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Securities registered pursuant to Section 12(b) of the Act: 

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.

As used in this quarterly report, the terms listed below have the following meanings: 

Balances per Consolidated Balance Sheet:

NOTE 1—NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Basis of Presentation

Results of operations for the three and six months ended June 30, 2019March 31, 2020 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2019.2020.

We are not subject to either federal or state income tax, as our partners are taxed individually on their allocable share of our taxable income.

Recent Accounting Standards

NOTE 2—UNITHOLDERS’ EQUITY

The common units and subordinated units represent limited partner interests in us. The holders of the units are entitled to participate in partnership distributions and exercise the rights and privileges available to limited partners under our partnership agreement. Our partnership agreement requires that, within 45 days after the end of each quarter, we distribute all of our available cash (as defined in our partnership agreement). Generally, our available cash is our cash on hand at the end of a quarter less the amount of any reserves established by our general partner. All distributions paid to date have been made from accumulated operating surplus as defined in the partnership agreement.

The holders of common units have the right to receive initial quarterly distributions of $0.425 per common unit, plus any arrearages thereon, before any distribution is made to the holders of the subordinated units. The holders of subordinated units will receive distributions only to the extent we have available cash above the initial quarterly distribution requirement for our common unitholders and general partner and certain reserves.  Subordinated units will convert into common units on a one-for-one basis when we meet financial tests specified in the partnership agreement. Although common and subordinated unitholders are not obligated to fund losses of the Partnership, their capital accounts, which would be considered in allocating the net assets of the Partnership were it to be liquidated, continue to share in losses.

The general partner interest is entitled to at least 2% of all distributions made by us. In addition, the general partner holds incentive distribution rights (“IDRs”), which allow the general partner to receive a higher percentage of quarterly distributions of available cash from operating surplus after the initial quarterly distributions have been achieved and as additional target levels are

As of June 30, 2019,March 31, 2020, Cheniere, Blackstone CQP Holdco LP (“Blackstone CQP Holdco”) and the public owned a 48.6%, 40.3%41.2% and 9.1%8.2% interest in us, respectively. Cheniere’s ownership percentage includes its subordinated units and Blackstone CQP Holdco’s ownership percentage excludes any common units that may be deemed to be beneficially owned by Blackstone Group, an affiliate of Blackstone CQP Holdco.

NOTE 3—RESTRICTED CASH

Pursuant to the accounts agreement entered into with the collateral trustee for the benefit of SPL’s debt holders, SPL is required to deposit all cash received into reserve accounts controlled by the collateral trustee.  The usage or withdrawal of such cash is restricted to the payment of liabilities related to the Liquefaction Project and other restricted payments.

NOTE 4—ACCOUNTS AND OTHER RECEIVABLES

As of June 30, 2019March 31, 2020 and December 31, 2018,2019, accounts and other receivables consisted of the following (in millions):

NOTE 5—INVENTORY

As of June 30, 2019March 31, 2020 and December 31, 2018,2019, inventory consisted of the following (in millions):

We realized offsets to LNG terminal costs of $48 million during the sixthree months ended June 30,March 31, 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 the respective Trains of the Liquefaction Project, during the testing phase for its construction. We did not0t realize any offsets to LNG terminal costs during the three months ended June 30, 2019 and the three and six months ended June 30, 2018.March 31, 2020.

NOTE 7—DERIVATIVE INSTRUMENTS

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 or fair value hedging instruments, and changes in fair value are recorded within our Consolidated Statements of Income to the extent not utilized for the commissioning process.

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 June 30, 2019March 31, 2020 and December 31, 2018,2019, which are classified as derivative assets, non-current derivative assets, derivative liabilities or non-current derivative liabilities in our Consolidated Balance Sheets (in millions).

We value our Liquefaction Supply Derivatives using a market-based approach incorporating present value techniques, as needed, using observable commodity price curves, when available, and other relevant data.

The fair value of our Physical Liquefaction Supply Derivatives is predominantly driven by observable and unobservable market commodity prices and, as applicable to our natural gas supply contracts, our assessment of the associated conditions

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 the fair value of our Physical Liquefaction Supply Derivatives are based on basis adjustments applied to forward curves for a liquid trading point. In addition, there may be observable liquid market basis information in the near term, but terms of a Physical Liquefaction Supply Derivativesperiods, liquidity, volatility and 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.duration.

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.prices. The following table includes quantitative information for the unobservable inputs for our Level 3 Physical Liquefaction Supply Derivatives as of June 30, 2019:March 31, 2020:

The following table shows the changes in the fair value of our Level 3 Physical Liquefaction Supply Derivatives during the three and six months ended June 30,March 31, 2020 and 2019 and 2018 (in millions):

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 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 will be unable to meet our commitments in instances where our derivative instruments are in a liability position. We 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 contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, set-off rights and guarantees.

