CHENIERE ENERGY, INC.
10-Ks and 10-Qs
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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
March 31, 2016
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
CHENIERE ENERGY, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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001-16383
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95-4352386
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(State or other jurisdiction of incorporation or organization)
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(Commission File Number)
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(I.R.S. Employer Identification No.)
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700 Milam Street, Suite 1900
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Houston, Texas
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77002
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(Address of principal executive offices)
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(Zip code)
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(713) 375-5000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
x
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Accelerated filer
¨
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|||||
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Non-accelerated filer
¨
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Smaller reporting company
¨
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
¨
No
x
As of
April 29, 2016
, the issuer had
235,503,063
shares of Common Stock outstanding.
CHENIERE ENERGY, INC.
TABLE OF CONTENTS
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i
DEFINITIONS
As commonly used in the liquefied natural gas industry, to the extent applicable and as used in this
quarterly
report, the terms listed below have the following meanings:
Common Industry and Other Terms
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Bcf/d
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billion cubic feet per day
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Bcf/yr
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billion cubic feet per year
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Bcfe
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billion cubic feet equivalent
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DOE
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U.S. Department of Energy
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EPC
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engineering, procurement and construction
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FERC
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Federal Energy Regulatory Commission
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FTA countries
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countries with which the United States has a free trade agreement providing for national treatment for trade in natural gas
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GAAP
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generally accepted accounting principles in the United States
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Henry Hub
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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
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LIBOR
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London Interbank Offered Rate
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LNG
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liquefied natural gas, a product of natural gas consisting primarily of methane (CH
4
) that is in liquid form at near atmospheric pressure
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MMBtu
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million British thermal units, an energy unit
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mtpa
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million tonnes per annum
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non-FTA countries
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countries without a free trade agreement providing for national treatment for trade in natural gas and with which trade is permitted
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SEC
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Securities and Exchange Commission
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SPA
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LNG sale and purchase agreement
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Train
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an industrial facility comprised of a series of refrigerant compressor loops used to cool natural gas into LNG
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TUA
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terminal use agreement
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1
Abbreviated Organizational Structure
The following diagram depicts our abbreviated organizational structure as of
March 31, 2016
, including our ownership of certain subsidiaries, and the references to these entities used in this
quarterly
report:
Unless the context requires otherwise, references to “
Cheniere
,” the “Company,” “we,” “us” and “our” refer to
Cheniere Energy, Inc.
(NYSE MKT: LNG) and its consolidated subsidiaries, including our publicly traded subsidiaries,
Cheniere Partners
(NYSE MKT: CQP) and
Cheniere Holdings
(NYSE MKT: CQH).
Unless the context requires otherwise, references to the “CCH Group” refer to CCH HoldCo II, CCH HoldCo I, CCH, CCL and CCP, collectively.
2
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FINANCIAL INFORMATION
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ITEM 1.
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CONSOLIDATED FINANCIAL STATEMENTS
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CHENIERE ENERGY, INC. AND SUBSIDIARIES
(in thousands, except share data)
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March 31,
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December 31,
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|||||
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2016
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2015
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|||||
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ASSETS
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(unaudited)
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Current assets
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|||||
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Cash and cash equivalents
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$
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1,094,833
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$
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1,201,112
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Restricted cash
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732,551
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503,397
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Accounts and interest receivable
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23,979
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5,749
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Inventory
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31,243
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18,125
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Other current assets
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63,509
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54,203
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Total current assets
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1,946,115
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1,782,586
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Non-current restricted cash
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31,724
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31,722
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Property, plant and equipment, net
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17,674,548
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16,193,907
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Debt issuance costs, net
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409,894
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378,677
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Non-current derivative assets
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29,361
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30,887
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Goodwill
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76,819
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76,819
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Other non-current assets
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262,486
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314,455
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Total assets
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$
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20,430,947
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$
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18,809,053
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities
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Accounts payable
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$
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35,398
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$
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22,820
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Accrued liabilities
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670,584
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427,199
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Current debt, net
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1,785,318
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1,673,379
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Deferred revenue
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26,669
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26,669
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Derivative liabilities
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50,561
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35,201
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Other current liabilities
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93
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—
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Total current liabilities
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2,568,623
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2,185,268
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Long-term debt, net
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16,348,099
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14,920,427
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Non-current deferred revenue
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8,500
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9,500
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Non-current derivative liabilities
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239,372
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79,387
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Other non-current liabilities
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61,668
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53,068
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Commitments and contingencies (see Note 14)
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Stockholders’ equity
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Preferred stock, $0.0001 par value, 5.0 million shares authorized, none issued
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—
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—
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Common stock, $0.003 par value
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Authorized: 480.0 million shares at March 31, 2016 and December 31, 2015
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Issued and outstanding: 235.5 million shares and 235.6 million shares at March 31, 2016 and December 31, 2015, respectively
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707
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708
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Treasury stock: 11.7 million shares and 11.6 million shares at March 31, 2016 and December 31, 2015, respectively, at cost
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(354,903
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(353,927
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)
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Additional paid-in-capital
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3,088,648
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3,075,317
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Accumulated deficit
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(3,944,786
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)
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(3,623,948
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)
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Total stockholders’ deficit
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(1,210,334
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)
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(901,850
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)
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Non-controlling interest
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2,415,019
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2,463,253
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Total equity
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1,204,685
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1,561,403
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Total liabilities and equity
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$
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20,430,947
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$
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18,809,053
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The accompanying notes are an integral part of these consolidated financial statements.
