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 SeptemberJune 30, 20182019
or
¨ ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
Commission file number 001-16383
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 | , | Texas | 77002 |
(Address of principal executive offices) | | (Zip Code) |
(713) (713) 375-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
| | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, $ 0.003 par value | LNG | NYSE American |
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. Yesx☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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). Yesx☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| |
Large accelerated filer x
| Accelerated filer ¨
|
Non-accelerated filer ¨
| Smaller reporting company ¨
| |
| Large accelerated filer | ☒ | | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | | 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. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒
As of NovemberAugust 2, 2018,2019, the issuer had 256,885,068256,779,983 shares of Common Stock outstanding.
CHENIERE ENERGY, INC.
TABLE OF CONTENTS
DEFINITIONS
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 that, through a refrigeration process, has been cooled to a liquid state, which occupies a volume that is 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 Legal Entity Structure
The following diagram depicts our abbreviated legal entity structure as of SeptemberJune 30, 2018,2019, 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. and its consolidated subsidiaries, including our publicly traded subsidiary, Cheniere Partners.
During the quarter ended September 30, 2018, we closed the previously announced merger of Cheniere Energy Partners LP Holdings, LLC (“Cheniere Holdings”) with and into our wholly owned subsidiary. As a result of the merger, Cheniere Holdings is no longer a publicly-traded company.
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 millions, except share data)
| | | September 30, | | December 31, | June 30, | | December 31, |
| 2018 | | 2017 | 2019 | | 2018 |
ASSETS | (unaudited) | | | (unaudited) | | |
Current assets | | | | | | |
Cash and cash equivalents | $ | 989 |
| | $ | 722 |
| $ | 2,279 |
| | $ | 981 |
|
Restricted cash | 1,943 |
| | 1,880 |
| 1,161 |
| | 2,175 |
|
Accounts and other receivables | 243 |
| | 369 |
| 433 |
| | 585 |
|
Accounts receivable—related party | 3 |
| | 2 |
| |
Inventory | 298 |
| | 243 |
| 290 |
| | 316 |
|
Derivative assets | 63 |
| | 57 |
| 127 |
| | 63 |
|
Other current assets | 131 |
| | 96 |
| 135 |
| | 114 |
|
Total current assets | 3,670 |
| | 3,369 |
| 4,425 |
| | 4,234 |
|
| | | | | | |
Non-current restricted cash | — |
| | 11 |
| |
Property, plant and equipment, net | 26,499 |
| | 23,978 |
| 29,073 |
| | 27,245 |
|
Operating lease assets, net | | 502 |
| | — |
|
Debt issuance costs, net | 78 |
| | 149 |
| 55 |
| | 72 |
|
Non-current derivative assets | 121 |
| | 34 |
| 103 |
| | 54 |
|
Goodwill | 77 |
| | 77 |
| 77 |
| | 77 |
|
Other non-current assets, net | 295 |
| | 288 |
| 337 |
| | 305 |
|
Total assets | $ | 30,740 |
| | $ | 27,906 |
| $ | 34,572 |
| | $ | 31,987 |
|
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | |
| |
| | |
|
Current liabilities | |
| | |
| |
| | |
|
Accounts payable | $ | 80 |
| | $ | 25 |
| $ | 120 |
| | $ | 58 |
|
Accrued liabilities | 987 |
| | 1,078 |
| 1,572 |
| | 1,169 |
|
Current debt | 66 |
| | — |
| — |
| | 239 |
|
Deferred revenue | 120 |
| | 111 |
| 136 |
| | 139 |
|
Current operating lease liabilities | | 292 |
| | — |
|
Derivative liabilities | 96 |
| | 37 |
| 84 |
| | 128 |
|
Other current liabilities | 1 |
| | — |
| 3 |
| | 9 |
|
Total current liabilities | 1,350 |
| | 1,251 |
| 2,207 |
| | 1,742 |
|
| | | | | | |
Long-term debt, net | 27,438 |
| | 25,336 |
| 29,944 |
| | 28,179 |
|
Non-current capital lease obligations | 29 |
| | — |
| |
Non-current operating lease liabilities | | 202 |
| | — |
|
Non-current finance lease liabilities | | 58 |
| | 57 |
|
Non-current derivative liabilities | 16 |
| | 19 |
| 94 |
| | 22 |
|
Other non-current liabilities | 76 |
| | 60 |
| 44 |
| | 58 |
|
| | | | | | |
Commitments and contingencies (see Note 15) |
|
| |
|
| |
Commitments and contingencies (see Note 16) | |
|
| |
|
|
| | | | | | |
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, 2018 and December 31, 2017 | | | | |
Issued: 269.7 million shares and 250.1 million shares at September 30, 2018 and December 31, 2017, respectively |
|
| |
|
| |
Outstanding: 257.1 million shares and 237.6 million shares at September 30, 2018 and December 31, 2017, respectively | 1 |
| | 1 |
| |
Treasury stock: 12.6 million shares and 12.5 million shares at September 30, 2018 and December 31, 2017, respectively, at cost | (396 | ) | | (386 | ) | |
Authorized: 480.0 million shares at June 30, 2019 and December 31, 2018 | | | | |
Issued: 270.5 million shares at June 30, 2019 and 269.8 million shares at December 31, 2018 | |
|
| |
|
|
Outstanding: 257.5 million shares at June 30, 2019 and 257.0 million shares at December 31, 2018 | | 1 |
| | 1 |
|
Treasury stock: 13.0 million shares and 12.8 million shares at June 30, 2019 and December 31, 2018, respectively, at cost | | (423 | ) | | (406 | ) |
Additional paid-in-capital | 4,009 |
| | 3,248 |
| 4,097 |
| | 4,035 |
|
Accumulated deficit | (4,223 | ) | | (4,627 | ) | (4,129 | ) | | (4,156 | ) |
Total stockholders’ deficit | (609 | ) | | (1,764 | ) | (454 | ) | | (526 | ) |
Non-controlling interest | 2,440 |
| | 3,004 |
| 2,477 |
| | 2,455 |
|
Total equity | 1,831 |
| | 1,240 |
| 2,023 |
| | 1,929 |
|
Total liabilities and equity | $ | 30,740 |
| | $ | 27,906 |
| $ | 34,572 |
| | $ | 31,987 |
|
The accompanying notes are an integral part of these consolidated financial statements.
3
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Revenues | | | | | | | |
LNG revenues | $ | 2,173 |
| | $ | 1,442 |
| | $ | 4,316 |
| | $ | 3,608 |
|
Regasification revenues | 67 |
| | 65 |
| | 133 |
| | 130 |
|
Other revenues | 52 |
| | 36 |
| | 104 |
| | 47 |
|
Total revenues | 2,292 |
| | 1,543 |
| | 4,553 |
| | 3,785 |
|
| | | | | | | |
Operating costs and expenses | | | | | | | |
Cost of sales (excluding depreciation and amortization expense shown separately below) | 1,277 |
| | 873 |
| | 2,491 |
| | 2,051 |
|
Operating and maintenance expense | 295 |
| | 147 |
| | 516 |
| | 287 |
|
Development expense | 3 |
| | 3 |
| | 4 |
| | 4 |
|
Selling, general and administrative expense | 77 |
| | 73 |
| | 150 |
| | 140 |
|
Depreciation and amortization expense | 204 |
| | 111 |
| | 348 |
| | 220 |
|
Impairment expense and loss on disposal of assets | 4 |
| | — |
| | 6 |
| | — |
|
Total operating costs and expenses | 1,860 |
| | 1,207 |
| | 3,515 |
| | 2,702 |
|
| | | | | | | |
Income from operations | 432 |
| | 336 |
| | 1,038 |
| | 1,083 |
|
| | | | | | | |
Other income (expense) | | | | | | | |
Interest expense, net of capitalized interest | (372 | ) | | (216 | ) | | (619 | ) | | (432 | ) |
Loss on modification or extinguishment of debt | — |
| | (15 | ) | | — |
| | (15 | ) |
Derivative gain (loss), net | (74 | ) | | 32 |
| | (109 | ) | | 109 |
|
Other income | 16 |
| | 10 |
| | 32 |
| | 17 |
|
Total other expense | (430 | ) | | (189 | ) | | (696 | ) | | (321 | ) |
| | | | | | | |
Income before income taxes and non-controlling interest | 2 |
|
| 147 |
|
| 342 |
|
| 762 |
|
Income tax benefit (provision) | — |
|
| 3 |
|
| (3 | ) |
| (12 | ) |
Net income | 2 |
|
| 150 |
|
| 339 |
|
| 750 |
|
Less: net income attributable to non-controlling interest | 116 |
|
| 168 |
|
| 312 |
|
| 411 |
|
Net income (loss) attributable to common stockholders | $ | (114 | ) |
| $ | (18 | ) |
| $ | 27 |
|
| $ | 339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to common stockholders—basic (1) | $ | (0.44 | ) |
| $ | (0.07 | ) |
| $ | 0.11 |
|
| $ | 1.42 |
|
Net income (loss) per share attributable to common stockholders—diluted (1) | $ | (0.44 | ) | | $ | (0.07 | ) | | $ | 0.11 |
| | $ | 1.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding—basic | 257.4 |
| | 242.8 |
| | 257.3 |
| | 239.2 |
|
Weighted average number of common shares outstanding—diluted | 257.4 |
| | 242.8 |
| | 258.6 |
| | 241.7 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Revenues | | | | | | | |
LNG revenues | $ | 1,719 |
| | $ | 1,332 |
| | $ | 5,327 |
| | $ | 3,646 |
|
Regasification revenues | 66 |
| | 65 |
| | 196 |
| | 195 |
|
Other revenues | 30 |
| | 5 |
| | 73 |
| | 12 |
|
Other—related party | 4 |
| | 1 |
| | 8 |
| | 2 |
|
Total revenues | 1,819 |
| | 1,403 |
| | 5,604 |
| | 3,855 |
|
| | | | | | | |
Operating costs and expenses | | | | | | | |
Cost of sales (excluding depreciation and amortization expense shown separately below) | 1,027 |
| | 824 |
| | 3,078 |
| | 2,140 |
|
Operating and maintenance expense | 170 |
| | 114 |
| | 457 |
| | 309 |
|
Development expense | 2 |
| | 3 |
| | 6 |
| | 7 |
|
Selling, general and administrative expense | 74 |
| | 64 |
| | 214 |
| | 179 |
|
Depreciation and amortization expense | 113 |
| | 92 |
| | 333 |
| | 252 |
|
Restructuring expense | — |
| | — |
| | — |
| | 6 |
|
Impairment expense and loss on disposal of assets | 8 |
| | 9 |
| | 8 |
| | 15 |
|
Total operating costs and expenses | 1,394 |
| | 1,106 |
| | 4,096 |
| | 2,908 |
|
| | | | | | | |
Income from operations | 425 |
| | 297 |
| | 1,508 |
| | 947 |
|
| | | | | | | |
Other income (expense) | | | | | | | |
Interest expense, net of capitalized interest | (221 | ) | | (186 | ) | | (653 | ) | | (539 | ) |
Loss on modification or extinguishment of debt | (12 | ) | | (25 | ) | | (27 | ) | | (100 | ) |
Derivative gain (loss), net | 23 |
| | (2 | ) | | 132 |
| | (37 | ) |
Other income | 15 |
| | 4 |
| | 32 |
| | 11 |
|
Total other expense | (195 | ) | | (209 | ) | | (516 | ) | | (665 | ) |
| | | | | | | |
Income before income taxes and non-controlling interest | 230 |
|
| 88 |
|
| 992 |
|
| 282 |
|
Income tax benefit (provision) | (3 | ) |
| 2 |
|
| (15 | ) |
| 1 |
|
Net income | 227 |
|
| 90 |
|
| 977 |
|
| 283 |
|
Less: net income attributable to non-controlling interest | 162 |
|
| 379 |
|
| 573 |
|
| 803 |
|
Net income (loss) attributable to common stockholders | $ | 65 |
|
| $ | (289 | ) |
| $ | 404 |
|
| $ | (520 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to common stockholders—basic | $ | 0.26 |
|
| $ | (1.24 | ) |
| $ | 1.67 |
|
| $ | (2.24 | ) |
Net income (loss) per share attributable to common stockholders—diluted | $ | 0.26 |
| | $ | (1.24 | ) | | $ | 1.65 |
| | $ | (2.24 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding—basic | 247.2 |
| | 232.6 |
| | 241.9 |
| | 232.5 |
|
Weighted average number of common shares outstanding—diluted | 250.2 |
| | 232.6 |
| | 244.6 |
| | 232.5 |
|
(1) Earnings per share in the table may not recalculate exactly due to rounding because it is calculated based on whole numbers, not the rounded numbers presented.
The accompanying notes are an integral part of these consolidated financial statements.
4
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
(unaudited)
| | Three and Six Months Ended June 30, 2019 | | | | | | | | | | | | | | | | |
| | Total Stockholders’ Equity | | | |
| | | | | | | | | | | | | | | | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Non-controlling Interest | | Total Equity |
| Total Stockholders’ Equity | | | | Shares | | Par Value Amount | | Shares | | Amount | |
| Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Non-controlling Interest | | Total Equity | |
| Shares | | Par Value Amount | | Shares | | Amount | | |
Balance at December 31, 2017 | 237.6 |
| | $ | 1 |
| | 12.5 |
| | $ | (386 | ) | | $ | 3,248 |
| | $ | (4,627 | ) | | $ | 3,004 |
| | $ | 1,240 |
| |
Balance at December 31, 2018 | | 257.0 |
|
| $ | 1 |
|
| 12.8 |
|
| $ | (406 | ) |
| $ | 4,035 |
|
| $ | (4,156 | ) |
| $ | 2,455 |
|
| $ | 1,929 |
|
Vesting of restricted stock units | 0.4 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| 0.6 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Issuance of stock to acquire additional interest in Cheniere Holdings and other merger related adjustments | 19.2 |
| | — |
| | — |
| | — |
| | 694 |
| | — |
| | (702 | ) | | (8 | ) | |
Share-based compensation | — |
| | — |
| | — |
| | — |
| | 65 |
| | — |
| | — |
| | 65 |
| — |
| | — |
| | — |
| | — |
| | 28 |
| | — |
| | — |
| | 28 |
|
Shares repurchased related to share-based compensation | (0.1 | ) | | — |
| | 0.1 |
| | (10 | ) | | — |
| | — |
| | — |
| | (10 | ) | |
Shares withheld from employees related to share-based compensation, at cost | | (0.2 | ) | | — |
| | 0.2 |
| | (12 | ) | | — |
| | — |
| | — |
| | (12 | ) |
Net income attributable to non-controlling interest | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 196 |
| | 196 |
|
Distributions and dividends to non-controlling interest | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (144 | ) | | (144 | ) |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 141 |
| | — |
| | 141 |
|
Balance at March 31, 2019 | | 257.4 |
| | 1 |
| | 13.0 |
| | (418 | ) | | 4,063 |
| | (4,015 | ) | | 2,507 |
| | 2,138 |
|
Vesting of restricted stock units | | 0.1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Share-based compensation | | — |
| | — |
| | — |
| | — |
| | 33 |
| | — |
| | — |
| | 33 |
|
Shares withheld from employees related to share-based compensation, at cost | | — |
| | — |
| | — |
| | (2 | ) | | — |
| | — |
| | — |
| | (2 | ) |
Shares repurchased, at cost | | — |
| | — |
| | — |
| | (3 | ) | | — |
| | — |
| | — |
| | (3 | ) |
Net income attributable to non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 573 |
| | 573 |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 116 |
| | 116 |
|
Equity portion of convertible notes, net | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | 2 |
| — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
Distributions to non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (435 | ) | | (435 | ) | |
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 404 |
| | — |
| | 404 |
| |
Balance at September 30, 2018 | 257.1 |
| | $ | 1 |
| | 12.6 |
| | $ | (396 | ) | | $ | 4,009 |
| | $ | (4,223 | ) | | $ | 2,440 |
| | $ | 1,831 |
| |
Distributions and dividends to non-controlling interest | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (146 | ) | | (146 | ) |
Net loss | | — |
| | — |
| | — |
| | — |
| | — |
| | (114 | ) | | — |
| | (114 | ) |
Balance at June 30, 2019 | | 257.5 |
| | $ | 1 |
| | 13.0 |
| | $ | (423 | ) | | $ | 4,097 |
| | $ | (4,129 | ) | | $ | 2,477 |
| | $ | 2,023 |
|
The accompanying notes are an integral part of these consolidated financial statements.
5
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS’ EQUITY—CONTINUED
(in millions)
(unaudited)
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2018 | | 2017 |
Cash flows from operating activities | | | |
Net income | $ | 977 |
| | $ | 283 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization expense | 333 |
| | 252 |
|
Share-based compensation expense | 89 |
| | 64 |
|
Non-cash interest expense | 52 |
| | 54 |
|
Amortization of debt issuance costs, deferred commitment fees, premium and discount | 53 |
| | 53 |
|
Loss on modification or extinguishment of debt | 27 |
| | 100 |
|
Total losses on derivatives, net | 17 |
| | 108 |
|
Net cash used for settlement of derivative instruments | (54 | ) | | (59 | ) |
Impairment expense and loss on disposal of assets | 8 |
| | 15 |
|
Other | (5 | ) | | (2 | ) |
Changes in operating assets and liabilities: | | | |
Accounts and other receivables | 115 |
| | (33 | ) |
Accounts receivable—related party | (1 | ) | | (1 | ) |
Inventory | (56 | ) | | 35 |
|
Other current assets | (35 | ) | | (45 | ) |
Accounts payable and accrued liabilities | (23 | ) | | 20 |
|
Deferred revenue | 8 |
| | 58 |
|
Other, net | (1 | ) | | (7 | ) |
Net cash provided by operating activities | 1,504 |
| | 895 |
|
| | | |
Cash flows from investing activities | | | |
Property, plant and equipment, net | (2,712 | ) | | (2,903 | ) |
Investment in equity method investment | (25 | ) | | (41 | ) |
Other | 15 |
| | 18 |
|
Net cash used in investing activities | (2,722 | ) | | (2,926 | ) |
| | | |
Cash flows from financing activities | | | |
Proceeds from issuances of debt | 3,443 |
| | 6,537 |
|
Repayments of debt | (1,385 | ) | | (3,609 | ) |
Debt issuance and deferred financing costs | (53 | ) | | (85 | ) |
Debt extinguishment costs | (16 | ) | | — |
|
Distributions and dividends to non-controlling interest | (435 | ) | | (60 | ) |
Payments related to tax withholdings for share-based compensation | (10 | ) | | (4 | ) |
Other | (7 | ) | | — |
|
Net cash provided by financing activities | 1,537 |
| | 2,779 |
|
| | | |
Net increase in cash, cash equivalents and restricted cash | 319 |
| | 748 |
|
Cash, cash equivalents and restricted cash—beginning of period | 2,613 |
| | 1,827 |
|
Cash, cash equivalents and restricted cash—end of period | $ | 2,932 |
| | $ | 2,575 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three and Six Months Ended June 30, 2018 | | | | | | | | | | | | | | | |
| Total Stockholders’ Equity | | | |
| Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Non-controlling Interest | | Total Equity |
| Shares | | Par Value Amount | | Shares | | Amount | | | | |
Balance at December 31, 2017 | 237.6 |
| | $ | 1 |
| | 12.5 |
| | $ | (386 | ) | | $ | 3,248 |
| | $ | (4,627 | ) | | $ | 3,004 |
| | $ | 1,240 |
|
Vesting of restricted stock units | 0.3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Share-based compensation | — |
| | — |
| | — |
| | — |
| | 16 |
| | — |
| | — |
| | 16 |
|
Shares withheld from employees related to share-based compensation, at cost | — |
| | — |
| | 0.1 |
| | (6 | ) | | — |
| | — |
| | — |
| | (6 | ) |
Net income attributable to non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 243 |
| | 243 |
|
Distributions and dividends to non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (143 | ) | | (143 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 357 |
| | — |
| | 357 |
|
Balance at March 31, 2018 | 237.9 |
| | 1 |
| | 12.6 |
| | (392 | ) | | 3,264 |
| | (4,270 | ) | | 3,104 |
| | 1,707 |
|
Issuance of stock to acquire additional interest in Cheniere Holdings | 10.3 |
| | — |
| | — |
| | — |
| | 376 |
| | — |
| | (376 | ) | | — |
|
Share-based compensation | — |
| | — |
| | — |
| | — |
| | 23 |
| | — |
| | — |
| | 23 |
|
Shares withheld from employees related to share-based compensation, at cost | (0.1 | ) | | — |
| | — |
| | (2 | ) | | — |
| | — |
| | — |
| | (2 | ) |
Net income attributable to non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 168 |
| | 168 |
|
Equity portion of convertible notes, net | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
Distributions and dividends to non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (145 | ) | | (145 | ) |
Net loss | — |
| | — |
| | — |
| | — |
| | — |
| | (18 | ) | | — |
| | (18 | ) |
Balance at June 30, 2018 | 248.1 |
| | $ | 1 |
| | 12.6 |
| | $ | (394 | ) | | $ | 3,664 |
| | $ | (4,288 | ) | | $ | 2,751 |
| | $ | 1,734 |
|
Balances per Consolidated Balance Sheet:
|
| | | |
| September 30, 2018 |
Cash and cash equivalents | $ | 989 |
|
Restricted cash | 1,943 |
|
Total cash, cash equivalents and restricted cash | $ | 2,932 |
|
The accompanying notes are an integral part of these consolidated financial statements.
6
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
|
| | | | | | | |
| Six Months Ended June 30, |
| 2019 | | 2018 |
Cash flows from operating activities | | | |
Net income | $ | 339 |
| | $ | 750 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization expense | 348 |
| | 220 |
|
Share-based compensation expense | 61 |
| | 58 |
|
Non-cash interest expense | 93 |
| | 30 |
|
Amortization of debt issuance costs, deferred commitment fees, premium and discount | 44 |
| | 35 |
|
Amortization of operating lease assets | 158 |
| | — |
|
Loss on modification or extinguishment of debt | — |
| | 15 |
|
Total losses (gains) on derivatives, net | (147 | ) | | 4 |
|
Net cash provided by (used for) settlement of derivative instruments | 62 |
| | (8 | ) |
Impairment expense and loss on disposal of assets | 6 |
| | — |
|
Other | 2 |
| | (5 | ) |
Changes in operating assets and liabilities: | | | |
Accounts and other receivables | 59 |
| | 80 |
|
Inventory | 33 |
| | 10 |
|
Other current assets | (46 | ) | | (61 | ) |
Accounts payable and accrued liabilities | (80 | ) | | (132 | ) |
Deferred revenue | (2 | ) | | (13 | ) |
Operating lease liabilities | (163 | ) | | — |
|
Other, net | (7 | ) | | (1 | ) |
Net cash provided by operating activities | 760 |
| | 982 |
|
| | | |
Cash flows from investing activities | | | |
Property, plant and equipment, net | (1,508 | ) | | (1,508 | ) |
Investment in equity method investment | (34 | ) | | — |
|
Other | — |
| | 16 |
|
Net cash used in investing activities | (1,542 | ) | | (1,492 | ) |
| | | |
Cash flows from financing activities | | | |
Proceeds from issuances of debt | 2,021 |
| | 1,799 |
|
Repayments of debt | (630 | ) | | (281 | ) |
Debt issuance and deferred financing costs | (20 | ) | | (46 | ) |
Debt extinguishment costs | — |
| | (8 | ) |
Distributions and dividends to non-controlling interest | (290 | ) | | (288 | ) |
Payments related to tax withholdings for share-based compensation | (14 | ) | | (8 | ) |
Repurchase of common stock | (3 | ) | | — |
|
Other | 2 |
| | — |
|
Net cash provided by financing activities | 1,066 |
| | 1,168 |
|
| | | |
Net increase in cash, cash equivalents and restricted cash | 284 |
| | 658 |
|
Cash, cash equivalents and restricted cash—beginning of period | 3,156 |
| | 2,613 |
|
Cash, cash equivalents and restricted cash—end of period | $ | 3,440 |
| | $ | 3,271 |
|
Balances per Consolidated Balance Sheet:
|
| | | |
| June 30, 2019 |
Cash and cash equivalents | $ | 2,279 |
|
Restricted cash | 1,161 |
|
Total cash, cash equivalents and restricted cash | $ | 3,440 |
|
The accompanying notes are an integral part of these consolidated financial statements.
7
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1—NATURE OF OPERATIONS AND BASIS OF PRESENTATION
We are currently developingown and constructingoperate two natural gas liquefaction and export facilities.facilities at Sabine Pass and Corpus Christi. 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,in various stages of constructing and operating six 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 45 are operational Train 5 is undergoing commissioning and Train 6 is being commercialized and has all necessary regulatory approvals in place.under construction. 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.
The Corpus Christi LNG terminal is located near Corpus Christi, Texas and is operated by our wholly owned subsidiary CCL. We are developing and constructingalso operate a second23-mile natural gas liquefaction and export facility atsupply pipeline that interconnects the Corpus Christi LNG terminal near Corpuswith several interstate and intrastate natural gas pipelines (the “Corpus Christi Texas,Pipeline” and a pipeline facility (collectively,together with the liquefaction facilities, the “CCL Project”) through our wholly owned subsidiaries CCL and CCP, respectively.subsidiary CCP. The CCL Project is being developed in stages.stages with the first phase being three Trains (“Phase 1”). The first stage 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 (“Stage 1”). The second stage includes Train 3, one LNG storage tank and the completion of the second partial berth (“Stage 2”). The CCL Project also includes a 23-mile natural gas supply pipeline that will interconnect the Corpus Christi LNG terminal with several interstate and intrastate natural gas pipelines (the “Corpus Christi Pipeline”). Stages 1 and 2 are currently under construction, and construction of the Corpus Christi Pipeline was completed in the second quarter of 2018. Train 1 has commencedis operational, Train 2 is undergoing commissioning activities.and Train 3 is under construction.
