Facility were available until either (1) Cheniere’s unrestricted cash and cash equivalents are less than $500 million or (2) Train 4 of the SPL Project has achieved substantial completion.
The Cheniere Revolving Credit Facility matures on March 2, 2021 and contains representations, warranties and affirmative and negative covenants customary for companies like Cheniere with lenders of the type participating in the Cheniere Revolving Credit Facility that limit our ability to make restricted payments, including distributions, unless certain conditions are satisfied, as well as limitations on indebtedness, guarantees, hedging, liens, investments and affiliate transactions. Under the Cheniere Revolving Credit Facility, we are required to ensure that the sum of our unrestricted cash and the amount of undrawn commitments under the Cheniere Revolving Credit Facility is at least equal to the lesser of (1) 20% of the commitments under the Cheniere Revolving Credit Facility and (2) $100 million.
The Cheniere Revolving Credit Facility is secured by usa first priority security interest (subject to holdpermitted liens and other customary exceptions) in substantially all of our Cheniere Partners limited partnerassets, including our interests thereby allowing us to segregatein our lower risk, stable, cash flow generating assetsdirect subsidiaries (excluding CCH HoldCo II).
Cash Receipts from our higher risk, early stage development projects and marketing activities. Subsidiaries
As of September 30, 2016,2017, we had an 80.1%82.7% direct ownership interest in Cheniere Holdings. We receive dividends on our Cheniere Holdings shares from the distributions that Cheniere Holdings receives from Cheniere Partners, and we receive management fees for managing Cheniere Holdings.Partners. We received $11.1 million and $11.0$11 million in dividends on our Cheniere Holdings common shares during the nine months ended September 30, 2016 and 2015, respectively, and $0.8 million of management fees from Cheniere Holdings during each of the nine months ended September 30, 20162017 and 2015.2016.
Cheniere Partners
Our ownership interest in the Sabine Pass LNG terminal is held through Cheniere Partners. As of September 30, 2016,2017, we own 80.1%owned 82.7% of Cheniere Holdings, which ownsowned a 55.9% limited partner48.6% interest in Cheniere Partners in the form of 11,963,488104.5 million common units 45,333,334 Class B units and 135,383,831135.4 million subordinated units. We also own 100% of the general partner interest and the incentive distribution rights in Cheniere Partners.
Prior to the initial public offering by Cheniere Holdings, we received quarterly equity distributions from Cheniere Partners related to our limited partner and 2% general partner interests. We will continue to receive quarterly equity distributions from Cheniere Partners related to our 2% general partner interest, and weinterest. Cheniere Partners’ distributions are being funded from accumulated operating surplus.
We also receive fees for providing management services to Cheniere Holdings, Cheniere Partners, SPLNG, SPL and CTPL. We received $1.5 million in distributions on our general partner interest during each of the nine months ended September 30, 2016 and 2015, and we received $100.1$87 million and $66.4$101 million in total service fees from Cheniere Holdings, Cheniere Partners, SPLNG, SPL and CTPL during the nine months ended September 30, 20162017 and 2015,2016, respectively.
Cheniere Partners’ Class B Units
On August 2, 2017, Cheniere Partners’ Class B units mandatorily converted into common unitunits in accordance with the terms of Cheniere Partners’ partnership agreement. Upon conversion of the Class B units, Cheniere Holdings, Blackstone CQP Holdco LP (“Blackstone CQP Holdco”) and general partner distributions are being funded from accumulated operating surplus. We have not received distributions on ourthe public owned a 48.6%, 40.3% and 9.1% interest in Cheniere Partners, respectively. Cheniere
Holdings’ ownership percentage includes its subordinated units with respectand Blackstone CQP Holdco’s ownership percentage excludes any common units that may be deemed to the quarters ended on or after June 30, 2010. Cheniere Partners will not make distributions on our subordinated units until it generates additional cash flow from SPLNG, SPL, CTPL or other new business, which would be used to make quarterly distributions on our subordinated units before any increase in distributions to the common unitholders.beneficially owned by The Blackstone Group, L.P., an affiliate of Blackstone CQP Holdco.
Cheniere Partners’ Class B units arewere subject to conversion, mandatorily or at the option of the Class B unitholders under specified circumstances, into a number of common units based on the then-applicable conversion value of the Class B units. The Cheniere Partners Class B units arewere not entitled to cash distributions except in the event of a liquidation of Cheniere Partners, a merger, consolidation or other combination of Cheniere Partners with another person or the sale of all or substantially all of the assets of Cheniere Partners. On a quarterly basis beginning on the initial purchase date of the Class B units, the conversion value of the Class B units increasesincreased at a compounded rate of 3.5% per quarter, subject to an additional upward adjustment for certain equity and debt financings. The accreted conversion ratio of the Class B units owned by Cheniere Holdings and Blackstone CQP Holdco LP (“Blackstone CQP Holdco”) was 1.80 and 1.77, respectively, as of September 30, 2016. We expect the Class B units to mandatorily convert into common units within 90 days of the substantial completion date of Train 3 of the SPL Project, which Cheniere Partners currently expects to occur before June 30, 2017. If the Class B units are not mandatorily converted by July 2019, the holders of the Class B units have the option to convert the Class B units into common units at that time. The holders of Class B units have a preference over the holders of the subordinated units in the event of our liquidation or a merger, consolidation or other combination of us with another person or the sale of all or substantially all of our assets.
The Class B units were issued at a discount to the market price of the Cheniere PartnersPartners’ common units into which they arewere convertible. This discount, totaling $2,130.0$2,130 million, representsrepresented a beneficial conversion feature. The beneficial conversion feature iswas similar to a dividend that will bewas distributed with respect to any Class B unit from its issuance date through its conversion date, resultingwhich resulted in an increase in Class B unitholders’ equity and a decrease in common and subordinated unitholders’ equity, including our equity interest in Cheniere Partners. Cheniere Partners amortizesamortized the beneficial conversion feature assuming athrough the mandatory conversion date of August 2017, although actual conversion may occur prior to or after this assumed date.as a non-cash adjustment. Deemed dividends represented by the amortization of the beneficial conversion feature allocated to the Class B units held by Blackstone CQP Holdco arewere included in net lossincome (loss) attributable to non-controlling interest and resultresulted in a reduction of income available to common stockholders. The impact to net lossincome (loss) attributable to non-controlling interest due to the amortization of the beneficial conversion feature was $6.8$370 million and $9.3$7 million during the three months ended September 30, 2017 and 2016, respectively, and $748 million and $10 million during the nine months ended September 30, 2017 and 2016, respectively. The anticipatedThere will be no further impact to net lossincome (loss) attributable to non-controlling interest due to the amortization of the beneficial conversion feature based onduring the assumedyear ending December 31, 2017.
conversionCheniere Partners
2025 CQP Senior Notes
In September 2017, CQP issued an aggregate principal amount of $1.5 billionof the 2025 CQP Senior Notes, which are jointly and severally guaranteed by each of CQP’s subsidiaries other than SPL and, subject to certain conditions governing the release of its guarantee, Sabine Pass LNG-LP, LLC (the “CQP Guarantors”). Net proceeds of the offering of approximately $1.5 billion, after deducting the initial purchasers’ commissions and estimated fees and expenses, were used to prepay a portion of the outstanding indebtedness under the 2016 CQP Credit Facilities.
The 2025 CQP Senior Notes are governed by an indenture (the “CQP Indenture”), which contains customary terms and events of default and certain covenants that, among other things, limit the ability of CQP and the CQP Guarantors to incur liens and sell assets, enter into transactions with affiliates, enter into sale-leaseback transactions and consolidate, merge or sell, lease or otherwise dispose of all or substantially all of the applicable entity’s properties or assets.
At any time prior to October 1, 2020, CQP may redeem all or a part of the 2025 CQP Senior Notes at a redemption price equal to 100% of the aggregate principal amount of the 2025 CQP Senior Notes redeemed, plus the “applicable premium” set forth in the CQP Indenture, plus accrued and unpaid interest, if any, to the date of redemption. In addition, at any time prior to October 1, 2020, CQP may redeem up to 35% of the aggregate principal amount of the 2025 CQP Senior Notes with an amount of cash not greater than the net cash proceeds from certain equity offerings at a redemption price equal to 105.250% of the aggregate principal amount of the 2025 CQP Senior Notes redeemed, plus accrued and ownershipunpaid interest, asif any, to the date of redemption. CQP also may at any time on or after October 1, 2020 through the maturity date of October 1, 2025, redeem the 2025 CQP Senior Notes, in whole or in part, at the redemption prices set forth in the CQP Indenture.
The 2025 CQP Senior Notes are CQP’s senior obligations, ranking equally in right of payment with CQP’s other existing and future unsubordinated debt and senior to any of its future subordinated debt. The 2025 CQP Senior Notes will be secured alongside the 2016 CQP Credit Facilities on a first-priority basis (subject to permitted encumbrances) with liens on (1) substantially all the existing and future tangible and intangible assets and rights of CQP and the CQP Guarantors and equity interests in the CQP Guarantors (except, in each case, for certain excluded properties set forth in the 2016 CQP Credit Facilities) and (2) substantially all of the real property of SPLNG (except for excluded properties referenced in the 2016 CQP Credit Facilities). Upon the release of the liens securing the 2025 CQP Senior Notes, the limitation on liens covenant under the CQP Indenture will continue to govern the incurrence of liens by CQP and the CQP Guarantors.
2016 CQP Credit Facilities
In February 2016, Cheniere Partners entered into the 2016 CQP Credit Facilities. The 2016 CQP Credit Facilities consist of: (1) a $450 million CTPL tranche term loan that was used to prepay the $400 million term loan facility (the “CTPL Term Loan”) in February 2016, (2) an approximately $2.1 billion SPLNG tranche term loan that was used to repay and redeem the approximately $2.1 billion of the senior notes previously issued by SPLNG in November 2016, (3) a $125 million facility that may be used to satisfy a six-month debt service reserve requirement and (4) a $115 million revolving credit facility that may be used for general business purposes. In September 2017, CQP issued the 2025 CQP Senior Notes and the net proceeds of the issuance were used to prepay $1.5 billion of the outstanding indebtedness under the 2016 CQP Credit Facilities. As of September 30, 2016, is approximately $33 million2017 and $725 million, respectively, for the years ended December 31, 2016, Cheniere Partners had $190 million and 2017.$195 million of available commitments, $50 million and $45 million aggregate amount of issued letters of credit and $1.1 billion and $2.6 billion of outstanding borrowings under the 2016 CQP Credit Facilities, respectively.
LNG Terminal BusinessThe 2016 CQP Credit Facilities mature on February 25, 2020, and the outstanding balance may be repaid, in whole or in part, at any time without premium or penalty, except for interest hedging and interest rate breakage costs. The 2016 CQP Credit Facilities contain conditions precedent for extensions of credit, as well as customary affirmative and negative covenants and limit Cheniere Partners’ ability to make restricted payments, including distributions, to once per fiscal quarter as long as certain conditions are satisfied. Under the 2016 CQP Credit Facilities, Cheniere Partners is required to hedge not less than 50% of the variable interest rate exposure on its projected aggregate outstanding balance, maintain a minimum debt service coverage ratio of at least 1.15x at the end of each fiscal quarter beginning March 31, 2019 and have a projected debt service coverage ratio of 1.55x in order to incur additional indebtedness to refinance a portion of the existing obligations.
The 2016 CQP Credit Facilities are unconditionally guaranteed by each subsidiary of Cheniere Partners other than (1) SPL and (2) certain subsidiaries of Cheniere Partners owning other development projects, as well as certain other specified subsidiaries and members of the foregoing entities.
Sabine Pass LNG Terminal
Liquefaction Facilities
We are developing, constructing and operating the SPL Project at the Sabine Pass LNG terminal adjacent to the existing regasification facilities. We have received authorization from the FERC to site, construct and operate Trains 1 through 6. The following table summarizes the overall project status of the SPL Project as of September 30, 2017:
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| | | | | | | | |
| SPL Trains 1 & 2 | | SPL Trains 3 & 4 | | SPL Train 5 |
Overall project completion percentage | 100% | | 100% | | 76.1% |
Completion percentage of: | | | | | |
Engineering | 100% | | 100% | | 100% |
Procurement | 100% | | 100% | | 98.9% |
Subcontract work | 100% | | 100% | | 58.6% |
Construction | 100% | | 99.9% | | 45.1% |
Date of expected substantial completion | Train 1 | Operational | | Train 3 | Operational | | Train 5 | 2H 2019 |
| Train 2 | Operational | | Train 4 | October 2017 | | | |
We achieved substantial completion of Trains 1, 2 and 3 of the SPL Project and commenced operating activities in May 2016, September 2016 and March 2017, respectively, and subsequently achieved substantial completion of Train 4 of the SPL Project in October 2017.
The following orders have been issued by the DOE authorizing the export of domestically produced LNG by vessel from the Sabine Pass LNG terminal:
Trains 1 through 4—FTA countries for a 30-year term, which commenced on May 15, 2016, and non-FTA countries for a 20-year term, which commenced on June 3, 2016, in an amount up to a combined total of the equivalent of 16 mtpa (approximately 803 Bcf/yr of natural gas).
Trains 1 through 4—FTA countries for a 25-year term and non-FTA countries for a 20-year term, in an amount up to a combined total of the equivalent of approximately 203 Bcf/yr of natural gas (approximately 4 mtpa).
Trains 5 and 6—FTA countries and non-FTA countries for a 20-year term, in an amount up to a combined total of 503.3 Bcf/yr of natural gas (approximately 10 mtpa).
In each case, the terms of these authorizations begin on the earlier of the date of first export thereunder or the date specified in the particular order, which ranges from five to 10 years from the date the order was issued. In addition, SPL received an order providing for a three-year makeup period with respect to each of the non-FTA orders for LNG volumes SPL was authorized but unable to export during any portion of the initial 20-year export period of such order.
In January 2016, the DOE issued an order authorizing SPL to export domestically produced LNG by vessel from the Sabine Pass LNG terminal to FTA countries and non-FTA countries over a two-year period commencing on January 15, 2016, in an aggregate amount up to the equivalent of 600 Bcf of natural gas (however, exports to non-FTA countries under this order, when combined with exports to non-FTA countries under the orders related to Trains 1 through 4 above, may not exceed 1,006 Bcf/yr).
A party to the proceedings requested rehearings of the orders above related to the export of 803 Bcf/yr, 203 Bcf/yr and 503.3 Bcf/yr to non-FTA countries. The DOE issued orders denying rehearing of the orders. The same party petitioned the U.S. Court of Appeals for the District of Columbia Circuit (the “Court of Appeals”) to review (1) the 203 Bcf/yr order to non-FTA countries and the order denying the request for rehearing of the same and (2) the 503.3 Bcf/yr order to non-FTA countries and the order denying the request for rehearing of the same. The Court of Appeals denied the petition relating to the 503.3 Bcf/yr order to non-FTA countries in November 2017, and the time for review of the court’s denial has not yet expired.