3
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
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Three Months Ended March 31,
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|||||||
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2016
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2015
|
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Revenues
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Regasification revenues
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$
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65,551
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$
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66,802
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LNG revenues
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2,704
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662
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Other revenues
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826
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905
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Total revenues
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69,081
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68,369
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Operating costs and expenses
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Cost of sales (excluding depreciation and amortization expense shown separately below)
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14,507
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693
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Operating and maintenance expense
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36,317
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35,706
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Development expense
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1,547
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16,096
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Marketing expense
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24,978
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13,046
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General and administrative expense
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47,924
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44,971
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Depreciation and amortization expense
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24,089
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17,769
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Impairment expense
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10,166
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176
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Other
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112
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156
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Total operating costs and expenses
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159,640
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128,613
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Loss from operations
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(90,559
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)
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(60,244
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)
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Other income (expense)
|
|||||||
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Interest expense, net of capitalized interest
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(76,337
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)
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(59,612
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)
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Loss on early extinguishment of debt
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(1,457
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)
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(88,992
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)
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Derivative loss, net
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(180,934
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)
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(126,690
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)
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Other income
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929
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372
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Total other expense
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(257,799
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)
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(274,922
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)
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Loss before income taxes and non-controlling interest
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(348,358
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)
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(335,166
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)
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Income tax provision
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(616
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)
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(678
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)
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Net loss
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(348,974
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)
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(335,844
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)
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Less: net loss attributable to non-controlling interest
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(28,136
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)
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(68,135
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)
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Net loss attributable to common stockholders
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$
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(320,838
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)
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$
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(267,709
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)
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Net loss per share attributable to common stockholders—basic and diluted
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$
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(1.41
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)
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$
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(1.18
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)
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|||
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Weighted average number of common shares outstanding—basic and diluted
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228,138
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226,328
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The accompanying notes are an integral part of these consolidated financial statements.
4
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
|
Total Stockholders’ Equity
|
|||||||||||||||||||||||||||||
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Common Stock
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Treasury Stock
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Additional Paid-in Capital
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Accumulated Deficit
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Non-controlling Interest
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Total
Equity
|
|||||||||||||||||||||||
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Shares
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Par Value Amount
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Shares
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Amount
|
|||||||||||||||||||||||||
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Balance at December 31, 2015
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235,639
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$
|
708
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11,649
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$
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(353,927
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)
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$
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3,075,317
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$
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(3,623,948
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)
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$
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2,463,253
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$
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1,561,403
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|
|||||||
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Forfeitures of restricted stock
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(78
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)
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(1
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)
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—
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—
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1
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—
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—
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—
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|||||||||||||
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Share-based compensation
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—
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—
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—
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—
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13,329
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—
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—
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13,329
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|||||||||||||
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Shares repurchased related to share-based compensation
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(31
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)
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—
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31
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(976
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)
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—
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—
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—
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(976
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)
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|||||||||||||
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Loss attributable to non-controlling interest
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—
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—