Additionally, separate from the CCH Group, we are developing an expansion of the Corpus Christi LNG terminal adjacent to the CCL Project (“Corpus Christi Stage 3”) and filed an application with FERC in June 2018 for seven midscale Trains with an expected aggregate nominal production capacity of approximately 9.5 mtpa and one LNG storage tank.
We remain focused on leveraging infrastructure through the expansion of our existing sites.sites by leveraging existing infrastructure. We are also in various stagescontinue to consider development 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 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, 20172018. 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 did not have a material effect on our consolidated financial position, results of operations or cash flows.
On January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequent amendments thereto (“ASC 606”) using the full retrospective method. The adoption of ASC 606 represents a change in accounting principle that will provide financial statement readers with enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The adoption of ASC 606 did not impact our previously reported consolidated financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings.
Results of operations for the three and ninesix months ended SeptemberJune 30, 20182019 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2018.2019.
Recent Accounting Standards
We adopted ASU 2016-02, Leases (Topic 842), and subsequent amendments thereto (“ASC 842”) on January 1, 2019 using the optional transition approach to apply the standard at the beginning of the first quarter of 2019 with no retrospective adjustments to prior periods. The adoption of the standard resulted in the recognition of right-of-use assets and lease liabilities for operating leases of approximately $550 million on our Consolidated Balance Sheets, with no material impact on our Consolidated Statements of Operations or Consolidated Statements of Cash Flows. We have elected the practical expedients to (1) carryforward prior conclusions related to lease identification and classification for existing leases, (2) combine lease and non-lease components of an arrangement for all classes of leased assets, (3) omit short-term leases with a term of 12 months or less from recognition on the balance sheet and (4) carryforward our existing accounting for land easements not previously accounted for as leases. See Note 11—Leases for additional information on our leases following the adoption of this standard.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 2—RESTRICTED CASH
Restricted cash consists of funds that are contractually and legally restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on our Consolidated Balance Sheets. As of SeptemberJune 30, 20182019 and December 31, 2017,2018, restricted cash consisted of the following (in millions):
|
| | | | | | | | |
| | June 30, | | December 31, |
| | 2019 | | 2018 |
Current restricted cash | | | | |
SPL Project | | $ | 596 |
| | $ | 756 |
|
Cheniere Partners and cash held by guarantor subsidiaries | | — |
| | 785 |
|
CCL Project | | 279 |
| | 289 |
|
Cash held by our subsidiaries restricted to Cheniere | | 286 |
| | 345 |
|
Total current restricted cash | | $ | 1,161 |
| | $ | 2,175 |
|
|
| | | | | | | | |
| | September 30, | | December 31, |
| | 2018 | | 2017 |
Current restricted cash | | | | |
SPL Project | | $ | 649 |
| | $ | 544 |
|
Cheniere Partners and cash held by guarantor subsidiaries | | 808 |
| | 1,045 |
|
CCL Project | | 220 |
| | 227 |
|
Cash held by our subsidiaries restricted to Cheniere | | 266 |
| | 64 |
|
Total current restricted cash | | $ | 1,943 |
| | $ | 1,880 |
|
| | | | |
Non-current restricted cash | | | | |
Other | | $ | — |
| | $ | 11 |
|
Pursuant to the accounts agreements entered into with the collateral trustees for the benefit of SPL’s debt holders and CCH’s debt holders, SPL and CCH are required to deposit all cash received into reserve accounts controlled by the collateral trustees. The usage or withdrawal of such cash is restricted to the payment of liabilities related to the SPL Project and the CCL Project (collectively, the “Liquefaction Projects”) and other restricted payments.
UnderIn May 2019, Cheniere Partners’Partners entered into the $1.5 billion credit facilities (the “CQP“2019 CQP Credit Facilities”), which replaced the previous $2.8 billion credit facilities (the “2016 CQP Credit Facilities”). The cash held by Cheniere Partners and each of its subsidiaries other than SPL, as guarantor subsidiaries are subject to limitations on thewas restricted in 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, may only withdraw funds from collateral accounts held at a designated depositary bank on a limited basis and for specific purposes, including forbut is no longer restricted under the payment of operating expenses of Cheniere Partners and its guarantor subsidiaries. In addition, distributions and capital expenditures may only be made quarterly and are subject to certain restrictions.2019 CQP Credit Facilities.
NOTE 3—ACCOUNTS AND OTHER RECEIVABLES
As of SeptemberJune 30, 20182019 and December 31, 2017,2018, accounts and other receivables consisted of the following (in millions):
|
| | | | | | | | |
| | June 30, | | December 31, |
| | 2019 | | 2018 |
Trade receivables | | | | |
SPL and CCL | | $ | 257 |
| | $ | 330 |
|
Cheniere Marketing | | 145 |
| | 205 |
|
Other accounts receivable | | 31 |
| | 50 |
|
Total accounts and other receivables | | $ | 433 |
| | $ | 585 |
|
|
| | | | | | | | |
| | September 30, | | December 31, |
| | 2018 | | 2017 |
Trade receivables | | | | |
SPL | | $ | 213 |
| | $ | 185 |
|
Cheniere Marketing | | 16 |
| | 163 |
|
Other accounts receivable | | 14 |
| | 21 |
|
Total accounts and other receivables | | $ | 243 |
| | $ | 369 |
|
NOTE 4—INVENTORY
As of SeptemberJune 30, 20182019 and December 31, 2017,2018, inventory consisted of the following (in millions):
|
| | | | | | | | |
| | June 30, | | December 31, |
| | 2019 | | 2018 |
Natural gas | | $ | 19 |
| | $ | 30 |
|
LNG | | 38 |
| | 24 |
|
LNG in-transit | | 104 |
| | 173 |
|
Materials and other | | 129 |
| | 89 |
|
Total inventory | | $ | 290 |
| | $ | 316 |
|
|
| | | | | | | | |
| | September 30, | | December 31, |
| | 2018 | | 2017 |
Natural gas | | $ | 10 |
| | $ | 17 |
|
LNG | | 42 |
| | 44 |
|
LNG in-transit | | 181 |
| | 130 |
|
Materials and other | | 65 |
| | 52 |
|
Total inventory | | $ | 298 |
| | $ | 243 |
|
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 5—PROPERTY, PLANT AND EQUIPMENT
As of SeptemberJune 30, 20182019 and December 31, 2017,2018, property, plant and equipment, net consisted of the following (in millions):
|
| | | | | | | | |
| | June 30, | | December 31, |
| | 2019 | | 2018 |
LNG terminal costs | | | | |
LNG terminal and interconnecting pipeline facilities | | $ | 23,650 |
| | $ | 13,386 |
|
LNG site and related costs | | 319 |
| | 86 |
|
LNG terminal construction-in-process | | 6,529 |
| | 14,864 |
|
Accumulated depreciation | | (1,625 | ) | | (1,299 | ) |
Total LNG terminal costs, net | | 28,873 |
| | 27,037 |
|
Fixed assets and other | | |
| | |
|
Computer and office equipment | | 22 |
| | 17 |
|
Furniture and fixtures | | 22 |
| | 22 |
|
Computer software | | 104 |
| | 100 |
|
Leasehold improvements | | 42 |
| | 41 |
|
Land | | 59 |
| | 59 |
|
Other | | 20 |
| | 21 |
|
Accumulated depreciation | | (127 | ) | | (111 | ) |
Total fixed assets and other, net | | 142 |
| | 149 |
|
Assets under finance lease | | | | |
Tug vessels | | 60 |
| | 60 |
|
Accumulated depreciation | | (2 | ) | | (1 | ) |
Total assets under finance lease, net | | 58 |
| | 59 |
|
Property, plant and equipment, net | | $ | 29,073 |
| | $ | 27,245 |
|
|
| | | | | | | | |
| | September 30, | | December 31, |
| | 2018 | | 2017 |
LNG terminal costs | | | | |
LNG terminal and interconnecting pipeline facilities | | $ | 13,162 |
| | $ | 12,687 |
|
LNG site and related costs | | 86 |
| | 86 |
|
LNG terminal construction-in-process | | 14,269 |
| | 11,932 |
|
Accumulated depreciation | | (1,192 | ) | | (882 | ) |
Total LNG terminal costs, net | | 26,325 |
| | 23,823 |
|
Fixed assets and other | | |
| | |
|
Computer and office equipment | | 17 |
| | 14 |
|
Furniture and fixtures | | 19 |
| | 19 |
|
Computer software | | 97 |
| | 92 |
|
Leasehold improvements | | 41 |
| | 41 |
|
Land | | 59 |
| | 59 |
|
Other | | 18 |
| | 16 |
|
Accumulated depreciation | | (107 | ) | | (86 | ) |
Total fixed assets and other, net | | 144 |
| | 155 |
|
Tug vessels under capital lease | | 30 |
| | — |
|
Property, plant and equipment, net | | $ | 26,499 |
| | $ | 23,978 |
|
Depreciation expense was $112$203 million and $91$111 million during the three months ended SeptemberJune 30, 20182019 and 2017,2018, respectively, and $331$346 million and $250$219 million during the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively.
We realizedrealize offsets to LNG terminal costs of $82 million and $252 million in the three and nine months ended September 30, 2017, respectively, that were related to the salefor sales of commissioning cargoes because these amountsthat were earned or loaded prior to the start of commercial operations of the respective Train of the SPL Project, during the testing phase for its construction. We realized offsets to LNG terminal costs of $202 million during the six months ended June 30, 2019 for sales of commissioning cargoes from the Liquefaction Projects. We did not realize any offsets to LNG terminal costs induring the three months ended June 30, 2019 and the three and ninesix months ended SeptemberJune 30, 2018.
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 certainCCH’s credit facilities (“CCH Interest Rate Derivatives”) and to hedge against changes in interest rates that could impact anticipated future issuance of debt by CCH (“CCH Interest Rate Forward Start Derivatives”);
commodity derivatives consisting of natural gas supply contracts for the commissioning and operation of the SPL Project, and the CCL Project and potential future development of Corpus Christi Stage 3 (“Physical Liquefaction Supply Derivatives”) and associated economic hedges (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 both LNG Trading Derivatives and operations in countries outside of the United States (“FX Derivatives”).
We recognize our derivative instruments as either assets or liabilities and measure those instruments at fair value. 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 to the extent not utilized for the commissioning process.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table shows the fair value of our derivative instruments that are required to be measured at fair value on a recurring basis as of SeptemberJune 30, 20182019 and December 31, 2017,2018, which are classified as derivative assets, non-current derivative assets, derivative liabilities or non-current derivative liabilities in our Consolidated Balance Sheets (in millions).:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of |
| June 30, 2019 | | December 31, 2018 |
| 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 |
CCH Interest Rate Derivatives asset (liability) | $ | — |
| | $ | (88 | ) | | $ | — |
| | $ | (88 | ) | | $ | — |
| | $ | 18 |
| | $ | — |
| | $ | 18 |
|
CCH Interest Rate Forward Start Derivatives liability | — |
| | (7 | ) | | — |
| | (7 | ) | | — |
| | — |
| | — |
| | — |
|
Liquefaction Supply Derivatives asset (liability) | — |
| | 1 |
| | 89 |
| | 90 |
| | 6 |
| | (19 | ) | | (29 | ) | | (42 | ) |
LNG Trading Derivatives asset (liability) | (4 | ) | | 51 |
| | — |
| | 47 |
| | 1 |
| | (25 | ) | | — |
| | (24 | ) |
FX Derivatives asset | — |
| | 10 |
| | — |
| | 10 |
| | — |
| | 15 |
| | — |
| | 15 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of |
| September 30, 2018 | | December 31, 2017 |
| 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 |
CQP Interest Rate Derivatives asset | $ | — |
| | $ | 28 |
| | $ | — |
| | $ | 28 |
| | $ | — |
| | $ | 21 |
| | $ | — |
| | $ | 21 |
|
CCH Interest Rate Derivatives asset (liability) | — |
| | 94 |
| | — |
| | 94 |
| | — |
| | (32 | ) | | — |
| | (32 | ) |
Liquefaction Supply Derivatives asset (liability) | (1 | ) | | 4 |
| | 26 |
| | 29 |
| | 2 |
| | 10 |
| | 43 |
| | 55 |
|
LNG Trading Derivatives asset (liability) | (19 | ) | | (71 | ) | | — |
| | (90 | ) | | (13 | ) | | 5 |
| | — |
| | (8 | ) |
FX Derivatives asset (liability) | — |
| | 11 |
| | — |
| | 11 |
| | — |
| | (1 | ) | | — |
| | (1 | ) |
There have been no changes to our evaluation of and accounting for our derivative positions during the nine months ended September 30, 2018. 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, 2017 for additional information.
We value our CCH Interest Rate Derivatives and CCH Interest Rate Forward Start Derivatives using an income-based approach utilizing observable inputs to the valuation model including interest rate curves, risk adjusted discount rates, credit spreads and other relevant data. We value our LNG Trading Derivatives and our Liquefaction Supply Derivatives using a market basedor option-based approach incorporating present value techniques, as needed, using observable commodity price curves, when available, and other relevant data. We value our FX Derivatives with a market approach using observable FX rates and other relevant data.
The fair value of our Physical Liquefaction Supply Derivatives is predominantly driven by observable and unobservable market commodity basis prices and, as applicable to our natural gas supply contracts, our assessment of the associated conditions precedent, including evaluating whether the respective market is available as pipeline infrastructure is developed. UponThe fair value of our Physical Liquefaction Supply Derivatives incorporates risk premiums related to the satisfaction of conditions precedent, includingsuch as completion and placement into service of relevant pipeline infrastructure to accommodate marketable physical gas flow, we recognize a gain or loss based onflow. As of June 30, 2019 and December 31, 2018, some of our Physical Liquefaction Supply Derivatives existed within markets for which the fair value of the respective naturalpipeline infrastructure was under development to accommodate marketable physical gas supply contracts.flow.
We include a portion of our Physical Liquefaction Supply Derivatives as Level 3 within the valuation hierarchy as the fair value is developed through the use of internal models which may be impacted by inputsincorporate significant unobservable inputs. In instances where observable data is unavailable, consideration is given to the assumptions that aremarket participants would use in valuing the asset or liability. This includes assumptions about market risks, such as future prices of energy units for unobservable in the marketplace. The curves used to generate theperiods, liquidity, volatility and contract duration. In determining and recording fair value, of our Physical Liquefaction Supply Derivatives arewe do not use third party sources that derive price based on basis adjustments applied to forward curves for a liquid trading point. In addition, there may be observable liquidproprietary models or market basis information in the near term, but terms of a 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. As of September 30, 2018 and December 31, 2017, some of our Physical Liquefaction Supply Derivatives existed within markets for which the pipeline infrastructure is under development to accommodate marketable physical gas flow.surveys.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The Level 3 fair value measurements of natural gas positions within our Physical Liquefaction Supply Derivatives could be materially impacted by a significant change in certain natural gas market basis spreads due to the contractual notional amount represented by our Level 3 positions, which is a substantial portion of our overall Physical Liquefaction Supply Derivatives portfolio.and international LNG prices. The following table includes quantitative information for the unobservable inputs for our Level 3 Physical Liquefaction Supply Derivatives as of SeptemberJune 30, 2018:2019:
|
| | | | | | | | |
| | Net Fair Value Asset (Liability) (in millions) | | Valuation Approach | | Significant Unobservable Input | | Significant Unobservable Inputs Range |
Physical Liquefaction Supply Derivatives | | $2689 | | Market approach incorporating present value techniques | | Henry Hub Basis Spread | | $(0.748)(0.700) - $0.079$0.056 |
| | | | Option pricing model | | International pricing spread, relative to Henry Hub (1) | | 128% - 176% |
(1) Spread contemplates U.S. dollar-denominated pricing.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Increases or decreases in basis or pricing spreads, in isolation, would decrease or increase, respectively, the fair value of our Physical Liquefaction Supply Derivatives.
The following table shows the changes in the fair value of our Level 3 Physical Liquefaction Supply Derivatives during the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 (in millions):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Balance, beginning of period | | $ | 31 |
| | $ | 10 |
| | $ | (29 | ) | | $ | 43 |
|
Realized and mark-to-market gains (losses): | | | | | | | | |
Included in cost of sales | | 7 |
| | (1 | ) | | 23 |
| | (12 | ) |
Purchases and settlements: | | | | | | | | |
Purchases | | 50 |
| | 6 |
| | 50 |
| | 6 |
|
Settlements | | 1 |
| | (4 | ) | | 45 |
| | (25 | ) |
Transfers out of Level 3 (1) | | — |
| | 1 |
| | — |
| | — |
|
Balance, end of period | | $ | 89 |
| | $ | 12 |
| | $ | 89 |
| | $ | 12 |
|
Change in unrealized gains (losses) relating to instruments still held at end of period | | $ | 7 |
| | $ | (1 | ) | | $ | 23 |
| | $ | (12 | ) |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
Balance, beginning of period | | $ | 12 |
| | $ | 40 |
| | $ | 43 |
| | $ | 79 |
|
Realized and mark-to-market gains (losses): | | | | | | | | |
Included in cost of sales | | 5 |
| | (8 | ) | | (4 | ) | | (43 | ) |
Purchases and settlements: | | | | | | | | |
Purchases | | 9 |
| | (1 | ) | | 14 |
| | 1 |
|
Settlements | | 1 |
| | (2 | ) | | (27 | ) | | (8 | ) |
Transfers out of Level 3 (1) | | (1 | ) | | — |
| | — |
| | — |
|
Balance, end of period | | $ | 26 |
| | $ | 29 |
| | $ | 26 |
| | $ | 29 |
|
Change in unrealized gains relating to instruments still held at end of period | | $ | 5 |
| | $ | (8 | ) | | $ | (4 | ) | | $ | (43 | ) |
(1) Transferred to Level 2 as a result of observable market for the underlying natural gas purchase agreements.
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 unconditional right of set-off in the event of default. 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. Additionally, counterparties are at risk that we evaluate our own abilitywill be unable to meet our commitments in instances where our derivative instruments are in a liability position. OurWe incorporate both our own nonperformance risk and the respective counterparty’s nonperformance risk in fair value measurements. In adjusting the fair value of our derivative instruments are subject to contractual provisions which providecontracts for the unconditional righteffect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, set-off for all derivative assetsrights and liabilities with a given counterparty in the event of default.guarantees.
Interest Rate Derivatives
Cheniere Partners had entered into interest rate swaps (“CQP Interest Rate Derivatives”) to hedge a portion ofDuring the variable interest payments on its CQP Credit Facilities, based on a portion of the expected outstanding borrowings over the term of the CQP Credit Facilities. In September 2018, Cheniere Partners terminated approximately $1.2 billion of commitments under the CQP Credit Facilities, as discussed in Note 10—Debt. In October 2018, Cheniere Partners terminated the CQP Interest Rate Derivatives relatedsix months ended June 30, 2019, there were no changes to the CQP Credit Facilities, which resulted in a derivative gain of $28 million.
CCH has entered into interest rate swaps (“CCH Interest Rate Derivatives”) to hedge a portion of the variable interest payments on its credit facility (the “CCH Credit Facility”). In June 2018, CCH settled a portionterms of the CCH Interest Rate Derivatives and recognized a derivative gain of $5 million upon the termination of interest rate swaps associated with the amendment of the CCH Credit Facility, as discussed in Note 10—Debt. In 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 CCH Credit Facility.
SPL had entered into interest rate swaps (“SPL Interest Rate Derivatives”)by CCH to protect against volatility of future cash flows and hedge a portion of the variable interest payments on theits credit facilities itfacility (the “CCH Credit Facility”).
In June 2019, we entered into the CCH Interest Rate Forward Start Derivatives to hedge against changes in June 2015 (the “SPL Credit Facilities”interest rates that could impact anticipated future issuance of debt by CCH, which is anticipated by the end of 2020.
Cheniere Partners previously had interest rate swaps (“CQP Interest Rate Derivatives” and, collectively with the CCH Interest Rate Derivatives and the CCH Interest Rate Forward Start Derivatives, the “Interest Rate Derivatives”), based on to hedge a portion of the expected outstanding borrowings over the term of the SPL Credit Facilities. In March 2017, SPL settled the SPL Interest Rate Derivatives and recognized a derivative loss of $7 millionvariable interest payments on its credit facilities, which were terminated in conjunction with the termination of approximately $1.6 billion of commitments under the SPL Credit Facilities.October 2018.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
As of SeptemberJune 30, 2018,2019, 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 |
CQP Interest Rate Derivatives | | $225 million | | $1.3 billion | | March 22, 2016 | | February 29, 2020 | | 1.19% | | One-month LIBOR |
CCH Interest Rate Derivatives | | $29 million | | $4.7 billion | | May 20, 2015 | | May 31, 2022 | | 2.30% | | One-month LIBOR |
CCH Interest Rate Forward Start Derivatives | | $1.0 billion | | $1.0 billion | | June 30, 2020 | | September 30, 2030 | | 2.11% | | Three-month LIBOR |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table shows the fair value and location of ourthe Interest Rate Derivatives on our Consolidated Balance Sheets (in millions):
| | | | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
| | CQP Interest Rate Derivatives | | CCH Interest Rate Derivatives | | Total | | CQP Interest Rate Derivatives | | CCH Interest Rate Derivatives | | Total | CCH Interest Rate Derivatives | | CCH Interest Rate Forward Start Derivatives | | Total | | CCH Interest Rate Derivatives | | CCH Interest Rate Forward Start Derivatives | | Total |
Consolidated Balance Sheet Location | | | | | | | | | | | | | | | | | | | | | | | |
Derivative assets | | $ | 19 |
| | $ | 13 |
| | $ | 32 |
| | $ | 7 |
| | $ | — |
| | $ | 7 |
| $ | — |
| | $ | — |
| | $ | — |
| | $ | 10 |
| | $ | — |
| | $ | 10 |
|
Non-current derivative assets | | 9 |
| | 81 |
| | 90 |
| | 14 |
| | 3 |
| | 17 |
| — |
| | — |
| | — |
| | 8 |
| | — |
| | 8 |
|
Total derivative assets | | 28 |
| | 94 |
| | 122 |
| | 21 |
| | 3 |
| | 24 |
| — |
|
| — |
|
| — |
|
| 18 |
|
| — |
|
| 18 |
|
| | | | | | | | | | | | | | | | |
|
| | | | | |
|
|
Derivative liabilities | | — |
| | — |
| | — |
| | — |
| | (20 | ) | | (20 | ) | (21 | ) | | — |
| | (21 | ) | | — |
| | — |
| | — |
|
Non-current derivative liabilities | | — |
| | — |
| | — |
| | — |
| | (15 | ) | | (15 | ) | (67 | ) | | (7 | ) | | (74 | ) | | — |
| | — |
| | — |
|
Total derivative liabilities | | — |
| | — |
| | — |
| | — |
| | (35 | ) | | (35 | ) | (88 | ) |
| (7 | ) |
| (95 | ) |
| — |
|
| — |
|
| — |
|
| | | | | | | | | | | | | | | | |
|
| | | | | |
|
|
Derivative asset (liability), net | | $ | 28 |
| | $ | 94 |
| | $ | 122 |
| | $ | 21 |
| | $ | (32 | ) | | $ | (11 | ) | $ | (88 | ) |
| $ | (7 | ) |
| $ | (95 | ) |
| $ | 18 |
|
| $ | — |
|
| $ | 18 |
|
The following table 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 ninesix months ended SeptemberJune 30, 20182019 and 20172018 (in millions):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
CCH Interest Rate Derivatives gain (loss) | | $ | (67 | ) | | $ | 29 |
| | $ | (102 | ) | | $ | 98 |
|
CCH Interest Rate Forward Start Derivatives loss | | (7 | ) | | — |
| | (7 | ) | | — |
|
CQP Interest Rate Derivatives gain | | — |
| | 3 |
| | — |
| | 11 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
CQP Interest Rate Derivatives gain | | $ | 2 |
| | $ | 1 |
| | $ | 13 |
| | $ | — |
|
CCH Interest Rate Derivatives gain (loss) | | 21 |
| | (3 | ) | | 119 |
| | (35 | ) |
SPL Interest Rate Derivatives loss | | — |
| | — |
| | — |
| | (2 | ) |
Commodity Derivatives
SPL, CCL and CCL Stage III have 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, and the CCL Project.Project and potential future development of Corpus Christi Stage 3, respectively, which are primarily indexed to the natural gas market and international LNG indices. The terms of the index-based physical natural gas supply contracts range up to eightapproximately 15 years, some of which commence upon the satisfaction of certain conditions precedent.