Customers
SPL has entered into six fixed price, 20-year SPAs with extension rights with third parties to make available an aggregate amount of LNG that equates to approximately 19.75 mtpa of LNG, which is approximately 88% of the expected aggregate nominal production capacity of Trains 1 through 5. The obligation to make LNG available under the SPAs commences from the date of first commercial delivery for Trains 1 through 5, as specified in each SPA. Under these SPAs, the customers will purchase LNG from SPL for a price consisting of a fixed fee per MMBtu of LNG (a portion of which is subject to annual adjustment for inflation) plus a variable fee equal to 115% of Henry Hub per MMBtu of LNG. In certain circumstances, the customers may elect to cancel or suspend deliveries of LNG cargoes, in which case the customers would still be required to pay the fixed fee with respect to the contracted volumes that are not delivered as a result of such cancellation or suspension. The SPAs and contracted volumes to be made available under the SPAs are not tied to a specific Train; however, the term of each SPA commences upon the start of operations of a specified Train. Under SPL’s SPA with BG, BG has contracted for volumes related to Trains 3 and 4 for which the obligation to make LNG available to BG is expected to commence approximately one year after the date of first commercial delivery for the respective Train.
In aggregate, the fixed fee portion to be paid by the third-party SPA customers is approximately $2.9 billion annually for Trains 1 through 5, with the applicable fixed fees starting from the date of first commercial delivery under the respective SPA from the applicable Train. These fixed fees equal approximately $411 million, $564 million, $650 million, $648 million and $588 million for each of Trains 1 through 5, respectively.
Any LNG produced by SPL in excess of that required for other customers is sold by our integrated marketing function, in fulfilment of various sales commitments.
Natural Gas Transportation, Storage and Supply
To ensure SPL is able to transport adequate natural gas feedstock to the Sabine Pass LNG terminal, it has entered into transportation precedent and other agreements to secure firm pipeline transportation capacity with CTPL and third-party pipeline companies. SPL has entered into firm storage services agreements with third parties to assist in managing volatility in natural gas needs for the SPL Project. SPL has also entered into enabling agreements and long-term natural gas supply contracts with third parties in order to secure natural gas feedstock for the SPL Project. As of September 30, 2017, SPL has secured up to approximately 2,462 TBtu of natural gas feedstock through long-term and short-term natural gas supply contracts.
Construction
SPL entered into lump sum turnkey contracts with Bechtel Oil, Gas and Chemicals, Inc. (“Bechtel”) for the engineering, procurement and construction of Trains 1 through 5 of the SPL Project, under which Bechtel charges a lump sum for all work
performed and generally bears project cost risk unless certain specified events occur, in which case Bechtel may cause SPL to enter into a change order, or SPL agrees with Bechtel to a change order.
The total contract prices of the EPC contract for Trains 1 and 2, the EPC contract for Trains 3 and 4 and the EPC contract for Train 5 of the SPL Project are approximately $4.1 billion, $3.9 billion and $3.1 billion, respectively, reflecting amounts incurred under change orders through September 30, 2017. Total expected capital costs for Trains 1 through 5 are estimated to be between $12.5 billion and $13.5 billion before financing costs and between $17.5 billion and $18.5 billion after financing costs including, in each case, estimated owner’s costs and contingencies.
Final Investment Decision on Train 6
We will contemplate making an FID to commence construction of Train 6 of the SPL Project based upon, among other things, entering into an EPC contract, entering into acceptable commercial arrangements and obtaining adequate financing to construct Train 6.
Regasification Facilities
The Sabine Pass LNG terminal has operational regasification capacity of approximately 4.0 Bcf/d and aggregate LNG storage capacity of approximately 16.9 Bcfe. Approximately 2.0 Bcf/d of the regasification capacity at the Sabine Pass LNG terminal has been reserved under two long-term third-party TUAs, under which SPLNG’s customers are required to pay fixed monthly fees, whether or not they use the LNG terminal. Each of Total Gas & Power North America, Inc. (“Total”) and Chevron U.S.A. Inc. (“Chevron”) has reserved approximately 1.0 Bcf/d of regasification capacity and is obligated to make monthly capacity payments to SPLNG aggregating approximately $125 million annually for 20 years that commenced in 2009. Total S.A. has guaranteed Total’s obligations under its TUA up to $2.5 billion, subject to certain exceptions, and Chevron Corporation has guaranteed Chevron’s obligations under its TUA up to 80% of the fees payable by Chevron.
The remaining approximately 2.0 Bcf/d of capacity has been reserved under a TUA by SPL. SPL is obligated to make monthly capacity payments to SPLNG aggregating approximately $250 million annually, continuing until at least 20 years after SPL delivers its first commercial cargo at the SPL Project. SPL entered into a partial TUA assignment agreement with Total, whereby upon substantial completion of Train 3, SPL will progressively gaingained access to a portion of Total’s capacity and other services provided under Total’s TUA with SPLNG. This agreement will provideprovides SPL with additional berthing and storage capacity at the Sabine Pass LNG terminal that may be used to accommodate the development of Trains 5 and 6, provide increased flexibility in managing LNG cargo loading and unloading activity, starting with the commencement of commercial operations of Train 3 and permit SPL to more flexibly manage its LNG storage capacity withand accommodate the commencementdevelopment of Train 1.Trains 5 and 6. Notwithstanding any arrangements between Total and SPL, payments required to be made by Total to SPLNG will continue to be made by Total to SPLNG in accordance with its TUA. During the three and nine months ended September 30, 2017, SPL recorded $7 million and $15 million, respectively, as operating and maintenance expense under this partial TUA assignment agreement.
Under each of these TUAs, SPLNG is entitled to retain 2% of the LNG delivered to the Sabine Pass LNG terminal.
Liquefaction Facilities
The SPL Project is being developed and constructed at the Sabine Pass LNG terminal adjacent to the existing regasification facilities. We have received authorization from the FERC to site, construct and operate Trains 1 through 6. We commenced construction of Trains 1 and 2 and the related new facilities needed to treat, liquefy, store and export natural gas in August 2012. In May 2016 and September 2016, Trains 1 and 2 achieved substantial completion, respectively. Construction of Trains 3 and 4 and the related facilities commenced in May 2013. In June 2015, we commenced construction of Train 5 and the related facilities. In October 2016, the previously announced planned outage to improve performance of the flare systems at the SPL Project, as well as to perform scheduled maintenance to Train 1 and other facilities, was completed on schedule and budget.
The DOE has authorized the export of domestically produced LNG by vessel from Trains 1 through 4 of the Sabine Pass LNG terminal to FTA countries for a 30-year term, which commenced on May 15, 2016, and to non-FTA countries for a 20-year term, which commenced on June 3, 2016, in an amount up to a combined total of the equivalent of 16 mtpa (approximately 803 Bcf/yr of natural gas). The DOE further issued orders authorizing SPL to export domestically produced LNG by vessel from Trains 1 through 4 of the Sabine Pass LNG terminal to FTA countries for a 25-year term and non-FTA countries for a 20-year term, in an amount up to a combined total of the equivalent of approximately 203 Bcf/yr of natural gas. Additionally, the DOE issued orders authorizing us to export domestically produced LNG by vessel from Trains 5 and 6 of the Sabine Pass LNG terminal to FTA countries and non-FTA countries for a 20-year term, in an amount up to a combined total of 503.3 Bcf/yr of natural gas (approximately 10 mtpa). A party to the proceedings requested rehearings of the orders above related to the export of 803 Bcf/yr, 203 Bcf/yr and 503.3 Bcf/yr to non-FTA countries. The DOE issued orders denying rehearing of the orders related to 803 Bcf/yr and 503.3 Bcf/yr but has not yet issued a final ruling on the rehearing request related to the 203 Bcf/yr. In July 2016, the same party petitioned the U.S. Court of Appeals for the District of Columbia Circuit to review the DOE order related to the export of 503.3 Bcf/yr to non-FTA countries and the order denying the request for rehearing of the same. The appeal is pending. In each case, the terms of these authorizations begin on the earlier of the date of first export thereunder or the date specified in the particular order, which ranges from five to 10 years from the date the order was issued. In addition, we have a three-year makeup period with respect to each of the non-FTA orders for LNG volumes we were unable to export during the initial 20-year export period of
such order. Furthermore, in January 2016, the DOE issued an order authorizing us to export domestically produced LNG by vessel from the Sabine Pass LNG terminal to FTA countries and non-FTA countries over a two-year period commencing on January 15, 2016, in an aggregate amount up to the equivalent of 600 Bcf of natural gas (however, exports to non-FTA countries under this order, when combined with exports to non-FTA countries under the orders related to Trains 1 through 4 above, may not exceed 1,006 Bcf/yr).
As of September 30, 2016, Trains 1 and 2 of the SPL Project had achieved substantial completion. As of September 30, 2016, the overall project completion percentage for Trains 3 and 4 of the SPL Project was approximately 91.8%. As of September 30, 2016, the overall project completion percentage for Train 5 of the SPL Project was approximately 42.8% with engineering, procurement, subcontract work and construction approximately 90.8%, 62.0%, 41.9% and 4.6% complete, respectively. As of September 30, 2016, the overall project completion of each of our Trains was ahead of the contractual schedule. We produced our first LNG from Train 1 of the SPL Project in February 2016 and achieved substantial completion in May 2016. We produced our first LNG from Train 2 of the SPL Project in August 2016 and achieved substantial completion in September 2016. Based on our current construction schedule, Trains 3 and 4 are expected to achieve substantial completion in 2017 and Train 5 is expected to achieve substantial completion in 2019.
Customers
SPL has entered into six fixed price, 20-year SPAs with third parties to make available an aggregate amount of LNG that equates to approximately 19.75 mtpa of LNG, which is approximately 88% of the expected aggregate nominal production capacity of Trains 1 through 5. The obligation to make LNG available under the SPAs commences from the date of first commercial delivery for Trains 1 through 5, as specified in each SPA. Under these SPAs, the customers will purchase LNG from SPL for a price consisting of a fixed fee (a portion of which is subject to annual adjustment for inflation) per MMBtu of LNG plus a variable fee equal to 115% of Henry Hub per MMBtu of LNG. In certain circumstances, the customers may elect to cancel or suspend deliveries of LNG cargoes, in which case the customers would still be required to pay the fixed fee with respect to the contracted volumes that are not delivered as a result of such cancellation or suspension. The SPAs and contracted volumes to be made available under the SPAs are not tied to a specific Train; however, the term of each SPA commences upon the start of operations of a specified Train.
In aggregate, the fixed fee portion to be paid by the third-party SPA customers is approximately $2.9 billion annually for Trains 1 through 5, with the applicable fixed fees starting from the date of first commercial delivery from the applicable Train. These fixed fees equal approximately $411 million, $564 million, $650 million, $648 million and $588 million for each of Trains 1 through 5, respectively.
In addition, Cheniere Marketing has entered into an SPA with SPL to purchase, at Cheniere Marketing’s option, any LNG produced by SPL in excess of that required for other customers.
Natural Gas Transportation, Storage and Supply
To ensure SPL is able to transport adequate natural gas feedstock to the Sabine Pass LNG terminal, it has entered into transportation precedent and other agreements to secure firm pipeline transportation capacity with CTPL and third-party pipeline companies. SPL has entered into firm storage services agreements with third parties to assist in managing volatility in natural gas needs for the SPL Project. SPL has also entered into enabling agreements and long-term natural gas supply contracts with third parties in order to secure natural gas feedstock for the SPL Project. As of September 30, 2016, SPL has secured up to approximately 1,982.0 million MMBtu of natural gas feedstock through long-term natural gas supply contracts.
Construction
SPL entered into lump sum turnkey contracts with Bechtel Oil, Gas and Chemicals, Inc. (“Bechtel”) for the engineering, procurement and construction of Trains 1 through 5, under which Bechtel charges a lump sum for all work performed and generally bears project cost risk unless certain specified events occur, in which case Bechtel may cause SPL to enter into a change order, or SPL agrees with Bechtel to a change order.
The total contract prices of the EPC contract for Trains 1 and 2, the EPC contract for Trains 3 and 4 and the EPC Contract for Train 5 of the SPL Project are approximately $4.1 billion, $3.9 billion and $3.0 billion, respectively, reflecting amounts incurred under change orders through September 30, 2016. Total expected capital costs for Trains 1 through 5 are estimated to be between
$12.5 billion and $13.5 billion before financing costs and between $17.0 billion and $18.0 billion after financing costs including, in each case, estimated owner’s costs and contingencies.
Final Investment Decision on Train 6
We will contemplate making an FID to commence construction of Train 6 of the SPL Project based upon, among other things, entering into an EPC contract, entering into acceptable commercial arrangements and obtaining adequate financing to construct the Train.
Capital Resources
We currently expect that SPL’s capital resources requirements with respect to Trains 1 through 5 of the SPL Project will be financed through one or more of the following:project debt and borrowings equity contributions from Cheniere Partners and cash flows under the SPAs. We believe that with the net proceeds of borrowings, available commitments under the 2015 SPL Credit Facilities, available commitments under the SPL Working Capital Facility (as defined below) and cash flows from operations, we will have adequate financial resources available to complete Trains 1 through 5 of the SPL Project and to meet our currently anticipated capital, operating and debt service requirements. SPL began generating cash flows from operations from the SPL Project in May 2016, when Train 1 achieved substantial completion and initiated operating activities. Additionally, during the threeTrains 2 and nine months ended3 subsequently achieved substantial completion in September 30, 2016 weand March 2017, respectively. We realized offsets to LNG terminal costs of $68.3$82 million and $214.3$68 million in the three months ended September 30, 2017 and 2016, respectively, and $252 million and $214 million in the nine months ended September 30, 2017 and 2016, respectively, that were related to the sale of commissioning cargoes because these amounts were earned or loaded prior to the start of commercial operations, during the testing phase for the construction of those Trains 1 and 2 of the SPL Project. Additionally, SPLNG generates cash flows from the TUAs, as discussed above.
The following table (in millions) provides a summary of our capital resources from borrowings and available commitments for the Sabine Pass LNG Terminal, excluding equity contributions to our subsidiaries and cash flows from operations (as described in Sources and Uses of Cash), at September 30, 2017 and December 31, 2016:
|
| | | | | | | | |
| | September 30, | | December 31, |
| | 2017 | | 2016 |
Senior notes (1) | | $ | 15,150 |
| | $ | 11,500 |
|
Credit facilities outstanding balance (2) | | 1,090 |
| | 3,097 |
|
Letters of credit issued (3) | | 721 |
| | 324 |
|
Available commitments under credit facilities (3) | | 479 |
| | 2,295 |
|
Total capital resources from borrowings and available commitments (4) | | $ | 17,440 |
| | $ | 17,216 |
|
| |
(1) | Includes SPL’s 5.625% Senior Secured Notes due 2021, 6.25% Senior Secured Notes due 2022, 5.625% Senior Secured Notes due 2023, 5.75% Senior Secured Notes due 2024, 5.625% Senior Secured Notes due 2025, 5.875% Senior Secured Notes due 2026 (the “2026 SPL Senior Notes”), 5.00% Senior Secured Notes due 2027 (the “2027 SPL Senior Notes”), 2028 SPL Senior Notes and 2037 SPL Senior Notes (collectively, the “SPL Senior Notes”) and CQP’s 2025 CQP Senior Notes. |
| |
(2) | Includes 2015 SPL Credit Facilities, SPL Working Capital Facility and CTPL and SPLNG tranche term loans outstanding under the 2016 CQP Credit Facilities. |
| |
(3) | Includes 2015 SPL Credit Facilities and SPL Working Capital Facility. Does not include the letters of credit issued or available commitments under the 2016 CQP Credit Facilities, which are not specifically for the Sabine Pass LNG Terminal. |
| |
(4) | Does not include Cheniere’s additional borrowings from the 2021 Cheniere Convertible Unsecured Notes and the 2045 Cheniere Convertible Senior Notes, which may be used for the Sabine Pass LNG Terminal. |
For additional information regarding our debt agreements related to the Sabine Pass LNG Terminal, see Note 10—Debt of our Notes to Consolidated Financial Statements in this quarterly report and Note 12—Debt of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended December 31, 2016.