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—
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—
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—
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—
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(28,136
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)
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(28,136
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)
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|||||||||||||
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Distributions to non-controlling interest
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—
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—
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—
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—
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—
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—
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(20,098
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)
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(20,098
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)
|
|||||||||||||
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Net loss
|
—
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|
—
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—
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|
—
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—
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(320,838
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)
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—
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(320,838
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)
|
|||||||||||||
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Balance at March 31, 2016
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235,530
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$
|
707
|
|
11,680
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$
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(354,903
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)
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$
|
3,088,648
|
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$
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(3,944,786
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)
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$
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2,415,019
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$
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1,204,685
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|
|||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(in thousands)
(unaudited)
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|
Three Months Ended March 31,
|
||||||
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2016
|
2015
|
|||||
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Cash flows from operating activities
|
|||||||
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Net loss
|
$
|
(348,974
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)
|
$
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(335,844
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)
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Adjustments to reconcile net loss to net cash used in operating activities:
|
|||||||
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Non-cash LNG inventory write-downs
|
216
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17,502
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|||
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Depreciation and amortization expense
|
24,089
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|
17,769
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|
|||
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Share-based compensation
|
16,171
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|
16,140
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|
|||
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Amortization of debt issuance costs and discount
|
12,817
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|
9,116
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|
|||
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Loss on early extinguishment of debt
|
1,457
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|
88,992
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|
|||
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Total losses on derivatives, net
|
182,169
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|
126,183
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|
|||
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Net cash used for settlement of derivative instruments
|
(8,817
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)
|
(37,262
|
)
|
|||
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Impairment expense
|
10,166
|
|
176
|
|
|||
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Other
|
303
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|
8,627
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|
|||
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Changes in restricted cash for certain operating activities
|
43,366
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|
75,233
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|
|||
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Changes in operating assets and liabilities:
|
|||||||
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Accounts and interest receivable
|
1,092
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(28,083
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)
|
|||
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Inventory
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(1,531
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)
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(29,676
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)
|
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Accounts payable and accrued liabilities
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(27,831
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)
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73,002
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|
|||
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Deferred revenue
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(1,000
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)
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(1,003
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)
|
|||
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Other, net
|
7,617
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(15,052
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)
|
|||
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Net cash used in operating activities
|
(88,690
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)
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(14,180
|
)
|
|||
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Cash flows from investing activities
|
|||||||
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Property, plant and equipment, net
|
(1,149,827
|
)
|
(590,998
|
)
|
|||
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Use of restricted cash for the acquisition of property, plant and equipment
|
1,151,073
|
|
572,623
|
|
|||
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Other
|
(17,861
|
)
|
(46,164
|
)
|
|||
|
Net cash used in investing activities
|
(16,615
|
)
|
(64,539
|
)
|
|||
|
Cash flows from financing activities
|
|||||||
|
Proceeds from issuances of debt
|
1,908,000
|
|
2,500,000
|
|
|||
|
Repayments of debt
|
(415,000
|
)
|
—
|
|
|||
|
Debt issuance and deferred financing costs
|
(49,307
|
)
|
(58,395
|
)
|
|||
|
Investment in restricted cash
|
(1,423,595
|
)
|
(1,929,288
|
)
|
|||
|
Distributions and dividends to non-controlling interest
|
(20,098
|
)
|
(20,050
|
)
|
|||
|
Proceeds from exercise of stock options
|
—
|
|
958
|
|
|||
|
Payments related to tax withholdings for share-based compensation
|
(976
|
)
|
(3,771
|
)
|
|||
|
Other
|
2
|
|
20
|
|
|||
|
Net cash provided by (used in) financing activities
|
(974
|
)
|
489,474
|
|
|||
|
Net increase (decrease) in cash and cash equivalents
|
(106,279
|
)
|
410,755
|
|
|||
|
Cash and cash equivalents—beginning of period
|
1,201,112
|
|
1,747,583
|
|
|||
|
Cash and cash equivalents—end of period
|
$
|
1,094,833
|
|
$
|
2,158,338
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
6
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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. In our opinion, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation, have been included. Certain reclassifications have been made to conform prior period information to the current presentation. The reclassifications had no effect on our overall consolidated financial position, operating results or cash flows.
In 2016, we started production at our natural gas liquefaction facilities at the Sabine Pass LNG terminal
(the “SPL Project”)
. As a result, we introduced two new line items entitled “Cost of sales” and “Marketing expense” on our Consolidated Statements of Operations. To conform to the new presentation, reclassifications were made in the prior period into these new line items. The components of these new line items are as follows:
|
•
|
Cost of sales includes costs incurred directly for the production of LNG from the
SPL Project
such as natural gas feedstock, variable transportation and storage costs, derivative gains and losses associated with economic hedges to secure natural gas feedstock for the
SPL Project
, vessel chartering costs and other costs related to converting natural gas into LNG, all to the extent not utilized for the commissioning process. These costs were reclassified from operating and maintenance expense, which now primarily includes costs associated with operating and maintaining the
SPL Project
such as third-party service and maintenance contract costs, payroll and benefit costs of operations personnel, natural gas transportation and storage capacity demand charges, derivative gains and losses related to the sale and purchase of LNG associated with the regasification terminal, insurance and regulatory costs.
|
|
•
|
Marketing expense includes costs directly associated with our LNG and natural gas marketing activities by Cheniere Marketing such as payroll and benefit costs of LNG marketing and origination personnel, professional services and other support costs to contract LNG customers throughout the global marketplace for the
SPL Project
and our second natural gas liquefaction and export facility at the Corpus Christi LNG terminal
(the “CCL Project”)
. These costs were reclassified from general and administrative expense.
|
Additionally, we distinguished and reclassified our historical “LNG terminal revenues” line item into “regasification revenues” and “LNG revenues.” Regasification revenues include LNG regasification capacity reservation fees that are received pursuant to our TUAs and tug services fees that are received by Sabine Pass Tug Services, LLC, a wholly owned subsidiary of SPLNG. LNG revenues include fees that will be received pursuant to our SPAs and related LNG marketing activities.
Results of operations for the
three months ended March 31, 2016
are not necessarily indicative of the operating results that will be realized for the year ending December 31,
2016
.
For further information, refer to the Consolidated Financial Statements and accompanying notes included in our annual report on Form 10-K for the year ended
December 31, 2015
.