We have entered into, and may from time to time enter into, financial LNG Trading 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 LNG purchase and sale transactions.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table shows the fair value and location of our Liquefaction Supply Derivatives and LNG Trading Derivatives (collectively, “Commodity Derivatives”) on our Consolidated Balance Sheets (in millions, except notional amount):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| Liquefaction Supply Derivatives (1) | | LNG Trading Derivatives (2) | | Total | | Liquefaction Supply Derivatives (1) | | LNG Trading Derivatives (2) | | Total |
Consolidated Balance Sheet Location | | | | | | | | | | | |
Derivative assets | $ | 24 |
| | $ | 92 |
| | $ | 116 |
| | $ | 13 |
| | $ | 24 |
| | $ | 37 |
|
Non-current derivative assets | 94 |
| | 9 |
| | 103 |
| | 46 |
| | — |
| | 46 |
|
Total derivative assets | 118 |
| | 101 |
| | 219 |
| | 59 |
| | 24 |
| | 83 |
|
| | | | | | | | | | | |
Derivative liabilities | (13 | ) | | (50 | ) | | (63 | ) | | (79 | ) | | (48 | ) | | (127 | ) |
Non-current derivative liabilities | (15 | ) | | (4 | ) | | (19 | ) | | (22 | ) | | — |
| | (22 | ) |
Total derivative liabilities | (28 | ) | | (54 | ) | | (82 | ) | | (101 | ) | | (48 | ) | | (149 | ) |
| | | | | | | | | | | |
Derivative asset (liability), net | $ | 90 |
| | $ | 47 |
| | $ | 137 |
| | $ | (42 | ) | | $ | (24 | ) | | $ | (66 | ) |
| | | | | | | | | | | |
Notional amount, net (in TBtu) (3) | 6,781 |
| | 50 |
| | | | 5,832 |
| | 12 |
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2018 | | December 31, 2017 |
| Liquefaction Supply Derivatives (1) | | LNG Trading Derivatives (2) | | Total | | Liquefaction Supply Derivatives (1) | | LNG Trading Derivatives (2) | | Total |
Consolidated Balance Sheet Location | | | | | | | | | | | |
Derivative assets | $ | 13 |
| | $ | 7 |
| | $ | 20 |
| | $ | 41 |
| | $ | 9 |
| | $ | 50 |
|
Non-current derivative assets | 27 |
| | 4 |
| | 31 |
| | 17 |
| | — |
| | 17 |
|
Total derivative assets | 40 |
| | 11 |
| | 51 |
| | 58 |
| | 9 |
| | 67 |
|
| | | | | | | | | | | |
Derivative liabilities | (6 | ) | | (90 | ) | | (96 | ) | | — |
| | (17 | ) | | (17 | ) |
Non-current derivative liabilities | (5 | ) | | (11 | ) | | (16 | ) | | (3 | ) | | — |
| | (3 | ) |
Total derivative liabilities | (11 | ) | | (101 | ) | | (112 | ) | | (3 | ) | | (17 | ) | | (20 | ) |
| | | | | | | | | | | |
Derivative asset (liability), net | $ | 29 |
| | $ | (90 | ) | | $ | (61 | ) | | $ | 55 |
| | $ | (8 | ) | | $ | 47 |
|
| | | | | | | | | | | |
Notional amount, net (in TBtu) (3) | 4,769 |
| | 20 |
| | | | 2,539 |
| | 25 |
| | |
| |
(1) | Does not include collateral calls of $3$6 million and $1$5 million for such contracts, which are included in other current assets in our Consolidated Balance Sheets as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. Includes derivative assets of $2 million and $2 million and non-current assets of $1 million and $3 million as of June 30, 2019 and December 31, 2018, respectively, for a natural gas supply contract CCL has with a related party. |
| |
(2) | Does not include collateral of $58$15 million and $28$9 million deposited for such contracts, which are included in other current assets in our Consolidated Balance Sheets as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. |
| |
(3) | SPL had secured up to approximately 2,7553,437 TBtu and 2,2143,464 TBtu as of June 30, 2019 and December 31, 2018, respectively. CCL had secured up to approximately 2,6402,787 TBtu and 2,0242,801 TBtu of natural gas feedstock through natural gas supply contracts as of SeptemberJune 30, 20182019 and December 31, 2017, respectively.2018, respectively, of which 57 TBtu and 55 TBtu, respectively, were for a natural gas supply contract CCL has with a related party. Corpus Christi Stage 3 had secured up to approximately 754 TBtu of natural gas feedstock through natural gas supply contracts as of June 30, 2019. |
The following table 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 ninesix months ended SeptemberJune 30, 20182019 and 20172018 (in millions):
| | | Consolidated Statements of Operations Location (1) | | Three Months Ended September 30, | | Nine Months Ended September 30, | Consolidated Statements of Operations Location (1) | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
LNG Trading Derivatives gain (loss) | | LNG revenues | | $ | 94 |
| | $ | (76 | ) | | $ | 158 |
| | $ | (70 | ) |
LNG Trading Derivatives loss | LNG revenues | | $ | (58 | ) | | $ | (16 | ) | | $ | (128 | ) | | $ | (20 | ) | Cost of sales | | (51 | ) | | — |
| | (51 | ) | | — |
|
Liquefaction Supply Derivatives gain (loss) (2) | Cost of sales | | 21 |
| | (11 | ) | | (32 | ) | | (51 | ) | LNG revenues | | (1 | ) | | — |
| | 1 |
| | — |
|
Liquefaction Supply Derivatives gain (loss) (2)(3) | | Cost of sales | | 57 |
| | (3 | ) | | 139 |
| | (53 | ) |
| |
(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. |
| |
(3) | Includes $24 million and $36 million that CCL recorded in cost of sales under a natural gas supply contract with a related party during the three and six months ended June 30, 2019, respectively. Of this amount, $4 million was included in accrued liabilities as of June 30, 2019. CCL did not have any transactions during the three and six months ended June 30, 2018 under this contract. |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
FX Derivatives
The following table shows the fair value and location of our FX Derivatives on our Consolidated Balance Sheets (in millions):
|
| | | | | | | | | |
| | | Fair Value Measurements as of |
| Consolidated Balance Sheet Location | | June 30, 2019 | | December 31, 2018 |
FX Derivatives | Derivative assets | | $ | 11 |
| | $ | 16 |
|
FX Derivatives | Derivative liabilities | | — |
| | (1 | ) |
FX Derivatives | Non-current derivative liabilities | | (1 | ) | | — |
|
|
| | | | | | | | | |
| | | Fair Value Measurements as of |
| Consolidated Balance Sheet Location | | September 30, 2018 | | December 31, 2017 |
FX Derivatives | Derivative assets | | $ | 11 |
| | $ | — |
|
FX Derivatives | Non-current derivative liabilities | | — |
| | (1 | ) |
The total notional amount of our FX Derivatives was $227$942 million and $27$379 million as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table shows the changes in the fair value, settlements and location of our FX Derivatives recorded in LNG revenues on our Consolidated Statements of Operations during the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 (in millions):
|
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| Consolidated Statements of Operations Location | | 2019 | | 2018 | | 2019 | | 2018 |
FX Derivatives gain | LNG revenues | | $ | — |
| | $ | 12 |
| | $ | 9 |
| | $ | 10 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
FX Derivatives gain | | $ | 1 |
| | $ | — |
| | $ | 11 |
| | $ | — |
|
Consolidated Balance Sheet Presentation
Our derivative instruments are presented on a net basis on our Consolidated Balance Sheets as described above. The following table shows the fair value of our derivatives outstanding on a gross and net basis (in millions):
|
| | | | | | | | | | | | |
| | 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 June 30, 2019 | | | | | | |
CCH Interest Rate Derivatives | | $ | (88 | ) | | $ | — |
| | $ | (88 | ) |
CCH Interest Rate Forward Start Derivatives | | (7 | ) | | — |
| | (7 | ) |
Liquefaction Supply Derivatives | | 121 |
| | (3 | ) | | 118 |
|
Liquefaction Supply Derivatives | | (35 | ) | | 7 |
| | (28 | ) |
LNG Trading Derivatives | | 109 |
| | (8 | ) | | 101 |
|
LNG Trading Derivatives | | (62 | ) | | 8 |
| | (54 | ) |
FX Derivatives | | 21 |
| | (10 | ) | | 11 |
|
FX Derivatives | | (11 | ) | | 10 |
| | (1 | ) |
As of December 31, 2018 | | | | | |
|
|
CCH Interest Rate Derivatives | | $ | 19 |
| | $ | (1 | ) | | $ | 18 |
|
Liquefaction Supply Derivatives | | 95 |
| | (36 | ) | | 59 |
|
Liquefaction Supply Derivatives | | (121 | ) | | 20 |
| | (101 | ) |
LNG Trading Derivatives | | 112 |
| | (88 | ) | | 24 |
|
LNG Trading Derivatives | | (92 | ) | | 44 |
| | (48 | ) |
FX Derivatives | | 30 |
| | (14 | ) | | 16 |
|
FX Derivatives | | (2 | ) | | 1 |
| | (1 | ) |
|
| | | | | | | | | | | | |
| | 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, 2018 | | | | | | |
CQP Interest Rate Derivatives | | $ | 28 |
| | $ | — |
| | $ | 28 |
|
CCH Interest Rate Derivatives | | 94 |
| | — |
| | 94 |
|
Liquefaction Supply Derivatives | | 46 |
| | (6 | ) | | 40 |
|
Liquefaction Supply Derivatives | | (22 | ) | | 11 |
| | (11 | ) |
LNG Trading Derivatives | | 50 |
| | (39 | ) | | 11 |
|
LNG Trading Derivatives | | (154 | ) | | 53 |
| | (101 | ) |
FX Derivatives | | 21 |
| | (10 | ) | | 11 |
|
As of December 31, 2017 | | | | | |
|
|
CQP Interest Rate Derivatives | | $ | 21 |
| | $ | — |
| | $ | 21 |
|
CCH Interest Rate Derivatives | | 3 |
| | — |
| | 3 |
|
CCH Interest Rate Derivatives | | (35 | ) | | — |
| | (35 | ) |
Liquefaction Supply Derivatives | | 64 |
| | (6 | ) | | 58 |
|
Liquefaction Supply Derivatives | | (3 | ) | | — |
| | (3 | ) |
LNG Trading Derivatives | | 9 |
| | — |
| | 9 |
|
LNG Trading Derivatives | | (37 | ) | | 20 |
| | (17 | ) |
FX Derivatives | | (1 | ) | | — |
| | (1 | ) |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 7—OTHER NON-CURRENT ASSETS
As of SeptemberJune 30, 20182019 and December 31, 2017,2018, other non-current assets, net consisted of the following (in millions):
|
| | | | | | | | |
| | June 30, | | December 31, |
| | 2019 | | 2018 |
Advances made to municipalities for water system enhancements | | $ | 89 |
| | $ | 90 |
|
Advances and other asset conveyances to third parties to support LNG terminals | | 55 |
| | 54 |
|
Tax-related payments and receivables | | 21 |
| | 21 |
|
Equity method investments | | 124 |
| | 94 |
|
Advances made under EPC and non-EPC contracts | | 11 |
| | 14 |
|
Other | | 37 |
| | 32 |
|
Total other non-current assets, net | | $ | 337 |
| | $ | 305 |
|
|
| | | | | | | | |
| | September 30, | | December 31, |
| | 2018 | | 2017 |
Advances made under EPC and non-EPC contracts | | $ | 15 |
| | $ | 26 |
|
Advances made to municipalities for water system enhancements | | 90 |
| | 97 |
|
Advances and other asset conveyances to third parties to support LNG terminals | | 48 |
| | 48 |
|
Tax-related payments and receivables | | 21 |
| | 29 |
|
Equity method investments | | 92 |
| | 64 |
|
Other | | 29 |
| | 24 |
|
Total other non-current assets, net | | $ | 295 |
| | $ | 288 |
|
Equity Method Investments
Our equity method investments consist of interests in privately-held companies. In 2017, we acquired an equity interest in Midship Holdings, 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 ofcurrently constructing an approximately 200-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 terms and conditions contained in the applicable agreements. The EIG Investment, when combined with
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
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. Construction of the Midship Project will commence based upon, among other things,commenced in the first quarter of 2019.
Subsequent to Midship Project obtaining its financing in the required authorization from the FERC and adequate financing to construct the proposed project.
We have determined thatform of credit facilities, in conjunction with existing equity, Midship Holdings is able to finance its current activities without additional subordinated financial support. As a variable interest entity (“VIE”) because it is thinly capitalized at formation such thatresult of the total equity investment at risk is notbeing sufficient to permit the entity to finance its activities, without additional subordinated financial support. We do not consolidate Midship Holdings because we do not have poweris no longer a variable interest entity. We continue 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 inreport Midship Holdings under theas an equity method as we have theinvestment due to our 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 was $84$117 million and $55$85 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. Our obligations to make additional investments in Midship Holdings are not significant.
Cheniere LNG 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 $4$3 million and $1 million in each of the three months ended SeptemberJune 30, 2019 and 2018 and 2017,$7 million and $4 million in the six months ended June 30, 2019 and 2018, respectively, and $8 millionof other revenues and $2 million in the nine months ended September 30, 2018 and 2017, respectively, of revenues in other—related party and $3 million and $2$4 million of accounts receivable—related partyreceivable as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively, for services provided to Midship Pipeline under these agreements. CCL has entered into a transportation precedent agreement and a negotiated rate agreement with Midship Pipeline to secure firm pipeline transportation capacity for a period of 10 years following commencement of the Midship Project. In May 2018, CCL issued a letter of credit to Midship Pipeline for drawings up to an aggregate maximum amount of $16 million. Midship Pipeline had not made any drawings on this letter of credit as of SeptemberJune 30, 2018.2019.
NOTE 8—NON-CONTROLLING INTEREST
During the three and nine months ended September 30, 2018, we acquired 8.1% and 17.3%, respectively, of additional interest in Cheniere Holdings previously held by the public, and closed the previously announced merger of Cheniere Holdings with and into our wholly owned subsidiary. As a result of the merger, all of the publicly-held shares of Cheniere Holdings not owned by us were canceled and shareholders other than Cheniere received shares of our common stock in a stock-for-share exchange. As of December 31, 2017, we owned 82.7% of Cheniere Holdings. Because the transactions represented a combination of ownership interests under common control, changes in Cheniere’s ownership interest in Cheniere Holdings were accounted for as an equity transaction and no gain or loss was recognized.
We own 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 and the public. We also own 100% of the general partner interest and the incentive distribution rights in Cheniere Partners. Cheniere Partners is accounted for as a variable interest entity. See Note 9—10—Variable Interest Entities of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended December 31, 20172018 for further information.
NOTE 9—ACCRUED LIABILITIES
As of September 30, 2018 and December 31, 2017, accrued liabilities consisted of the following (in millions):
|
| | | | | | | | |
| | September 30, | | December 31, |
| | 2018 | | 2017 |
Interest costs and related debt fees | | $ | 252 |
| | $ | 397 |
|
Accrued natural gas purchases | | 251 |
| | 298 |
|
LNG terminals and related pipeline costs | | 228 |
| | 192 |
|
Compensation and benefits | | 113 |
| | 141 |
|
Accrued LNG inventory | | 76 |
| | 1 |
|
Other accrued liabilities | | 67 |
| | 49 |
|
Total accrued liabilities | | $ | 987 |
| | $ | 1,078 |
|
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 10—DEBT9—ACCRUED LIABILITIES
As of SeptemberJune 30, 20182019 and December 31, 2017, our debt2018, accrued liabilities consisted of the following (in millions):
|
| | | | | | | | |
| | June 30, | | December 31, |
| | 2019 | | 2018 |
Interest costs and related debt fees | | $ | 405 |
| | $ | 233 |
|
Accrued natural gas purchases | | 402 |
| | 610 |
|
LNG terminals and related pipeline costs | | 630 |
| | 125 |
|
Compensation and benefits | | 58 |
| | 117 |
|
Accrued LNG inventory | | 3 |
| | 14 |
|
Other accrued liabilities | | 74 |
| | 70 |
|
Total accrued liabilities | | $ | 1,572 |
| | $ | 1,169 |
|
|
| | | | | | | | |
| | September 30, | | December 31, |
| | 2018 | | 2017 |
Long-term debt: | | | | |
SPL | | | |
|
|
5.625% Senior Secured Notes due 2021 (“2021 SPL Senior Notes”) | | $ | 2,000 |
| | $ | 2,000 |
|
6.25% Senior Secured Notes due 2022 (“2022 SPL Senior Notes”) | | 1,000 |
| | 1,000 |
|
5.625% Senior Secured Notes due 2023 (“2023 SPL Senior Notes”) | | 1,500 |
| | 1,500 |
|
5.75% Senior Secured Notes due 2024 (“2024 SPL Senior Notes”) | | 2,000 |
| | 2,000 |
|
5.625% Senior Secured Notes due 2025 (“2025 SPL Senior Notes”) | | 2,000 |
| | 2,000 |
|
5.875% Senior Secured Notes due 2026 (“2026 SPL Senior Notes”) | | 1,500 |
| | 1,500 |
|
5.00% Senior Secured Notes due 2027 (“2027 SPL Senior Notes”) | | 1,500 |
| | 1,500 |
|
4.200% Senior Secured Notes due 2028 (“2028 SPL Senior Notes”) | | 1,350 |
| | 1,350 |
|
5.00% Senior Secured Notes due 2037 (“2037 SPL Senior Notes”) | | 800 |
| | 800 |
|
Cheniere Partners | | | | |
5.250% Senior Notes due 2025 (“2025 CQP Senior Notes”) | | 1,500 |
| | 1,500 |
|
5.625% Senior Notes due 2026 (“2026 CQP Senior Notes”) | | 1,100 |
| | — |
|
CQP Credit Facilities | | — |
| | 1,090 |
|
CCH | | | | |
7.000% Senior Secured Notes due 2024 (“2024 CCH Senior Notes”) | | 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 |
| | 1,500 |
|
CCH Credit Facility | | 4,492 |
| | 2,485 |
|
CCH HoldCo II | | | | |
11.0% Convertible Senior Notes due 2025 (“2025 CCH HoldCo II Convertible Senior Notes”) | | 1,416 |
| | 1,305 |
|
Cheniere | | | | |
4.875% Convertible Unsecured Notes due 2021 (“2021 Cheniere Convertible Unsecured Notes”) | | 1,189 |
| | 1,161 |
|
4.25% Convertible Senior Notes due 2045 (“2045 Cheniere Convertible Senior Notes”) | | 625 |
| | 625 |
|
$750 million Cheniere Revolving Credit Facility (“Cheniere Revolving Credit Facility”) | | — |
| | — |
|
Unamortized premium, discount and debt issuance costs, net | | (784 | ) | | (730 | ) |
Total long-term debt, net | | 27,438 |
| | 25,336 |
|
| | | | |
Current debt: | | | | |
$1.2 billion SPL Working Capital Facility (“SPL Working Capital Facility”) | | — |
| | — |
|
$1.2 billion CCH Working Capital Facility (“CCH Working Capital Facility”) | | — |
| | — |
|
Cheniere Marketing trade finance facilities | | 66 |
| | — |
|
Total current debt | | 66 |
| | — |
|
| | | | |
Total debt, net | | $ | 27,504 |
| | $ | 25,336 |
|
2018 Debt Issuances and Redemptions
2026 CQP Senior Notes
In September 2018, Cheniere Partners issued an aggregate principal amount of $1.1 billion of the 2026 CQP Senior Notes, which are jointly and severally guaranteed by each of Cheniere Partners’ subsidiaries other than SPL (the “CQP Guarantors”) and, subject to certain conditions governing its guarantee, Sabine Pass LP. Net proceeds of the offering of approximately $1.1 billion, after deducting the initial purchasers’ commissions and estimated fees and expenses, were used to prepay all of the outstanding indebtedness under the CQP Credit Facilities, resulting in the recognition of debt modification and extinguishment costs of $12 million for the three and nine months ended September 30, 2018 relating to the incurrence of third party fees and write off of
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 10—DEBT
unamortized debt issuance costs.
As of SeptemberJune 30, 2019 and December 31, 2018, only a $115 million revolving credit facility, all of which is undrawn, remains as partour debt consisted of the following (in millions):
|
| | | | | | | | |
| | June 30, | | December 31, |
| | 2019 | | 2018 |
Long-term debt: | | | | |
SPL | | | |
|
|
5.625% Senior Secured Notes due 2021 (“2021 SPL Senior Notes”) | | $ | 2,000 |
| | $ | 2,000 |
|
6.25% Senior Secured Notes due 2022 (“2022 SPL Senior Notes”) | | 1,000 |
| | 1,000 |
|
5.625% Senior Secured Notes due 2023 (“2023 SPL Senior Notes”) | | 1,500 |
| | 1,500 |
|
5.75% Senior Secured Notes due 2024 (“2024 SPL Senior Notes”) | | 2,000 |
| | 2,000 |
|
5.625% Senior Secured Notes due 2025 (“2025 SPL Senior Notes”) | | 2,000 |
| | 2,000 |
|
5.875% Senior Secured Notes due 2026 (“2026 SPL Senior Notes”) | | 1,500 |
| | 1,500 |
|
5.00% Senior Secured Notes due 2027 (“2027 SPL Senior Notes”) | | 1,500 |
| | 1,500 |
|
4.200% Senior Secured Notes due 2028 (“2028 SPL Senior Notes”) | | 1,350 |
| | 1,350 |
|
5.00% Senior Secured Notes due 2037 (“2037 SPL Senior Notes”) | | 800 |
| | 800 |
|
Cheniere Partners | | | | |
5.250% Senior Notes due 2025 (“2025 CQP Senior Notes”) | | 1,500 |
| | 1,500 |
|
5.625% Senior Notes due 2026 (“2026 CQP Senior Notes”) | | 1,100 |
| | 1,100 |
|
2016 CQP Credit Facilities | | — |
| | — |
|
2019 CQP Credit Facilities | | 649 |
| | — |
|
CCH | | | | |
7.000% Senior Secured Notes due 2024 (“2024 CCH Senior Notes”) | | 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 |
| | 1,500 |
|
CCH Credit Facility | | 6,138 |
| | 5,156 |
|
CCH HoldCo II | | | | |
11.0% Convertible Senior Secured Notes due 2025 (“2025 CCH HoldCo II Convertible Senior Notes”) | | 1,536 |
| | 1,455 |
|
Cheniere | | | | |
4.875% Convertible Unsecured Notes due 2021 (“2021 Cheniere Convertible Unsecured Notes”) | | 1,248 |
| | 1,218 |
|
4.25% Convertible Senior Notes due 2045 (“2045 Cheniere Convertible Senior Notes”) | | 625 |
| | 625 |
|
$1.25 billion Cheniere Revolving Credit Facility (“Cheniere Revolving Credit Facility”) | | — |
| | — |
|
Unamortized premium, discount and debt issuance costs, net | | (752 | ) | | (775 | ) |
Total long-term debt, net | | 29,944 |
| | 28,179 |
|
| | | | |
Current debt: | | | | |
$1.2 billion SPL Working Capital Facility (“SPL Working Capital Facility”) | | — |
| | — |
|
$1.2 billion CCH Working Capital Facility (“CCH Working Capital Facility”) | | — |
| | 168 |
|
Cheniere Marketing trade finance facilities | | — |
| | 71 |
|
Total current debt | | — |
| | 239 |
|
| | | | |
Total debt, net | | $ | 29,944 |
| | $ | 28,418 |
|
2019 Debt Issuances and Terminations
2016 CQP Credit Facilities.Facilities
BorrowingsIn May 2019, the remaining commitments under the 2026 CQP Senior Notes accrue interest at a fixed rate of 5.625%, and interest on the 2026 CQP Senior Notes is payable semi-annually in arrears. The 2026 CQP Senior Notes are governed by the same base indenture as the 2025 CQP Senior Notes (the “CQP Base Indenture”), and are further governed by the Second Supplemental Indenture (together with the CQP Base Indenture, the “2026 CQP Notes Indenture”), which contains customary terms and events of default and certain covenants that, among other things, limit the ability of Cheniere Partners 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, 2021, Cheniere Partners may redeem all or a part of the 2026 CQP Senior Notes at a redemption price equal to 100% of the aggregate principal amount of the 2026 CQP Senior Notes redeemed, plus the “applicable premium” set forth in the 2026 CQP Notes Indenture, plus accrued and unpaid interest, if any, to the date of redemption. In addition, at any time prior to October 1, 2021, Cheniere Partners may redeem up to 35% of the aggregate principal amount of the 2026 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 105.625% of the aggregate principal amount of the 2026 CQP Senior Notes redeemed, plus accrued and unpaid interest, if any, to the date of redemption. At any time on or after October 1, 2021 through the maturity date of October 1, 2026, Cheniere Partners may redeem the 2026 CQP Senior Notes, in whole or in part, at the redemption prices set forth in the 2026 CQP Notes Indenture.
The 2026 CQP Senior Notes are Cheniere Partners’ senior obligations, ranking equally in right of payment with Cheniere Partners’ other existing and future unsubordinated debt and senior to any of its future subordinated debt. After applying the proceeds from the 2026 CQP Senior Notes, the 2026 CQP Senior Notes and the 2025 CQP Senior Notes (collectively, the “CQP Senior Notes”) became unsecured. In the event that the aggregate amount of Cheniere Partners’ secured indebtedness and the secured indebtedness of the CQP Guarantors (other than the CQP Senior Notes or any other series of notes issued under the CQP Base Indenture) outstanding at any one time exceeds the greater of (1) $1.5 billion and (2) 10% of net tangible assets, the CQP Senior Notes will be secured to the same extent as such obligations under the CQP Credit Facilities. The obligations under the2016 CQP Credit Facilities are secured on a first-priority basis (subject to permitted encumbrances)were terminated. There were no write-offs of debt issuance costs associated with liens on (1) substantially all the existing and future tangible and intangible assets and rightstermination of Cheniere Partners and the CQP Guarantors and equity interests in the CQP Guarantors (except, in each case, for certain excluded properties set forth in the2016 CQP Credit Facilities) and (2) substantially all of the real property of SPLNG (except for excluded properties referenced in the CQP Credit Facilities).Facilities.
In connection with the closing of the 2026 CQP Senior Notes offering, Cheniere Partners and the CQP Guarantors entered into a registration rights agreement (the “CQP Registration Rights Agreement”). Under the CQP Registration Rights Agreement, Cheniere Partners and the CQP Guarantors have agreed to file with the SEC and cause to become effective a registration statement relating to an offer to exchange any and all of the 2026 CQP Senior Notes for a like aggregate principal amount of debt securities of Cheniere Partners with terms identical in all material respects to the 2026 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 the notes issuance date of September 11, 2018. Under specified circumstances, Cheniere Partners and the CQP Guarantors have also agreed to cause to become effective a shelf registration statement relating to resales of the 2026 CQP Senior Notes. Cheniere Partners will be obligated to pay additional interest on the 2026 CQP Senior Notes if it fails to comply with its obligation to register the 2026 CQP Senior Notes within the specified time period.