SPL Senior Notes
As of September 30, 2016, Cheniere Partners’ subsidiaries had nine series of senior secured notes outstanding:
$1.7 billion of 2016 SPLNG Senior Notes;
$0.4 billion of 2020 SPLNG Senior Notes;
$2.0 billion of 5.625% Senior Secured Notes due 2021 issued byThe SPL (the “2021 SPL Senior Notes”);
$1.0 billion of 6.25% Senior Secured Notes due 2022 issued by SPL (the “2022 SPL Senior Notes”);
$1.5 billion of 5.625% Senior Secured Notes due 2023 issued by SPL (the “2023 SPL Senior Notes”);
$2.0 billion of 5.75% Senior Secured Notes due 2024 issued by SPL (the “2024 SPL Senior Notes”);
$2.0 billion of 5.625% Senior Secured Notes due 2025 (the “2025 SPL Senior Notes” and collectively with the 2021 SPL Senior Notes, the 2022 SPL Senior Notes, the 2023 SPL Senior Notes, the 2024 SPL Senior Notes, the 2026 SPL Senior Notes and the 2027 SPL Senior Notes, the “SPL Senior Notes”);
$1.5 billion of 2026 SPL Senior Notes; and
$1.5 billion of 2027 SPL Senior Notes.
Interest on the SPL Senior Notes is payable semi-annually in arrears. Subject to permitted liens, the SPLNG Senior Notes are secured on a pari passufirst-priority basis by a security interest in all of SPLNG’s equity interests and substantially all of SPLNG’s operating assets. The SPL Senior Notes are secured on a first-priority basis by a security interest in all of the membership interests in SPL and substantially all of SPL’s assets.
SPLNG may redeem all or part of its 2016 SPLNG Senior Notes at any time at a redemption price equal to 100% of the principal plus any accrued and unpaid interest plus the greater of:
•1.0% of the principal amount of the 2016 SPLNG Senior Notes; or
the excess of: (1) the present value at such redemption date of (a) the redemption price of the 2016 SPLNG Senior Notes plus (b) all required interest payments due on the 2016 SPLNG Senior Notes (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the treasury rate as of such redemption date plus 50 basis points; over (2) the principal amount of the 2016 SPLNG Senior Notes, if greater.
SPLNG may redeem all or part of the 2020 SPLNG Senior Notes at any time on or after November 1, 2016 at fixed redemption prices specified in the indenture governing the 2020 SPLNG Senior Notes, plus accrued and unpaid interest, if any, to the date of redemption.
At any time prior to three months before the respective dates of maturity for each series of the SPL Senior Notes (except for the 2026 SPL Senior Notes, 2027 SPL Senior Notes, 2028 SPL Senior Notes and 2037 SPL Senior Notes, in which case the time period is six months before the respective dates of maturity), SPL may redeem all or part of such series of the SPL Senior Notes at a redemption price equal to the “make-whole” price (except for the 2037 SPL Senior Notes, in which case the redemption price is equal to the “optional redemption” price) set forth in the common indenturerespective indentures governing the SPL Senior Notes, (the “SPL Indenture”), plus accrued and unpaid interest, if any, to the date of redemption. SPL may also, at any time within three months of the respective maturity dates for each series of the SPL Senior Notes (except for the 2026 SPL Senior Notes, 2027 SPL Senior Notes, 2028 SPL Senior Notes and 2037 SPL Senior Notes, in which case the time period is within six months of the respective dates of maturity), redeem all or part of such series of the SPL Senior Notes at a redemption price equal to 100% of the principal amount of such series of the SPL Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to the date of redemption.
On October 14, 2016, SPLNG issued a notice of redemption to redeem all of its outstanding 2020 SPLNGBoth the indenture governing the 2037 SPL Senior Notes. The redemption date will be November 30, 2016Notes (the “Redemption Date”“2037 SPL Senior Notes Indenture”) and the price will be equal to 103.250%common indenture governing the remainder of the principal amount of the 2020 SPLNG Senior Notes, plus accrued and unpaid interest and additional interest, if any, on the 2020 SPLNG Senior Notes to, but not including, the Redemption Date. Concurrently with the redemption of the 2020 SPLNG Senior Notes, SPLNG intends to repay all of its outstanding 2016 SPLNG Senior Notes, which mature on the Redemption Date, at a price equal to 100% of the principal amount of the 2016 SPLNG Senior Notes, plus accrued and unpaid interest and additional interest, if any, on the 2016 SPLNG Senior Notes to, but not including, the Redemption Date. The redemption of the 2020 SPLNG Senior Notes and the repayment of the 2016 SPLNG Senior Notes will be funded with borrowings under the 2016 CQP Credit Facilities Cheniere Partners entered into in February 2016, as further described below.
Under the indentures governing the SPLNGSPL Senior Notes (the “SPLNG Indentures”“SPL Indenture”), except for permitted tax distributions, SPLNG may not make distributions until, among other requirements, deposits are made into debt service reserve accounts and a fixed charge coverage ratio test of 2:1 is satisfied. Under the SPL Indenture, SPL may not make any distributions until, among other requirements, deposits are made into debt service reserve accounts as required and a debt service coverage ratio test of 1.25:1.00 is satisfied. During the nine months ended September 30, 2016 and 2015, SPLNG made distributions of $230.4 million and $267.9 million, respectively, after satisfying all the applicable conditions in the SPLNG Indentures.
The SPL Indenture includes include restrictive covenants. SPL may incur additional indebtedness in the future, including by issuing additional notes, and such indebtedness could be at higher interest rates and have different maturity dates and more restrictive covenants than the current outstanding indebtedness of SPL, including the SPL Senior Notes the 2015 SPL Credit Facilities and the SPL Working Capital Facility. Under the 2037 SPL Senior Notes Indenture and the SPL Indenture, SPL may not make any distributions until, among other requirements, deposits are made into debt service reserve accounts as required and a debt service coverage ratio test of 1.25:1.00 is satisfied.
2015 SPL Credit Facilities
In June 2015, SPL entered into the 2015 SPL Credit Facilities with commitments aggregating $4.6 billion. The 2015 SPL Credit Facilities are being usedbillion to fund a portion of the costs of developing, constructing and placing into operation Trains 1 through 5 of the SPL Project. BorrowingsIn February 2017, SPL issued the 2037 SPL Senior Notes and a portion of the net proceeds of the issuance was used to repay the then outstanding borrowings of $369 million under the 2015 SPL Credit Facilities may be refinanced, in whole or in part, at any time without premium or penalty; however, interest rate hedging and interest rate breakage costs may be incurred. During 2016, in conjunction withFacilities. In March 2017, SPL issued the issuance of the 20262028 SPL Senior Notes and SPL terminated the 2027 SPL Senior Notes, SPL prepaid outstanding borrowings and terminated commitmentsremaining available balance of $1.6 billion under the 2015 SPL Credit Facilities for approximately $2.6 billion. These prepayments and termination of commitments resulted in a write-off of debt issuance costs associated with the 2015 SPL Credit Facilities of $25.8 million and $51.8 million during the three and nine months ended September 30, 2016, respectively. As of September 30, 2016, SPL had $2.0 billion of available commitments and no outstanding borrowings under the 2015 SPL Credit Facilities.
Loans under the 2015 SPL Credit Facilities accrue interest at a variable rate per annum equal to, at SPL’s election, LIBOR or the base rate plus the applicable margin. The applicable margin for LIBOR loans ranges from 1.30% to 1.75%, depending on the applicable 2015 SPL Credit Facility, and the applicable margin for base rate loans is 1.75%. Interest on LIBOR loans is due and payable at the end of each LIBOR period and interest on base rate loans is due and payable at the end of each quarter. In addition, SPL is required to pay insurance/guarantee premiums of 0.45% per annum on any drawn amounts under the covered tranches of the 2015 SPL Credit Facilities. The 2015 SPL Credit Facilities also require SPL to pay a quarterly commitment fee calculated at a rate per annum equal to either: (1) 40% of the applicable margin, multiplied by the average daily amount of the undrawn commitment, or (2) 0.70% of the undrawn commitment, depending on the applicable 2015 SPL Credit Facility. The principal of the loans made under the 2015 SPL Credit Facilities must be repaid in quarterly installments, commencing with the earlier of June 30, 2020 and the last day of the first full calendar quarter after the completion date of Trains 1 through 5 of the SPL
Project. Scheduled repayments are based upon an 18-year amortization profile, with the remaining balance due upon the maturity of the 2015 SPL Credit Facilities.
The 2015 SPL Credit Facilities contain conditions precedent for borrowings, as well as customary affirmative and negative covenants. The obligations of SPL under the 2015 SPL Credit Facilities are secured by substantially all of the assets of SPL as well as all of the membership interests in SPL on a pari passu basis with the SPL Senior Notes and SPL Working Capital Facility.
Under the terms of the 2015 SPL Credit Facilities, SPL is required to hedge not less than 65% of the variable interest rate exposure of its projected outstanding borrowings, calculated on a weighted average basis in comparison to its anticipated draw of principal. Additionally, SPL may not make any distributions until certain conditions have been met, including that deposits are made into debt service reserve accounts and a debt service coverage ratio test of 1.25:1.00 is satisfied.
2013 SPL Credit Facilities
In May 2013, SPL entered into four credit facilities aggregating $5.9 billion (collectively, the “2013 SPL Credit Facilities”) to fund a portion of the costs of developing, constructing and placing into operation Trains 1 through 4 of the SPL Project. In June 2015, the 2013 SPL Credit Facilities were replaced with the 2015 SPL Credit Facilities.
In March 2015, in conjunction with SPL’s issuance of the 2025 SPL Senior Notes, SPL terminated approximately $1.8 billion of commitments under the 2013 SPL Credit Facilities. This termination and the replacement of the 2013 SPL Credit Facilities with the 2015 SPL Credit Facilities in June 2015 resulted in a write-off of debt issuance costs and deferred commitment fees associated with the 2013 SPL Credit Facilities of $96.3 million for the nine months ended September 30, 2015.
CTPL Term Loan
In May 2013, CTPL entered into the CTPL Term Loan, which was used to fund modifications to the Creole Trail Pipeline and for general business purposes. In February 2016, CTPL prepaid the full amount of $400.0 million outstanding under the CTPL Term Loan with capital contributions from Cheniere Partners, which in turn was funded with borrowings under the 2016 CQP Credit Facilities. This prepayment resulted in a write-off of unamortized discount and debt issuance costs of $1.5 million during the nine months ended September 30, 2016.
2016 CQP Credit Facilities
In February 2016, Cheniere Partners entered into the 2016 CQP Credit Facilities. The 2016 CQP Credit Facilities consist of: (1) a $450.0 million CTPL tranche term loan that was used to prepay the $400.0 million CTPL Term Loan in February 2016, (2) an approximately $2.1 billion SPLNG tranche term loan that will be used to redeem or repay the approximately $2.1 billion of the 2016 SPLNG Senior Notes and the 2020 SPLNG Senior Notes (which must be redeemed or repaid concurrently under the terms of the 2016 CQP Credit Facilities ), (3) the $125.0 million DSR Facility that may be used to satisfy a six-month debt service reserve requirement and (4) a $115.0 million revolving credit facility that may be used for general business purposes. As of September 30, 2016, Cheniere Partners had $2.3 billion of available commitments, $7.5 million aggregate amount of issued letters of credit and $450.0 million of outstanding borrowings under the 2016 CQP Credit Facilities.
The 2016 CQP Credit Facilities accrue interest at a variable rate per annum equal to LIBOR or the base rate (equal to the highest of the prime rate, the federal funds effective rate, as published by the Federal Reserve Bank of New York, plus 0.50% and adjusted one month LIBOR plus 1.0%), plus the applicable margin. The applicable margin for LIBOR loans is 2.25% per annum, and the applicable margin for base rate loans is 1.25% per annum, in each case with a 0.50% step-up beginning on February 25, 2019. Interest on LIBOR loans is due and payable at the end of each applicable LIBOR period (and at the end of every three month period within the LIBOR period, if any), and interest on base rate loans is due and payable at the end of each calendar quarter.
Cheniere Partners incurred $48.7 million of debt issuance costs during the nine months ended September 30, 2016, and will incur an additional $21.5 million of debt issuance costs when the SPLNG tranche is funded. Cheniere Partners pays a commitment fee equal to an annual rate of 40% of the margin for LIBOR loans multiplied by the average daily amount of the undrawn commitment, payable quarterly in arrears. The DSR Facility and the revolving credit facility are both available for the issuance of letters of credit, which incur a fee equal to an annual rate of 2.25% of the undrawn portion with a 0.50% step-up beginning on February 25, 2019.
The 2016 CQP Credit Facilities mature on February 25, 2020, and the outstanding balance may be repaid, in whole or in part, at any time without premium or penalty, except for interest hedging and interest rate breakage costs. The 2016 CQP Credit Facilities contain conditions precedent for extensions of credit, as well as customary affirmative and negative covenants and limit Cheniere Partners’ ability to make restricted payments, including distributions, to once per fiscal quarter as long as certain conditions are satisfied. Under the terms of the 2016 CQP Credit Facilities, Cheniere Partners is required to hedge not less than 50% of the variable interest rate exposure on its projected aggregate outstanding balance, maintain a minimum debt service coverage ratio of at least 1.15x at the end of each fiscal quarter beginning March 31, 2019 and have a projected debt service coverage ratio of 1.55x in order to incur additional indebtedness to refinance a portion of the existing obligations.
The 2016 CQP Credit Facilities are unconditionally guaranteed by each subsidiary of Cheniere Partners other than: (1) SPL, (2) SPLNG until funding of its tranche term loan and (3) certain of the subsidiaries of Cheniere Partners owning other development projects, as well as certain other specified subsidiaries and members of the foregoing entities.
SPL Working Capital Facility
In September 2015, SPL entered into a $1.2 billion Amended and Restated Senior Working Capital Revolving Credit and Letter of Credit Reimbursement Agreement (the “SPL Working Capital Facility”), which replaced the $325.0 million Senior Letter of Credit and Reimbursement Agreement that was entered into in April 2014. The SPL Working Capital Facility, which is intended to be used for loans to SPL (“SPL Working Capital Loans”), the issuance of letters of credit on behalf of SPL, as well as for swing line loans to SPL (“SPL Swing Line Loans”), primarily for certain working capital requirements related to developing and placing into operation the SPL Project. SPL may, from time to time, request increases in the commitments under the SPL Working Capital Facility of up to $760 million and, upon the completion of the debt financing of Train 6 of the SPL Project, request an incremental increase in commitments of up to an additional $390 million. As of September 30, 2017 and December 31, 2016, SPL had $764.5$479 million and $653 million of available commitments, $337.0$721 million and $324 million aggregate amount of issued letters of credit and $98.5zero and $224 million of loans outstanding under the SPL Working Capital Facility. As of December 31, 2015, SPL had $1.1 billion of available commitments, $135.2 million aggregate amount of issued letters of credit and $15.0 million of loans outstanding under the SPL Working Capital Facility.