7
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Restricted cash consists of funds that are contractually restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on our Consolidated Balance Sheets. Restricted cash consisted of the following (in thousands):
|
March 31,
|
December 31,
|
|||||||
|
2016
|
2015
|
|||||||
|
Current restricted cash
|
||||||||
|
SPLNG debt service and interest payment
|
$
|
115,469
|
|
$
|
77,415
|
|
||
|
SPL Project
|
177,609
|
|
189,260
|
|
||||
|
CTPL construction and interest payment
|
—
|
|
7,882
|
|
||||
|
CQP and cash held by guarantor subsidiaries
|
108,894
|
|
—
|
|
||||
|
CCL Project
|
295,316
|
|
46,770
|
|
||||
|
Cash held by our subsidiaries restricted to Cheniere
|
10,511
|
|
147,138
|
|
||||
|
Other
|
24,752
|
|
34,932
|
|
||||
|
Total current restricted cash
|
$
|
732,551
|
|
$
|
503,397
|
|
||
|
Non-current restricted cash
|
||||||||
|
SPLNG debt service
|
$
|
13,650
|
|
$
|
13,650
|
|
||
|
Other
|
18,074
|
|
18,072
|
|
||||
|
Total non-current restricted cash
|
$
|
31,724
|
|
$
|
31,722
|
|
||
Under the indentures governing the senior notes issued by SPLNG
(the “SPLNG Indentures”)
, except for permitted tax distributions, SPLNG may not make distributions until certain conditions are satisfied, including: (1) there must be on deposit in an interest payment account an amount equal to
one
-sixth of the semi-annual interest payment multiplied by the number of elapsed months since the last semi-annual interest payment, and (2) there must be on deposit in a permanent debt service reserve fund an amount equal to
one
semi-annual interest payment. Distributions are permitted only after satisfying the foregoing funding requirements, a fixed charge coverage ratio test of
2
:1 and other conditions specified in the
SPLNG Indentures
. During the three months ended March 31, 2016 and 2015, SPLNG made distributions of
$63.4 million
and
$70.8 million
, respectively, after satisfying all the applicable conditions in the
SPLNG Indentures
.
In February 2016, Cheniere Partners entered into a
$2.8 billion
credit facility
(the “2016 CQP Credit Facilities”)
. Under the terms of the
2016 CQP Credit Facilities
and the related depositary agreement governing the extension of credit to Cheniere Partners, Cheniere Partners, and Cheniere Investments and CTPL as Cheniere Partners’ guarantor subsidiaries, are subject to limitations on the use of cash. Specifically, Cheniere Partners, Cheniere Investments and CTPL may only withdraw funds from collateral accounts held at a designated depositary bank on a monthly basis and for specific purposes, including for the payment of operating expenses. In addition, distributions and capital expenditures may only be made quarterly and are subject to certain restrictions.
As of
March 31, 2016
and
December 31, 2015
, inventory consisted of the following (in thousands):
|
|
March 31,
|
December 31,
|
||||||
|
|
2016
|
2015
|
||||||
|
Natural gas
|
$
|
3,333
|
|
$
|
5,724
|
|
||
|
LNG
|
5,546
|
|
5,148
|
|
||||
|
Materials and other
|
22,364
|
|
7,253
|
|
||||
|
Total inventory
|
$
|
31,243
|
|
$
|
18,125
|
|
||
8
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Property, plant and equipment consists of LNG terminal costs and fixed assets and other, as follows (in thousands):
|
|
March 31,
|
December 31,
|
||||||
|
|
2016
|
2015
|
||||||
|
LNG terminal costs
|
|
|
||||||
|
LNG terminal
|
$
|
2,748,474
|
|
$
|
2,487,759
|
|
||
|
LNG terminal construction-in-process (1)
|
15,116,545
|
|
13,875,204
|
|
||||
|
LNG site and related costs, net
|
38,612
|
|
33,512
|
|
||||
|
Accumulated depreciation
|
(430,757
|
)
|
(413,545
|
)
|
||||
|
Total LNG terminal costs, net
|
17,472,874
|
|
15,982,930
|
|
||||
|
Fixed assets and other
|
|
|
|
|
||||
|
Computer and office equipment
|
12,159
|
|
12,153
|
|
||||
|
Furniture and fixtures
|
17,201
|
|
17,101
|
|
||||
|
Computer software
|
72,234
|
|
69,340
|
|
||||
|
Leasehold improvements
|
41,930
|
|
40,136
|
|
||||
|
Land
|
60,612
|
|
60,612
|
|
||||
|
Other
|
38,786
|
|
49,376
|
|
||||
|
Accumulated depreciation
|
(41,248
|
)
|
(37,741
|
)
|
||||
|
Total fixed assets and other, net
|
201,674
|
|
210,977
|
|
||||
|
Property, plant and equipment, net
|
$
|
17,674,548
|
|
$
|
16,193,907
|
|
||
|
(1)
|
As of
March 31, 2016
, LNG terminal construction-in-process is presented net of amounts received from the sale of commissioning cargoes because the related costs were capitalized as testing costs for the construction of the
SPL Project
.