CCH Credit Facility
In May 2018, CCH amended and restated the CCH Credit Facility to increase total commitments under the credit facility to $6.1 billion. Borrowings are used to fund a portion of the costs of developing, constructing and placing into service the three Trains and the related facilities of the CCL Project and for related business purposes.
The CCH Credit Facility matures on June 30, 2024, with principal payments due quarterly commencing on the earlier of (1) the first quarterly payment date occurring more than three calendar months following the completion of the CCL Project as defined in the common terms agreement and (2) a set date determined by reference to the date under which a certain LNG buyer linked to the last Train of the CCL Project to become operational 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,
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
2019 CQP Credit Facilities
commencing
In May 2019, Cheniere Partners entered into the first full quarter after$1.5 billion 2019 CQP Credit Facilities, which consist of a $750 million term loan (“CQP Term Facility”) and a $750 million revolving credit facility (“CQP Revolving Facility”). Borrowings under the completion2019 CQP Credit Facilities will be used to fund the development and construction of Trains 1 through 3Train 6 of the SPL Project and designedsubject to achieve a minimum projected fixed debt service coverage ratiosublimit, for general corporate purposes. The CQP Revolving Facility is also available for the issuance of 1.50:1.letters of credit.
Loans under the CCH2019 CQP Credit FacilityFacilities will accrue interest at a variable rate per annum equal to at CCH’s election, 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 the adjusted one-month LIBOR plus 1.0%), plus the applicable margin. TheUnder the CQP Term Facility, the applicable margin for LIBOR loans is 1.75%1.50% per annum, and the applicable margin for base rate loans is 0.75%.0.50% per annum, in each case with a 0.25% step-up beginning on May 29, 2022. Under the CQP Revolving Facility, the applicable margin for LIBOR loans is 1.25% to 2.125% per annum, and the applicable margin for base rate loans is 0.25% to 1.125% per annum, in each case depending on the then-current rating of Cheniere Partners. Interest on LIBOR loans is due and payable at the end of each applicable interestLIBOR 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. CCH was required to pay certain upfront fees to the agents and lenders under the CCH Credit Facility together with additional transaction fees and expenses in the aggregate amount of $53 million.
All other terms of the CCH Credit Facility substantially remained the same to those described in Note 12—Debt of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended December 31, 2017. The amendment and restatement of the CCH Credit Facility resulted in the recognition of $15Cheniere Partners incurred $20 million of debt modificationdiscounts and extinguishment costs during the nine months ended September 30, 2018 relating to the incurrence of third party fees and write off of unamortized debt issuance costs.
CCH Working Capital Facility
In June 2018, CCH amended and restatedcosts in conjunction with the CCH Working Capital Facility to increase total commitments underentry into the CCH Working Capital Facility to $1.2 billion. Borrowings will be used for certain working capital requirements related to developing and placing into operations the CCL Project and for related business purposes.
Loans under the CCH Working Capital Facility accrue interest at2019 CQP Credit Facilities. Cheniere Partners pays a variable rate per annumcommitment fee equal to LIBOR oran annual rate of 30% of the base rate plus the applicable margin. The applicable margin for LIBOR loans ranges from 1.25% to 1.75% per annum, andmultiplied by the applicable margin for base rateaverage daily amount of the undrawn commitment, payable quarterly in arrears.
The 2019 CQP Credit Facilities mature on May 29, 2024. The principal of any loans ranges from 0.25% to 0.75% per annum. CCH was required to pay certain upfront fees to the agents and lenders under the CCH Working Capital Facility together with additional transaction fees2019 CQP Credit Facilities must be repaid in quarterly installments commencing on May 29, 2023 based on an amortization schedule. Any outstanding balance may be repaid, in whole or in part, at any time without premium or penalty, except for interest hedging and expenses in the aggregate amountinterest rate breakage costs. The 2019 CQP Credit Facilities contain conditions precedent for extensions of $14 million.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 and one true-up per fiscal quarter as long as certain conditions are satisfied.
The CCH Working Capital Facility matures on June 29, 2023. All2019 CQP Credit Facilities are unconditionally guaranteed by each subsidiary of Cheniere Partners other termsthan SPL, Sabine Pass LNG-LP, LLC and certain subsidiaries of Cheniere Partners owning other development projects, as well as certain other specified subsidiaries and members of the CCH Working Capital Facility substantially remained the same to those described in Note 12—Debt of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended December 31, 2017.foregoing entities.
2025 CCH HoldCo II Convertible Senior Notes
In May 2018, the amended and restated note purchase agreement under which the 2025 CCH HoldCo II Convertible Senior Notes were issued was subsequently amended in connection with commercialization and financing of Train 3 of the CCL Project. All terms of the 2025 CCH HoldCo II Convertible Senior Notes substantially remained the same to those described in Note 12—Debt of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended December 31, 2017.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Credit Facilities
Below is a summary of our credit facilities outstanding as of SeptemberJune 30, 20182019 (in millions):
|
| | | | | | | | | | | | | | | | | | | | |
| | SPL Working Capital Facility (1) | | 2019 CQP Credit Facilities | | CCH Credit Facility | | CCH Working Capital Facility | | Cheniere Revolving Credit Facility |
Original facility size | | $ | 1,200 |
| | $ | 1,500 |
| | $ | 8,404 |
| | $ | 350 |
| | $ | 750 |
|
Incremental commitments | | — |
| | — |
| | 1,566 |
| | 850 |
| | 500 |
|
Less: | | | | | | | | | | |
Outstanding balance | | — |
| | 649 |
| | 6,138 |
| | — |
| | — |
|
Commitments prepaid or terminated | | — |
| | — |
| | 3,832 |
| | — |
| | — |
|
Letters of credit issued | | 415 |
| | — |
| | — |
| | 338 |
| | — |
|
Available commitment | | $ | 785 |
|
| $ | 851 |
| | $ | — |
|
| $ | 862 |
|
| $ | 1,250 |
|
| | | | | | | | | | |
Interest rate on outstanding balance | | LIBOR plus 1.75% or base rate plus 0.75% | | (2) | | LIBOR plus 1.75% or base rate plus 0.75% | | LIBOR plus 1.25% - 1.75% or base rate plus 0.25% - 0.75% | | LIBOR plus 1.75% - 2.50% or base rate plus 0.75% - 1.50% |
Weighted average interest rate of outstanding balance | | n/a | | 3.92% | | 4.15% | | n/a | | n/a |
Maturity date | | December 31, 2020 | | May 29, 2024 | | June 30, 2024 | | June 29, 2023 | | December 23, 2022 |
|
| | | | | | | | | | | | | | | | | | | | |
| | SPL Working Capital Facility | | CQP Credit Facilities | | CCH Credit Facility | | CCH Working Capital Facility | | Cheniere Revolving Credit Facility |
Original facility size | | $ | 1,200 |
| | $ | 2,800 |
| | $ | 8,404 |
| | $ | 350 |
| | $ | 750 |
|
Incremental commitments | | — |
| | — |
| | 1,566 |
| | 850 |
| | — |
|
Less: | | | | | | | | | | |
Outstanding balance | | — |
| | — |
| | 4,492 |
| | — |
| | — |
|
Commitments prepaid or terminated | | — |
| | 2,685 |
| | 3,832 |
| | — |
| | — |
|
Letters of credit issued | | 494 |
| | — |
| | — |
| | 316 |
| | — |
|
Available commitment |
| $ | 706 |
|
| $ | 115 |
|
| $ | 1,646 |
|
| $ | 884 |
|
| $ | 750 |
|
| | | | | | | | | | |
Interest rate | | LIBOR plus 1.75% or base rate plus 0.75% | | LIBOR plus 2.25% or base rate plus 1.25% (1) | | LIBOR plus 1.75% or base rate plus 0.75% | | LIBOR plus 1.25% - 1.75% or base rate plus 0.25% - 0.75% | | LIBOR plus 3.25% or base rate plus 2.25% |
Maturity date | | December 31, 2020, with various terms for underlying loans | | February 25, 2020 | | June 30, 2024 | | June 29, 2023 | | March 2, 2021 |
| |
(1) | There is a 0.50% step-up for both The SPL Working Capital Facility was amended in May 2019 in connection with commercialization and financing of Train 6 of the SPL Project. All terms of the SPL Working Capital Facility substantially remained unchanged. |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
| |
(2) | LIBOR andplus 1.50% or base rate loansplus 0.50%, with a 0.25% step-up beginning on February 25, 2019.May 29, 2022 for the CQP Term Facility. LIBOR plus 1.25% to 2.125% or base rate plus 0.25% to 1.125%, depending on the then-current rating of Cheniere Partners for the CQP Revolving Facility. |
Convertible Notes
Below is a summary of our convertible notes outstanding as of SeptemberJune 30, 20182019 (in millions):
| | | | 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 |
| | $ | 1,000 |
| | $ | 625 |
| | $ | 1,000 |
| | $ | 1,000 |
| | $ | 625 |
|
Debt component, net of discount and debt issuance costs | | $ | 1,090 |
| | $ | 1,390 |
| | $ | 310 |
| | $ | 1,172 |
| | $ | 1,519 |
| | $ | 311 |
|
Equity component | | $ | 207 |
| | $ | — |
| | $ | 194 |
| | $ | 210 |
| | $ | — |
| | $ | 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 |
| | May 13, 2025 |
| | March 15, 2045 |
| | May 28, 2021 |
| | May 13, 2025 |
| | March 15, 2045 |
|
Contractual interest rate | | 4.875 | % | | 11.0 | % | | 4.25 | % | | 4.875 | % | | 11.0 | % | | 4.25 | % |
Effective interest rate (8) | | 8.4 | % | | 11.9 | % | | 9.4 | % | | 8.4 | % | | 11.9 | % | | 9.4 | % |
Remaining debt discount and debt issuance costs amortization period (9) | | 2.7 years |
| | 2.0 years |
| | 26.5 years |
| | 1.9 years |
| | 1.3 years |
| | 25.7 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)
| |
(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. |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
| |
(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. |
Restrictive Debt Covenants
As of SeptemberJune 30, 2018,2019, each of our issuers was in compliance with all covenants related to their respective debt agreements.
Interest Expense
Total interest expense, including interest expense related to our convertible notes, consisted of the following (in millions):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Interest cost on convertible notes: | | | | | | | | |
Interest per contractual rate | | $ | 64 |
| | $ | 58 |
| | $ | 126 |
| | $ | 116 |
|
Amortization of debt discount | | 9 |
| | 8 |
| | 19 |
| | 16 |
|
Amortization of debt issuance costs | | 3 |
| | 2 |
| | 6 |
| | 4 |
|
Total interest cost related to convertible notes | | 76 |
| | 68 |
| | 151 |
| | 136 |
|
Interest cost on debt and finance leases excluding convertible notes | | 382 |
| | 344 |
| | 755 |
|
| 680 |
|
Total interest cost | | 458 |
| | 412 |
| | 906 |
| | 816 |
|
Capitalized interest | | (86 | ) | | (196 | ) | | (287 | ) | | (384 | ) |
Total interest expense, net | | $ | 372 |
|
| $ | 216 |
| | $ | 619 |
| | $ | 432 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
Interest cost on convertible notes: | | | | | | | | |
Interest per contractual rate | | $ | 60 |
| | $ | 55 |
| | $ | 176 |
| | $ | 162 |
|
Amortization of debt discount | | 9 |
| | 8 |
| | 25 |
| | 22 |
|
Amortization of debt issuance costs | | 3 |
| | 2 |
| | 7 |
| | 5 |
|
Total interest cost related to convertible notes | | 72 |
|
| 65 |
| | 208 |
| | 189 |
|
Interest cost on debt excluding convertible notes | | 354 |
|
| 324 |
| | 1,034 |
|
| 931 |
|
Total interest cost | | 426 |
| | 389 |
| | 1,242 |
| | 1,120 |
|
Capitalized interest | | (205 | ) | | (203 | ) | | (589 | ) | | (581 | ) |
Total interest expense, net | | $ | 221 |
|
| $ | 186 |
| | $ | 653 |
| | $ | 539 |
|
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Fair Value Disclosures
The following table shows the carrying amount, which is net of unamortized premium, discount and debt issuance costs, and estimated fair value of our debt (in millions):
| | | | September 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
| | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Senior notes (1) | | $ | 19,457 |
| | $ | 20,552 |
| | $ | 18,350 |
| | $ | 20,075 |
| | $ | 19,483 |
| | $ | 21,499 |
| | $ | 19,466 |
| | $ | 19,901 |
|
2037 SPL Senior Notes (2) | | 791 |
| | 831 |
| | 790 |
| | 871 |
| | 791 |
| | 912 |
| | 791 |
| | 817 |
|
Credit facilities (3) | | 4,466 |
| | 4,466 |
| | 3,574 |
| | 3,574 |
| | 6,668 |
| | 6,668 |
| | 5,294 |
| | 5,294 |
|
2021 Cheniere Convertible Unsecured Notes (2) | | 1,090 |
| | 1,267 |
| | 1,040 |
| | 1,136 |
| | 1,172 |
| | 1,302 |
| | 1,126 |
| | 1,236 |
|
2025 CCH HoldCo II Convertible Senior Notes (2) | | 1,390 |
| | 1,597 |
| | 1,273 |
| | 1,535 |
| | 1,519 |
| | 1,771 |
| | 1,432 |
| | 1,612 |
|
2045 Cheniere Convertible Senior Notes (4) | | 310 |
| | 497 |
| | 309 |
| | 447 |
| | 311 |
| | 489 |
| | 310 |
| | 431 |
|
| |
(1) | Includes 2021 SPL Senior Notes, 2022 SPL Senior Notes, 2023 SPL Senior Notes, 2024 SPL Senior Notes, 2025 SPL Senior Notes, 2026 SPL Senior Notes, 2027 SPL Senior Notes, 2028 SPL Senior Notes, 2025 CQP Senior Notes, 2026 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 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. |
| |
(3) | Includes SPL Working Capital Facility, 2016 CQP Credit Facilities, 2019 CQP Credit Facilities, 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. |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 11—LEASES
Our leased assets consist primarily of (1) LNG vessel time charters (“vessel charters”), (2) tug vessels, (3) office space and facilities and (4) land sites, all of which are classified as operating leases except for our tug vessels at the Corpus Christi LNG terminal, which are classified as finance leases.
ASC 842 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. As our leases generally do not provide an implicit rate, in order to calculate the lease liability, we discounted our expected future lease payments using our relevant subsidiary’s incremental borrowing rate at the later of January 1, 2019 or the commencement date of the lease. The incremental borrowing rate is an estimate of the rate of interest that a given subsidiary would have to pay to borrow on a collateralized basis over a similar term to that of the lease term.
Many of our leases contain renewal options exercisable at our sole discretion. Options to renew a lease are included in the lease term and recognized as part of the right-of-use asset and lease liability only to the extent they are reasonably certain to be exercised, such as when necessary to satisfy obligations that existed at the execution of the lease or when the non-renewal would otherwise result in an economic penalty.
We have elected the practical expedient to omit leases with an initial term of 12 months or less (“short-term lease”) from recognition on the balance sheet. We recognize short-term lease payments on a straight-line basis over the lease term and variable payments under short-term leases in the period in which the obligation is incurred.
Certain of our leases contain non-lease components which are not separated from the lease components when calculating the right-of-use asset and lease liability per our use of the practical expedient to combine both components of an arrangement for all classes of leased assets.
Certain of our leases also contain variable payments, such as inflation, that are not included when calculating the right-of-use asset and lease liability unless the payments are in-substance fixed.
We recognize lease expense for operating leases on a straight-line basis over the lease term. We recognize lease expense for finance leases as the sum of the amortization of the right-of-use assets on a straight-line basis and the interest on lease liabilities using the effective interest method over the lease term.
The following table shows the classification and location of our right-of-use assets and lease liabilities on our Consolidated Balance Sheets (in millions):
|
| | | | | |
| Consolidated Balance Sheet Location | | June 30, 2019 |
Right-of-use assets—Operating | Operating lease assets, net | | $ | 502 |
|
Right-of-use assets—Financing | Property, plant and equipment, net | | 58 |
|
Total right-of-use assets | | | $ | 560 |
|
| | | |
Current operating lease liabilities | Current operating lease liabilities | | $ | 292 |
|
Current finance lease liabilities | Other current liabilities | | 1 |
|
Non-current operating lease liabilities | Non-current operating lease liabilities | | 202 |
|
Non-current finance lease liabilities | Non-current finance lease liabilities | | 58 |
|
Total lease liabilities | | | $ | 553 |
|
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table shows the classification and location of our lease cost on our Consolidated Statements of Operations (in millions):
|
| | | | | | | | | |
| Consolidated Statement of Operations Location | | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
Operating lease cost (1) | Operating costs and expenses (2) | | $ | 140 |
| | $ | 277 |
|
Finance lease cost: | | | | | |
Amortization of right-of-use assets | Depreciation and amortization expense | | 1 |
| | 2 |
|
Interest on lease liabilities | Interest expense, net of capitalized interest | | 3 |
| | 5 |
|
Total lease cost | | | $ | 144 |
| | $ | 284 |
|
| |
(1) | Includes $46 million and $93 million of short-term lease costs and $8 million and $13 million of variable lease costs incurred during the three and six months ended June 30, 2019, respectively. |
| |
(2) | Presented in cost of sales, operating and maintenance expense or selling, general and administrative expense consistent with the nature of the asset under lease. |
Future annual minimum lease payments for operating and finance leases as of June 30, 2019 are as follows (in millions):
|
| | | | | | | |
Years Ending December 31, | Operating Leases (1) | | Finance Leases |
2019 | $ | 192 |
| | $ | 5 |
|
2020 | 167 |
| | 10 |
|
2021 | 39 |
| | 10 |
|
2022 | 19 |
| | 10 |
|
2023 | 19 |
| | 10 |
|
Thereafter | 166 |
| | 146 |
|
Total lease payments | 602 |
| | 191 |
|
Less: Interest | (108 | ) | | (132 | ) |
Present value of lease liabilities | $ | 494 |
| | $ | 59 |
|
| |
(1) | Does not include $1.6 billion of legally binding minimum lease payments for vessel charters which were executed as of June 30, 2019 but will commence primarily between 2020 and 2021 and have lease terms of up to seven years. |
Future annual minimum lease payments for operating and capital leases as of December 31, 2018, prepared in accordance with accounting standards prior to the adoption of ASC 842, were as follows (in millions):
|
| | | | | | | |
Years Ending December 31, | Operating Leases (1) | | Capital Leases (2) |
2019 (3) | $ | 380 |
| | $ | 5 |
|
2020 | 184 |
| | 5 |
|
2021 | 238 |
| | 5 |
|
2022 | 264 |
| | 5 |
|
2023 | 264 |
| | 5 |
|
Thereafter | 999 |
| | 73 |
|
Total lease payments | 2,329 |
| | 98 |
|
Less: Interest | — |
| | (39 | ) |
Present value of lease liabilities | $ | 2,329 |
| | $ | 59 |
|
| |
(1) | Includes certain lease option renewals that are reasonably assured and payments for certain non-lease components. Also includes $79 million in payments for short-term leases and $1.6 billion in payments for LNG vessel charters which were previously executed but will commence primarily between 2020 and 2021. |
| |
(2) | Does not include payments for non-lease components of $98 million. |
| |
(3) | Does not include $43 million in aggregate payments we will receive from our LNG vessel subcharters. |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table shows the weighted-average remaining lease term (in years) and the weighted-average discount rate for our operating leases and finance leases:
|
| | | |
| June 30, 2019 |
| Operating Leases | | Finance Leases |
Weighted-average remaining lease term (in years) | 7.2 | | 19.3 |
Weighted-average discount rate (1) | 5.4% | | 16.2% |
| |
(1) | The finance leases commenced prior to the adoption of ASC 842. In accordance with previous accounting guidance, the implied rate is based on the fair value of the underlying assets. |
The following table includes other quantitative information for our operating and finance leases (in millions):
|
| | | |
| Six Months Ended June 30, 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | |
Operating cash flows from operating leases | $ | 174 |
|
Operating cash flows from finance leases | 5 |
|
Financing cash flows from finance leases | — |
|
Right-of-use assets obtained in exchange for new operating lease liabilities | 106 |
|
LNG Vessel Subcharters
From time to time, we sublease certain LNG vessels under charter to third parties while retaining our existing obligation to the original lessor. We have elected the practical expedient for lessors to combine lease and non-lease components and since the lease component is the predominant component of each arrangement, these subleases are accounted for as operating leases. The subleases have lease terms of up to one year and many contain short-term renewal options exercisable at the discretion of the third party. As of June 30, 2019, we had $13 million in future minimum sublease payments to be received from LNG vessel subcharters, which will be recognized entirely within 2019. We recognize fixed sublease income on a straight-line basis over the lease term of the sublease while variable sublease income is recognized when earned. We recognized $31 million and $68 million of sublease income, including $5 million and $10 million of variable lease payments, during the three and six months ended June 30, 2019, respectively, in other revenues on our Consolidated Statements of Operations.
NOTE 11—12—REVENUES FROM CONTRACTS WITH CUSTOMERS
The following table represents a disaggregation of revenue earned from contracts with customers during the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 (in millions):
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
LNG revenues | | $ | 1,712 |
| | $ | 1,345 |
| | $ | 5,327 |
| | $ | 3,646 |
| | $ | 2,080 |
| | $ | 1,516 |
| | $ | 4,147 |
| | $ | 3,668 |
|
Regasification revenues | | 66 |
| | 65 |
| | 196 |
| | 195 |
| | 67 |
| | 65 |
| | 133 |
| | 130 |
|
Other revenues | | 30 |
| | 5 |
| | 73 |
| | 12 |
| | 21 |
| | 13 |
| | 36 |
| | 23 |
|
Other—related party | | 4 |
| | 1 |
| | 8 |
| | 2 |
| |
Total revenues from customers | | 1,812 |
| | 1,416 |
| | 5,604 |
| | 3,855 |
| | 2,168 |
| | 1,594 |
| | 4,316 |
| | 3,821 |
|
Gains (losses) from derivative instruments (1) | | 7 |
| | (13 | ) | | — |
| | — |
| |
Net derivative gains (losses) (1) | | | 93 |
| | (64 | ) | | 169 |
| | (60 | ) |
Other revenues (2) | | | 31 |
| | 13 |
| | 68 |
| | 24 |
|
Total revenues | | $ | 1,819 |
| | $ | 1,403 |
| | $ | 5,604 |
| | $ | 3,855 |
| | $ | 2,292 |
| | $ | 1,543 |
| | $ | 4,553 |
| | $ | 3,785 |
|
| |
(2) | Includes the realized value associated with a portion of derivative instruments that settle through physical delivery.revenues from LNG vessel subcharters. See Note 11—Leases for additional information about our subleases. |
LNG Revenues
We have entered into numerous SPAs with third party customers for the sale of LNG on a free on board (“FOB”) (delivered to the customer at either the Sabine Pass or Corpus Christi LNG terminal) or delivered at terminal (“DAT”) (delivered to the customer at their LNG receiving terminal) basis. Our customers generally purchase LNG 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 per MMBtu of LNG equal
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Contract Assets and Liabilities
The following table shows our contract assets, which we classify as other non-current assets, net on our Consolidated Balance Sheets (in millions):
|
| | | | | | | | |
| | June 30, | | December 31, |
| | 2019 | | 2018 |
Contract assets | | $ | 8 |
| | $ | — |
|
Contract assets represent our right to approximately 115% of Henry Hub. The fixed fee component isconsideration for transferring goods or services to the amount payable to us regardlesscustomer under the terms of a cancellation or suspension of LNG cargo deliveries bysales contract when the customers. The variable fee componentassociated consideration is not yet due. Changes in contract assets during the amount generally payablesix months ended June 30, 2019 were primarily attributable to us only uponrevenue recognized due to the delivery of LNG plus all future adjustments to the fixed fee for inflation. Theunder certain SPAs and contracted volumes to be made available under the SPAs are not tied to a specific Train; however, the term of each SPA generally commences upon the date of first commercial delivery of a specified Train.
We intend to primarily use LNG sourced from our Sabine Pass or Corpus Christi terminals to provide contracted volumes to our customers. However, we supplement this LNG with volumes procured from third parties. LNG revenues recognized from LNG that was procured from third parties was $208 million and $427 million for the three months ended September 30, 2018 and 2017, respectively, and $394 million and $631 million for the nine months ended September 30, 2018 and 2017, respectively.
Revenues from the sale of LNG are recognized at a point in time when the LNG is delivered to the customer, either at the Sabine Pass LNG terminal or at the customer’s LNG receiving terminal, based on the terms of the contract, which is the point legal title, physical possession and the risks and rewards of ownership transfer to the customer. Each individual molecule of LNG is viewed as a separate performance obligation. The stated contract price (including both fixed and variable fees) per MMBtu in each LNG sales arrangement is representative of the stand-alone selling price for LNG at the time the sale was negotiated. We have concluded that the variable fees meet the exception for allocating variable consideration to specific parts of the contract. As such, the variable consideration for these contracts is allocated to each distinct molecule of LNG and recognized when that distinct molecule of LNG is delivered to the customer. Because of the use of the exception, variable consideration related to the sale of LNG is also not included in the transaction price.
When we sell LNG on a DAT basis, we consider all transportation costs, including vessel chartering, loading/unloading and canal fees, as fulfillment costs and not as separate services provided to the customer within the arrangement, regardless of whether or not such activities occur prior to or after the customer obtains control of the LNG. We expense fulfillment costs as incurred unless otherwise dictated by GAAP.
Fees received pursuant to SPAs are recognized as LNG revenues only after substantial completion of the respective Train. Prior to substantial completion, sales generated during the commissioning phase are offset against the cost of construction for the respective Train, as the production and removal of LNG from storage is necessary to test the facility and bring the asset to the condition necessary for its intended use.