The SPL Working Capital Facility, accrues interest at a variable rate per annum equal to LIBOR or the base rate (equal to the highest of the senior facility agent’s published prime rate, the federal funds effective rate, as published by the Federal Reserve Bank of New York, plus 0.50% and one month LIBOR plus 0.50%), plus the applicable margin. The applicable margin for LIBOR loans under the SPL Working Capital Facility is 1.75% per annum, and the applicable margin for base rate loans under the SPL Working Capital Facility is 0.75% per annum. Interest on Swing Line Loans and loans deemed made in connection with a draw upon a letter of credit (“LC Loans”) is due and payable on the date the loan becomes due. Interest on LIBOR Working Capital Loans is due and payable at the end of each applicable LIBOR period, and interest on base rate Working Capital Loans is due and payable at the end of each fiscal quarter. However, if such base rate Working Capital Loan is converted into a LIBOR Working Capital Loan, interest is due and payable on that date. Additionally, if the loans become due prior to such periods, the interest also becomes due on that date.
SPL pays (1) a commitment fee equal to an annual rate of 0.70% on the average daily amount of the excess of the total commitment amount over the principal amount outstanding without giving effect to any outstanding Swing Line Loans and (2) a letter of credit fee equal to an annual rate of 1.75% of the undrawn portion of all letters of credit issued under the SPL Working Capital Facility. If draws are made upon a letter of credit issued under the SPL Working Capital Facility and SPL does not elect for such draw (an “LC Draw”) to be deemed an LC Loan, SPL is required to pay the full amount of the LC Draw on or prior to the business day following the notice of the LC Draw. An LC Draw accrues interest at an annual rate of 2.0% plus the base rate. As of September 30, 2016, no LC Draws had been made upon any letters of credit issued under the SPL Working Capital Facility.respectively.
The SPL Working Capital Facility matures on December 31, 2020, and the outstanding balance may be repaid, in whole or in part, at any time without premium or penalty upon three business days’ notice. LC Loans deemed made in connection with a draw upon a letter of credit have a term of up to one year. SPL Swing Line Loans terminate upon the earliest of (1) the maturity date or earlier termination of the SPL Working Capital Facility, (2) the date 15 days after such SPL Swing Line Loan is made and (3) the first borrowing date for a SPL Working Capital Loan or SPL Swing Line Loan occurring at least three business days following the date the SPL Swing Line Loan is made. SPL is required to reduce the aggregate outstanding principal amount of all SPL Working Capital Loans to zero for a period of five consecutive business days at least once each year.
The SPL Working Capital Facility contains conditions precedent for extensions of credit, as well as customary affirmative and negative covenants. The obligations of SPL under the SPL Working Capital Facility are secured by substantially all of the assets of SPL as well as all of the membership interests in SPL on a pari passu basis with the SPL Senior Notes and the 2015 SPL Credit Facilities.Notes.
Corpus Christi LNG Terminal
Liquefaction Facilities
The CCL Project is being developed and constructed at the Corpus Christi LNG terminal, on nearly 2,000 acres of land that we own or control near Corpus Christi, Texas. In December 2014, we received authorization from the FERC to site, construct and operate Stages 1 and 2 of the CCL Project. In May 2015, we commenced constructionThe following table summarizes the overall project status of Stage 1 of the CCL Project.Project as of September 30, 2017:
|
| | |
| CCL Stage 1 |
Overall project completion percentage | 72.4% |
Project completion percentage of: | |
Engineering | 100% |
Procurement | 89.4% |
Subcontract work | 49.4% |
Construction | 49.2% |
Expected date of substantial completion | Train 1 | 1H 2019 |
| Train 2 | 2H 2019 |
Through the CCL Stage III entities, which are separateTrain 3 is being commercialized and has all necessary regulatory approvals in place. Separate from the CCH Group, we are also developing two additional Trains and one LNG storage tank at the Corpus Christi LNG terminalExpansion Project, adjacent to the CCL Project, along with a second natural gas pipeline, and weProject. We commenced the regulatory approval process in June 2015.2015 and recently began the process of amending our regulatory filings with FERC to incorporate a project design change, from two Trains with an expected aggregate nominal production capacity of approximately 9.0 mtpa to up to seven midscale Trains with an expected aggregate nominal production capacity of approximately 9.5 mtpa.
The following orders have been issued by the DOE has authorizedauthorizing the export of domestically produced LNG by vessel from the Corpus Christi LNG terminal:
CCL Project to Project—FTA countries for a 25-year term and to non-FTA countries for a 20-year term up to a combined total of the equivalent of 767 Bcf/yr (approximately 15 mtpa) of natural gas. Additionally,A party to the proceeding requested a rehearing of the authorization to non-FTA countries, which was denied by the DOE in May 2016. In July 2016, the same party petitioned the Court of Appeals to review the authorization to non-FTA countries and the DOE order denying the request for rehearing of the same. The Court of Appeals denied the petition in November 2017, and the time for review of the court’s denial has authorized the export of domestically produced LNG by vessel from the two additional Trains being developed adjacent to the CCL Project to not yet expired.
Corpus Christi Expansion Project—FTA countries for a 20-year term in an amount equivalent to 514 Bcf/yr (approximately 10 mtpa) of natural gas. The application for authorization to export that same 514 Bcf/yr of domestically produced LNG by vessel to non-FTA countries is currently pending atbefore the DOE. We intend to amend our DOE applications consistent with the design change in our amended FERC filings.
In each case, the terms of these authorizations begin on the earlier of the date of first export thereunder or the date specified in the particular order, which ranges from 7 to 10 years from the date the order was issued.
As of September 30, 2016, the overall project completion percentage for Stage 1 of the CCL Project was approximately 43.0% with engineering, procurement and construction approximately 99.3%, 59.0% and 14.4% complete, respectively. The construction of the Corpus Christi Pipeline is planned to commence in early 2017. Based on our current construction schedule, we anticipate that Trains 1 and 2 of the CCL Project will achieve substantial completion in 2019.
Customers
CCL has entered into seven fixed price, 20-year SPAs with extension rights with six third parties to make available an aggregate amount of LNG that equates to approximately 7.7 mtpa of LNG, which is approximately 86% of the expected aggregate nominal production capacity of Trains 1 and 2. The obligation to make LNG available under these SPAs commences from the date of first commercial delivery for Trains 1 and 2, as specified in each SPA. In addition, CCL has entered into one fixed price, 20-year SPA with a third party for another 0.8 mtpa of LNG that commences with the date of first commercial delivery for Train 3. Under these eight SPAs, the customers will purchase LNG from CCL for a price consisting of a fixed fee of $3.50 per MMBtu of LNG (a portion of which is subject to annual adjustment for inflation) per MMBtu of LNG plus a variable fee equal to 115% of Henry Hub per MMBtu of LNG. In certain circumstances, the customers may elect to cancel or suspend deliveries of LNG cargoes, in which case the customers would still be required to pay the fixed fee with respect to the contracted volumes that are not delivered as a result of such cancellation or suspension. The SPAs and contracted volumes to be made available under the SPAs are not tied to a specific Train; however, the term of each SPA commences upon the start of operations of a specified Train.
In aggregate, the fixed fee portion to be paid by the third-party SPA customers is approximately $1.4 billion annually for Trains 1 and 2, and $1.5 billion if we make a positive FID with respect to Stage 2 of the CCL Project, with the applicable fixed fees starting from the date of first commercial delivery from the applicable Train. These fixed fees equal approximately $550 million, $846 million and $140 million for each of Trains 1 through 3, respectively.
In addition, Cheniere Marketing has entered into SPAs with CCL to purchase, at Cheniere Marketing’s option, anyAny LNG produced by CCL that is not required for other customers.customers is sold by our integrated marketing function, in fulfilment of various sales commitments.
Natural Gas Transportation, Storage and Supply
To ensure CCL is able to transport adequate natural gas feedstock to the Corpus Christi LNG terminal, it has entered into transportation precedent agreements to secure firm pipeline transportation capacity with CCP and certain third-party pipeline companies. CCL has entered into a firm storage services agreement with a third party to assist in managing volatility in natural gas needs for the CCL Project. CCL has also entered into enabling agreements and long-term natural gas supply contracts with third parties, and will continue to enter into such agreements, in order to secure natural gas feedstock for the CCL Project. We expectAs of September 30, 2017, CCL has secured up to enter intoapproximately 362 TBtu of natural gas feedstock through long-term natural gas supply contracts under these enabling agreements as and when required for the CCL Project.contracts.
Construction
CCL entered into separate lump sum turnkey contracts with Bechtel for the engineering, procurement and construction of Stages 1 and 2 of the CCL Project under which Bechtel charges a lump sum for all work performed and generally bears project cost risk unless certain specified events occur, in which case Bechtel may cause CCL to enter into a change order, or CCL agrees with Bechtel to a change order.
The total contract pricesprice of the EPC contractscontract for StagesStage 1, and 2, which dodoes not include the Corpus Christi Pipeline, areis approximately $7.6$7.8 billion, and $2.4 billion, respectively, reflecting amounts incurred under change orders through September 30, 2016. Total expected capital costs for Stages 1 and 2 are estimated to be between $12.0 billion and $13.0 billion before financing costs, and between $15.0 billion and $16.0 billion after financing costs including, in each case, estimated owner’s costs and contingencies.2017. Total expected capital costs for Stage 1 onlyand the Corpus Christi Pipeline are estimated to be between $9.0 billion and $10.0 billion before financing costs, and between $11.0 billion and $12.0 billion after financing costs including, in each case, estimated owner’s costs and contingencies.contingencies and total expected capital costs for the Corpus Christi Pipeline of between $350 million and $400 million.
Pipeline Facilities
In December 2014, the FERC issued a certificate of public convenience and necessity under Section 7(c) of the Natural Gas Act of 1938, as amended, authorizing CCP to construct and operate the Corpus Christi Pipeline. The Corpus Christi Pipeline is designed to transport 2.25 Bcf/d of natural gas feedstock required by the CCL Project from the existing regional natural gas pipeline grid. The construction of the Corpus Christi Pipeline commenced in January 2017 and is nearing completion.
Final Investment Decision on Stage 2
We will contemplate making an FID to commence construction of Stage 2 of the CCL Project based upon, among other things, entering into acceptable commercial arrangements and obtaining adequate financing to construct the facility.
Capital Resources
We expect to finance the construction costs of the CCL Project from one or more of the following: project financing, operating cash flowflows from CCL and CCP and equity contributions to our subsidiaries. The following table (in millions) provides a summary of our capital resources from Cheniere.borrowings and available commitments for the CCL Project, excluding equity contributions to our subsidiaries, at September 30, 2017 and December 31, 2016:
|
| | | | | | | | |
| | September 30, | | December 31, |
| | 2017 | | 2016 |
Senior notes (1) | | $ | 4,250 |
| | $ | 2,750 |
|
11% Convertible Senior Secured Notes due 2025 | | 1,270 |
| | 1,171 |
|
Credit facilities outstanding balance (2) | | 2,151 |
| | 2,381 |
|
Letters of credit issued (2) | | 163 |
| | — |
|
Available commitments under credit facilities (2) | | 2,608 |
| | 3,953 |
|
Total capital resources from borrowings and available commitments (3) | | $ | 10,442 |
| | $ | 10,255 |
|
| |
(1) | Includes CCH’s 7.000% Senior Secured Notes due 2024 (the “2024 CCH Senior Notes”), 5.875% Senior Secured Notes due 2025 (the “2025 CCH Senior Notes”) and 2027 CCH Senior Notes (collectively, the “CCH Senior Notes”). |
| |
(2) | Includes 2015 CCH Credit Facility and CCH Working Capital Facility. |
| |
(3) | Does not include Cheniere’s additional borrowings from 2021 Cheniere Convertible Unsecured Notes, 2045 Cheniere Convertible Senior Notes and Cheniere Revolving Credit Facility, which may be used for the CCL Project. |
For additional information regarding our debt agreements related to the CCL Project, see Note 10—Debt of our Notes to Consolidated Financial Statements in this quarterly report and Note 12—Debt of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended December 31, 2016.
2025 CCH HoldCo II Convertible Senior Notes
In May 2015, CCH HoldCo II issued $1.0 billion aggregate principal amount of 11% Convertible Senior Secured Notes due 2025 (the “2025 CCH HoldCo II Convertible Senior Notes”) on a private placement basis. The $1.0 billion principal of the 2025 CCH HoldCo II Convertible Senior Notes will be used to partially fund costs associated with Stage 1 of the CCL Project and the Corpus Christi Pipeline. The 2025 CCH HoldCo II Convertible Senior Notes bear interest at a rate of 11.0% per annum, which is payable quarterly in arrears. Prior to the substantial completion of Train 2 of the CCL Project, interest on the 2025 CCH HoldCo II Convertible Senior Notes will be paid entirely in kind. Following this date, the interest generally must be paid in cash; however, a portion of the interest may be paid in kind under certain specified circumstances. The 2025 CCH HoldCo II Convertible Senior Notes are secured by a pledge by us of 100% of the equity interests in CCH HoldCo II, and a pledge by CCH HoldCo II of 100% of the equity interests in CCH HoldCo I.
At CCH HoldCo II’s option, the outstanding 2025 CCH HoldCo II Convertible Senior Notes are convertible into our common stock, provided that our total market capitalization at that time is not less than $10.0 billion, on or after the lateroption of (1) 58 months from May 1, 2015, and (2) the substantial completion of Train 2 of the CCL Project (the “Eligible Conversion Date”). The conversion price for 2025 CCH HoldCo II Convertible Senior Notes converted at CCH HoldCo II’s option is the lower of (1) a 10% discount to the average of the daily volume-weighted average price (“VWAP”) of our common stock for the 90 trading day period prior to the date on which notice of conversion is provided, and (2) a 10% discount to the closing price of our common stock on the trading day preceding the date on which notice of conversion is provided. At the option ofor the holders, the 2025 CCH HoldCo II Convertible Senior Notesprovided that various conditions are convertible on or after the six-month anniversary of the Eligible Conversion Date at a
conversion price equal to the average of the daily VWAP of our common stock for the 90 trading day period prior to the date on which notice of conversion is provided. Conversions are also subject to various limitations and conditions.
met. CCH HoldCo II is restricted from making distributions to Cheniere under agreements governing its indebtedness generally until, among other requirements, Trains 1 and 2 of the CCL Project are in commercial operation and a historical debt service coverage ratio and a projected fixed debt service coverage ratio of 1.20:1.00 are achieved.
2024 CCH Senior Notes
In May 2016,2017, CCH issued an aggregate principal amount of $1.25$1.5 billion of the 20242027 CCH Senior Notes. Borrowings underNotes, in addition to the existing 2024 CCH Senior Notes accrue interest at a fixed rate of 7.000%, and interest on the 20242025 CCH Senior Notes. The CCH Senior Notes is payable semi-annually in arrears.are jointly and severally guaranteed by its subsidiaries, CCL, CCP and Corpus Christi Pipeline GP, LLC (“CCP GP”, and collectively with CCL and CCP, the “CCH Guarantors”).