|
We have entered into the following derivative instruments that are reported at fair value:
|
•
|
interest rate swaps to hedge the exposure to volatility in a portion of the floating-rate interest payments under certain of our credit facilities
(“Interest Rate Derivatives”)
;
|
|
•
|
commodity derivatives to hedge the exposure to price risk attributable to future: (1) sales of our LNG inventory and (2) purchases of natural gas to operate the Sabine Pass LNG terminal
(“Natural Gas Derivatives”)
;
|
|
•
|
commodity derivatives consisting of natural gas purchase agreements for the commissioning and operation of the
SPL Project
(“Physical Liquefaction Supply Derivatives”)
and associated economic hedges
(“Financial Liquefaction Supply Derivatives”, and collectively with the Physical Liquefaction Supply Derivatives, the “Liquefaction Supply Derivatives”)
;
|
|
•
|
financial derivatives to hedge the exposure to the commodity markets in which we have contractual arrangements to purchase or sell physical LNG
(“LNG Trading Derivatives”)
; and
|
|
•
|
foreign currency exchange (“FX”) contracts to hedge exposure to currency risk associated with operations in countries outside of the United States
(“FX Derivatives”)
.
|
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
.
9
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table (in thousands) shows the fair value of our derivative instruments that are required to be measured at fair value on a recurring basis as of
March 31, 2016
and
December 31, 2015
, which are classified as
other current assets
,
non-current derivative assets
,
derivative liabilities
or non-current derivative liabilities in our Consolidated Balance Sheets.
|
Fair Value Measurements as of
|
|||||||||||||||||||||||||||||||
|
March 31, 2016
|
December 31, 2015
|
||||||||||||||||||||||||||||||
|
Quoted Prices in Active Markets
(Level 1)
|
Significant Other Observable Inputs
(Level 2)
|
Significant Unobservable Inputs
(Level 3)
|
Total
|
Quoted Prices in Active Markets
(Level 1)
|
Significant Other Observable Inputs
(Level 2)
|
Significant Unobservable Inputs
(Level 3)
|
Total
|
||||||||||||||||||||||||
|
SPL Interest Rate Derivatives liability
|
$
|
—
|
|
$
|
(18,009
|
)
|
$
|
—
|
|
$
|
(18,009
|
)
|
$
|
—
|
|
$
|
(8,740
|
)
|
$
|
—
|
|
$
|
(8,740
|
)
|
|||||||
|
CQP Interest Rate Derivatives liability
|
—
|
|
(9,490
|
)
|
—
|
|
(9,490
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
CCH Interest Rate Derivatives liability
|
—
|
|
(259,305
|
)
|
—
|
|
(259,305
|
)
|
—
|
|
(104,999
|
)
|
—
|
|
(104,999
|
)
|
|||||||||||||||
|
Liquefaction Supply Derivatives asset (liability)
|
—
|
|
(151
|
)
|
30,054
|
|
29,903
|
|
—
|
|
(25
|
)
|
32,492
|
|
32,467
|
|
|||||||||||||||
|
LNG Trading Derivatives asset
|
—
|
|
5,814
|
|
—
|
|
5,814
|
|
—
|
|
1,053
|
|
—
|
|
1,053
|
|
|||||||||||||||
|
Natural Gas Derivatives liability
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(66
|
)
|
—
|
|
(66
|
)
|
|||||||||||||||
|
FX Derivatives liability
|
—
|
|
(2,527
|
)
|
—
|
|
(2,527
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
We value our
Interest Rate Derivatives
using valuations based on the initial trade prices. Using an income-based approach, subsequent valuations are based on observable inputs to the valuation model including interest rate curves, risk adjusted discount rates, credit spreads and other relevant data. The estimated fair values of our economic hedges related to the
LNG Trading Derivatives
and our
Natural Gas Derivatives
are the amounts at which the instruments could be exchanged currently between willing parties. We value these derivatives using observable commodity price curves and other relevant data. We estimate the fair values of our
FX Derivatives
with a market approach using observable FX rates and other relevant data.
The fair value of substantially all of our
Physical Liquefaction Supply Derivatives
is developed through the use of internal models which are impacted by inputs that are unobservable in the marketplace. As a result, the fair value of our
Physical Liquefaction Supply Derivatives
is designated as Level 3 within the valuation hierarchy. The curves used to generate the fair value of our
Physical Liquefaction Supply Derivatives
are based on basis adjustments applied to forward curves for a liquid trading point. In addition, there may be observable liquid market basis information in the near term, but terms of a particular
Physical Liquefaction Supply Derivatives
contract may exceed the period for which such information is available, resulting in a Level 3 classification. In these instances, the fair value of the contract incorporates extrapolation assumptions made in the determination of the market basis price for future delivery periods in which applicable commodity basis prices were either not observable or lacked corroborative market data. Internal fair value models include conditions precedent to the respective long-term natural gas purchase agreements. As of
March 31, 2016
and
December 31, 2015
, some of our
Physical Liquefaction Supply Derivatives
existed within markets for which the pipeline infrastructure has not been developed to accommodate marketable physical gas flow. In the absence of infrastructure to accommodate marketable physical gas flow, our internal fair value models are based on a market price that equates to our own contractual pricing due to: (1) the inactive and unobservable market and (2) conditions precedent and their impact on the uncertainty in the timing of our actual receipt of the physical volumes associated with each forward. The fair value of our
Physical Liquefaction Supply Derivatives
is predominantly driven by market commodity basis prices and our assessment of the associated conditions precedent, including evaluating whether the respective market is available as pipeline infrastructure is developed. Upon the completion and placement into service of relevant pipeline infrastructure to accommodate marketable physical gas flow, we recognize a gain or loss based on the fair value of the respective natural gas purchase agreements as of the reporting date.