Regasification Revenues
The Sabine Pass LNG terminal has operational regasification capacity of approximately 4.0 Bcf/d. Approximately 2.0 Bcf/d of the regasification capacity at the Sabine Pass LNG terminal has been reserved under two long-term TUAs with unaffiliated third-party customers, under which they are required to pay fixed monthly fees regardless of their use of the LNG terminal. Each of the customers has reserved approximately 1.0 Bcf/d of regasification capacity. The customers are each obligated to make monthly capacity payments to SPLNG aggregating approximately $125 million annually for 20 years that commenced in 2009, which is representative of fixed consideration in the contract. A portion of this fee is adjusted annually for inflation which is considered variable consideration. The remaining capacity of the Sabine Pass LNG terminal has been reserved by SPL, for which the associated revenues are eliminated in consolidation.consideration was not yet due.
Because SPLNG is continuously available to provide regasification service on a daily basis with the same pattern of transfer, we have concluded that SPLNG provides a single performance obligation to its customers on a continuous basis over time. We have determined that an output method of recognition based on elapsed time best reflects the benefits of this service to the customer and accordingly, LNG regasification capacity reservation fees are recognized as regasification revenues on a straight-line basis over the term of the respective TUAs. We have concluded that the inflation element within the contract meets the exception for allocating variable consideration to specific parts of the contract and accordingly the inflation adjustment is not included in the transaction price and will be recognized over the year in which the inflation adjustment relates on a straight-line basis.
In 2012, SPL entered into a partial TUA assignment agreement with Total Gas & Power North America, Inc. (“Total”), whereby SPL would progressively gain access to Total’s capacity and other services provided under its TUA with SPLNG. This agreement provides SPL with additional berthing and storage capacity at the Sabine Pass LNG terminal that may be used to provide increased flexibility in managing LNG cargo loading and unloading activity, permit SPL to more flexibly manage its LNG storage capacity and accommodate the development of Trains 5 and 6.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Upon substantial completion of Train 3 of the SPL Project, SPL gained access to a portion of Total’s capacity and other services provided under Total’s TUA with SPLNG. Upon substantial completion of Train 5, SPL will gain access to substantially all of Total’s capacity. 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 and we continue to recognize the payments received from Total as revenue. During each of the three months ended September 30, 2018 and 2017, SPL recorded $7.5 million and during the nine months ended September 30, 2018 and 2017, SPL recorded $23 million and $15 million, respectively, as operating and maintenance expense under this partial TUA assignment agreement.
Deferred Revenue Reconciliation
The following table reflects the changes in our contract liabilities, which we classify as deferred revenue on our Consolidated Balance Sheets (in millions):
|
| | | | |
| | Six Months Ended June 30, 2019 |
Deferred revenues, beginning of period | | $ | 139 |
|
Cash received but not yet recognized | | 136 |
|
Revenue recognized from prior period deferral | | (139 | ) |
Deferred revenues, end of period | | $ | 136 |
|
|
| | | |
| Nine Months Ended September 30, 2018 |
Deferred revenues, beginning of period | $ | 111 |
|
Cash received but not yet recognized | 120 |
|
Revenue recognized from prior period deferral | (111 | ) |
Deferred revenues, end of period | $ | 120 |
|
We record deferred revenue when we receive consideration, or such consideration is unconditionally due from a customer, prior to transferring goods or services to the customer under the terms of a sales contract. Changes in deferred revenue during the nine months ended September 30, 2018 are primarily attributable to differences between the timing of revenue recognition and the receipt of advance payments related to delivery of LNG under certain SPAs.
Transaction Price Allocated to Future Performance Obligations
Because many of our sales contracts have long-term durations, we are contractually entitled to significant future consideration which we have not yet recognized as revenue. The following table discloses the aggregate amount of the transaction price that is allocated to performance obligations that have not yet been satisfied as of SeptemberJune 30, 2019 and December 31, 2018:
| | | | | | | | June 30, 2019 | | December 31, 2018 |
| | Unsatisfied Transaction Price (in billions) | | Weighted Average Recognition Timing (years) (1) | | Unsatisfied Transaction Price (in billions) | | Weighted Average Recognition Timing (years) (1) | | Unsatisfied Transaction Price (in billions) | | Weighted Average Recognition Timing (years) (1) |
LNG revenues | | $ | 102.4 |
| | 11.3 | | $ | 108.4 |
| | 11 | | $ | 106.6 |
| | 11 |
Regasification revenues | | 2.7 |
| | 5.8 | | 2.5 |
| | 5 | | 2.6 |
| | 6 |
Total revenues | | $ | 105.1 |
| |
| | $ | 110.9 |
| |
| | $ | 109.2 |
| |
| |
(1) | The weighted average recognition timing represents an estimate of the number of years during which we shall have recognized half of the unsatisfied transaction price. |
We have elected the following exemptions which omit certain potential future sources of revenue from the table above:
| |
(1) | We omit from the table above all performance obligations that are part of a contract that has an original expected duration of one year or less. |
| |
(2) | We omit from the table above all variable consideration that is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation when that performance obligation qualifies as a series. The table above excludes substantially all variable consideration under our SPAs and TUAs. The amount of revenue from variable fees that is not included in the transaction price will vary based on the future prices of Henry Hub throughout the contract terms, to the extent customers elect to take delivery of their LNG, and adjustments to the consumer price index. Certain of our contracts contain additional variable consideration based on the outcome of contingent events and the movement of various indexes. A portion ofWe have not included such variable consideration in the transaction price to the extent the consideration is considered constrained due to the uncertainty of ultimate pricing and receiptreceipt. Approximately 52% and we have not included such variable consideration in the transaction price. During each55% of our LNG revenues from contracts with a duration of over one year during the three and nine months ended SeptemberJune 30, 2019 and 2018, respectively, and approximately 55% of our LNG revenues from contracts with a duration of over one year and approximately 3% of our regasification revenues were related to variable consideration received from customers.during |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
each of the six months ended June 30, 2019 and 2018, were related to variable consideration received from customers. During each of the three and six months ended June 30, 2019 and 2018, approximately 3% of our regasification revenues were related to variable consideration received from customers.
We have entered into contracts to sell LNG that are conditioned upon one or both of the parties achieving certain milestones such as reaching FID on a certain liquefaction Train, obtaining financing or achieving substantial completion of a Train and any related facilities. These contracts are considered completed contracts for revenue recognition purposes and are included in the transaction price above when the conditions are considered probable of being met.
We have elected the practical expedient to omit the disclosure of the transaction price allocated to future performance obligations and an explanation of when the entity expects to recognize the amount as revenue as of December 31, 2017.
NOTE 12—13—INCOME TAXES
We recorded an income tax benefit of zero and $3 million during the three months ended June 30, 2019 and 2018, respectively, and an income tax provision of $3 million and an income tax benefit of $2$12 million during the threesix months ended SeptemberJune 30, 20182019 and 2017, respectively, and an income tax provision of $15 million and an income tax benefit of $1 million during the nine months ended September 30, 2018, and 2017, respectively. Changes in the income tax recorded between comparative periods are primarily attributable to fluctuationschanges in the profitability ofincome earned and tax transfer pricing applied to our U.K. integrated marketing function.
The effective tax rates during the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 were lower than the 21% and 35% federal statutory ratesrate during the 20182019 and 20172018 interim periods respectively, primarily as a result of maintaining a valuation allowance against our federal and state net deferred tax assets. Due to historical losses and other available evidence related to our ability to generate taxable income, we continue to maintain a valuation allowance against our federal and state net deferred tax assets at SeptemberJune 30, 2018.2019.
NOTE 13—14—SHARE-BASED COMPENSATION
We have granted restricted stock shares, restricted stock units, performance stock units and phantom units to employees and non-employee directors under the Amended and Restated 2003 Stock Incentive Plan, as amended, the 2011 Incentive Plan, as amended (the “2011 Plan”), and the 2015 Employee Inducement Incentive Plan and the 2015 Long-Term Cash Incentive Plan.
For the ninesix months ended SeptemberJune 30, 2018,2019, we granted 2.31.3 million restricted stock units and 0.2 million performance stock units at target performance under the 2011 Plan to certain employees. Restricted stock units are stock awards that vest over a two- to three-year service period of three years and entitle the holder to receive shares of our common stock upon vesting, subject to restrictions on transfer and to a risk of forfeiture if the recipient terminates employment with us prior to the lapse of the restrictions. Performance stock units provide for three-year cliff vesting after a period of three years with payouts based on ourmetrics dependent upon market and performance achieved over the period from January 1, 2019 through December 31, 2021 compared to pre-established performance targets. The settlement amounts of the awards are based on market and performance metrics which include cumulative distributable cash flow per share, from January 1, 2018and in certain circumstances, total shareholder return (“TSR”) of our common stock. Where applicable, the compensation for performance stock units is based on fair value assigned to the market metric of TSR using a Monte Carlo model upon grant, which remains constant through December 31, 2020 comparedthe vesting period, and a performance metric, which will vary due to a pre-establishedchanging estimates regarding the expected achievement of the performance target.metric of cumulative distributable cash flow per share. The number of shares that may be earned at the end of the vesting period ranges from 5025% up to 200 percent300% of the target award amount if the threshold performance is met. Both restricted stock units and performance stock units will be settled in Cheniere common stock (on a one-for-one basis) and are classified as equity awards.
Total share-based compensation consisted of the following (in millions):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Share-based compensation costs, pre-tax: | | | | | | | | |
Equity awards | | $ | 32 |
| | $ | 22 |
| | $ | 61 |
| | $ | 39 |
|
Liability awards | | 2 |
| | 15 |
| | 5 |
| | 32 |
|
Total share-based compensation | | 34 |
|
| 37 |
|
| 66 |
|
| 71 |
|
Capitalized share-based compensation | | (1 | ) | | (7 | ) | | (5 | ) | | (13 | ) |
Total share-based compensation expense | | $ | 33 |
|
| $ | 30 |
|
| $ | 61 |
|
| $ | 58 |
|
Tax benefit associated with share-based compensation expense | | $ | — |
| | $ | — |
| | $ | 1 |
| | $ | 2 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
Share-based compensation costs, pre-tax: | | | | | | | | |
Equity awards | | $ | 25 |
| | $ | 10 |
| | $ | 64 |
| | $ | 25 |
|
Liability awards | | 13 |
| | 12 |
| | 45 |
| | 56 |
|
Total share-based compensation | | 38 |
|
| 22 |
|
| 109 |
|
| 81 |
|
Capitalized share-based compensation | | (7 | ) | | (4 | ) | | (20 | ) | | (17 | ) |
Total share-based compensation expense | | $ | 31 |
|
| $ | 18 |
|
| $ | 89 |
|
| $ | 64 |
|
Tax benefit associated with share-based compensation expense | | $ | 1 |
| | $ | 1 |
| | $ | 3 |
| | $ | 3 |
|
For further discussion of our equity incentive plans, see Note 16—Share-Based Compensation of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended December 31, 2017.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 14—15—NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
Basic net income (loss) per share attributable to common stockholders (“EPS”) excludes dilution and is computed by dividing net lossincome (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 lossincome (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 been outstanding if the potential common shares had been issued. The dilutive effect of 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 reconciles basic and diluted weighted average common shares outstanding for the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 (in millions, except per share data):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Weighted average common shares outstanding: | | | | | | | | |
Basic | | 257.4 |
| | 242.8 |
| | 257.3 |
| | 239.2 |
|
Dilutive unvested stock | | — |
| | — |
| | 1.3 |
| | 2.5 |
|
Diluted | | 257.4 |
| | 242.8 |
| | 258.6 |
| | 241.7 |
|
| | | | | | | | |
Basic net income (loss) per share attributable to common stockholders | | $ | (0.44 | ) | | $ | (0.07 | ) | | $ | 0.11 |
| | $ | 1.42 |
|
Diluted net income (loss) per share attributable to common stockholders | | $ | (0.44 | ) | | $ | (0.07 | ) | | $ | 0.11 |
| | $ | 1.40 |
|
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
Weighted average common shares outstanding: | | | | | | | | |
Basic | | 247.2 |
| | 232.6 |
| | 241.9 |
| | 232.5 |
|
Dilutive unvested stock | | 3.0 |
| | — |
| | 2.7 |
| | — |
|
Diluted | | 250.2 |
| | 232.6 |
| | 244.6 |
| | 232.5 |
|
| | | | | | | | |
Basic net income (loss) per share attributable to common stockholders | | $ | 0.26 |
| | $ | (1.24 | ) | | $ | 1.67 |
| | $ | (2.24 | ) |
Diluted net income (loss) per share attributable to common stockholders | | $ | 0.26 |
| | $ | (1.24 | ) | | $ | 1.65 |
| | $ | (2.24 | ) |
Potentially dilutive securities that were not included in the diluted net income (loss) per share computations because their effects would have been anti-dilutive were as follows (in millions):
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Unvested stock (1) | | 2.0 |
| | 1.5 |
| | 2.3 |
| | 1.5 |
| | 3.8 |
| | 5.2 |
| | 3.8 |
| | 2.6 |
|
Convertible notes (2) | | 17.3 |
| | 16.8 |
| | 17.1 |
| | 16.8 |
| | 17.8 |
| | 17.2 |
| | 17.8 |
| | 17.2 |
|
Total potentially dilutive common shares | | 19.3 |
| | 18.3 |
| | 19.4 |
| | 18.3 |
| | 21.6 |
| | 22.4 |
| | 21.6 |
| | 19.8 |
|
| |
(1) | Does not include 0.6 million shares for each of the three and six months ended June 30, 2019 and 0.4 million shares for each of the three and ninesix months ended SeptemberJune 30, 2018 and 5.1 million shares for each of the three and nine months ended September 30, 2017, of unvested stock because the performance conditions had not yet been satisfied as of SeptemberJune 30, 20182019 and 2017,2018, respectively. |
| |
(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 income (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 SeptemberJune 30, 2018.2019. |
NOTE 15—16—COMMITMENTS AND CONTINGENCIES
We 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 SeptemberJune 30, 2018,2019, are not recognized as liabilities but require disclosures in our Consolidated Financial Statements.
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, 2018 and December 31, 2017, there were no liabilities recognized under these guarantee arrangements.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
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.
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 LNG Pipeline LLC and Tellurian Services LLC, formerly known as Parallax Services LLC, including claims for tortious interference with CLNGT’s collateral rights under the Secured Note and Pledge Agreement, fraudulent transfer, conspiracy/aiding and abetting. Discovery in the Texas State Suit is ongoing. Trial is currently set for June 2019.February 2020.
We do not expect thatOn February 15, 2019, we filed an action with CLNGT against Charif Souki, our former Chairman of the resolutionBoard and Chief Executive Officer, styled, Cause No. 2019-11529, Cheniere Energy, Inc. and Cheniere LNG Terminals, LLC v. Charif Souki, in the 55th District Court of this litigation will have a material adverse impact on our financial results.Harris County, Texas, which asserts claims of breach of fiduciary duties, fraudulent transfer, tortious interference with CLNGT’s collateral rights under the Secured Note and Pledge Agreement and conspiracy/aiding and abetting. On April 29, 2019, the court consolidated the Souki matter with the earlier filed pending case against Parallax, Tellurian and the individual defendants in the Texas State Suit.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 16—LEASES
In December 2015, we entered into a lease agreement for marine services related toWe do not expect that the CCL Project that was classified as a capital lease. The service termresolution of this lease commenced during the three months ended September 30, 2018, and we received twoany of the four tug vessels under this capital lease, which are recorded within property, plant and equipment, netforegoing litigation will have a material adverse impact on our Consolidated Balance Sheets. As of September 30, 2018, the total minimum lease payments related to the tug vessels received was $50 million, of which $20 million represents imputed interest, $1 million represents the current portion of capital lease obligations and $29 million represents the non-current portion of capital lease obligations.financial results.
NOTE 17—CUSTOMER CONCENTRATION
The following table shows customers with revenues of 10% or greater of total third-party revenues from external customers and customers with accounts receivable balances of 10% or greater of total accounts receivable from third parties:external customers:
|
| | | | | | | | | | | | |
| | Percentage of Total Revenues from External Customers | | Percentage of Accounts Receivable from External Customers |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | June 30, | | December 31, |
| | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Customer A | | 17% | | 21% | | 18% | | 19% | | 11% | | 21% |
Customer B | | 11% | | 17% | | 11% | | 14% | | 15% | | 14% |
Customer C | | 11% | | 18% | | 12% | | 22% | | 15% | | 18% |
Customer D | | 12% | | 16% | | 13% | | 11% | | 14% | | * |
Customer E | | * | | * | | * | | * | | 13% | | * |
Customer F | | * | | * | | * | | * | | * | | 10% |
|
| | | | | | | | | | | | |
| | 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, |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
Customer A | | 17% | | 19% | | 18% | | 25% | | 26% | | 28% |
Customer B | | 15% | | 14% | | 15% | | 13% | | 24% | | 16% |
Customer C | | 15% | | 20% | | 20% | | 10% | | 20% | | 14% |
Customer D | | 18% | | —% | | 13% | | —% | | 18% | | —% |
Customer E | | —% | | 20% | | * | | 19% | | —% | | —% |
Customer F | | * | | * | | * | | * | | —% | | 15% |
* Less than 10%
NOTE 18—SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides supplemental disclosure of cash flow information (in millions):
|
| | | | | | | | |
| | Six Months Ended June 30, |
| | 2019 | | 2018 |
Cash paid during the period for interest on debt and finance leases, net of amounts capitalized | | $ | 271 |
| | $ | 282 |
|
Cash paid for income taxes | | 20 |
| | 4 |
|
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2018 | | 2017 |
Cash paid during the period for interest, net of amounts capitalized | | $ | 552 |
| | $ | 360 |
|
Non-cash investing and financing activities: | | | | |
Acquisition of non-controlling interest in Cheniere Holdings | | 702 |
| | — |
|
Contribution of assets to equity method investee | | — |
| | 14 |
|
Acquisition of assets under capital lease | | 30 |
| | — |
|
The balance in property, plant and equipment, net funded with accounts payable and accrued liabilities was $471$958 million and $426$935 million as of SeptemberJune 30, 20182019 and 2017,2018, respectively.
See Note 11—Leases for our supplemental cash flow information related to our leases.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 19—RECENT ACCOUNTING STANDARDS
The following table provides a brief description of a recent accounting standard that had not been adopted by us as of September 30, 2018:
|
| | | | | | |
Standard | | Description | | Expected Date of Adoption | | Effect on our Consolidated Financial Statements or Other Significant Matters |
ASU 2016-02, Leases (Topic 842), and subsequent amendments thereto
| | 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 may be adopted using either a modified retrospective approach to apply the standard at the beginning of the earliest period presented in the financial statements or an optional transition approach to apply the standard at the date of adoption with no retrospective adjustments to prior periods. Certain additional practical expedients are also available. | | January 1, 2019
| | We continue to evaluate the effect of this standard on our Consolidated Financial Statements. This evaluation process includes reviewing all forms of leases, performing a completeness assessment over the lease population, analyzing the practical expedients and assessing opportunities to make certain changes to our lease accounting information technology system in order to determine the best implementation strategy. Preliminarily, we anticipate a material impact from the requirement to recognize all leases on 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 adoption of this standard upon our results of operations or cash flows. We anticipate electing the optional transition method to initially apply the standard at the January 1, 2019 adoption date. We expect to elect the package of practical expedients permitted under the transition guidance which, among other things, allows the carryforward of prior conclusions related to lease identification and classification. We also expect to elect the practical expedient to retain our existing accounting for land easements which were not previously accounted for as leases. We have not yet determined whether we will elect any other practical expedients upon transition. |
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 us during the reporting period:
|
| | | | | | |
Standard | | Description | | 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 provides 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 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 (“modified retrospective approach”). | | January 1, 2018 | | We adopted this guidance on January 1, 2018, using the full retrospective method. The adoption of this guidance represents a change in accounting principle that will provide financial statement readers with enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The adoption of this guidance did not impact our previously reported consolidated financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings. See Note 11—Revenues from Contracts with Customers for additional disclosures.
|
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
| | The adoption of this guidance did not have an impact on our Consolidated Financial Statements or related disclosures. |
| |
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 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;Trains or pipelines;
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 marketing of volumes expected to be made available to our integrated marketing function; and
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• | any other statements that relate to non-historical or future information. |
any other statements that relate to non-historical or future information.
All of these types of statements, other than statements of historical 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,“achieve,” “anticipate,” “believe,” “contemplate,” “continue,” “estimate,” “expect,” “intend,” “plan,” “potential,” “predict,” “potential,“project,” “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 as 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, including those discussed under “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 20172018. 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 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.
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 provide clean, secure and affordable energy to the world, while responsibly delivering a reliable, competitive and integrated source of LNG, in a safe and rewarding work environment. 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. As of SeptemberJune 30, 2018,2019, we owned 100% of the general partner interest and 48.6% of the limited partner interest in Cheniere Partners. We are currently developingalso own and constructing two natural gas liquefaction and export facilities.operate the Corpus Christi LNG terminal in Texas, which is wholly owned by us. The liquefaction of natural gas into LNG allows it to be shipped economically from areas of the worldUnited States where natural gas is abundant and inexpensive to produce to otherour international customers in areas where natural gas demand and infrastructure exist to economically justify the use of LNG.exist.
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,in various stages of constructing and operating six 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 operations. Trains 1 through 45 are operational Train 5 is undergoing commissioning and Train 6 is being commercialized and has all necessary regulatory approvals in place.under construction. Each Train is expected to have a nominal production capacity, which is prior to adjusting for planned maintenance, production reliability, potential overdesign and debottlenecking opportunities, of approximately 4.5 mtpa of LNG and an adjusted nominal production capacity of approximately 4.5 to 4.9 mtpa of LNG.per Train. The Sabine Pass LNG terminal has operational regasification facilities owned by Cheniere Partners’ wholly owned subsidiary, SPLNG, that include pre-existing infrastructure of five LNG storage tanks with aggregate capacity of approximately 16.9 Bcfe, two marine berths that can each 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 developingalso own and constructingoperate a second natural gas liquefaction and export facility at the Corpus Christi LNG terminal near Corpus Christi, Texas, and operate a 23-mile natural gas supply pipeline facility (collectively,that interconnects the Corpus Christi LNG terminal with several interstate and intrastate natural gas pipelines (the “Corpus Christi Pipeline” and together with the liquefaction facilities, the “CCL Project”) through our wholly owned subsidiaries CCL and CCP, respectively. The CCL Project is being developed forin stages with the first phase being three Trains with expected aggregate nominal production capacity, which is prior to adjusting for planned maintenance, production reliability, potential overdesign and debottlenecking opportunities, of approximately 13.5 mtpa of LNG,(“Phase 1”), 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. TheTrain 1 is operational, Train 2 is undergoing commissioning and Train 3 is under construction. Each Train is expected to have a nominal production capacity, which is prior to adjusting for planned maintenance, production reliability, potential overdesign and debottlenecking opportunities, of approximately 4.5 mtpa of LNG per Train.
We have contracted approximately 85% of the expected aggregate nominal production capacity from the SPL Project and the CCL Project also includes(collectively, the “Liquefaction Projects”) on a 23-mile natural gas supply pipeline that will interconnect the Corpus Christi LNG terminal with several interstate and intrastate natural gas pipelines (thelong-term basis.
“Corpus Christi Pipeline”). Stages 1 and 2 are currently under construction, and construction of the Corpus Christi Pipeline was completed during the second quarter of 2018. Train 1 has commenced commissioning activities.
Additionally, separate from the CCH Group, we are developing an expansion of the Corpus Christi LNG terminal adjacent to the CCL Project (“Corpus Christi Stage 3”) and filed an application with FERC in June 2018 for seven midscale Trains with an expected aggregate nominal production capacity of approximately 9.5 mtpa and one LNG storage tank. We remain focused on expansion of our existing sites by leveraging existing infrastructure. 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 made an equity investment in Midship Holdings, LLC (“Midship Holdings”), which manages the business and affairs of Midship Pipeline Company, LLC (“Midship Pipeline”). Midship Pipeline is developingconstructing a pipeline (the “Midship Project”) with expected capacity of up to 1.44 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.Liquefaction Projects. Construction of the Midship Project will commence based upon,commenced in the first quarter of 2019.
We remain focused on expansion of our existing sites by leveraging existing infrastructure. We continue to consider development of other projects, including infrastructure projects in support of natural gas supply and LNG demand, which, among other things, obtaining the required authorization from the FERCwill require acceptable commercial and adequate financing to construct the proposed project.arrangements before we can make a final investment decision (“FID”).
Overview of Significant Events
Our significant accomplishments since January 1, 20182019 and through the filing date of this Form 10-Q include the following:
Strategic
In May 2018,June 2019, our board of directors (the “Board”) appointed Michele A. Evans to serve as a member of the Board. Ms. Evans was also appointed to the Audit Committee and the Governance and Nominating Committee of the Board.
In May 2019, our wholly owned subsidiary CCL Stage III entered into an integrated production marketing transaction with Apache Corporation to purchase 140,000 MMBtu per day of natural gas, for a term of approximately 15 years, at a price based on international LNG indices, net of a fixed liquefaction fee and certain costs incurred by Cheniere.
In May 2019, the board of directors of the general partner of Cheniere Partners made a positive FID with respect to Stage 2Train 6 of the CCLSPL Project and issued a full notice to proceed with construction to Bechtel Oil, Gas and Chemicals, Inc. (“Bechtel”) under the EPC contract for Stage 2.in June 2019.
In June 2018,March 2019, we filed an application withreceived a positive Environmental Assessment from the FERC with respectrelating to Corpus Christi Stage 3 consistingand anticipate receiving all remaining necessary regulatory approvals for the project by the end of seven midscale liquefaction Trains with2019.