The indenture governing the 2024 CCH Senior Notes (the “CCH Indenture”) contains customary terms and events of default and certain covenants that, among other things, limit CCH’s ability and the ability of CCH’s restricted subsidiaries to: incur additional indebtedness or issue preferred stock; make certain investments or pay dividends or distributions on membership interests or subordinated indebtedness or purchase, redeem or retire membership interests; sell or transfer assets, including membership or partnership interests of CCH’s restricted subsidiaries; restrict dividends or other payments by restricted subsidiaries to CCH or any of CCH’s restricted subsidiaries; incur liens; enter into transactions with affiliates; dissolve, liquidate, consolidate, merge, sell or lease all or substantially all of the properties or assets of CCH and its restricted subsidiaries taken as a whole; or permit any guarantorCCH Guarantor to dissolve, liquidate, consolidate, merge, sell or lease all or substantially all of its properties and assets.
At any time prior to January 1, 2024,six months before the respective dates of maturity for each series of the CCH Senior Notes, CCH may redeem all or a part of such series of the 2024 CCH Senior Notes at a redemption price equal to the “make-whole” price set forth in the CCH Indenture, plus accrued and unpaid interest, if any, to the date of redemption. CCH also may at any time onwithin six months of the respective dates of maturity for each series of the CCH Senior Notes, redeem all or after January 1, 2024 throughpart of such series of the maturity date of June 30, 2024, redeem the 2024 CCH Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2024 CCH Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to the date of redemption.
2015 CCH Credit Facility
In May 2015, CCH entered into the 2015 CCH Credit Facility, which is being used to fund a portionFacility. The obligations of the costs associated with the development, construction, operation and maintenance of Stage 1 of the CCL Project and the Corpus Christi Pipeline. BorrowingsCCH under the 2015 CCH Credit Facility may be refinanced, in whole or in part, at any time without premium or penalty; however, interest rate hedging and interest rate breakage costs may be incurred. In May 2016, in conjunction with the issuanceare secured by a first priority lien on substantially all of the 2024assets of CCH Senior Notes,and its subsidiaries and by a pledge by CCH prepaid approximately $1.1HoldCo I of its limited liability company interests in CCH. As of September 30, 2017 and December 31, 2016, CCH had $2.4 billion and $3.6 billion of available commitments and $2.2 billion and $2.4 billion of outstanding borrowings under the 2015 CCH Credit Facility. This prepayment resulted in a write-off of debt issuance costs associated with the 2015 CCH Credit Facility, of $29.0 million during the nine months ended September 30, 2016. As of September 30, 2016, CCH had $4.1 billion of available commitments and $3.3 billion of outstanding borrowings under the 2015 CCH Credit Facility.respectively.
The principal of the loans made under the 2015 CCH Credit Facility must be repaid in quarterly installments, commencing on the earlier of (1) the first quarterly payment date occurring more than three calendar months following project completion and (2) a set date determined by reference to the date under which a certain LNG buyer linked to Train 2 of the CCL Project is entitled to terminate its SPA for failure to achieve the date of first commercial delivery for that agreement. Scheduled repayments will be based upon a 19-year tailored amortization, commencing the first full quarter after the project completion and designed to achieve a minimum projected fixed debt service coverage ratio of 1.55:1.
Loans under the 2015 CCH Credit Facility accrue interest at a variable rate per annum equal to, at CCH’s election, LIBOR or the base rate, plus the applicable margin. The applicable margins for LIBOR loans are 2.25% prior to completion of Trains 1 and 2 of the CCL Project and 2.50% on completion and thereafter. The applicable margins for base rate loans are 1.25% prior to completion Trains 1 and 2 of the CCL Project and 1.50% on completion and thereafter. Interest on LIBOR loans is due and payable at the end of each applicable interest period and interest on base rate loans is due and payable at the end of each quarter. The 2015 CCH Credit Facility also requires CCH to pay a commitment fee at a rate per annum equal to 40% of the margin for LIBOR loans, multiplied by the outstanding undrawn debt commitments.
The obligations of CCH under the 2015 CCH Credit Facility are secured by a first priority lien on substantially all of the assets of CCH and its subsidiaries and by a pledge by CCH HoldCo I of its limited liability company interests in CCH.
Under the terms of the 2015 CCH Credit Facility, CCH is required to hedge not less than 65% of the variable interest rate exposure of its senior secured debt. CCH is restricted from making distributions under agreements governing its indebtedness generally until, among other requirements, the completion of the construction of Trains 1 and 2 of the CCL Project, funding of a debt service reserve account equal to six months of debt service and achieving a historical debt service coverage ratio and fixed projected debt service coverage ratio of at least 1.25:1.00.
LNGCCH Working Capital Facility
In December 2016, CCH entered into the $350 million CCH Working Capital Facility, which is intended to be used for loans to CCH (“CCH Working Capital Loans”), the issuance of letters of credit on behalf of CCH, as well as for swing line loans to CCH (“CCH Swing Line Loans”) for certain working capital requirements related to developing and Natural Gas Marketing Business
Cheniere Marketing is engagedplacing into operation the CCL Project. Loans under the CCH Working Capital Facility are guaranteed by the CCH Guarantors. CCH may, from time to time, request increases in the LNGcommitments under the CCH Working Capital Facility of up to the maximum allowed under the Common Terms Agreement that was entered into concurrently with the 2015 CCH Credit Facility. CCH did not have any amounts outstanding under the CCH Working Capital Facility as of both September 30, 2017 and natural gas marketingDecember 31, 2016, and CCH had $163 million and zero aggregate amount of issued letters of credit as of September 30, 2017 and December 31, 2016, respectively.
The CCH Working Capital Facility matures on December 14, 2021, and CCH may prepay the CCH Working Capital Loans, CCH Swing Line Loans and loans made in connection with a draw upon any letter of credit (“CCH LC Loans”) at any time without premium or penalty upon three business days’ notice and may re-borrow at any time. CCH LC Loans have a term of up to one year. CCH Swing Line Loans terminate upon the earliest of (1) the maturity date or earlier termination of the CCH Working Capital Facility, (2) the date that is developing15 days after such CCH Swing Line Loan is made and (3) the first borrowing date for a portfolioCCH Working Capital Loan or CCH Swing Line Loan occurring at least four business days following the date the CCH Swing Line Loan is made. CCH is required to reduce the aggregate outstanding principal amount of long-term, short-termall CCH Working Capital Loans to zero for a period of five consecutive business days at least once each year.
The CCH Working Capital Facility contains conditions precedent for extensions of credit, as well as customary affirmative and spot LNG SPAs. Cheniere Marketing has purchased, transportednegative covenants. The obligations of CCH under the CCH Working Capital Facility are secured by substantially all of the assets of CCH and unloaded commercial LNG cargoes into the Sabine Pass LNG terminalCCH Guarantors as well as all of the membership interests in CCH and other LNG terminals worldwideeach of the CCH Guarantors on a pari passu basis with the CCH Senior Notes and has used trading strategies intended to maximize margins on these cargoes. Cheniere Marketing has secured the following rights2015 CCH Credit Facility.
Marketing
We market and obligations to support its business:
pursuant to an SPA with SPL, the right to purchase, at Cheniere Marketing’s option, anysell LNG produced by the SPL in excess of that required for other customers;
pursuant to SPAs withProject and the CCL the right to purchase, at Cheniere Marketing’s option, any LNG produced by CCLProject that is not required for other customers; and
customers through our integrated marketing function. We are developing a portfolio of long-, medium- and short-term SPAs to transport and unload commercial LNG vessel time charters.
In addition,cargoes to locations worldwide, which is primarily sourced by LNG produced by the SPL Project and the CCL Project but supplemented by volume procured from other locations worldwide, as needed. As of September 30, 2016, Cheniere Marketing has2017, we have sold approximately 500 million MMBtu480 TBtu of LNG to be delivered to counterparties between 20162017 and 2023, with delivery obligations conditional in certain circumstances. The cargoes have been sold with a portfolio of delivery points, either on a Free on Board basis (delivered to the counterparty at the Sabine Pass LNG terminal) or a Delivered at Terminal (“DAT”) basis (delivered to the counterparty at their LNG receiving terminal). Cheniere Marketing hasWe have chartered LNG vessels to be utilized in DAT transactions. In addition, Cheniere Marketing haswe have entered into a long-term agreement to sell LNG cargoes on a DAT basis. The agreementbasis that is conditioned upon the buyer achieving certain milestones, including reaching an FID related to certain projects and obtaining related financing.
Cheniere Marketing entered into uncommitted trade finance facilities for up to $470.0$450 million primarily to be used for the purchase and sale of natural gas, LNG or other energy products for ultimate resale in the course of its business.operations. The finance facilities are intended to be used for advances, guarantees or the issuance of letters of credit or standby letters of credit on behalf of Cheniere Marketing. As of September 30, 2017 and December 31, 2016, Cheniere Marketing had $18.8$41 million and $23 million in loans outstanding and $5.8$72 million and $12 million, respectively, in standby letters of credit and guarantees outstanding under the finance facilities. Cheniere Marketing pays interest or fees on utilized commitments.
Corporate and Other Activities
We are required to maintain corporate and general and administrative functions to serve our business activities described above. We are also in various stages of developing other projects, including infrastructure projects in support of natural gas supply and LNG demand, which, among other things, will require acceptable commercial and financing arrangements before we make an FID. We have proposed the developmentmade an equity investment of $55 million in Midship Pipeline, which is developing a pipeline with expected capacity of up to 1.4 Bcf/d connecting1.44 million Dekatherms per day that will connect new gas production in the Anadarko Basin to Gulf Coast markets, including markets serving the SPL Project and the CCL Project. We expect the regulatory pre-filing process to commence imminently and to file formal applications for the required regulatory permits in 2017. We are also exploring the development of a midscale liquefaction project using electric drive modular Trains, with an expected aggregate nominal production capacity of approximately 9.5 mtpa of LNG.
Sources and Uses of Cash
The following table (in thousands)millions) summarizes the sources and uses of our cash, cash equivalents and restricted cash for the nine months ended September 30, 20162017 and 2015.2016. The table presents capital expenditures on a cash basis; therefore, these amounts differ from the amounts of capital expenditures, including accruals, which are referred to elsewhere in this report. Additional discussion of these items follows the table.
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2016 | | 2015 |
Operating cash flows | | | |
Net cash used in operating activities | $ | (199,027 | ) | | $ | (274,577 | ) |
Changes in restricted cash for certain operating activities | (119,831 | ) | | (92,589 | ) |
Cash, cash equivalents and restricted cash used in operating activities | (318,858 | ) |
| (367,166 | ) |
| | | |
Investing cash flows | | | |
Net cash used in investing activities | (12,206 | ) | | (528,588 | ) |
Use of restricted cash for the acquisition of property, plant and equipment | (3,488,263 | ) | | (5,330,526 | ) |
Cash, cash equivalents and restricted cash used in investing activities | (3,500,469 | ) | | (5,859,114 | ) |
| | | |
Financing cash flows | |
| | |
|
Net cash provided by financing activities | 253 |
| | 395,844 |
|
Investment in restricted cash | 3,931,648 |
| | 5,161,701 |
|
Cash, cash equivalents and restricted cash provided by financing activities | 3,931,901 |
| | 5,557,545 |
|
| | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 112,574 |
|
| (668,735 | ) |
Cash, cash equivalents and restricted cash—beginning of period | 1,736,231 |
| | 2,780,131 |
|
Cash, cash equivalents and restricted cash—end of period | $ | 1,848,805 |
| | $ | 2,111,396 |
|
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Operating cash flows | $ | 895 |
| | $ | (319 | ) |
Investing cash flows | (2,926 | ) | | (3,499 | ) |
Financing cash flows | 2,779 |
| | 3,931 |
|
| | | |
Net increase in cash, cash equivalents and restricted cash | 748 |
|
| 113 |
|
Cash, cash equivalents and restricted cash—beginning of period | 1,827 |
| | 1,736 |
|
Cash, cash equivalents and restricted cash—end of period | $ | 2,575 |
| | $ | 1,849 |
|
Operating Cash Flows
OperatingOur operating cash flows increased from outflows of $319 million during the nine months ended September 30, 2016 and 2015 were $318.9to inflows of $895 million and $367.2 million, respectively.during the nine months ended September 30, 2017. The decrease$1.2 billion increase in operating cash outflowsinflows in 20162017 compared to 20152016 was primarily related to increased cash receipts from the sale of LNG cargoes, partially offset by increased operating costs and expenses as a result of the commencement of operations ofadditional Trains that were operating at the SPL Project between the periods. During the nine months ended September 30, 2017, Trains 1 and 2 ofwere operating for nine months and Train 3 was operating for six months, whereas Train 1 was operating for four months and Train 2 was operating for less than a month during the SPL Projectcomparable period in May and September 2016, respectively, and increased cash payout for phantom unit awards.2016.
Investing Cash Flows
Investing cash flowsoutflows during the nine months ended September 30, 2017 and 2016 and 2015 were $3.5$2.9 billion and $5.9$3.5 billion, respectively, and arewere primarily used to fund the construction costs for Trains 1 through 5 of the SPL Project and Trains 1 and 2 of the CCL Project. These costs are capitalized as construction-in-process until achievement of substantial completion. Additionally,In addition to cash outflows for construction costs for the SPL Project and the CCL Project, during the nine months ended September 30, 20162017, we invested $41 million in our equity method investment Midship Holdings and 2015,made payments of $18 million primarily for infrastructure to support the CCL Project. Partially offsetting these cash outflows was a $36 million receipt during the nine months ended September 30, 2017 from the return of collateral payments previously paid for the CCL Project. During the nine months ended September 30, 2016, we used $51.3$50 million and $111.5 million, respectively, primarily for collateral payments for the CCL Project, payments to pay municipal water districts for water system enhancements that will increase potable water supply to our export terminals and payments made for capital assets purchased pursuant to information technology services agreements, collateral payments for the CCL Project and for investments made in unconsolidated entities.agreements.
Financing Cash Flows
Financing cash flowsinflows during the nine months ended September 30, 2017 were $2.8 billion, primarily as a result of:
issuances of aggregate principal amounts of $800 million of the 2037 SPL Senior Notes and $1.35 billion of the 2028 SPL Senior Notes;
$55 million of borrowings and $369 million of repayments made under the 2015 SPL Credit Facilities;
$110 million of borrowings and $334 million of repayments made under the SPL Working Capital Facility;
$1.2 billion of borrowings under the 2015 CCH Credit Facility;
issuance of aggregate principal amount of $1.5 billion of the 2027 CCH Senior Notes, which was used to prepay $1.4 billion of outstanding borrowings under the 2015 CCH Credit Facility;
$24 million of borrowings and $24 million of repayments made under the CCH Working Capital Facility;
issuance of an aggregate principal amount of $1.5 billion of the 2025 CQP Senior Notes, which was used to prepay $1.5 billion of the outstanding borrowings under the 2016 CQP Credit Facilities;
$17 million in net borrowings under the Cheniere Marketing trade finance facilities;
$85 million of debt issuance and deferred financing costs related to up-front fees paid upon the closing of these transactions;
$60 million of distributions and dividends to non-controlling interest by Cheniere Partners and Cheniere Holdings; and
$4 million paid for tax withholdings for share-based compensation.