10
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
There were
no
transfers into or out of Level 3
Physical Liquefaction Supply Derivatives
for the
three months ended March 31, 2016 and 2015
. As all of our
Physical Liquefaction Supply Derivatives
are either purely index-priced or index-priced with a fixed basis, we do not believe that a significant change in market commodity prices would have a material impact on our Level 3 fair value measurements. The following table includes quantitative information for the unobservable inputs for our Level 3
Physical Liquefaction Supply Derivatives
as of
March 31, 2016
:
|
Net Fair Value Asset (in thousands)
|
Valuation Technique
|
Significant Unobservable Input
|
Significant Unobservable Inputs Range
|
|||||
|
Physical Liquefaction Supply Derivatives
|
$30,054
|
Income Approach
|
Basis Spread
|
$ (0.350) - $0.020
|
||||
The following table (in thousands) shows the changes in the fair value of our Level 3
Physical Liquefaction Supply Derivatives
during the
three months ended March 31, 2016 and 2015
:
|
Three Months Ended March 31,
|
||||||||
|
2016
|
2015
|
|||||||
|
Balance, beginning of period
|
$
|
32,492
|
|
$
|
342
|
|
||
|
Realized and mark-to-market losses:
|
||||||||
|
Included in cost of sales (1)
|
(2,653
|
)
|
—
|
|
||||
|
Purchases and settlements:
|
||||||||
|
Purchases
|
215
|
|
—
|
|
||||
|
Settlements (1)
|
—
|
|
—
|
|
||||
|
Balance, end of period
|
$
|
30,054
|
|
$
|
342
|
|
||
|
Change in unrealized gains relating to instruments still held at end of period
|
$
|
(2,194
|
)
|
$
|
—
|
|
||
|
(1)
|
Does not include the decrease in fair value of
$0.5 million
related to the realized gains capitalized during the
three months ended March 31, 2016
.
|
Derivative assets and liabilities arising from our derivative contracts with the same counterparty are reported on a net basis, as all counterparty derivative contracts provide for net settlement. The use of derivative instruments exposes us to counterparty credit risk, or the risk that a counterparty will be unable to meet its commitments in instances when our derivative instruments are in an asset position.
Interest Rate Derivatives
SPL Interest Rate Derivatives
SPL has entered into interest rate swaps
(“SPL Interest Rate Derivatives”)
to protect against volatility of future cash flows and hedge a portion of the variable interest payments on the
$4.6 billion
credit facilities
(the “2015 SPL Credit Facilities”)
. The
SPL Interest Rate Derivatives
hedge a portion of the expected outstanding borrowings over the term of the
2015 SPL Credit Facilities
.
In March 2015, SPL settled a portion of the SPL Interest Rate Derivatives and recognized a derivative loss of
$34.7 million
within our Consolidated
Statements of Operations
in conjunction with the termination of approximately
$1.8 billion
of commitments under the previous credit facilities.
CQP Interest Rate Derivatives
In March 2016, Cheniere Partners entered into interest rate swaps
(“CQP Interest Rate Derivatives”)
to protect against volatility of future cash flows and hedge a portion of the variable interest payments on the
2016 CQP Credit Facilities
. The
CQP Interest Rate Derivatives
hedge a portion of the expected outstanding borrowings over the term of the
2016 CQP Credit Facilities
.
11
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
CCH Interest Rate Derivatives
CCH has entered into interest rate swaps
(“CCH Interest Rate Derivatives”)
to protect against volatility of future cash flows and hedge a portion of the variable interest payments on its
$8.4 billion
credit facility
(the “2015 CCH Credit Facility”)
. The
CCH Interest Rate Derivatives
hedge a portion of the expected outstanding borrowings over the term of the
2015 CCH Credit Facility
.