In February 2019, Midship Pipeline, in which we hold an expected aggregate nominal production capacityindirect equity interest, issued full notice to proceed to construct the Midship natural gas pipeline and related compression and interconnect facilities following receipt of approximately 9.5 mtpafinal Notice to Proceed from the FERC and one LNG storage tank.
We entered intoobtaining financing to construct the following agreements:Midship Project.
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◦ | In September 2018, we entered into a 15-year SPA with Vitol Inc. for the sale of approximately 0.7 mtpa of LNG beginning in 2018. |
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◦ | In August 2018, we entered into a 25-year SPA with CPC Corporation, Taiwan for the sale of approximately 2.0 mtpa of LNG beginning in 2021. |
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◦ | In February 2018, we entered into two SPAs with PetroChina International Company Limited, a subsidiary of China National Petroleum Corporation, for the sale of approximately 1.2 mtpa of LNG through 2043, with a portion of the supply beginning in 2018 and the balance beginning in 2023. |
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◦ | In January 2018, we entered into a 15-year SPA with Trafigura Pte Ltd for the sale of approximately 1.0 mtpa of LNG beginning in 2019. |
Operational
As of OctoberJuly 31, 2018, more than 2152019, over 750 cumulative LNG cargoes have been produced, loaded and exported from the Liquefaction Projects.
In June 2019, first LNG production from Train 2 of the CCL Project occurred, and the first commissioning cargo from Train 2 was exported.
In February 2019 and March 2019, CCL and SPL achieved substantial completion of Train 1 of the CCL Project year to date. To date, over 475 cumulative LNG cargoes have been exported fromand Train 5 of the SPL Project, with deliveries to 29 countriesrespectively, and regions worldwide.commenced operating activities.
Financial
In August 2018, feed gasJune 2019, we announced a capital allocation framework which prioritizes investments in the growth of our liquefaction platform, improvement of consolidated leverage metrics, and a return of excess capital to shareholders under a three-year, $1.0 billion share repurchase program.
In June 2019, the date of first commercial delivery was introducedreached under the 20-year SPAs with Endesa S.A. and PT Pertamina (Persero) relating to Train 1 of the CCL ProjectProject.
In June 2019, CCH and its subsidiaries, as partguarantors, entered into a note purchase agreement (“CCH Note Purchase Agreement”) with Allianz Global Investors GmbH to issue an aggregate principal amount of $727 million of 4.80% Senior Secured Notes due 2039 (the “2039 CCH Senior Notes”), with closing and funding of the commissioning process. In September 2018, feed gas was introduced to Train 52039 CCH Senior Notes conditional in part on the 2039 CCH Senior Notes receiving at least two investment grade ratings within 18 months of the SPL Project as partdate of the commissioning process, and first LNG production from Train 5 occurred in October 2018.
FinancialCCH Note Purchase Agreement.
In September 2018, we closed the previously announced merger ofMay 2019, Cheniere Holdings with our wholly owned subsidiary. As a result of the merger, all of the publicly-held shares of Cheniere Holdings not owned by us were canceled and shareholders received 0.4750 shares of our common stock for each publicly-held share of Cheniere Holdings.
We completed the following debt transactions:
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◦ | In September 2018, Cheniere Partners issued an aggregate principal amount of $1.1Partners entered into five-year, $1.5 billion of 5.625% Senior Notes due 2026 (the “2026 CQP Senior Notes”). Net proceeds of the offering of approximately $1.1 billion, after deducting commissions, fees and expenses, were used to prepay all of the outstanding indebtedness under |
Cheniere Partners’ credit facilities (the “CQP“2019 CQP Credit Facilities”). As, which consist of September 30, 2018, only a $115$750 million delayed draw term loan (“CQP Term Facility”) and a $750 million revolving credit facility which is currently undrawn, remains as part(“CQP Revolving Facility”), to fund a portion of the CQP Credit Facilities.development and construction of Train 6, a third LNG berth and supporting infrastructure at the SPL Project.
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◦ | In June 2018, CCH amended and restated its working capital facility (“CCH Working Capital Facility”) to increase total commitments under the CCH Working Capital Facility to $1.2 billion. Borrowings will be used for certain working capital requirements related to developing and placing into operations the CCL Project and for related business purposes. |
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◦ | In May 2018, CCH amended and restated its existing credit facilities (the “CCH Credit Facility”) to increase total commitments under the CCH Credit Facility to $6.1 billion. Borrowings will be used to fund a portion of the costs of developing, constructing and placing into service the three Trains and the related facilities of the CCL Project and for related business purposes. |
WeIn March 2019, the date of first commercial delivery was reached under the following contractual milestones:20-year SPA with BG Gulf Coast LNG, LLC relating to Train 4 of the SPL Project.
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◦ | In June 2018, the date of first commercial delivery was reached under the 20-year SPA with BG Gulf Coast LNG, LLC (“BG”) relating to Train 3 of the SPL Project. |
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◦ | In March 2018, the date of first commercial delivery was reached under the 20-year SPA with GAIL (India) Limited (“GAIL”) relating to Train 4 of the SPL Project. |
Liquidity and Capital Resources
Although results are consolidated for financial reporting, Cheniere, Cheniere Partners, SPL 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:
SPL through project debt and borrowings, and operating cash flows;flows and equity contributions from Cheniere Partners;
Cheniere Partners through operating cash flows from SPLNG, SPL and CTPL and debt or equity offerings;
CCH Group through operating cash flows from CCL and CCP, project debt 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 Partners and our other subsidiaries and distributions from our investment in Cheniere Partners.
The following table provides a summary of our liquidity position at SeptemberJune 30, 20182019 and December 31, 20172018 (in millions):
| | | September 30, | | December 31, | June 30, | | December 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Cash and cash equivalents | $ | 989 |
| | $ | 722 |
| $ | 2,279 |
| | $ | 981 |
|
Restricted cash designated for the following purposes: | | | | | | |
SPL Project | 649 |
| | 544 |
| 596 |
| | 756 |
|
Cheniere Partners and cash held by guarantor subsidiaries | 808 |
| | 1,045 |
| — |
| | 785 |
|
CCL Project | 220 |
| | 227 |
| 279 |
| | 289 |
|
Other | 266 |
| | 75 |
| 286 |
| | 345 |
|
Available commitments under the following credit facilities: | | | | | | |
$1.2 billion SPL Working Capital Facility (“SPL Working Capital Facility”) | 706 |
| | 470 |
| 785 |
| | 775 |
|
CQP Credit Facilities | 115 |
| | 220 |
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CCH Credit Facility | 1,646 |
| | 2,087 |
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CCH Working Capital Facility | 884 |
| | 186 |
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$750 million Cheniere Revolving Credit Facility (“Cheniere Revolving Credit Facility”) | 750 |
| | 750 |
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$1.5 billion 2019 CQP Credit Facilities | | 851 |
| | — |
|
$2.8 billion Cheniere Partners’ Credit Facilities (“2016 CQP Credit Facilities”) | | — |
| | 115 |
|
Amended and restated CCH Credit Facility (“CCH Credit Facility”) | | — |
| | 982 |
|
$1.2 billion CCH Working Capital Facility (“CCH Working Capital Facility”) | | 862 |
| | 716 |
|
$1.25 billion Cheniere Revolving Credit Facility (“Cheniere Revolving Credit Facility”) | | 1,250 |
| | 1,250 |
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For additional information regarding our debt agreements, 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, 2017.2018.
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. In March 2015, we issued $625 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. 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 Revolving Credit Facility
In March 2017,December 2018, we entered intoamended and restated the Cheniere Revolving Credit Facility that may be usedto increase total commitments under the Cheniere Revolving Credit Facility from $750 million to $1.25 billion. The Cheniere Revolving Credit Facility is intended 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.
The Cheniere Revolving Credit Facility matures on March 2, 2021December 13, 2022 and contains representations, warranties and affirmative and negative covenants customary for companies like Cheniereus 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.$200 million (the “Liquidity Covenant”).
From and after the time at which certain specified conditions are met (the “Trigger Point”), we will have increased flexibility under the Cheniere Revolving Credit Facility to, among other things, (1) make restricted payments and (2) raise incremental commitments. The Trigger Point will occur once (1) completion has occurred for each of Train 1 of the CCL Project (as defined in the CCH Indenture) and Train 5 of the SPL Project (as defined in SPL’s common terms agreement), which has occurred in February 2019 and March 2019, respectively; (2) the aggregate principal amount of outstanding loans plus drawn and unreimbursed letters of credit under the Cheniere Revolving Credit Facility is less than or equal to 10% of aggregate commitments under the Cheniere Revolving Credit Facility and (3) we elect on a go-forward basis to be governed by a non-consolidated leverage ratio covenant not to exceed 5.75:1.00 (the “Springing Leverage Covenant”), which following such election will apply at any time that the aggregate principal amount of outstanding loans plus drawn and unreimbursed letters of credit under the Cheniere Revolving Credit Facility is greater than 30% of aggregate commitments under the Cheniere Revolving Credit Facility. Following the Trigger Point, at any time that the Springing Leverage Covenant is in effect, the Liquidity Covenant will not apply.
The Cheniere Revolving Credit Facility is secured by a first priority security interest (subject to permitted liens and other customary exceptions) in substantially all of our assets, including our interests in our direct subsidiaries (excluding CCH HoldCo II)II and certain other subsidiaries).
Cash Receipts from Subsidiaries
Our ownership interest in the Sabine Pass LNG terminal is held through Cheniere Partners. As of SeptemberJune 30, 2018,2019, we owned a 48.6% limited partner interest in Cheniere Partners in the form of 104.5 million common units and 135.4 million subordinated units. We also own 100% of the general partner interest and the incentive distribution rights in Cheniere Partners. We are eligible to receive quarterly equity distributions from Cheniere Partners related to our ownership interests and our incentive distribution rights.
We also receive fees for providing management services to Cheniere Partners, SPLNG, SPL, CTPL, CCL and CCP.some of our subsidiaries. We received $57$36 million and $87$38 million in total service fees from these subsidiaries during each of the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively.
Share Repurchase Authorization
On June 3, 2019, we announced that our Board authorized a 3-year, $1.0 billion share repurchase program. During the three months ended June 30, 2019, we repurchased an aggregate of 44,600 shares of our common stock for $3 million, for a weighted average price per share of $68.30. As of June 30, 2019, we had $997 million of the share repurchase authorization available. Under the share repurchase program, repurchases can be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or otherwise, all in accordance with the rules of the SEC and other
applicable legal requirements. The timing and amount of any shares of our common stock that are repurchased under the share repurchase program will be determined by our management based on market conditions and other factors.
Cheniere Partners
CQP Senior Notes
In September 2018, Cheniere Partners issued an aggregate principal amount of $1.1 billion of the 2026 CQP Senior Notes, in addition to the existingThe $1.5 billion of 5.250% Senior Notes due 2025 (the “2025 CQP Senior Notes”), which and $1.1 billion of 5.625% Senior Notes due 2026 (the “2026 CQP Senior Notes”) (collectively, the “CQP Senior Notes”) are jointly and severally guaranteed by each of Cheniere Partners’ subsidiaries other than SPL (the “CQP Guarantors”) and, subject to certain conditions governing its guarantee, Sabine Pass LP. The 2025 CQP Senior Notes and the 2026 CQP Senior Notes (collectively, the “CQP Senior Notes”) are governed by the same base indenture (the “CQP Base Indenture”). The 2025 CQP Senior Notes are further governed by the First Supplemental Indenture (together with the CQP Base Indenture, the “2025 CQP Notes Indenture”) and the 2026 CQP Senior Notes are further governed by the Second Supplemental Indenture (together with the CQP Base Indenture, the “2026 CQP Notes Indenture”). The 2025 CQP Notes Indenture and the 2026 CQP Notes Indenture contain customary terms
and events of default and certain covenants that, among other things, limit the ability of Cheniere Partners 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 for the 2025 CQP Senior Notes and October 1, 2021 for the 2026 CQP Senior Notes, Cheniere Partners may redeem all or a part of the applicable CQP Senior Notes at a redemption price equal to 100% of the aggregate principal amount of the CQP Senior Notes redeemed, plus the “applicable premium” set forth in the 2025respective indentures governing the CQP Senior Notes, Indenture and the 2026 CQP Notes Indenture, respectively, plus accrued and unpaid interest, if any, to the date of redemption. In addition, at any time prior to October 1, 2020 for the 2025 CQP Senior Notes and October 1, 2021 for the 2026 CQP Senior Notes, Cheniere Partners may redeem up to 35% of the aggregate principal amount of the 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 and 105.625% of the aggregate principal amount of the 2026 CQP Senior Notes redeemed, plus accrued and unpaid interest, if any, to the date of redemption. Cheniere Partners also may at any time on or after October 1, 2020 through the maturity date of October 1, 2025 for the 2025 CQP Senior Notes and October 1, 2021 through the maturity date of October 1, 2026 for the 2026 CQP Senior Notes, redeem the CQP Senior Notes, in whole or in part, at the redemption prices set forth in the 2025respective indentures governing the CQP Notes Indenture and the 2026 CQP Notes Indenture, respectively.Senior Notes.
The CQP Senior Notes are Cheniere Partners’ senior obligations, ranking equally in right of payment with Cheniere Partners’ other existing and future unsubordinated debt and senior to any of its future subordinated debt. After applying the proceeds from the 2026 CQP Senior Notes, the CQP Senior Notes became unsecured. In the event that the aggregate amount of Cheniere Partners’ secured indebtedness and the secured indebtedness of the CQP Guarantors (other than the CQP Senior Notes or any other series of notes issued under the CQP Base Indenture) outstanding at any one time exceeds the greater of (1) $1.5 billion and (2) 10% of net tangible assets, the CQP Senior Notes will be secured to the same extent as such obligations under the 2019 CQP Credit Facilities. The obligations under the 2019 CQP Credit Facilities are secured 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 Cheniere Partners and the CQP Guarantors and equity interests in the CQP Guarantors (except, in each case, for certain excluded properties set forth in the CQP Credit Facilities) and (2) substantially all of the real property of SPLNG (except for excluded properties referenced in the2019 CQP Credit Facilities). The liens securing the CQP Senior Notes, if applicable, will be shared equally and ratably (subject to permitted liens) with the holders of other senior secured obligations, which include the 2019 CQP Credit Facilities obligations and any future additional senior secured debt obligations.
2016 CQP Credit Facilities
In FebruaryMay 2019, the remaining commitments under the 2016 CQP Credit Facilities were terminated.
2019 CQP Credit Facilities
In May 2019, Cheniere Partners entered into the CQP Credit Facilities. The2019 CQP Credit Facilities, originally consisted of: (1)which consist of a $450 million CTPL tranche term loan that was used to prepay the $400$750 million term loan facility in February 2016, (2) an approximately $2.1 billion SPLNG tranche term loan that was used to repay(“CQP Term Facility”) and redeem in November 2016 the approximately $2.1 billion of the senior notes previously issued by SPLNG, (3) a $125 million facility that could be used to satisfy a six-month debt service reserve requirement and (4) a $115$750 million revolving credit facility that may(“CQP Revolving Facility”). Borrowings under the 2019 CQP Credit Facilities will be used to fund the development and construction of Train 6 of the SPL Project and subject to a sublimit, for general businesscorporate purposes. In September 2017The CQP Revolving Facility is also available for the issuance of letters of credit.
Loans under the 2019 CQP Credit Facilities will 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 September 2018, the adjusted one-month LIBOR plus 1.0%), plus the applicable margin. Under the CQP Term Facility, the applicable margin for LIBOR loans is 1.50% per annum, and the applicable margin for base rate loans is 0.50% per annum, in each case with a 0.25% step-up beginning on May 29, 2022. Under the CQP Revolving Facility, the applicable margin for LIBOR loans is 1.25% to 2.125% per annum, and the applicable margin for base rate loans is 0.25% to 1.125% per annum, in each case depending on the then-current rating of Cheniere Partners. 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 issuedpays a commitment fee equal to an annual rate of 30% of the 2025margin for LIBOR loans multiplied by the average daily amount of the undrawn commitment, payable quarterly in arrears.
The 2019 CQP Senior Notes and the 2026 CQP Senior Notes, respectively, and the net proceeds were used to prepay the outstanding termCredit Facilities mature on May 29, 2024. The principal of any loans under the CQP Credit Facilities. As of September 30, 2018, only a $115 million revolving credit facility, which is currently undrawn, remains as part of the CQP Credit Facilities.
The2019 CQP Credit Facilities mature must be repaid in quarterly installments commencing on February 25, 2020.May 29, 2023 based on an amortization schedule. Any 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 2019 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 and one true-up per fiscal quarter as long as certain conditions are satisfied. Under the 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 2019 CQP Credit Facilities are unconditionally guaranteed by each subsidiary of Cheniere Partners other than (1) SPL, Sabine Pass LNG-LP, LLC 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,in various stages of 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. We have achieved substantial completion of Trains 1, 2, 3, 4 and 45 of the SPL Project and commenced operating activities in May 2016, September 2016, March 2017, and October 2017 and March 2019, respectively. Train 5 of the SPL Project is undergoing commissioning and theThe following table summarizes the status of Train 6 of the SPL Project as of SeptemberJune 30, 2018:2019:
|
| | | |
| | SPL Train 56 |
Overall project completion percentage | | 98.5%32.4% |
Completion percentage of: | |
|
Engineering | | 100%74.1% |
Procurement | | 100%48.2% |
Subcontract work | | 92.7%30.7% |
Construction | | 97.8%2.1% |
Date of expected substantial completion | | 1Q 20191H 2023 |
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 2018, the DOE issued orders 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 January 2018, in an aggregate amount up to the equivalent of 600 Bcf of natural gas (however, exports under this order, when combined with exports under the orders above, may not exceed 1,509 Bcf/yr).
Customers
SPL has entered into six fixed price SPAs generally with terms of at least 20 years (plus extension rights) with eight third parties to make available an aggregate amount of LNG that is between approximately 80% to 95% of the expected aggregate adjusted nominal production capacity offor Trains 1 through 5.6 of the SPL Project, including an agreement anticipated to be assigned from Cheniere Marketing. 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 per MMBtu of LNG equal to approximately 115% of Henry Hub. 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. We refer to the fee component that is applicable regardless of a cancellation or suspension of LNG cargo deliveries under the SPAs as the fixed fee component of the price under SPL’s SPAs. We refer to the fee component that is applicable only in connection with LNG cargo deliveries as the variable fee component of the price under SPL’s SPAs. The variable fees under SPL’s SPAs were sized at the time of entry into each SPA with the intent to cover the costs of gas purchases and transportation related to, and operating and maintenance costs to produce, the LNG to be sold under each such SPA. 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 generally commences upon the date of first commercial delivery 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 volumes related to Train 3 available to BG has commenced and the obligation to make volumes related to Train 4 available to BG is expected to commence approximately one year after the date of first commercial delivery under SPL’s SPA with GAIL for Train 4.
In aggregate, the annual fixed fee portion to be paid by the third-party SPA customers is approximately $2.2$2.3 billion for Trains 1 through 34 and the SPA with GAIL for Train 4, increasing to $2.3 billion upon the date of first commercial delivery of Train 4 under the SPA with BG and to $2.9 billion upon the date of first commercial delivery of Train 5, with the applicable fixed fees starting from the date of first commercial delivery from the applicable Train, as specified in each SPA.
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 variability 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 SeptemberJune 30, 2018,2019, SPL had secured up to approximately 2,7553,437 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 for the engineering, procurement and construction of Trains 1 through 56 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 price of the EPC contract for Train 56 of the SPL Project is approximately $3.1$2.5 billion, reflecting amounts incurred under change orders through September 30, 2018. Total expected capitalincluding estimated 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.an optional third marine berth.
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, prior to inflation adjustments, 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, prior to inflation adjustments, continuing until at least May 2036. SPL entered into a partial TUA assignment agreement with Total, whereby upon substantial completion of Train 35 of the SPL Project, SPL gained access to a portionsubstantially all of Total’s capacity and other services provided under Total’s TUA with SPLNG. Upon substantial completion of Train 5, SPL will gain access to substantially all of Total’s capacity. This agreement provides SPL with additional berthing and storage capacity at the Sabine Pass LNG terminal that may be used to provide increased flexibility in managing LNG
cargo loading and unloading activity, permit SPL to more flexibly manage its LNG storage capacity and accommodate the development of Trains 5 andTrain 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 each of the three months ended SeptemberJune 30, 20182019 and 2017,2018, SPL recorded $32 million and $7.5 million, respectively, and during the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, SPL recorded $23$40 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.
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 project debt and borrowings, and cash flows under the SPAs.SPAs and equity contributions from Cheniere Partners. We believe that with the net proceeds of borrowings, available commitments under the SPL Working Capital Facility, 2019 CQP Credit Facilities and cash flows from operations, we will have adequate financial resources available to complete Train 5 of the SPL Project and to meet our currently anticipated capital, operating and debt service requirements.requirements with respect to Trains 1 through 6 of the SPL Project. SPL began generating cash flows from operations from the SPL Project in May 2016, when Train 1 achieved substantial completion and initiated operating activities. Trains 2, 3, 4 and 45 subsequently achieved substantial completion in September 2016, March 2017, and October 2017 and March 2019, respectively. We realized offsets to LNG terminal costs of $82 million and $252$74 million in the three and ninesix months ended SeptemberJune 30, 2017,2019, 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 Train 5 of the SPL Project during the testing phase for the construction of those Trains of the SPL Project.its construction. We did not realize any offsets to LNG terminal costs in the three and nine months ended SeptemberJune 30, 2019 and the three and six months ended June 30, 2018. Additionally, SPLNG generates cash flows from the TUAs, as discussed above.
The following table 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 SeptemberJune 30, 20182019 and December 31, 20172018 (in millions):
| | | | September 30, | | December 31, | | June 30, | | December 31, |
| | 2018 | | 2017 | | 2019 | | 2018 |
Senior notes (1) | | $ | 16,250 |
| | $ | 15,150 |
| | $ | 16,250 |
| | $ | 16,250 |
|
Credit facilities outstanding balance (2) | | — |
| | 1,090 |
| | 649 |
| | — |
|
Letters of credit issued (3) | | 494 |
| | 730 |
| | 415 |
| | 425 |
|
Available commitments under credit facilities (3) | | 706 |
| | 470 |
| | 1,636 |
| | 775 |
|
Total capital resources from borrowings and available commitments (4) | | $ | 17,450 |
| | $ | 17,440 |
| | $ | 18,950 |
| | $ | 17,450 |
|
| |
(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”), 4.200% Senior Secured Notes due 2028 (the “2028 SPL Senior Notes”) and 5.00% Senior Secured Notes due 2037 (the “2037 SPL Senior Notes”) (collectively, the “SPL Senior Notes”) and Cheniere Partners’ 2025 CQP Senior Notes and 2026 CQP Senior Notes. |
| |
(2) | Includes outstanding balancebalances under the SPL Working Capital Facility and CTPL and SPLNG tranche term loans outstanding under the2019 CQP Credit Facilities.Facilities, inclusive of any portion of the 2019 CQP Credit Facilities that may be used for general corporate purposes. |
| |
(3) | Consists of SPL Working Capital Facility. DoesFacility and 2019 CQP Credit Facilities. Balance at December 31, 2018 did not include the letters of credit issued or available commitments under the terminated 2016 CQP Credit Facilities, which arewere 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, 2017.2018.
SPL Senior Notes
The SPL Senior Notes are secured on a pari passu first-priority basis by a security interest in all of the membership interests in SPL and substantially all of SPL’s assets.
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 respective indentures governing the SPL Senior Notes, 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.
Both the indenture governing the 2037 SPL Senior Notes (the “2037 SPL Senior Notes Indenture”) and the common indenture governing the remainder of the SPL Senior Notes (the “SPL Indenture”) 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 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. Semi-annual principal payments for the 2037 SPL Senior Notes are due on March 15 and September 15 of each year beginning September 15, 2025.
SPL Working Capital Facility
In September 2015, SPL entered into 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 SeptemberJune 30, 20182019 and December 31, 2017,2018, SPL had $706$785 million and $470$775 million of available commitments and $494$415 million and $730$425 million aggregate amount of issued letters of credit under the SPL Working Capital Facility, respectively. SPL did not have any amounts outstanding under the SPL Working Capital Facility as of both SeptemberJune 30, 20182019 and December 31, 2017.2018.
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. 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.
Corpus Christi LNG Terminal
Liquefaction Facilities
TheWe are in various stages of constructing and operating the CCL Project is being developed and constructed at the Corpus Christi LNG terminal. We have received authorization from the FERC to site, construct and operate Stages 1 and 2 of the CCL Project. We achieved substantial completion of Train 1 of the CCL Project and commenced operating activities in February 2019. The following table summarizes the overall project status of the CCL Project as of SeptemberJune 30, 2018:2019:
| | | CCL Stage 1 | | CCL Stage 2 | CCL Stage 1 | | CCL Stage 2 |
Overall project completion percentage | 93.9% | | 36.3% | 99.5% | | 62.4% |
Completion percentage of: | | | | |
Engineering | 100% | | 79.2% | 100% | | 94.3% |
Procurement | 100% | | 57.3% | 100% | | 92.5% |
Subcontract work | 83.6% | | 5.8% | 96.4% | | 12.2% |
Construction | 86.9% | | 5.9% | 99.2% | | 29.2% |
Expected date of substantial completion | Train 1 | 1Q 2019 | | Train 3 | 2H 2021 | Train 2 | 3Q 2019 | | Train 3 | 2H 2021 |
| Train 2 | 2H 2019 | | |
Separate from the CCH Group, we are also developing Corpus Christi Stage 3, adjacent to the CCL Project. We filed an application with the FERC in June 2018 for seven midscale Trains with an expected aggregate nominal production capacity of approximately 9.5 mtpa and one LNG storage tank. We remain focused on leveraging infrastructure through the expansion of our existing sites.