Financing cash inflows during the nine months ended September 30, 2016 were $3.9 billion, primarily as a result of:
$450.0450 million of borrowings under the 2016 CQP Credit Facilities, which was entered into in February 2016 to prepay the $400.0$400 million CTPL Term Loan;
$1.6 billion of borrowings under the 2015 CCH Credit Facility;
issuance of an aggregate principal amount of $1.3 billion of the 2024 CCH Senior Notes in May 2016, which were used to prepay $1.1 billion of the outstanding borrowings under the 2015 CCH Credit Facility;
$1.7 billion of borrowings under the 2015 SPL Credit Facilities;
issuance of an aggregate principal amount of $1.5 billion of the 2026 SPL Senior Notes in June 2016, which was used to prepay $1.3 billion of the outstanding borrowings under the 2015 SPL Credit Facilities;
issuance of an aggregate principal amount of $1.5 billion of the 2027 SPL Senior Notes in September 2016, which was used to prepay $1.2 billion of the outstanding borrowings under the 2015 SPL Credit Facilities and pay a portion of the capital costs in connection with the construction of Trains 1 through 5 of the SPL Project;
$18.8314 million of borrowings and $230 million of repayments made under the SPL Working Capital Facility;
$1.6 billion of borrowings under the 2015 CCH Credit Facility;
issuance of an aggregate principal amount of $1.3 billion of the 2024 CCH Senior Notes in May 2016, which were used to prepay $1.1 billion of outstanding borrowings under the 2015 CCH Credit Facility;
$19 million in net borrowings under the Cheniere Marketing trade finance facilities;
$313.5 million of borrowings and a $230.0 million repayment made under the SPL Working Capital Facility;
$116.7117 million of debt issuance and deferred financing costs related to up-front fees paid upon the closing of these transactions;
$60.260 million of distributions and dividends to non-controlling interest by Cheniere Partners and Cheniere Holdings; and
$18.619 million paid for tax withholdings for share-based compensation.
Financing cash flows during the nine months ended September 30, 2015 were $5.6 billion, primarily as a result of:
issuance of an aggregate principal amount of $2.0 billion of the 2025 SPL Senior Notes in March 2015;
issuance of an aggregate principal amount of $625.0 million of the 2045 Cheniere Convertible Senior Notes in March 2015, with an original issue discount of 20% for net proceeds of $495.7 million;
issuance of an aggregate principal amount of $1.0 billion of the 2025 CCH HoldCo II Convertible Senior Notes in May 2015;
entering into the 2015 CCH Credit Facility in May 2015 and borrowing $2.4 billion under this facility during the nine months ended September 30, 2015;
entering into the 2015 SPL Credit Facilities in June 2015 and borrowing $250.0 million under this facility during the nine months ended September 30, 2015;
$519.7 million of debt issuance and deferred financing costs related to up-front fees paid upon the closing of these transactions;
$60.2 million of distributions and dividends to non-controlling interest by Cheniere Partners and Cheniere Holdings; and
$44.3 million paid for tax withholdings for share-based compensation.
Results of Operations
The following table summarizes the volumes of operational and commissioning LNG cargoes that were loaded from the SPL Project and recognized on our Consolidated Financial Statements during the three and nine months ended September 30, 2017:
|
| | | | | | | | | | | |
| Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 |
(in TBtu) | Operational | | Commissioning | | Operational | | Commissioning |
Volumes loaded during the current period | 144 |
| | 18 |
| | 439 |
| | 44 |
|
Volumes loaded during the prior period but recognized during the current period | 14 |
| | — |
| | 19 |
| | — |
|
Less: volumes loaded during the current period and in transit at the end of the period | (7 | ) | | (4 | ) | | (7 | ) | | (4 | ) |
Total volumes recognized in the current period | 151 |
| | 14 |
| | 451 |
| | 40 |
|
Our consolidated net loss attributable to common stockholders was $100.4$289 million, or $0.44$1.24 per share (basic and diluted), in the three months ended September 30, 2016,2017, compared to a net loss attributable to common stockholders of $297.8$101 million, or $1.31$0.44 per share (basic and diluted), in the three months ended September 30, 2015.2016. This $197.4$188 million decreaseincrease in net loss in 20162017 was primarily a result of decreased derivative loss,increased allocation of net and increased income from operations, which was partially offset byto non-controlling interest, increased interest expense, net of amounts capitalized, and restructuring expense.increased derivative loss, net associated with interest rate derivative activity, which were partially offset by increased income from operations.
Our consolidated net loss attributable to common stockholders was $719.7$520 million, or $2.24 per share (basic and diluted), in the nine months ended September 30, 2017, compared to a net loss attributable to common stockholders of $720 million, or $3.15 per share (basic and diluted), in the nine months ended September 30, 2016, compared to a net loss attributable to common stockholders of $684.02016. This $200 million or $3.02 per share (basic and diluted), in the nine months ended September 30, 2015. This $35.7 million increasedecrease in net loss in 20162017 was
primarily a result of increased income from operations and decreased derivative loss, net associated with interest rate derivative activity, which were partially offset by increased allocation of net income to non-controlling interest and increased interest expense, net of amounts capitalized,capitalized.
In August 2017, Hurricane Harvey struck the Texas and restructuring expense, whichLouisiana coasts, and the Sabine Pass LNG terminal experienced a temporary suspension in construction and LNG loading operations. Construction on the Corpus Christi LNG terminal was partially offset by decreased loss from operations.also suspended. Neither terminal sustained significant damage, and the effects of Hurricane Harvey did not have a material impact on our Consolidated Financial Statements.
Revenues
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | | Change | | 2016 | | 2015 | | Change | |
(in millions) | | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
LNG revenues | | $ | 1,332 |
| | $ | 399 |
| | $ | 933 |
| | $ | 3,646 |
| | $ | 512 |
| | $ | 3,134 |
|
Regasification revenues | $ | 66,970 |
| | $ | 66,597 |
| | $ | 373 |
| | $ | 198,143 |
| | $ | 199,888 |
| | $ | (1,745 | ) | 65 |
| | 64 |
| | 1 |
| | 195 |
| | 194 |
| | 1 |
|
LNG revenues (losses) | 398,554 |
| | (1,557 | ) | | 400,111 |
| | 511,993 |
| | (1,601 | ) | | 513,594 |
| |
Other revenues | 149 |
| | 1,019 |
| | (870 | ) | | 1,445 |
| | 4,166 |
| | (2,721 | ) | 5 |
| | 2 |
| | 3 |
| | 12 |
| | 5 |
| | 7 |
|
Other—related party | | 1 |
| | — |
| | 1 |
| | 2 |
| | — |
| | 2 |
|
Total revenues | $ | 465,673 |
| | $ | 66,059 |
| | $ | 399,614 |
| | $ | 711,581 |
| | $ | 202,453 |
| | $ | 509,128 |
| $ | 1,403 |
|
| $ | 465 |
|
| $ | 938 |
|
| $ | 3,855 |
|
| $ | 711 |
|
| $ | 3,144 |
|
We began recognizing LNG revenues from the SPL Project following the substantial completion and the commencement of Trainsoperating activities of Train 1 and 2 in May 2016. Trains 2 and 3 subsequently achieved substantial completion in September 2016 and March 2017, respectively. The increase in revenues for the three and nine months ended September 30, 2017 from the comparable periods in 2016 was attributable to both the increased volume of LNG sold that was recognized as revenues following the achievement of substantial completion of these Trains, as well as increased revenues per MMBtu. As additional Trains become operational, we expect our LNG revenues to increase in the future.
Prior to these dates,substantial completion of a Train, amounts received from the sale of commissioning cargoes werefrom that Train are offset against LNG terminal construction-in-process because these amounts wereare earned or loaded during the testing phase for the construction of those Trainsthat Train. We realized offsets to LNG terminal costs of the SPL Project. During$82 million corresponding to 14 TBtu of LNG and $68 million corresponding to 10 TBtu of LNG in the three months ended September 30, 2017 and 2016, respectively, and $252 million corresponding to 40 TBtu of LNG and $214 million corresponding to 45 TBtu of LNG in the nine months ended September 30, 2017 and 2016, we loaded a totalrespectively, that were related to the sale of 60.3 million MMBtu and 113.8 million MMBtucommissioning cargoes.
The following table presents the components of LNG respectively, of which 50.8 million MMBturevenues (in millions) and 69.0 million MMBtu, respectively, resulted in the recognition of revenues related to this volume. The remaining 9.5 million MMBtucorresponding LNG volumes sold (in TBtu).
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
LNG revenues (in millions): | | | | | | | |
LNG from the SPL Project sold under SPL’s third party long-term SPAs | $ | 715 |
| | $ | 174 |
| | $ | 1,669 |
| | $ | 256 |
|
LNG from the SPL Project sold by our integrated marketing function | 200 |
| | 92 |
| | 1,337 |
| | 95 |
|
LNG procured from third parties | 427 |
| | 123 |
| | 631 |
| | 163 |
|
Other revenues and derivative gains (losses) | (10 | ) | | 10 |
| | 9 |
| | (2 | ) |
Total LNG revenues | $ | 1,332 |
| | $ | 399 |
| | $ | 3,646 |
| | $ | 512 |
|
| | | | | | | |
Volumes sold as LNG revenues (in TBtu): | | | | | | | |
LNG from the SPL Project sold under SPL’s third party long-term SPAs | 118 |
| | 32 |
| | 275 |
| | 50 |
|
LNG from the SPL Project sold by our integrated marketing function | 33 |
| | 18 |
| | 176 |
| | 19 |
|
LNG procured from third parties | 45 |
| | 14 |
| | 64 |
| | 18 |
|
Total volumes sold as LNG revenues | 196 |
| | 64 |
| | 515 |
| | 87 |
|
Operating costs and 44.8 million MMBtu of LNG loadedexpenses
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in millions) | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Cost of sales | $ | 824 |
| | $ | 253 |
| | $ | 571 |
| | $ | 2,140 |
| | $ | 353 |
| | $ | 1,787 |
|
Operating and maintenance expense | 114 |
| | 61 |
| | 53 |
| | 309 |
| | 143 |
| | 166 |
|
Development expense | 3 |
| | 2 |
| | 1 |
| | 7 |
| | 5 |
| | 2 |
|
Selling, general and administrative expense | 64 |
| | 59 |
| | 5 |
| | 179 |
| | 197 |
| | (18 | ) |
Depreciation and amortization expense | 92 |
| | 49 |
| | 43 |
| | 252 |
| | 106 |
| | 146 |
|
Restructuring expense | — |
| | 26 |
| | (26 | ) | | 6 |
| | 49 |
| | (43 | ) |
Impairment expense and loss on disposal of assets | 9 |
| | — |
| | 9 |
| | 15 |
| | 10 |
| | 5 |
|
Total operating costs and expenses | $ | 1,106 |
| | $ | 450 |
| | $ | 656 |
| | $ | 2,908 |
| | $ | 863 |
| | $ | 2,045 |
|
Our total operating costs and expenses increased during the three and nine months ended September 30, 2017 from the comparable periods in 2016, respectively,primarily as a result of additional Trains that were recognized as offsets to LNG terminal costs as they related tooperating between the sale of commissioning cargoes. Additionally, LNG revenues included revenues from Cheniere Marketing of $123.5 million and $163.3 million forperiods. During the three and nine months ended September 30, 2016, respectively, as well as derivative gains2017, Trains 1 and losses related to commodity2 were operating for nine months and foreign currency exchange derivatives.Train 3 was operating for six months, whereas Train 1 was operating for four months and Train 2 was operating for less than a month during the comparable period in 2016.
Operating costs and expenses
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | | Change | | 2016 | | 2015 | | Change |
Cost (cost recovery) of sales | $ | 252,343 |
| | $ | (24,214 | ) | | $ | 276,557 |
| | $ | 352,559 |
| | $ | (22,077 | ) | | $ | 374,636 |
|
Operating and maintenance expense | 61,610 |
| | 17,963 |
| | 43,647 |
| | 143,489 |
| | 71,396 |
| | 72,093 |
|
Development expense | 1,546 |
| | 4,935 |
| | (3,389 | ) | | 4,709 |
| | 37,640 |
| | (32,931 | ) |
Selling, general and administrative expense | 59,418 |
| | 97,332 |
| | (37,914 | ) | | 196,999 |
| | 263,205 |
| | (66,206 | ) |
Depreciation and amortization expense | 49,212 |
| | 21,638 |
| | 27,574 |
| | 106,082 |
| | 59,561 |
| | 46,521 |
|
Restructuring expense | 26,241 |
| | — |
| | 26,241 |
| | 49,196 |
| | — |
| | 49,196 |
|
Impairment expense | — |
| | 396 |
| | (396 | ) | | 10,095 |
| | 572 |
| | 9,523 |
|
Other | 27 |
| | 83 |
| | (56 | ) | | 189 |
| | 348 |
| | (159 | ) |
Total operating costs and expenses | $ | 450,397 |
| | $ | 118,133 |
| | $ | 332,264 |
| | $ | 863,318 |
| | $ | 410,645 |
| | $ | 452,673 |
|
Our total operating costs and expensesCost of sales increased $332.3 million and $452.7 million during the three and nine months ended September 30, 2016 compared to2017 from the three and nine months ended September 30, 2015, respectively,comparable periods in 2016, primarily as a result of the commencement of operations of Trains 1 and 2 of the SPL Project in May and September 2016, respectively, compared to a significant cost recovery recorded during the three and nine months ended September 30, 2015. This cost recovery was due to a $32.2 million increase in fair value for our natural gas supply contracts recorded for the period, which we recognized following the completion and placement into service of certain modifications to the underlying pipeline infrastructure and the resulting development of a market for physical gas delivery at locations specified in a portion of our natural gas supply contracts.operating Trains during 2017. Cost of sales includes costs incurred directly for the production and delivery of LNG from the SPL Project, such asto the extent those costs are not utilized for the commissioning process. The increase during the three and nine months ended September 30, 2017 from the comparable periods in 2016 was primarily related to the increase in both the volume and pricing of natural gas feedstock, variable transportation and storagefeedstock. Cost of sales also includes vessel charter costs, derivative gains and losses from derivatives associated with economic hedges to secure natural gas feedstock for the SPL Project, port and canal fees, variable transportation and storage costs and other related costs to convert natural gas into LNG, all to the extent not utilized for the commissioning process, as well as cost of sales related to our LNGLNG.
Operating and natural gas marketing business by Cheniere Marketing. Included in cost of salesmaintenance expense increased during the three and nine months ended September 30, 2017 from the comparable periods in 2016, was vessel charter costs of $20.8 million and $36.9 million, respectively, which were incurred throughout the period, including the period prior to substantial completion of Trains 1 and 2as a result of the SPL Project.increase in operating Trains during 2017. Operating and maintenance expense includes costs associated with operating and maintaining the SPL Project such as third-party service and maintenance contract costs, payrollCCL Project. The increase during the three and benefit costs of operations personnel,nine months ended September 30, 2017 from the comparable periods in 2016 was primarily related to natural gas transportation and storage capacity demand charges, derivative gainsthird-party service and losses related tomaintenance contract costs and payroll and benefit costs of operations personnel. Operating and maintenance expense also includes TUA reservation charges as a result of the sale and purchasecommencement of LNG associatedpayments under the partial TUA assignment agreement with the regasification terminal,Total, insurance and regulatory costs and other operating costs.
Depreciation and amortization expense increased during the three and nine months ended September 30, 2017 from the comparable periods in 2016 as we began depreciationa result of ourincreased number of operational Trains, as the assets related to the Trains 1 and 2 of the SPL Project began depreciating upon reaching substantial completion. Additionally,
As additional Trains become operational, we expect our operating costs and expenses to generally increase in 2015, we initiatedthe future, although certain costs will not proportionally increase with the number of operational Trains as cost efficiencies will be realized.