As of
March 31, 2016
, we had the following Interest Rate Derivatives outstanding:
|
Initial Notional Amount
|
Maximum Notional Amount
|
Effective Date
|
Maturity Date
|
Weighted Average Fixed Interest Rate Paid
|
Variable Interest Rate Received
|
||||||||
|
SPL Interest Rate Derivatives
|
$20.0 million
|
$628.8 million
|
August 14, 2012
|
July 31, 2019
|
1.98
|
%
|
One-month LIBOR
|
||||||
|
CQP Interest Rate Derivatives
|
$225.0 million
|
$1.3 billion
|
March 22, 2016
|
February 29, 2020
|
1.19
|
%
|
One-month LIBOR
|
||||||
|
CCH Interest Rate Derivatives
|
$28.8 million
|
$5.5 billion
|
May 20, 2015
|
May 31, 2022
|
2.29
|
%
|
One-month LIBOR
|
||||||
The following table (in thousands) shows the fair value and location of our Interest Rate Derivatives on our Consolidated Balance Sheets:
|
March 31, 2016
|
December 31, 2015
|
|||||||||||||||||||||||||||||||
|
SPL Interest Rate Derivatives
|
CQP Interest Rate Derivatives
|
CCH Interest Rate Derivatives
|
Total
|
SPL Interest Rate Derivatives
|
CQP Interest Rate Derivatives
|
CCH Interest Rate Derivatives
|
Total
|
|||||||||||||||||||||||||
|
Balance Sheet Location
|
||||||||||||||||||||||||||||||||
|
Derivative liabilities
|
(6,759
|
)
|
(4,530
|
)
|
(36,926
|
)
|
(48,215
|
)
|
(5,940
|
)
|
—
|
|
(28,559
|
)
|
(34,499
|
)
|
||||||||||||||||
|
Non-current derivative liabilities
|
(11,250
|
)
|
(4,960
|
)
|
(222,379
|
)
|
(238,589
|
)
|
(2,800
|
)
|
—
|
|
(76,440
|
)
|
(79,240
|
)
|
||||||||||||||||
|
Total derivative liabilities
|
(18,009
|
)
|
(9,490
|
)
|
(259,305
|
)
|
(286,804
|
)
|
(8,740
|
)
|
—
|
|
(104,999
|
)
|
(113,739
|
)
|
||||||||||||||||
|
Derivative liability, net
|
$
|
(18,009
|
)
|
$
|
(9,490
|
)
|
$
|
(259,305
|
)
|
$
|
(286,804
|
)
|
$
|
(8,740
|
)
|
$
|
—
|
|
$
|
(104,999
|
)
|
$
|
(113,739
|
)
|
||||||||
The following table (in thousands) shows the changes in the fair value and settlements of our
Interest Rate Derivatives
recorded in
derivative loss, net
on our Consolidated
Statements of Operations
during the
three months ended March 31, 2016 and 2015
:
|
Three Months Ended March 31,
|
||||||||
|
2016
|
2015
|
|||||||
|
SPL Interest Rate Derivatives loss
|
$
|
(11,278
|
)
|
$
|
(37,138
|
)
|
||
|
CQP Interest Rate Derivatives loss
|
(9,530
|
)
|
—
|
|
||||
|
CCH Interest Rate Derivatives loss
|
(160,176
|
)
|
(89,552
|
)
|
||||
Commodity Derivatives
We recognize all commodity derivative instruments, including our
Liquefaction Supply Derivatives
,
LNG Trading Derivatives
and
Natural Gas Derivatives
(collectively, “Commodity Derivatives”)
, as either assets or liabilities and measure those instruments at fair value. Changes in the fair value of our
Commodity Derivatives
are reported in earnings.
12
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table (in thousands) shows the fair value and location of our
Commodity Derivatives
on our Consolidated Balance Sheets:
|
March 31, 2016
|
December 31, 2015
|
||||||||||||||||||||||||||||||
|
Liquefaction Supply Derivatives (1)
|
LNG Trading Derivatives
|
Natural Gas Derivatives
|
Total
|
Liquefaction Supply Derivatives
|
LNG Trading Derivatives
|
Natural Gas Derivatives (2)
|
Total
|
||||||||||||||||||||||||
|
Balance Sheet Location
|
|||||||||||||||||||||||||||||||
|
Other current assets
|
$
|
2,222
|
|
$
|
4,663
|
|
$
|
—
|
|
$
|
6,885
|
|
$
|
2,737
|
|
$
|
640
|
|
$
|
—
|
|
$
|
3,377
|
|
|||||||
|
Non-current derivative assets
|
28,210
|
|
1,151
|
|
—
|
|
29,361
|
|
30,304
|
|
583
|
|
—
|
|
30,887
|
|
|||||||||||||||
|
Total derivative assets
|
30,432
|
|
5,814
|
|
—
|
|
36,246
|
|
33,041
|
|
1,223
|
|
—
|
|
34,264
|
|
|||||||||||||||
|
Derivative liabilities
|
(529
|
)
|
—
|
|
—
|
|
(529
|
)
|
(490
|
)
|
(107
|
)
|
(66
|
)
|
(663
|
)
|
|||||||||||||||
|
Non-current derivative liabilities
|
—
|
|
—
|
|
—
|
|
—
|
|
(84
|
)
|
(63
|
)
|
—
|
|
(147
|
)
|
|||||||||||||||
|
Total derivative liabilities
|
(529
|
)
|
—
|
|
—
|
|
(529
|
)
|
(574
|
)
|
(170
|
)
|
(66
|
)
|
(810
|
)
|
|||||||||||||||
|
Derivative asset (liabilities), net
|
$
|
29,903
|
|
$
|
5,814
|
|
$
|
—
|
|
$
|
35,717
|
|
$
|
32,467
|
|
$
|
1,053
|
|
$
|
(66
|
)
|
$
|
33,454
|
|
|||||||
|
(1)
|
Does not include collateral of
$1.5 million
deposited for such contracts, which is included in
other current assets
in our Consolidated Balance Sheet as of
March 31, 2016
.