The following orders have been issued by the DOE authorizing the export of domestically produced LNG by vessel from the Corpus Christi LNG terminal:
CCL 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.
Corpus Christi Stage 3—FTA countries for a 20-year term in an amount equivalent to 514 Bcf/yr (approximately 10 mtpa) of natural gas (the “Stage 3 FTA”). The application for authorization to export that same 514 Bcf/yr of domestically produced LNG by vessel to non-FTA countries is currently pending before the DOE (the “Stage 3 Non-FTA”).
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 seven to 10 years from the date the order was issued.
In June 2018, Chenierewe requested that DOE vacate the Stage 3 FTA and permit Cheniereus to withdraw the pending Stage 3 Non-FTA. These requests were made due to certain changes to Corpus Christi Stage 3.
In conjunction with the submission onin June 28, 2018 of Cheniere’sour FERC application for Corpus Christi Stage 3, Chenierewe submitted a new application for long-term multi-contract authorization to export up to a combined total of 582.14 Bcf/yr (approximately 11.45 mtpa) of natural gas to FTA countries for a 25-year term and to non-FTA countries for a 20-year term. The term of each authorization is expected to begin on the earlier of the date of first commercial export of LNG produced by Corpus Christi Stage 3 or the date which is seven years from the issuance of such authorizations.
Customers
CCL has entered into ten fixed-pricefixed price SPAs generally with terms of 20 years (plus extension rights) with nine third parties to make available an aggregate amount of LNG that is between approximately 75% to 85% of the expected aggregate adjusted nominal production capacity offor Trains 1 through 3.3 of the CCL Project. Under these ten SPAs, the customers will purchase LNG from CCL 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 per MMBtu of LNG equal to approximately 115% of Henry Hub. 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. We refer to the fee component that is applicable regardless of a cancellation or suspension of LNG cargo deliveries under the SPAs as the fixed fee component of the price under our SPAs. We refer to the fee component that is applicable only in connection with LNG cargo deliveries as the variable fee component of the price under our SPAs. The variable fee under CCL’s SPAs entered into in connection with the development of the CCL Project was sized at the time of entry into each SPA with the intent to cover the costs of gas purchases and transportation
related to, and operating and maintenance costs to produce, the LNG to be sold under each such SPA. 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 generally commences upon the date of first commercial delivery for the applicable Train, as specified in each SPA.
In aggregate, the minimum fixed fee portion to be paid by the third-party SPA customers is approximately $550 million for Train 1, and increasing to approximately $1.4 billion for Train 2, in each case upon the date of first commercial delivery for the respective Train 2 and further increasing to approximately $1.8 billion following the substantial completion of Train 3 of the CCL Project.
In addition, Cheniere Marketing has entered into SPAs with CCL to purchase 15 TBtu per annum of LNG and any LNG produced by CCL in excess of that required for other customers at Cheniere Marketing’s option.
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 variability 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. As of SeptemberJune 30, 2018,2019, CCL had secured up to approximately 2,6402,787 TBtu of natural gas feedstock through long-term natural gas supply contracts, a portion of which is subject to the achievement of certain project milestones and other conditions precedent.
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 prices of the EPC contract for Stage 1 and the EPC contract for Stage 2, which do not include the Corpus Christi Pipeline, are approximately $7.8 billion and $2.4 billion, respectively, reflecting amounts incurred under change orders through SeptemberJune 30, 2018.2019. Total expected capital costs for Trains 1 through 3 are estimated to be between $11.0 billion and $12.0 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.
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 was completed in the second quarter of 2018.
Capital Resources
We expectThe CCH Group expects to finance the construction costs of the CCL Project from one or more of the following: project financing, operating cash flows from CCL and CCP and equity contributions from Cheniere. We realized offsets to our subsidiaries.LNG terminal costs of $128 million in the six months ended June 30, 2019 that were related to the sale of commissioning cargoes because these amounts were earned or loaded prior to the start of commercial operations of Train 1 during the testing phase for its construction. We did not realize any offsets to LNG terminal costs in the three months ended June 30, 2019. The following table provides a summary of ourthe capital resources of the CCH Group from borrowings and available commitments for the CCL Project, excluding equity contributions to our subsidiaries,from Cheniere, at SeptemberJune 30, 20182019 and December 31, 20172018 (in millions):
| | | | September 30, | | December 31, | | June 30, | | December 31, |
| | 2018 | | 2017 | | 2019 | | 2018 |
Senior notes (1) | | $ | 4,250 |
| | $ | 4,250 |
| | $ | 4,250 |
| | $ | 4,250 |
|
11% Convertible Senior Secured Notes due 2025 (2) | | 1,000 |
| | 1,000 |
| |
11.0% Convertible Senior Secured Notes due 2025 (2) | | | 1,000 |
| | 1,000 |
|
Credit facilities outstanding balance (3) | | 4,492 |
| | 2,485 |
| | 6,138 |
| | 5,324 |
|
Letters of credit issued (3) | | 316 |
| | 164 |
| | 338 |
| | 316 |
|
Available commitments under credit facilities (3) | | 2,530 |
| | 2,273 |
| | 862 |
| | 1,698 |
|
Total capital resources from borrowings and available commitments (4) | | $ | 12,588 |
| | $ | 10,172 |
| | $ | 12,588 |
| | $ | 12,588 |
|
| |
(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 5.125% Senior Secured Notes due 2027 (the “2027 CCH Senior Notes”) (collectively, the “CCH Senior Notes”). |
| |
(2) | Aggregate original principal amount before debt discount and debt issuance costs. |
| |
(3) | Includes CCH Credit Facility and CCH Working Capital Facility. |
| |
(4) | 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, 2017.2018.
2025 CCH HoldCo II Convertible Senior Notes
In May 2015, CCH HoldCo II issued $1.0 billion aggregate principal amount of 11%11.0% Convertible Senior Secured Notes due 2025 (the “2025 CCH HoldCo II Convertible Senior Notes”) on a private placement basis. The 2025 CCH HoldCo II Convertible Senior Notes are convertible at the option of CCH HoldCo II or the holders, provided that various conditions are 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.
In May 2018, the amended and restated note purchase agreement under which the 2025 CCH HoldCo II Convertible Senior Notes were issued was subsequently amended in connection with commercialization and financing of Train 3 of the CCL Project.Project and to provide the note holders with certain prepayment rights related thereto consistent with those under the CCH Credit Facility. All terms of the 2025 CCH HoldCo II Convertible Senior Notes substantially remained the same to those described in Note 12—Debt of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended December 31, 2017.unchanged.
CCH Senior Notes
The CCH Senior Notes are jointly and severally guaranteed by itsCCH’s subsidiaries, CCL, CCP and Corpus Christi Pipeline GP, LLC (the “CCH Guarantors”).
The indenture governing the 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 CCH Guarantor to dissolve, liquidate, consolidate, merge, sell or lease all or substantially all of its properties and assets.
At any time prior to six months before the respective dates of maturity for each series of the CCH Senior Notes, CCH may redeem all or part of such series of the 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 within six months of the respective dates of maturity for each series of the CCH Senior Notes, redeem all or part of such series of the CCH Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the CCH Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to the date of redemption.
CCH Credit Facility
In May 2018, CCH amended and restated the CCH Credit Facility to increase total commitments under the CCH Credit Facility from $4.6 billion to $6.1 billion. The obligations of CCH under the 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. As of SeptemberJune 30, 20182019 and December 31, 2017,2018, CCH had $1.6 billionzero and $2.1$1.0 billion of available commitments and $4.5$6.1 billion and $2.5$5.2 billion of loans outstanding under the CCH Credit Facility, respectively.
The CCH Credit Facility matures on June 30, 2024, with principal payments due quarterly commencing on the earlier of (1) the first quarterly payment date occurring more than three calendar months following the completion of the CCL Project as defined in the common terms agreement and (2) a set date determined by reference to the date under which a certain LNG buyer linked to the last Train of the CCL Project to become operational 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 completion of Trains 1 through 3 and designed to achieve a minimum projected fixed debt service coverage ratio of 1.50:1.
Under the 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 certain distributions under agreements governing its indebtedness generally until, among other requirements, the completion of the construction of Trains 1 and 2through 3 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.
CCH Working Capital Facility
In June 2018, CCH amended and restated the CCH Working Capital Facility to increase total commitments under the CCH Working Capital Facility from $350 million to $1.2 billion. The CCH Working Capital Facility is intended to be used for loans to CCH (“CCH Working Capital Loans”), and 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 placing into operations the CCL Project and for related business purposes. Loans under the CCH Working Capital Facility are guaranteed by the CCH Guarantors. CCH may, from time to time, request increases in the commitments under the CCH Working Capital Facility of up to the maximum allowed for working capital under the Common Terms Agreement that was entered into concurrently with the CCH Credit Facility. As of SeptemberJune 30, 20182019 and December 31, 2017,2018, CCH had $884$862 million and $186$716 million of available commitments, and $316$338 million and $164$316 million aggregate amount of issued letters of credit under the CCH Working Capital Facility, respectively. CCH did not have any amountsand zero and $168 million of loans outstanding under the CCH Working Capital Facility, as of both September 30, 2018 and December 31, 2017.respectively.
The CCH Working Capital Facility matures on June 29, 2023, 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 15 days after such CCH Swing Line Loan is made and (3) the first borrowing date for a CCH 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 all 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 negative covenants. The obligations of CCH under the CCH Working Capital Facility are secured by substantially all of the assets of CCH and the CCH Guarantors as well as all of the membership interests in CCH and each of the CCH Guarantors on a pari passu basis with the CCH Senior Notes and the CCH Credit Facility.
CCH Note Purchase Agreement
In June 2019, CCH entered into the CCH Note Purchase Agreement with Allianz Global Investors GmbH to issue an aggregate principal amount of $727 million of the 2039 CCH Senior Notes, which will be jointly and severally guaranteed by the CCH Guarantors. The conditions to closing and issuance of the 2039 CCH Senior Notes include the receipt of at least two investment grade ratings for the 2039 CCH Senior Notes, in addition to other customary conditions to closing. Pursuant to the CCH Note Purchase Agreement, CCH has up to 12 months, subject to a six-month extension at CCH’s option, to satisfy the conditions to closing and issuance. The net proceeds from the 2039 CCH Senior Notes will be used by CCH to repay a portion of its outstanding term loans and pay fees, costs and expenses incurred in connection with the repayment of such outstanding term loans and/or the transactions contemplated in the CCH Note Purchase Agreement.
Restrictive Debt Covenants
As of SeptemberJune 30, 2018,2019, each of our issuers was in compliance with all covenants related to their respective debt agreements.
Marketing
We market and sell LNG produced by the SPL Project and the CCL ProjectLiquefaction Projects that is not required for other customers through our integrated marketing function. We are developing a portfolio of long-, medium- and short-term SPAs to transport and unload commercial LNG cargoes to locations worldwide, which is primarily sourced by LNG produced by the SPL Project and the CCL ProjectLiquefaction Projects but supplemented by volume procured from other locations worldwide, as needed. As of SeptemberJune 30, 2018,2019, we have sold or have options to sell approximately 3,9585,066 TBtu of LNG to be delivered to customers between 20182019 and 2045.2045, excluding volume for an agreement anticipated to be assigned to SPL in the future. The cargoes have been sold either on a free on board (“FOB”) basis (delivered to the customer at the Sabine Pass LNG terminal or the Corpus Christi LNG terminal) or a delivered at terminal (“DAT”) basis (delivered to the customer at their LNG receiving terminal). We have chartered LNG vessels to be utilized in DAT transactions. In addition, we have entered into a long-term agreement to sell LNG cargoes on a DAT basis that is conditioned upon the buyer achieving certain milestones.
Cheniere Marketing entered into uncommitted trade finance facilities with available commitments of $370$420 million as of SeptemberJune 30, 2018,2019, primarily to be used for the purchase and sale of LNG for ultimate resale in the course of its 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 SeptemberJune 30, 20182019 and December 31, 2017,2018, Cheniere Marketing had $129$10 million and $2$31 million, respectively, in standby letters of credit and guarantees outstanding under the finance facilities. As of SeptemberJune 30, 20182019 and December 31, 2017,2018, Cheniere Marketing had $66zero and $71 million, and zero, respectively, in loans 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 made an equity investment in Midship Pipeline, which is developingconstructing a pipeline with expected capacity of up to 1.44 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.Liquefaction Projects.
Sources and Uses of Cash
The following table summarizes the sources and uses of our cash, cash equivalents and restricted cash for the ninesix months ended SeptemberJune 30, 20182019 and 20172018 (in millions). 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, | Six Months Ended June 30, |
| 2018 | | 2017 | 2019 | | 2018 |
Operating cash flows | $ | 1,504 |
| | $ | 895 |
| $ | 760 |
| | $ | 982 |
|
Investing cash flows | (2,722 | ) | | (2,926 | ) | (1,542 | ) | | (1,492 | ) |
Financing cash flows | 1,537 |
| | 2,779 |
| 1,066 |
| | 1,168 |
|
| | | | | | |
Net increase in cash, cash equivalents and restricted cash | 319 |
|
| 748 |
| 284 |
|
| 658 |
|
Cash, cash equivalents and restricted cash—beginning of period | 2,613 |
| | 1,827 |
| 3,156 |
| | 2,613 |
|
Cash, cash equivalents and restricted cash—end of period | $ | 2,932 |
| | $ | 2,575 |
| $ | 3,440 |
| | $ | 3,271 |
|
Operating Cash Flows
Our operating cash net inflows during the ninesix months ended SeptemberJune 30, 2019 and 2018 were $760 million and 2017 were $1.5 billion and $895$982 million, respectively. The $609$222 million increasedecrease in operating cash inflows in 20182019 compared to 20172018 was primarily related to increased operating costs and expenses, partially offset by increased cash receipts from the sale of LNG cargoes, partially offset by increased operating costs and expenses as a result of the of additional Trains that were operating at the SPL ProjectLiquefaction Projects in 2018. During the nine months ended September 30, 2018,2019. In addition to Trains 1 through 4 of the SPL Project that were
operational whereas during both the ninesix months ended SeptemberJune 30, 2017, Trains2019 and 2018, Train 5 of the SPL Project and Train 1 and 2of the CCL Project were operational for nineapproximately four months and Train 3 was operational forduring the six months.months ended June 30, 2019.
Investing Cash Flows
Investing cash net outflows during the ninesix months ended SeptemberJune 30, 2019 and 2018 were $1,542 million and 2017 were $2.7 billion and $2.9 billion,$1,492 million, respectively, and were primarily used to fund the construction costs for the SPL Project and the CCL Project.Liquefaction Projects. These costs are capitalized as construction-in-process until achievement of substantial completion. Additionally, during the during the nine months ended September 30, 2018, we invested an additional $25$34 million in Midship Holdings, our equity method investment, Midship Holdings, offset by proceeds of $12 million fromduring the sale of our cost method investments. During the ninesix months ended SeptemberJune 30, 2017, we invested an additional $41 million in our equity method investment Midship Holdings and made payments of $18 million primarily for infrastructure to support the CCL Project, which was partially offset by the receipt of $36 million from the return of collateral payments previously paid for the CCL Project.2019.
Financing Cash Flows
Financing cash net inflows during the ninesix months ended SeptemberJune 30, 2019 were $1,066 million, primarily as a result of:
$982 million of borrowings under the CCH Credit Facility;
$649 million of borrowings under the 2019 CQP Credit Facilities;
$390 million of borrowings and $558 million in repayments under the CCH Working Capital Facility;
$290 million of distributions to non-controlling interest by Cheniere Partners;
$72 million of net repayments related to our Cheniere Marketing trade financing facilities;
$20 million of debt issuance costs primarily related to up-front fees paid upon the closing of the 2019 CQP Credit Facilities; and
$14 million paid for tax withholdings for share-based compensation.
Financing cash net inflows during the six months ended June 30, 2018 were $1.5$1.2 billion, primarily as a result of:
issuance of an aggregate principal amount of $1.1 billion of the 2026 CQP Senior Notes, which was used to prepay $1.1 billion of the outstanding borrowings under the CQP Credit Facilities;
$2.31.7 billion of borrowings and $281 million in repayments under the CCH Credit Facility;
$14 million of borrowings and $14 million in repayments under the CCH Working Capital Facility;
$66123 million of net borrowings related to our Cheniere Marketing trade financing facilities;
$5346 million of debt issuance costs related to up-front fees paid uponfor the closingamendment and restatement of these transactions;
$16 million in debt extinguishment costs related to the prepayments of the CQP Credit Facilities and the CCH Credit Facility;
$435 million of distributionsFacility and dividends to non-controlling interest by Cheniere Partners and Cheniere Holdings;
$10 million paid for tax withholdings for share-based compensation; and
$7 million of transaction costs to acquire additional interest of Cheniere Holdings.
Financing cash inflows during the nine months ended September 30, 2017 were $2.8 billion, primarily as a result of:
issuances of SPL’s senior notes for an aggregate principal amount $2.15 billion;
$55 million of borrowings and $369 million of repayments made under the credit facilities SPL entered into in June 2015;
$110 million of borrowings and $334 million of repayments made under the SPL Working Capital Facility;
$1.2 billion of borrowings under the 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 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 CQP Credit Facilities;
$178 million in net borrowings under the Cheniere Marketing trade finance facilities;debt extinguishment costs;
$85 million of debt issuance costs related to up-front fees paid upon the closing of these transactions;
$60288 million of distributions and dividends to non-controlling interest by Cheniere Partners and Cheniere Holdings; and
$48 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 andLiquefaction Projects, which were recognized on our Consolidated Financial Statements during the three and ninesix months ended SeptemberJune 30, 2018:2019:
| | | Three Months Ended September 30, 2018 | | Nine Months Ended September 30, 2018 | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
(in TBtu) | Operational | | Commissioning | | Operational | | Commissioning | Operational | | Commissioning | | Operational | | Commissioning |
Volumes loaded during the current period | 228 |
| | — |
| | 691 |
| | — |
| 361 |
| | 3 |
| | 645 |
| | 28 |
|
Volumes loaded during the prior period but recognized during the current period | 3 |
| | — |
| | 43 |
| | — |
| 27 |
| | — |
| | 25 |
| | 3 |
|
Less: volumes loaded during the current period and in transit at the end of the period | (3 | ) | | — |
| | (3 | ) | | — |
| (36 | ) | | (3 | ) | | (36 | ) | | (3 | ) |
Total volumes recognized in the current period | 228 |
| | — |
| | 731 |
| | — |
| 352 |
| | — |
| | 634 |
| | 28 |
|
Our consolidated net incomeloss attributable to common stockholders was $65$114 million, or $0.26$0.44 per share (basic and diluted), in the three months ended SeptemberJune 30, 2018,2019, compared to net loss attributable to common stockholders of $289$18 million, or $1.24$0.07 per share (basic and diluted), in the three months ended SeptemberJune 30, 2017.2018. This $354$96 million increase in net incomeloss attributable to common stockholders in 20182019 was primarily attributable to the nonrecurrence of non-cash amortization of the beneficial conversion feature on Cheniere Partners’ Class B units that occurred during the comparable period in 2017, partially offset by increased allocation of Cheniere Partners’ net income allocated to non-controlling interest holders. Further contributing to the increase was increased income from operationsdecreased margins per MMBtu due to additional Trains operating between periods, increased derivative gain, net and decreased losspricing on modification or extinguishment of debt, partially offset byLNG, increased interest expense, net of amounts capitalized.capitalized, increased operating and maintenance expense, increased derivative loss, net, and increased depreciation and amortization expense, which were partially offset by decreased net income attributable to non-controlling interest.
Our consolidated net income attributable to common stockholders was $404$27 million, or $1.67 per share—basic and $1.65 per share—diluted, in the nine months ended September 30, 2018, compared to net loss attributable to common stockholders of $520 million, or $2.24$0.11 per share (basic and diluted), in the ninesix months ended SeptemberJune 30, 2017.2019, compared to net income attributable to common stockholders of $339 million, or $1.42 per share—basic and $1.40 per share—diluted, in the six months ended June 30, 2018. This $924$312 million increasedecrease in net income attributable to common stockholders in 20182019 was primarily attributable to the nonrecurrence of non-cash amortization of the beneficial conversion feature on Cheniere Partners’ Class B units that occurred during the comparable period in 2017, partially offset by increased allocation of Cheniere Partners’ net income allocated to non-controlling interest holders. Further contributing to the increase was increased income from operationsdecreased margins per MMBtu due to additional Trainsdecreased pricing on LNG, increased operating between the periods,and maintenance expense, increased derivative gain,loss, net, and decreased loss on modification or extinguishment of debt, which were partially offset by increased interest expense, net of amounts capitalized.capitalized and increased depreciation and amortization expense, which were partially offset by decreased net income attributable to non-controlling interest.
We enter into derivative instruments to manage our exposure to (1) changing interest rates, (2) commodity-related marketing and price risks and (3) foreign exchange volatility. Derivative instruments are reported at fair value on our Consolidated Financial Statements. In some cases, the underlying transactions economically hedged receive accrual accounting treatment, whereby revenues and expenses are recognized only upon delivery, receipt or realization of the underlying transaction. Because the recognition of derivative instruments at fair value has the effect of recognizing gains or losses relating to future period exposure, use of derivative instruments may increase the volatility of our results of operations based on changes in market pricing, counterparty credit risk and other relevant factors.
Revenues
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | 2018 | | 2017 | | Change | | 2018 | | 2017 | | Change | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
LNG revenues | $ | 1,719 |
| | $ | 1,332 |
| | $ | 387 |
| | $ | 5,327 |
| | $ | 3,646 |
| | $ | 1,681 |
| $ | 2,173 |
| | $ | 1,442 |
| | $ | 731 |
| | $ | 4,316 |
| | $ | 3,608 |
| | $ | 708 |
|
Regasification revenues | 66 |
| | 65 |
| | 1 |
| | 196 |
| | 195 |
| | 1 |
| 67 |
| | 65 |
| | 2 |
| | 133 |
| | 130 |
| | 3 |
|
Other revenues | 30 |
| | 5 |
| | 25 |
| | 73 |
| | 12 |
| | 61 |
| 52 |
| | 36 |
| | 16 |
| | 104 |
| | 47 |
| | 57 |
|
Other—related party | 4 |
| | 1 |
| | 3 |
| | 8 |
| | 2 |
| | 6 |
| |
Total revenues | $ | 1,819 |
|
| $ | 1,403 |
|
| $ | 416 |
|
| $ | 5,604 |
|
| $ | 3,855 |
|
| $ | 1,749 |
| $ | 2,292 |
|
| $ | 1,543 |
|
| $ | 749 |
|
| $ | 4,553 |
|
| $ | 3,785 |
|
| $ | 768 |
|
We begin recognizing LNG revenues from the SPL ProjectLiquefaction Projects following the substantial completion and the commencement of operating activities of the respective Trains. During the nine months ended September 30, 2018,In addition to Trains 1 through 4 of the SPL Project that were operational whereas during both the ninesix months ended SeptemberJune 30, 2017, Trains2019 and 2018, Train 5 of the SPL Project and Train 1 and 2 of the CCL Project
were operational for nineapproximately four months and Train 3 was operational forduring the six months. The increase in revenues for the three and nine months ended SeptemberJune 30, 20182019. The additional revenue from the comparable periods in 2017 was primarily attributable to the increased volume of LNG sold following the achievement of substantial completion of these Trains.Trains in the three and six months ended June 30, 2019 from the comparable periods in 2018 was offset by decreased revenues per MMBtu, which was primarily affected by sales made at current market prices by our integrated marketing function. We expect our LNG revenues to increase in the future upon Train 56 of the SPL Project and Trains 1 through2 and 3 of the CCL Project becoming operational.
Prior to substantial completion of a Train, amounts received from the sale of commissioning cargoes from that Train are offset against LNG terminal construction-in-process, because these amounts are earned or loaded during the testing phase for the construction of that Train. We realized offsets to LNG terminal costs of $82$202 million corresponding to 1428 TBtu of LNG in the
three six months ended SeptemberJune 30, 2017 and $252 million corresponding to 40 TBtu of LNG in the nine months ended September 30, 20172019 that were related to the sale of commissioning cargoes. There were no commissioning cargoes sold that were realized asfrom the Liquefaction Projects. We did not realize any offsets to LNG terminal costs in the three and nine months ended SeptemberJune 30, 2019 and the three and six months ended June 30, 2018.
Also included in LNG revenues are gains and losses from derivative instruments, which include the realized value associated with a portion of derivative instruments that settle through physical delivery and the sale of natural gas procured for the liquefaction process. During the three months ended June 30, 2019 and 2018, we realized $183 million of gains and $34 million of losses, respectively, from these transactions and other revenues. During the six months ended June 30, 2019 and 2018, we realized $317 million and $8 million, respectively, of gains from these transactions and other revenues.