Partially offsetting the increases above was a decrease in restructuring expense, which was primarily due to the completion of organizational changes to simplify our corporate structure, improve our operational efficienciesinitiatives as of March 31, 2017.
Impairment expense and implement a strategy for sustainable, long-term stockholder value creation through financially disciplined development, construction, operation and investment. As a resultloss on disposal of these efforts, we recorded $26.2 million and $49.2 million of restructuring charges and other costs associated with restructuring and operational efficiency initiativesassets increased during the three and nine months ended September 30, 2016, respectively.
Offsetting the increases above was a decrease in selling, general and administrative expense, which was primarily due to the timing of share-based compensation recognition and the recognition of certain employee-related costs within restructuring expense during the three and nine months ended September 30, 2016 historically reported in selling, general and administrative expense, a reduction in certain professional services fees and reallocation of costs from selling, general and administrative activities to operating and maintenance activities following commencement of operations at the SPL Project. Development expense also decreased during the three and nine months ended September 30, 20162017 compared to the three and nine months ended September 30, 2015, due2016. The impairment expense and loss on disposal of assets recognized during the three and nine months ended September 30, 2017 and nine months ended September 30, 2016 each related to an FID made on Train 5write down of the SPL Projectassets used in June 2015 and an FID made on Trains 1 and 2non-core operations outside of the CCL Project in May 2015.our liquefaction activities.
Other expense (income)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | | Change | | 2016 | | 2015 | | Change | |
(in millions) | | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Interest expense, net of capitalized interest | $ | 148,053 |
| | $ | 93,566 |
| | $ | 54,487 |
| | $ | 330,357 |
| | $ | 238,664 |
| | $ | 91,693 |
| $ | 186 |
| | $ | 148 |
| | $ | 38 |
| | $ | 539 |
| | $ | 330 |
| | $ | 209 |
|
Loss on early extinguishment of debt | 25,765 |
| | — |
| | 25,765 |
| | 82,537 |
| | 96,273 |
| | (13,736 | ) | 25 |
| | 26 |
| | (1 | ) | | 100 |
| | 83 |
| | 17 |
|
Derivative loss (gain), net | (29,327 | ) | | 161,482 |
| | (190,809 | ) | | 242,228 |
| | 242,123 |
| | 105 |
| 2 |
| | (30 | ) | | 32 |
| | 37 |
| | 242 |
| | (205 | ) |
Other expense (income) | (437 | ) | | 39 |
| | (476 | ) | | 5,564 |
| | (616 | ) | | 6,180 |
| (4 | ) | | — |
| | (4 | ) | | (11 | ) | | 6 |
| | (17 | ) |
Total other expense | $ | 144,054 |
| | $ | 255,087 |
| | $ | (111,033 | ) | | $ | 660,686 |
| | $ | 576,444 |
| | $ | 84,242 |
| $ | 209 |
| | $ | 144 |
| | $ | 65 |
| | $ | 665 |
| | $ | 661 |
| | $ | 4 |
|
Interest expense, net of capitalized interest, increased $54.5 million and $91.7 million induring the three and nine months ended September 30, 2016, as2017 compared to the three and nine months ended September 30, 2015,2016, primarily as a result of an increase in our indebtedness outstanding (before premium, discount and unamortized debt issuance costs), from $16.3 billion as of September 30, 2015 to $21.5 billion as of September 30, 2016 to $25.7 billion as of September 30, 2017, and thea decrease in the portion of total interest costs that could be capitalized as Trains 1 and 2through 3 of the SPL Project were no longer incompleted construction. For the three and nine months ended September 30, 2016,2017, we incurred $340.8$389 million and $951.3 million$1.1 billion of total interest cost, respectively, of which we capitalized $192.7$203 million and $620.9$581 million, respectively, which werewas directly related to the construction of the SPL Project and the CCL Project. For the three and nine months ended September 30, 2015,2016, we incurred $286.0$341 million and $707.8$951 million of total interest cost, respectively, of which we capitalized $192.4$193 million and $469.2$621 million, respectively, which werewas directly related to the construction of the SPL Project and the CCL Project.
Loss on early extinguishment of debt increased $25.8 million in the three months ended September 30, 2016, as compared to the three months ended September 30, 2015 whereas it decreased $13.7 million induring the nine months ended September 30, 2016,2017, as compared to the nine months ended September 30, 2015.2016. Loss on early extinguishment of debt recognized during the nine months ended September 30, 2017 was attributable to the write-offs of debt issuance costs of (1) $42 million in March 2017 upon termination of the remaining available balance of $1.6 billion under the 2015 SPL Credit Facilities in connection with the issuance of the 2028 SPL Senior Notes; (2) $33 million in May 2017 upon the prepayment of approximately $1.4 billion of outstanding borrowings under the 2015 CCH Credit Facility in connection with the issuance of the 2027 CCH Senior Notes; and (3) $25 million in September 2017 related to the prepayment of $1.5 billion of the outstanding indebtedness under the 2016 CQP Credit Facilities in connection with the issuance of the 2025 CQP Senior Notes. Loss on early extinguishment of debt during the threenine months ended September 30, 2016 was primarily attributable to the $25.8 million write-offwrite-offs of debt issuance costs of (1) $29 million in May 2016 upon the prepayment of approximately $1.1 billion of outstanding borrowings under the 2015 CCH Credit Facility in connection with the issuance of the 2024 CCH Senior Notes; (2) $26 million in June 2016 upon the prepayment of approximately $1.3 billion of outstanding borrowings under the 2015 SPL Credit Facilities in connection with the issuance of the 2026 SPL Senior Notes; and (3) $26 million in September 2016 related to the prepayment of outstanding borrowings and termination of commitments under the 2015 SPL Credit Facilities of approximately $1.4 billion in September 2016 in connection with the issuance of the 2027 SPL Senior Notes. Loss on early extinguishment of debt during the nine months ended September 30, 2016 further included a $29.0 million write-off of debt issuance costs related to the prepayment of approximately $1.1 billion of outstanding borrowings under the 2015 CCH Credit Facility in May 2016 in connection with the issuance of the 2024 CCH Senior Notes, a $26.0 million write-off of debt issuance costs related to the prepayment of approximately $1.3 billion of outstanding borrowings under the 2015 SPL Credit Facilities in June 2016 in connection with the issuance of the 2026 SPL Senior Notes, and a $1.5 million write-off of debt issuance costs and unamortized discount in connection with the prepayment of the CTPL Term Loan in February 2016. Loss on early extinguishment of debt during the nine months ended September 30, 2015 was attributable to a $7.3 million write-off of debt issuance costs and deferred commitment fees related to the termination and replacement of the 2013 SPL Credit Facilities with the 2015 SPL Credit Facilities in June 2015 and a $89.0 million write-off of debt issuance costs and deferred commitment fees related to the termination of approximately $1.8 billion of commitments under the 2013 SPL Credit Facilities in March 2015.
Derivative loss, (gain), net decreased $190.8 million from a loss of $161.5 million inincreased during the three months ended September 30, 2015 to2017 from a gain of $29.3 million induring the three months ended September 30, 2016, primarily due to a relative increasean unfavorable shift in the long-term forward LIBOR curve inbetween the threeperiods. Derivative loss, net decreased during the nine months ended September 30, 2016 as2017 compared to the three months ended September 30, 2015. Derivative loss, net did not significantly change between the nine months ended September 30, 2016, and 2015. Derivative loss, net during the nine months ended September 30, 2016 was primarily due to a decreasefavorable shift in the long-term forward LIBOR curve duringbetween the period and an increaseperiods, partially offset by a $7 million loss in the notional amounts of our interest rate derivatives. Derivative loss, net recognized during the nine months ended September 30, 2015 was primarily due to a decrease in the forward LIBOR curve during the period, the loss incurred upon meeting the contingency related to the CCH Interest Rate Derivatives and the loss recognizedMarch 2017 upon the terminationsettlement of interest rate swaps associated with approximately $1.8$1.6 billion of commitments that were terminated under the 20132015 SPL Credit Facilities.Facilities and a $13 million loss in May 2017 in conjunction with the termination of approximately $1.4 billion of commitments under the 2015 CCH Credit Facility.
Other
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| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2016 | | 2015 | | Change | | 2016 | | 2015 | | Change |
Income tax provision (benefit) | $ | 1,638 |
| | $ | (69 | ) | | $ | 1,707 |
| | $ | 1,911 |
| | $ | 102 |
| | $ | 1,809 |
|
Net loss attributable to non-controlling interest | (29,974 | ) | | (9,284 | ) | | (20,690 | ) | | (94,636 | ) | | (100,726 | ) | | 6,090 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in millions) | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Income tax benefit (provision) | $ | (2 | ) | | $ | 2 |
| | $ | (4 | ) | | $ | (1 | ) | | $ | 2 |
| | $ | (3 | ) |
Net income (loss) attributable to non-controlling interest | 379 |
| | (30 | ) | | 409 |
| | 803 |
| | (95 | ) | | 898 |
|
Net lossincome attributable to non-controlling interest increased $20.7 million induring the three and nine months ended September 30, 2017 from the comparable periods in 2016 as comparedprimarily due to the three months ended September 30, 2015, primarily as a resultamortization of the beneficial conversion feature on Cheniere Partners’ Class B units and increase in consolidated net lossincome recognized by Cheniere Partners in which the non-controlling interest is held. Net income attributable to non-controlling interest was increased by $363 million and $738 million for non-cash amortization of the beneficial conversion feature on Cheniere Partners’ Class B units during the three and nine months ended September 30, 2017, respectively. Although the amortization of the beneficial conversion feature on Cheniere Partners’ Class B units ceased
upon the conversion of these units into common units on August 2, 2017, the share of Cheniere Partners’ net income (loss) that is attributed to non-controlling interest holders has increased from that date as a result of the increased ownership percentage by non-controlling interest holders. The consolidated net lossincome recognized by Cheniere Partners increased from $24.1a net loss of $82 million and $257 million in the three and nine months ended September 30, 20152016, respectively, to $81.5a net income of $23 million and $116 million in the three and nine months ended September
30, 2016 primarily due to increased interest expense, net of amounts capitalized, and increased loss on early extinguishment of debt, partially offset by decreased derivative loss and increased income from operations2017, respectively, primarily as a result of the commencement of operations ofadditional Trains 1 and 2 ofthat were operating at the SPL Project. Net loss attributable to non-controlling interest decreased $6.1 million inProject between the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015, primarily due to increased income from operations, decreased loss on early extinguishment of debt and decreased derivative loss, net,periods, which werewas partially offset by increased interest expense, net of amounts capitalized.
Off-Balance Sheet Arrangements
AsWe have interests in an unconsolidated variable interest entity (“VIE”) as discussed in Note 7—Other Non-Current Assets of September 30, 2016,our Notes to Consolidated Financial Statements in this quarterly report, which we had no transactions that met the definition ofconsider to be an off-balance sheet arrangementsarrangement. We believe that maythis VIE does not have a current or future material effect on our consolidated financial position or operating results.
Summary of Critical Accounting Estimates
The preparation of our Consolidated Financial Statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the accompanying notes. There have been no significant changes to our critical accounting estimates from those disclosed in our annual report on Form 10-K for the year ended December 31, 2015.2016.
Recent Accounting Standards
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Cash Investments
We have cash investments that we manage based on internal investment guidelines that emphasize liquidity and preservation of capital. Such cash investments are stated at historical cost, which approximates fair market value on our Consolidated Balance Sheets.
Marketing and Trading Commodity Price Risk
We have entered into commodity derivatives consisting of natural gas supply contracts to secure natural gas feedstock for the SPL Project and the CCL Project (“Liquefaction Supply Derivatives”). In order to test the sensitivity of the fair value of the Liquefaction Supply Derivatives to changes in underlying commodity prices, management modeled a 10% change in the basis price for natural gas for each delivery location. As of September 30, 2016, we estimated the fair value of the Liquefaction Supply Derivatives to be $12.1 million. Based on actual derivative contractual volumes, a 10% increase or decrease in the underlying basis prices would have resulted in a change in the fair value of the Liquefaction Supply Derivatives of $0.2 million as of September 30, 2016, compared to $0.9 million as of December 31, 2015. See Note 6—Derivative Instruments for additional details about our derivative instruments.
We have also entered into financial derivatives to hedge the exposure to the commodity markets in which we have contractual arrangements to purchase or sell physical LNG (“LNG Trading Derivatives”). In order to test the sensitivity of the fair value of the Liquefaction Supply Derivatives and the LNG Trading Derivatives to changes in underlying commodity prices, management modeled a 10% change in the basiscommodity price for LNG. As of September 30, 2016, we estimated the fair value of the LNG Trading Derivatives to benatural gas for each delivery location and a liability of $0.3 million. Based on actual derivative contractual volumes, a 10% increase or decrease in the underlying basis price would have resulted in a change in the fair value of thecommodity price for LNG, Trading Derivatives of $4.4 millionrespectively, as of September 30, 2016, whereas it was immaterial as of December 31, 2015. See Note 6—Derivative Instruments for additional details about our derivative instruments.follows (in millions): |
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Fair Value | | Change in Fair Value | | Fair Value | | Change in Fair Value |
Liquefaction Supply Derivatives | $ | 28 |
| | $ | 1 |
| | $ | 73 |
| | $ | 6 |
|
LNG Trading Derivatives | (21 | ) | | 1 |
| | (3 | ) | | — |
|
Interest Rate Risk
SPL, hasCQP and CCH have entered into interest rate swaps to hedge the exposure to volatility in a portion of the floating-rate interest payments under the 2015 SPL Credit Facilities (“SPL Interest Rate Derivatives”)., the 2016 CQP Credit Facilities (“CQP Interest Rate Derivatives”) and the 2015 CCH Credit Facility (“CCH Interest Rate Derivatives” and collectively, with the SPL Interest Rate Derivatives and the CQP Interest Rate Derivatives, the “Interest Rate Derivatives”), respectively. In order to test the sensitivity of the fair value of the SPL Interest Rate Derivatives to changes in interest rates, management modeled a 10% change in the forward 1-month LIBOR curve across the remaining termterms of the SPL Interest Rate Derivatives. As of September 30, 2016, we estimated the fair value of the SPL Interest Rate Derivatives to be a liability of $15.9 million. This 10% change in interest rates would have resulted in a change in the fair value of the SPL Interest Rate Derivatives of $1.6 million as of September 30, 2016, compared to $3.1 million as offollows (in millions):
December 31, 2015. The decrease in the effect of change in interest rates was due to a decrease in the forward 1-month LIBOR curve during the nine months ended September 30, 2016.
Cheniere Partners has entered into interest rate swaps to hedge the exposure to volatility in a portion of the floating-rate interest payments under the 2016 CQP Credit Facilities (“CQP Interest Rate Derivatives”). In order to test the sensitivity of the fair value of the CQP Interest Rate Derivatives to changes in interest rates, management modeled a 10% change in the forward 1-month LIBOR curve across the remaining term of the CQP Interest Rate Derivatives. As of September 30, 2016, we estimated the fair value of the CQP Interest Rate Derivatives to be a liability of $12.2 million. This 10% change in interest rates would have resulted in a change in the fair value of the CQP Interest Rate Derivatives of $3.9 million as of September 30, 2016.