SPL has entered into primarily index-based physical natural gas supply contracts and associated economic hedges to purchase natural gas for the commissioning and operation of the Liquefaction Project. The remaining terms of the physical natural gas supply contracts range up to five10 years, some of which commence upon the satisfaction of certain conditions precedent.events or states of affairs.

SPL had secured up to approximately 3,437 TBtu and 3,464 TBtu of natural gas feedstock through natural gas supply contracts as of June 30, 2019 and December 31, 2018, respectively. The notional natural gas position of our Liquefaction Supply Derivatives was approximately 3,1225,231 TBtu and 2,9783,663 TBtu as of June 30, 2019March 31, 2020 and December 31, 2018, respectively.2019, respectively, of which 91 TBtu and 0 TBtu, respectively, were for a natural gas supply contract that SPL has with a related party.

The following table shows the fair value and location of our Liquefaction Supply Derivatives on our Consolidated Balance Sheets (in millions):

The following table shows the changes in the fair value, settlements and location of our Liquefaction Supply Derivatives recorded on our Consolidated Statements of Income during the three and six months ended June 30,March 31, 2020 and 2019 and 2018 (in millions):

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):

NOTE 8—OTHER NON-CURRENT ASSETS

As of June 30, 2019March 31, 2020 and December 31, 2018,2019, other non-current assets, net consisted of the following (in millions):

NOTE 9—ACCRUED LIABILITIES

As of June 30, 2019March 31, 2020 and December 31, 2018,2019, accrued liabilities consisted of the following (in millions):

NOTE 10—DEBT

As of June 30, 2019March 31, 2020 and December 31, 2018,2019, our debt consisted of the following (in millions):

20192020 Material Debt Issuances and TerminationsActivities

Loans under the 2019 CQP Credit Facilities will2020 SPL Working Capital Facility accrue interest at a variable rate per annum equal to LIBOR or the base rate (equal to the highest of the senior facility agent’s published prime rate, the federal funds effective rate, as published by the Federal Reserve Bank of New York, plus 0.50%, and the adjusted one-monthone month LIBOR plus 1.0%0.50%), plus the applicable margin. Under the CQP Term Facility, theThe applicable margin for LIBOR loans under the 2020 SPL Working Capital Facility is 1.50%1.125% to 1.750% per annum (depending on the then-current rating of SPL), and the applicable margin for base rate loans under the 2020 SPL Working Capital Facility is 0.50%0.125% to 0.750% per annum in each case with a 0.25% step-up beginning(depending 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 our then-current rating.rating of SPL). 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 calendarfiscal quarter.

We incurred $20 million of discounts and debt issuance costs in conjunction with the entry into the 2019 CQP Credit Facilities. We paySPL pays a commitment fee equal to an annual rate of 30%0.1% to 0.3% (depending on the then-current rating of SPL), which accrues on the margin for LIBOR loans multiplied by the average daily amount of the undrawntotal commitment payable quarterly in arrears.less the sum of (1) the outstanding principal amount of SPL Revolving Loans, (2) letters of credit issued and (3) the outstanding principal amount of SPL Swing Line Loans. If draws are made upon a letter of credit issued under the 2020 SPL Working Capital Facility and SPL does not elect for such draw to be deemed an SPL LC Loan (an “SPL LC Draw”), SPL is required to pay the full amount of the SPL LC Draw on or prior to noon eastern time on the business day of the SPL LC Draw. An SPL LC Draw accrues interest at the base rate plus the applicable margin. As of March 31, 2020, 0 SPL LC Draws had been made upon any letters of credit issued under the 2020 SPL Working Capital Facility.

The 2019 CQP Credit Facilities mature2020 SPL Working Capital Facility matures on May 29, 2024. The principal of any loans under the 2019 CQP Credit Facilities must be repaid in quarterly installments commencing on May 29, 2023 based on an amortization schedule. Any outstanding balanceMarch 19, 2025, but may be repaid, in whole or in part, at any time without premium or penalty, exceptextended with consent of the lenders. The 2020 SPL Working Capital Facility provides for interest hedging and interest rate breakage costs. mandatory prepayments under customary circumstances.

Credit Facilities

Below is a summary of our credit facilities outstanding as of June 30, 2019March 31, 2020 (in millions):

Restrictive Debt Covenants

As of June 30, 2019,March 31, 2020, we and SPL were in compliance with all covenants related to our respective debt agreements.

Interest Expense

Total interest expense consisted of the following (in millions):

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):

NOTE 11—LEASES