The following table presents the components of LNG revenues and the corresponding LNG volumes sold.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
LNG revenues (in millions): | | | | | | | | | | | | | | |
LNG from the SPL Project sold under SPL’s third party long-term SPAs | $ | 1,182 |
| | $ | 715 |
| | $ | 3,293 |
| | $ | 1,669 |
| |
LNG from the SPL Project sold by our integrated marketing function | 316 |
| | 200 |
| | 1,619 |
| | 1,337 |
| |
LNG from the Liquefaction Projects sold under third party long-term agreements (1) | | $ | 1,393 |
| | $ | 1,118 |
| | $ | 2,910 |
| | $ | 2,111 |
|
LNG from the Liquefaction Projects sold by our integrated marketing function under short-term agreements | | 566 |
| | 282 |
| | 905 |
| | 1,303 |
|
LNG procured from third parties | 208 |
| | 427 |
| | 394 |
| | 631 |
| 31 |
| | 76 |
| | 184 |
| | 186 |
|
Other revenues and derivative gains (losses) | 13 |
| | (10 | ) | | 21 |
| | 9 |
| 183 |
| | (34 | ) | | 317 |
| | 8 |
|
Total LNG revenues | $ | 1,719 |
| | $ | 1,332 |
| | $ | 5,327 |
| | $ | 3,646 |
| $ | 2,173 |
| | $ | 1,442 |
| | $ | 4,316 |
| | $ | 3,608 |
|
| | | | | | | | | | | | | | |
Volumes sold as LNG revenues (in TBtu): | | | | | | | | | | | | | | |
LNG from the SPL Project sold under SPL’s third party long-term SPAs | 196 |
| | 118 |
| | 550 |
| | 275 |
| |
LNG from the SPL Project sold by our integrated marketing function | 32 |
| | 33 |
| | 181 |
| | 176 |
| |
LNG from the Liquefaction Projects sold under third party long-term agreements (1) | | 241 |
| | 189 |
| | 477 |
| | 354 |
|
LNG from the Liquefaction Projects sold by our integrated marketing function under short-term agreements | | 111 |
| | 41 |
| | 157 |
| | 149 |
|
LNG procured from third parties | 23 |
| | 45 |
| | 44 |
| | 64 |
| 5 |
| | 10 |
| | 23 |
| | 21 |
|
Total volumes sold as LNG revenues | 251 |
| | 196 |
| | 775 |
| | 515 |
| 357 |
| | 240 |
| | 657 |
| | 524 |
|
(1) Long-term agreements include agreements with tenure of 12 months or more.
Operating costs and expenses
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | 2018 | | 2017 | | Change | | 2018 | | 2017 | | Change | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Cost of sales | $ | 1,027 |
| | $ | 824 |
| | $ | 203 |
| | $ | 3,078 |
| | $ | 2,140 |
| | $ | 938 |
| $ | 1,277 |
| | $ | 873 |
| | $ | 404 |
| | $ | 2,491 |
| | $ | 2,051 |
| | $ | 440 |
|
Operating and maintenance expense | 170 |
| | 114 |
| | 56 |
| | 457 |
| | 309 |
| | 148 |
| 295 |
| | 147 |
| | 148 |
| | 516 |
| | 287 |
| | 229 |
|
Development expense | 2 |
| | 3 |
| | (1 | ) | | 6 |
| | 7 |
| | (1 | ) | 3 |
| | 3 |
| | — |
| | 4 |
| | 4 |
| | — |
|
Selling, general and administrative expense | 74 |
| | 64 |
| | 10 |
| | 214 |
| | 179 |
| | 35 |
| 77 |
| | 73 |
| | 4 |
| | 150 |
| | 140 |
| | 10 |
|
Depreciation and amortization expense | 113 |
| | 92 |
| | 21 |
| | 333 |
| | 252 |
| | 81 |
| 204 |
| | 111 |
| | 93 |
| | 348 |
| | 220 |
| | 128 |
|
Restructuring expense | — |
| | — |
| | — |
| | — |
| | 6 |
| | (6 | ) | |
Impairment expense and loss on disposal of assets | 8 |
| | 9 |
| | (1 | ) | | 8 |
| | 15 |
| | (7 | ) | 4 |
| | — |
| | 4 |
| | 6 |
| | — |
| | 6 |
|
Total operating costs and expenses | $ | 1,394 |
| | $ | 1,106 |
| | $ | 288 |
| | $ | 4,096 |
| | $ | 2,908 |
| | $ | 1,188 |
| $ | 1,860 |
| | $ | 1,207 |
| | $ | 653 |
| | $ | 3,515 |
| | $ | 2,702 |
| | $ | 813 |
|
Our total operating costs and expenses increased during the three and ninesix months ended SeptemberJune 30, 20182019 from the three and ninesix months ended SeptemberJune 30, 2017, primarily as a result of additional Trains that were operating between the periods. There were four Trains operating during the nine months ended September 30, 2018, whereas two Trains were operating for nine months and a third Train was operating for six months during the comparable period in 2017.
Cost of sales increased during the three and nine months ended September 30, 2018 from the comparable periods in 2017, primarily as a result of the increase in operating Trains during 2018. between each of the periods and increased third-party service and maintenance costs from additional maintenance and related activities at the SPL Project.
Cost of sales includes costs incurred directly for the production and delivery of LNG from the SPL Project,Liquefaction Projects, to the extent those costs are not utilized for the commissioning process. The increaseCost of sales increased during the three and ninesix months ended SeptemberJune 30, 2019 from the three and six months ended June 30, 2018 from the comparable periods in 2017 was primarily relateddue to the increase in the volumeincreased volumes of natural gas feedstock for our LNG sales as a result of substantial completion of Train 5 of the SPL Project and Train 1 of the CCL Project, partially offset by lower pricesdecreased pricing of natural gas feedstock, between the periods. Cost of sales also includesand increased vessel charter costs, gains and losses fromcosts. Partially offsetting the increase in cost of natural gas feedstock was an increase in fair value of the derivatives associated with economic hedges to secure natural gas feedstock for the SPL Project and CCL Project,Liquefaction Projects due to a favorable shift in the long-term forward prices. Cost of sales also includes port and canal fees, variable transportation and storage costs, costs associated with a portion of derivative instruments that settle through physical delivery and the sale of natural gas procured for the liquefaction process and other costs to convert natural gas into LNG.
Operating and maintenance expense increased during the three and nine months ended September 30, 2018 from the comparable periods in 2017, as a result of the increase in operating Trains during 2018. Operating and maintenance expense primarily includes costs associated with operating and maintaining the SPL ProjectLiquefaction Projects. The increase in operating and CCL Project. The increasemaintenance expense during the three and ninesix months ended SeptemberJune 30, 20182019 from the comparable periods in 2017three and six months ended June 30, 2018 was primarily related to payroll and benefit
costs of operations personnel,to: (1) increased natural gas transportation and storage capacity demand charges from operating Train 5 of the SPL Project and third-party serviceTrain 1 of the CCL Project following the respective substantial completions, (2) increased cost of maintenance and maintenance contract costs.related activities at the SPL Project, (3) increased payroll and benefit costs from increased headcount to operate Train 5 of the SPL Project and Train 1 of the CCL Project and (4) increased TUA reservation charges paid to Total from payments under the partial TUA assignment agreement. Operating and maintenance expense also includes TUA reservation charges as a result of payments under the partial TUA assignment agreement with Total, insurance and regulatory costs and other operating costs.
Depreciation and amortization expense increased during the three and ninesix months ended SeptemberJune 30, 20182019 from the three and ninesix months ended SeptemberJune 30, 20172018 as a result of an increased numbercommencing operations of operational Trains, as the assets related to the TrainsTrain 5 of the SPL Project and Train 1 of the CCL Project in March 2019 and February 2019, respectively, and completing construction of the Corpus Christi Pipeline in the second quarter of 2018, as the related assets began depreciating upon reaching substantial completion.
Impairment expense and loss on disposal of assets decreased during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The impairment expense and loss on disposal of assets recognized during the nine months ended September 30, 2018 related to the write down of prepaid assets. The impairment expense and loss on disposal of assets recognized during the nine months ended September 30, 2017 related to write down of assets used in non-core operations outside of our liquefaction activities.
We expect our operating costs and expenses to generally increase in the future upon Train 56 of the SPL Project and Trains 2 and 3 of the CCL Project achieving substantial completion, although certain costs will not proportionally increase with the number of operational Trains as cost efficiencies will be realized, as well as upon Trains 1 through 3 of the CCL Project becoming operational.realized.
Other expense (income)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | 2018 | | 2017 | | Change | | 2018 | | 2017 | | Change | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Interest expense, net of capitalized interest | $ | 221 |
| | $ | 186 |
| | $ | 35 |
| | $ | 653 |
| | $ | 539 |
| | $ | 114 |
| $ | 372 |
| | $ | 216 |
| | $ | 156 |
| | $ | 619 |
| | $ | 432 |
| | $ | 187 |
|
Loss on modification or extinguishment of debt | 12 |
| | 25 |
| | (13 | ) | | 27 |
| | 100 |
| | (73 | ) | — |
| | 15 |
| | (15 | ) | | — |
| | 15 |
| | (15 | ) |
Derivative loss (gain), net | (23 | ) | | 2 |
| | (25 | ) | | (132 | ) | | 37 |
| | (169 | ) | 74 |
| | (32 | ) | | 106 |
| | 109 |
| | (109 | ) | | 218 |
|
Other income | (15 | ) | | (4 | ) | | (11 | ) | | (32 | ) | | (11 | ) | | (21 | ) | (16 | ) | | (10 | ) | | (6 | ) | | (32 | ) | | (17 | ) | | (15 | ) |
Total other expense | $ | 195 |
| | $ | 209 |
| | $ | (14 | ) | | $ | 516 |
| | $ | 665 |
| | $ | (149 | ) | $ | 430 |
| | $ | 189 |
| | $ | 241 |
| | $ | 696 |
| | $ | 321 |
| | $ | 375 |
|
Interest expense, net of capitalized interest, increased during the three and ninesix months ended SeptemberJune 30, 20182019 compared to the three and ninesix months ended SeptemberJune 30, 2017,2018, as a result of increased outstanding debt (before unamortized premium, discount and debt issuance costs, net) from $25.7$27.6 billion as of SeptemberJune 30, 20172018 to $28.3$30.7 billion as of SeptemberJune 30, 20182019, primarily due to increased borrowings under the CCH Credit Facility, as well as a decrease in the portion of total interest costs that could be capitalized as additional Trains of the SPL ProjectLiquefaction Projects completed construction between the periods. For the three months ended SeptemberJune 30, 20182019 and 2017,2018, we incurred $426$458 million and $389$412 million of total interest cost, respectively, of which we capitalized $205$86 million and $203$196 million, respectively, which was primarily related to the construction of the SPL Project and the CCL Project.Liquefaction Projects. For the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, we incurred $1.2 billion$906 million and $1.1 billion$816 million of total interest cost, respectively, of which we capitalized $589$287 million and $581$384 million, respectively, which was primarily related to the construction of the SPL Project and the CCL Project.Liquefaction Projects.
Loss on modification or extinguishment of debt decreased during the three and ninesix months ended SeptemberJune 30, 2018, as compared to2019 decreased from the three and nine months ended September 30, 2017.comparable periods in 2018. Loss on modification or extinguishment of debt of $12 million recognized in 2018 was attributable to the incurrence of third party fees and write off of unamortized debt issuance costs in September 2018 as a result of the termination of approximately $1.2 billion of commitments under the CQP Credit Facilities in connection with the issuance of the 2026 CQP Senior Notes. Additionally, loss on modification or extinguishment $15 million
of debt of $15 million was recognized in June 2018modification and extinguishment costs relating to the incurrence of third partythird-party fees and write offwrite-off of unamortized debt issuance costs as a result of the amendment and restatement of the CCH Credit Facility. Loss on modification or extinguishment of debt recognized in 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 SPL’s previous credit facilities in connection with the issuance of the 2028 SPL Senior Notes and the 2037 SPL Senior Notes; (2) the write-off of $33 million in May 2017 upon the prepayment of approximately $1.4 billion of outstanding borrowings under the 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 CQP Credit Facilities in connection with the issuance of the 2025 CQP Senior Notes.
Derivative gain,loss, net increased during the three and ninesix months ended SeptemberJune 30, 20182019 compared to the three and ninesix months ended SeptemberJune 30, 2017,2018, primarily due to a favorablean unfavorable shift in the long-term forward LIBOR curve between the periods.
DuringOther income increased during the ninethree and six months ended SeptemberJune 30, 2019 as compared to the three and six months ended June 30, 2018, we also recognized a $5 million gainprimarily due to an increase in June 2018 upon the termination of interest rate swaps associated with the amendmentincome earned on our cash and restatement of the CCH Credit Facility. During the nine months ended September 30, 2017, we recognized a $7 million loss upon the termination of interest rate swaps associated with the termination of SPL’s previous credit facilities and a $13 million loss in May 2017 in conjunction with the termination of approximately $1.4 billion of commitments under the CCH Credit Facility.cash equivalents.
OtherIncome tax benefit (provision)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | 2018 | | 2017 | | Change | | 2018 | | 2017 | | Change | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Income before income taxes and non-controlling interest | | $ | 2 |
| | $ | 147 |
| | (145 | ) | | $ | 342 |
| | $ | 762 |
| | $ | (420 | ) |
Income tax benefit (provision) | $ | (3 | ) | | $ | 2 |
| | $ | (5 | ) | | $ | (15 | ) | | $ | 1 |
| | $ | (16 | ) | — |
| | 3 |
| | (3 | ) | | (3 | ) | | (12 | ) | | 9 |
|
Net income attributable to non-controlling interest | 162 |
| | 379 |
| | (217 | ) | | 573 |
| | 803 |
| | (230 | ) | |
| | | | | | | | | | | | |
Effective tax rate | | — | % | | 2.0 | % | | | | 0.9 | % | | 1.6 | % | | |
ChangesIncome tax benefit decreased $3 million during the three months ended June 30, 2019 and income tax provision decreased $9 million during the six months ended June 30, 2019, respectively, from the comparable periods in 2018 primarily attributable to changes in the income earned and tax recorded between comparative periods are primarily attributabletransfer pricing applied to fluctuations in the profitability of our U.K. integrated marketing function. The effective tax rates during each of the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 were lower than the 21% and 35% federal statutory rates during the 2018 and 2017 interim periodsrate, primarily as a result of maintaining a valuation allowance against our federal and state net deferred tax assets. Given our current and anticipated future earnings, we believe that there is a reasonable possibility that within approximately 6 to 18 months, sufficient positive evidence may become available to allow us to conclude that a significant portion of the valuation allowance will no longer be needed. The release of the valuation allowance would result in the recognition of certain deferred tax assets and an income tax benefit in the period the release is recorded. However, the precise timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to achieve.
Net income attributable to non-controlling interest
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Net income attributable to non-controlling interest | $ | 116 |
| | $ | 168 |
| | $ | (52 | ) | | $ | 312 |
| | $ | 411 |
| | $ | (99 | ) |
Net income attributable to non-controlling interest decreased during the three and ninesix months ended SeptemberJune 30, 20182019 from the three and ninesix months ended SeptemberJune 30, 20172018 due to the nonrecurrencedecrease of non-cash amortization of the beneficial conversion feature on Cheniere Partners’ Class B units that occurred during the comparable periods in 2017, which was partially offset by the increase in consolidated net income recognized by Cheniere Partners in which the non-controlling interests are held, adjusting for the increase in the share of Cheniere Partners’ net income that is attributed to non-controlling interest holders as a result of changes in ownership percentages between years. Net income attributable to non-controlling interest during the three and nine months ended September 30, 2017 included approximately $370 million and $748 million due to amortization of the beneficial conversion feature on Cheniere Partners’ Class B units, which ceased upon the conversion of Cheniere Partners’ Class B units into common units. The consolidated net income recognized by Cheniere Partners increased from $23 million to $307 million in the three months ended September 30, 2017 to three months ended September 30, 2018 and from $116 million to $923 million in the nine months ended September 30, 2017 to nine months ended September 30, 2018, primarily as a result of the additional Trains that were operating at the SPL Project between the periods. Partially offsetting the decrease in net income attributable to non-controlling interest was an increase due to the increase in ownership percentage by non-controlling interest holders between the periods as a result of the conversion of Cheniere Partners’ Class B units into common units on August 2, 2017.
We expect the portion of our net income attributable to non-controlling interest to generally decrease in the future as a result of our merger with Cheniere Holdings in September 2018, in which all publicly-held shares of Cheniere Holdings were canceled and the non-controlling interest in Cheniere Holdings was reduced to zero. Net income attributable to non-controlling interest also decreased during the three months ended June 30, 2019 from the three months ended June 30, 2018 due to the decrease in consolidated net income recognized by Cheniere Partners in which the non-controlling interests are held. The consolidated net income recognized by Cheniere Partners decreased from $281 million in the three months ended June 30, 2018 to $232 million in the three months ended June 30, 2019 due an increase in interest expense, net of capitalized interest, as a result of the decrease in the portion of total interest costs that could be capitalized as an additional Train of the SPL Project completed construction between the periods.
Off-Balance Sheet Arrangements
We have interests in an unconsolidated variable interest entity (“VIE”) as discussed in Note 7—Other Non-Current AssetsAs of our Notes to Consolidated Financial Statements in this quarterly report, whichJune 30, 2019, we consider to be anhad no transactions that met the definition of off-balance sheet arrangement. We believearrangements that this VIE does notmay 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, 20172018.
Recent Accounting Standards
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 for the commissioning and operation of the SPL Project, and the CCL Project and potential future development of Corpus Christi Stage 3 (“Liquefaction Supply Derivatives”). 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 commodity price for natural gas for each delivery location and a 10% change in the commodity price for LNG, respectively, as follows (in millions):
| | | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
| Fair Value | | Change in Fair Value | | Fair Value | | Change in Fair Value | Fair Value | | Change in Fair Value | | Fair Value | | Change in Fair Value |
Liquefaction Supply Derivatives | $ | 29 |
| | $ | 7 |
| | $ | 55 |
| | $ | 5 |
| $ | 90 |
| | $ | 127 |
| | $ | (42 | ) | | $ | 6 |
|
LNG Trading Derivatives | (90 | ) | | 33 |
| | (8 | ) | | 2 |
| 47 |
| | 39 |
| | (24 | ) | | 9 |
|
Interest Rate Risk
Cheniere Partners andWe are exposed to interest rate risk primarily when we incur debt related to project financing. Interest rate risk is managed in part by replacing outstanding floating-rate debt with fixed-rate debt with varying maturities. CCH havehas entered into interest rate swaps to hedge the exposure to volatility in a portion of the floating-rate interest payments under the CQP Credit Facilities (“CQP Interest Rate Derivatives”) and the CCH Credit Facility (“CCH Interest Rate Derivatives”) and collectively with the CQPto hedge against changes in interest rates that could impact anticipated future issuance of debt by CCH (“CCH Interest Rate Derivatives, “Interest RateForward Start Derivatives”), respectively.. 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-monthone-month LIBOR curve across the remaining terms of the CCH Interest Rate Derivatives and CCH Interest Rate Forward Start Derivatives as follows (in millions):
| | | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
| Fair Value | | Change in Fair Value | | Fair Value | | Change in Fair Value | Fair Value | | Change in Fair Value | | Fair Value | | Change in Fair Value |
CQP Interest Rate Derivatives | $ | 28 |
| | $ | 5 |
| | $ | 21 |
| | $ | 5 |
| |
CCH Interest Rate Derivatives | 94 |
| | 42 |
| | (32 | ) | | 44 |
| $ | (88 | ) | | $ | 25 |
| | $ | 18 |
| | $ | 37 |
|
CCH Interest Rate Forward Start Derivatives | | (7 | ) | | 20 |
| | — |
| | — |
|
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 follows (in millions):
|
| | | | | | | | | | | | | | | |
| September 30, 2018 | | December 31, 2017 |
| Fair Value | | Change in Fair Value | | Fair Value | | Change in Fair Value |
FX Derivatives | $ | 11 |
| | $ | 1 |
| | $ | (1 | ) | | $ | — |
|
|
| | | | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| Fair Value | | Change in Fair Value | | Fair Value | | Change in Fair Value |
FX Derivatives | $ | 10 |
| | $ | 1 |
| | $ | 15 |
| | $ | 1 |
|
| |
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.
In February 2018, the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) issued a Corrective Action Order (the “CAO”) to SPL in connection with a minor LNG leak from one tank and minor vapor release from a second tank at the Sabine Pass LNG terminal. These two tanks have been taken out of operational service while we conduct analysis, repair and remediation. On April 20, 2018, SPL and PHMSA executed a Consent Agreement and Order (the “Consent Order”) that replaces and supersedes the CAO. On July 9, 2019, PHMSA and FERC issued a joint letter setting out operating conditions required to be met prior to SPL returning the tanks to service. We continue to coordinate with PHMSA and FERC to address the matters relating to the February 2018 leak, including repair approach and related analysis. We do not expect that the Consent Order and related analysis, repair and remediation will have a material adverse impact on our financial results or operations.
ITEM 1A. RISK FACTORS
| |
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 SeptemberJune 30, 2018:2019: |
| | | | | | | | |
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, 2018 | | 29,160 | | $65.01 | | — | | — |
August 1 - 31, 2018 | | 3,121 | | $62.22 | | — | | — |
September 1 - 30, 2018 | | 1,628 | | $67.44 | | — | | — |
|
| | | | | | | | |
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 | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans (3) |
April 1 - 30, 2019 | | 425 | | $64.70 | | — | | — |
May 1 - 31, 2019 | | 13,973 | | $67.87 | | — | | — |
June 1 - 30, 2019 | | 45,266 | | $68.24 | | 44,600 | | $996,954,020 |
| |
(1) | RepresentsIncludes 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. |
| |
(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 undershares. |
| |
(3) | On June 3, 2019, we announced that our share-based compensation plans.Board authorized a 3-year, $1 billion share repurchase program. |
|
| | |
Exhibit No. | | Description |
4.110.1 | | Second Supplemental Indenture,Credit and Guaranty Agreement, dated as of September 11, 2018,May 29, 2019, among Cheniere Partners, 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 12, 2018) |
10.1* | | Fourth Omnibus Amendment, dated as of September 17, 2018, to (a) the Second Amended and Restated Common Terms Agreement, dated as of June 30, 2015, by and among SPL, as Borrower, Société Générale,certain subsidiaries of Cheniere Partners, as Subsidiary Guarantors, the Common Security Trustee and as the Intercreditor Agent, The Bank of Nova Scotia, as the Secured Debt Holder Group Representative for the Working Capital Debt and other Secured Debt Holder Group Representatives party thereto from time to time, the Secured Hedge Representatives and the Secured Gas Hedge Representatives party thereto from time to time and (b) the Amended and Restated Senior Working Capital Revolving Credit and Letter of Credit Reimbursement Agreement, dated as of September 4, 2015, by and among SPL, as Borrower, Société Générale as the Swing Line Lender and as the Common Security Trustee, The Bank of Nova Scotia as the Senior Issuing Bank and Senior Facility Agent and the other agents and lenders from time to time party thereto, |
10.2 | | Registration Rights Agreement, dated Natixis, Société Générale, The Bank of Nova Scotia, Wells Fargo Bank, as of September 11, 2018, among Cheniere Partners, the guarantors party theretoIssuing Banks, MUFG Bank, LTD as Administrative Agent and J.P. Morgan Securities LLCSole Coordinating Lead Arranger, and certain arrangers and other participants (Incorporated by reference to Exhibit 10.1 to Cheniere Partners’ Current Report on Form 8-K (SEC File No. 001-33366), filed on June 3, 2019) |
10.2* | | Amended and Restated Senior Working Capital Revolving Credit and Letter of Credit Reimbursement Agreement, dated September 12, 2018)4, 2015, as amended by (a) Third Omnibus Amendment, dated as of May 23, 2018; (b) Fourth Omnibus Amendment, dated as of September 17, 2018; and (c) Fifth Omnibus Amendment, Consent and Waiver, dated as of May 29, 2019, among SPL, as Borrower, The Bank of Nova Scotia, as Senior Issuing Bank and Senior Facility Agent, ABN Amro Capital USA LLC, HSBC Bank USA, National Association and ING Capital LLC, as Senior Issuing Banks, Société Générale, as Swing Line Lender and Common Security Trustee, and the senior lenders party thereto from time to time |
10.3* | | 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 CCL and Bechtel Oil, Gas and Chemicals, Inc.: (i) the Change Order CO-00051 Fencing Scope Modifications, dated April 19, 2019 and (ii) Change Order CO-00052 West Jetty Manual Gas Sampler, dated April 19, 2019 (Portions of this exhibit have been omitted.) |
10.4* | | Change orders to the Amended and Restated Fixed Price Separated Turnkey Agreement for the Engineering, Procurement and Construction of the Corpus Christi Stage 2 Liquefaction Facility, dated as of December 12, 2017, between CCL and Bechtel Oil, Gas and Chemicals, Inc.: (i) the Change Order CO-00001 Stage 2 EPC Agreement Revised Table A-2,CO-000013 Section 232 Steel and Aluminum Tariffs & Anti-dumping (ADA) and Countervailing Duties (CVD), dated May 18, 2018,2, 2019, (ii) the Change Order CO-00002 Stage 2 EPC Agreement Amended and Restated Attachment C,CO-00014 Tank B Jump-over Tie-In Interface - Long Lead Items, dated May 18, 2018,2, 2019 and (iii) the Change Order CO-00003 Fuel Provisional Sum Adjustment,CO-00015 Section 232 Steel and Aluminum Tariffs & Anti-dumping (ADA) and Countervailing Duties (CVD) Q1_2019, dated May 24, 2018, (iv) the Change Order CO-00004 Currency Provisional Sum Adjustment, dated May 29, 2018, (v) the Change Order CO-00005 JT Valve Modifications, dated July 10, 2018 and (vi) the Change Order CO-00006 Tank B Soil Conditions, International Building Code, and East Jetty Marine Facility Schedule Acceleration, dated September 5, 2018June 4, 2019 (Portions of this exhibit have been omittedomitted.) |
10.5* | | |
10.6* | | |
31.1* | | |
31.2* | | |
32.1** | | |
32.2** | | |
101.INS* | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH* | | Inline XBRL Taxonomy Extension Schema Document |
101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* | | Inline XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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* | Filed herewith. |
** | Furnished herewith. |
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: | NovemberAugust 7, 20182019 | 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: | NovemberAugust 7, 20182019 | By: | /s/ Leonard E. Travis |
| | | Leonard E. Travis |
| | | Vice President and Chief Accounting Officer |
| | | (on behalf of the registrant and
as principal accounting officer) |