CCH has entered into interest rate swaps to hedge the exposure to volatility in a portion of the floating-rate interest payments under the 2015 CCH Credit Facility (“CCH Interest Rate Derivatives”). In order to test the sensitivity of the fair value of the CCH Interest Rate Derivatives to changes in interest rates, management modeled a 10% change in the forward 1-month LIBOR curve across the remaining term of the CCH Interest Rate Derivatives. As of September 30, 2016, we estimated the fair value of the CCH Interest Rate Derivatives to be a liability of $297.5 million. This 10% change in interest rates would have resulted in a change in the fair value of the CCH Interest Rate Derivatives of $38.8 million as of September 30, 2016, compared to $55.6 million as of December 31, 2015. The decrease in the effect of change in interest rates was due to a decrease in the forward 1-month LIBOR curve during the nine months ended September 30, 2016. |
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Fair Value | | Change in Fair Value | | Fair Value | | Change in Fair Value |
SPL Interest Rate Derivatives | $ | — |
| | $ | — |
| | $ | (6 | ) | | $ | 2 |
|
CQP Interest Rate Derivatives | 14 |
| | 5 |
| | 13 |
| | 6 |
|
CCH Interest Rate Derivatives | (79 | ) | | 43 |
| | (86 | ) | | 52 |
|
Foreign Currency Exchange Risk
We have entered into foreign currency exchange (“FX”) contracts to hedge exposure to currency risk associated with operations in countries outside of the United States (“FX Derivatives”). In order to test the sensitivity of the fair value of the FX Derivatives to changes in FX rates, management modeled a 10% change in FX rate between the U.S. dollar and the applicable foreign currencies. As of September 30, 2016, we estimated the fair value of the FX Derivatives to be a liability of $1.2 million. This 10% change in FX rates would have resulted in aan immaterial change in the fair value of the FX Derivatives of $0.1 million as of both September 30, 2017 and December 31, 2016.
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ITEM 4. | CONTROLS AND PROCEDURES |
We maintain a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports filed by us under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As of the end of the period covered by this report, we evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective.
During the most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We may in the future be involved as a party to various legal proceedings, which are incidental to the ordinary course of business. We regularly analyze current information and, as necessary, provide accruals for probable liabilities on the eventual disposition of these matters.
Louisiana Department of Environmental Quality (“LDEQ”) Matter
Parallax Litigation
In 2015, Cheniere Energy Inc.’s (“CEI”) wholly owned subsidiary, Cheniere LNG Terminals, LLC (“CLNGT”), entered into discussions with Parallax Enterprises, LLC (“Parallax Enterprises”) regarding the potential joint development of two liquefaction plants in Louisiana (the “Potential Liquefaction Transactions”). While the parties negotiated regarding the Potential Liquefaction Transactions, CLNGT loaned Parallax Enterprises approximately $46 million, as reflected in a secured note dated April 23, 2015, as amended on June 30, 2015, September 30, 2015 and November 4, 2015 (the “Secured Note”)2017. The Secured Note was secured by all assets of Parallax Enterprises and its subsidiary entities. On June 30, 2015, Parallax Enterprises’ parent entity, Parallax Energy LLC (“Parallax Energy”), executed a Pledge and Guarantee Agreement further securing repayment of the Secured Note by providing a parent guaranty and a pledge of all of the equity of Parallax Enterprises in satisfaction of the Secured Note (the “Pledge Agreement”). CLNGT and Parallax Enterprises never executed a definitive agreement to pursue the Potential Liquefaction Transactions. The Secured Note matured on December 11, 2015, and Parallax Enterprises failed to make payment. On February 3, 2016, CLNGT filed an action against Parallax Energy, Parallax Enterprises, and certain of Parallax Enterprises’ subsidiary entities, styled Cause No. 4:16-cv-00286, Cheniere LNG Terminals, LLC v. Parallax Energy LLC, et al., in the United States District Court for the Southern District of Texas (the “Texas Suit”). CLNGT asserted claims in the Texas Suit for (1) recovery of all amounts due under the Secured Note and (2) declaratory relief establishing that CLNGT is entitled to enforce its rights under the Secured Note and Pledge Agreement in accordance with each instrument’s terms and that CLNGT has no obligations of any sort to Parallax Enterprises concerning the Potential Liquefaction Transactions. On March 11, 2016, Parallax Enterprises and the other defendants in the Texas Suit moved to dismiss the suit for lack of subject matter jurisdiction. On August 2, 2016, the court denied the defendants’ motion to dismiss without prejudice and permitted the parties to pursue jurisdictional discovery, which is ongoing.
On March 11, 2016, Parallax Enterprises filed a suit against CEI and CLNGT styled Civil Action No. 62-810, Parallax Enterprises LLP v. Cheniere Energy, Inc. and Cheniere LNG Terminals, LLC, in the 25th Judicial District Court of Plaquemines Parish, Louisiana (the “Louisiana Suit”), wherein Parallax Enterprises asserted claims for breach of contract, fraudulent inducement, negligent misrepresentation, detrimental reliance, unjust enrichment and violation of the Louisiana Unfair Trade Practices Act. Parallax Enterprises predicated its claims in the Louisiana Suit on an allegation that CEI and CLNGT breached a purported agreement to jointly develop the Potential Liquefaction Transactions. Parallax Enterprises sought $400 million in alleged economic damages and rescission of the Secured Note. On April 15, 2016, CEI and CLNGT removed the Louisiana Suit to the United States District Court for the Eastern District of Louisiana, which subsequently transferred the Louisiana Suit to the United States District Court for the Southern District of Texas, where it was assigned Civil Action No. 4:16-cv-01628 and transferred to the same judge presiding over the Texas Suit for coordinated handling. On August 22, 2016, Parallax Enterprises voluntarily dismissed all claims asserted against CLNGT and CEI in the Louisiana Suit without prejudice to refiling. CEI does not expect that the resolution of this litigation will have a material adverse impact on its financial results.
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
The following table summarizes stock repurchases for the three months ended September 30, 2016:2017: |
| | | | | | | | | |
Period | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share (2) | | Total Number of Shares Purchased as a Part of Publicly Announced Plans | | Maximum Number of Units That May Yet Be Purchased Under the Plans |
July 1 - 31, 2016 | | 13,307 |
| | $38.71 | | — | | — |
August 1 - 31, 2016 | | 345,200 |
| | $42.13 | | — | | — |
September 1 - 30, 2016 | | — |
| | $— | | — | | — |
Total | | 358,507 |
| | | | — | | — |
|
| | | | | | | | |
Period | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share (2) | | Total Number of Shares Purchased as a Part of Publicly Announced Plans | | Maximum Number of Shares That May Yet Be Purchased Under the Plans |
July 1 - 31, 2017 | | 11,025 | | $48.72 | | — | | — |
August 1 - 31, 2017 | | 10,122 | | $44.89 | | — | | — |
September 1 - 30, 2017 | | 335 | | $44.54 | | — | | — |
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(1) | Represents shares surrendered to us by participants in our share-based compensation plans to settle the participants’ personal tax liabilities that resulted from the lapsing of restrictions on shares awarded to the participants under these plans. |
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(2) | The price paid per share was based on the closing trading price of our common stock on the dates on which we repurchased shares from the participants under our share-based compensation plans. |
Compliance Disclosure
Pursuant to Section 13(r) of the Exchange Act, if during the quarter ended September 30, 2016, we or any of our affiliates had engaged in certain transactions with Iran or with persons or entities designated under certain executive orders, we would be required to disclose information regarding such transactions in our quarterly report on Form 10-Q as required under Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012. During the quarter ended September 30, 2016, we did not engage in any transactions with Iran or with persons or entities related to Iran.
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Exhibit No. | | Description |
3.1 | | Amendment No. 1 to the Amended and Restated Bylaws of Cheniere Energy, Inc., dated September 15, 2016 (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (SEC File No. 001-16383), filed on September 19, 2016) |
4.1 | | Eighth Supplemental Indenture, dated as of September 19, 2016,18, 2017, between Sabine Pass Liquefaction, LLCCheniere Energy Partners, L.P., the guarantors party thereto and The Bank of New York Mellon, as Trustee under the Indenture (Incorporated by reference to Exhibit 4.1 to Cheniere Partners’ Current Report on Form 8-K (SEC File No. 001-33366), filed on September 23, 2016)18, 2017) |
4.2 | | NinthFirst Supplemental Indenture, dated as of September 23 2016,18, 2017, between Sabine Pass Liquefaction, LLCCheniere Energy Partners, L.P., the guarantors party thereto and The Bank of New York Mellon, as Trustee under the Indenture (Incorporated by reference to Exhibit 4.2 to Cheniere Partners’ Current Report on Form 8-K (SEC File No. 001-33366), filed on September 23, 2016)18, 2017) |
10.1†4.3 | | Release |
10.1 | | Consent for Amendment to the Common Security and Account Agreement, dated September 7, 2017, among Cheniere Corpus Christi Holdings, LLC, as Company, Corpus Christi Liquefaction, LLC, Cheniere Corpus Christi Pipeline, L.P., and Corpus Christi Pipeline GP, LLC, as Guarantors, the Senior Creditor Group Representatives party thereto from time to time, Société Générale, as Intercreditor Agent and Security Trustee, and Mizuho Bank, Ltd., as Account Bank (Incorporated by reference to Exhibit 10.51 to CCH’s Registration Statement on Form S-4 (SEC File No. 333-221307), filed on November 2, 2017) |
10.2 | | Consent for Amendment to the Common Terms Agreement, dated September 7, 2017, among Cheniere Corpus Christi Holdings, LLC, as Borrower, Corpus Christi Liquefaction, LLC, Cheniere Corpus Christi Pipeline, L.P., Corpus Christi Pipeline GP, LLC, as Guarantors, Société Générale, as Term Loan Facility Agent and Intercreditor Agent and any other facility agents party thereto from time to time (Incorporated by reference to Exhibit 10.52 to CCH’s Registration Statement on Form S-4 (SEC File No. 333-221307), filed on November 2, 2017) |
10.3* | | Administrative Amendment, dated August 7, 2017, to the Credit and Guaranty Agreement among Cheniere Partners, as Borrower, certain subsidiaries of Cheniere Partners, as Subsidiary Guarantors, the lenders from time to time party thereto, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Issuing Bank, Administrative Agent and Coordinating Lead Arranger, and certain arrangers and other participants |
10.4 | | Registration Rights Agreement, dated as of September 18, 2017, between Cheniere Energy Inc.Partners, L.P., the guarantors party thereto and Meg A. Gentle, dated August 26, 2016Credit Suisse Securities (USA) LLC (Incorporated by reference to Exhibit 10.1 to the Company’sCheniere Partners’ Current Report on Form 8-K (SEC File No. 001-16383)001-33366), filed on August 26, 2016)September 18, 2017) |
10.210.5* | | Change ordersorder to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the Sabine Pass LNG Liquefaction Facility, dated as of November 11, 2011, between Sabine Pass Liquefaction, LLC and Bechtel Oil, Gas and Chemicals, Inc.: (i) the Change Order CO-00048 N2 Supply for High Pressure Tightness Test During Commissioning and Startup, dated July 12, 2016, (ii) the Change Order CO-00050 Train 2 N2 Dryout, dated July 29, 2016, (iii) the Change Order CO-00051 Six-Day Work Week for Insulation Scope — Subproject 2, dated August 9, 2016, and (iv) the Change Order CO-00052 Process Flares ModificationCO-00059 Insurance Provisional Sum Closeout, dated September 1, 2016 (Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a request for confidential treatment.) (Incorporated by reference to Exhibit 10.1 to SPL’s Quarterly Report on Form 10-Q (SEC File No. 333-192373), filed on November 2, 2016)May 18, 2017 |
10.310.6* | | Change orders to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the Sabine Pass LNG Stage 2 Liquefaction Facility, dated as of December 20, 2012, between Sabine Pass Liquefaction, LLC and Bechtel Oil, Gas and Chemicals, Inc.: (i) the Change Order CO-00024 Additional Support for FERC Document Requests,CO-00037 HPAA Compressor MODBUS Link, dated June 20, 2016,28, 2017 and (ii) the Change Order CO-00025 N2 Supply for High Pressure Tightness Test During Commissioning and Startup, dated July 12, 2016, (iii) the Change Order CO-00027 Addition of Check Valves to Condensate Lines, dated July 29, 2016, (iv) the Change Order CO-00028 Additional Professional Services Support Hours for the Flare System Evaluation,CO-00038 Existing Facility Labor Provisional Sum Closure, dated August 3, 2016, and (v) the Change Order CO-00029 Lump Sum Process Flares Modification, dated September 1, 2016 (Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a request for confidential treatment.) (Incorporated by reference to Exhibit 10.2 to SPL’s Quarterly Report on Form 10-Q (SEC File No. 333-192373), filed on November 2, 2016)24, 2017 |
10.410.7* | | Change order to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the Sabine Pass LNG Stage 3 Liquefaction Facility, dated as of May 4, 2015, between Sabine Pass Liquefaction, LLC and Bechtel Oil, Gas and Chemicals, Inc.: the Change Order CO-00011 Site Drainage Design Change: Professional Service Hours,CO-00021 Soils Preparation Provisional Sum Partial True-Up RECON 3, dated July 26, 2016 (Incorporated by reference to Exhibit 10.3 to SPL’s Quarterly Report on Form 10-Q (SEC File No. 333-192373), filed on November 2, 2016)August 24, 2017 |
10.5*10.8 | | Change orders to the Fixed Price Separated Turnkey Agreement for the Engineering, Procurement and Construction of the Corpus Christi Stage 1 Liquefaction Facility, dated as of December 6, 2013, between Corpus Christi Liquefaction, LLC and Bechtel Oil, Gas and Chemicals, Inc.: (i) the Change Order CO-00022CO-00036 Security Fencing Revisions, 138kV Overhead Power Stop Work, Additional Permanent Plant Building Modifications,Access Control System Changes, and Wet/Dry Flare Expansion Loop Relocation, dated June 20, 2016August 3, 2017 and (ii) the Change Order CO-00024 N2 Dewar Interface, Temporary Power to Air Cooler, Condensate Pipeline Maximum Allowable Operating Pressure,CO-00037 9% Nickel Lump Sum Conversion, dated June 28, 2016September 14, 2017 (Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a request for confidential treatment.) |
10.6 | | Registration Rights Agreement, dated as of September 23, 2016, between Sabine Pass Liquefaction, LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated (Incorporated by reference to Exhibit 10.110.50 to Cheniere Partners’ Current ReportCCH’s Registration Statement on Form 8-KS-4 (SEC File No. 001-33366)333-221307), filed on September 23, 2016)November 2, 2017) |
31.1* | | |
31.2* | | |
32.1** | | |
32.2** | | |
101.INS* | | XBRL Instance Document |
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Exhibit No. | | Description |
101.SCH* | | XBRL Taxonomy Extension Schema Document |
101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document |
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Exhibit No. | | Description |
101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* | | XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document |
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* | Filed herewith. |
** | Furnished herewith. |
† | Management contract or compensatory plan or arrangement. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | | |
| | CHENIERE ENERGY, INC. |
| | | |
Date: | November 2, 20168, 2017 | By: | /s/ Michael J. Wortley |
| | | Michael J. Wortley |
| | | Executive Vice President and Chief Financial Officer |
| | | (on behalf of the registrant and as principal financial officer) |
| | | |
Date: | November 2, 20168, 2017 | By: | /s/ Leonard Travis |
| | | Leonard Travis |
| | | Vice President and Chief Accounting Officer |
| | | (on behalf of the registrant and as principal accounting officer) |