|
|
(2)
|
Does not include collateral of
$5.5 million
deposited for such contracts, which is included in
other current assets
in our Consolidated Balance Sheet as of
December 31, 2015
.
|
The following table (in thousands) shows the changes in the fair value and settlements and location of our
Commodity Derivatives
recorded on our Consolidated
Statements of Operations
during the
three months ended March 31, 2016 and 2015
:
|
Three Months Ended March 31,
|
|||||||||
|
Statement of Operations Location
|
2016
|
2015
|
|||||||
|
Liquefaction Supply Derivatives gain
|
LNG revenues
|
$
|
28
|
|
$
|
—
|
|
||
|
Liquefaction Supply Derivatives loss (1)
|
Cost of sales
|
(3,594
|
)
|
—
|
|
||||
|
LNG Trading Derivatives gain
|
LNG revenues
|
4,762
|
|
—
|
|
||||
|
Natural Gas Derivatives loss
|
LNG revenues
|
(5
|
)
|
(247
|
)
|
||||
|
Natural Gas Derivatives gain
|
Operating and maintenance expense
|
174
|
|
754
|
|
||||
(1) Does not include the realized value associated with derivative instruments that settle through physical delivery.
The use of
Commodity Derivatives
exposes us to counterparty credit risk, or the risk that a counterparty will be unable to meet its commitments in instances when our
Commodity Derivatives
are in an asset position.
Liquefaction Supply Derivatives
SPL has entered into index-based physical natural gas supply contracts and associated economic hedges to purchase natural gas for the commissioning and operation of the
SPL Project
. The terms of the physical natural gas supply contracts primarily range from approximately
one
to
seven
years and commence upon the occurrence of conditions precedent, including the date of first commercial operation of specified Trains of the
SPL Project
. We recognize our
Physical Liquefaction Supply Derivatives
as either assets or liabilities and measure those instruments at fair value. Changes in the fair value of our
Physical Liquefaction Supply Derivatives
are reported in earnings. As of
March 31, 2016
, SPL has secured up to approximately
2,047.9 million
MMBtu
of natural gas feedstock through natural gas purchase agreements. The notional natural gas position of our
Physical Liquefaction Supply Derivatives
was approximately
1,134.9 million
MMBtu
as of
March 31, 2016
.
Our
Financial Liquefaction Supply Derivatives
are executed through over-the-counter contracts which are subject to nominal
13
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
credit risk as these transactions are settled on a daily margin basis with investment grade financial institutions. We are required by these financial institutions to use margin deposits as credit support for our
Financial Liquefaction Supply Derivatives
activities.
LNG Trading Derivatives
As of
March 31, 2016
, we have entered into certain
LNG Trading Derivatives
representing a short position of
9.2 million
MMBtu, and we may from time to time enter into certain financial derivatives in the form of swaps, forwards, options or futures to economically hedge exposure to the commodity markets in which we have contractual arrangements to purchase or sell physical LNG. We have entered into
LNG Trading Derivatives
to secure a fixed price position to minimize future cash flow variability associated with such LNG transactions.
Natural Gas Derivatives
Our
Natural Gas Derivatives
were executed through over-the-counter contracts which were subject to nominal credit risk as these transactions settled on a daily margin basis with investment grade financial institutions. We were required by these financial institutions to use margin deposits as credit support for our
Natural Gas Derivatives
activities. As of
March 31, 2016
, we did not have any open
Natural Gas Derivatives
positions or margin deposits at financial institutions.
FX Derivatives
Cheniere Marketing has entered into
FX Derivatives
to protect against the volatility in future cash flows attributable to changes in international currency exchange rates. The
FX Derivatives
economically hedge the foreign currency exposure arising from cash flows expended for both general and administrative expenses and physical and financial LNG transactions related to operations in countries outside of the United States. The total notional amount of our
FX Derivatives
was approximately
$56.7 million
as of
March 31, 2016
.
The following table (in thousands) shows the fair value and location of our
FX Derivatives
on our Consolidated Balance Sheets:
|
Fair Value Measurements as of
|
||||||||||
|
Balance Sheet Location
|
March 31, 2016
|
December 31, 2015
|
||||||||
|
FX Derivatives
|
Other current assets
|
$
|
73
|
|
$
|
—
|
|
|||
|
FX Derivatives
|
Derivative liabilities
|
(1,817
|
)
|
—
|
|
|||||
|
FX Derivatives
|
Non-current derivative liabilities
|
(783
|
)
|
—
|
|
|||||
The following table (in thousands) shows the changes in the fair value of our
FX Derivatives
recorded on our Consolidated
Statements of Operations
during the
three months ended March 31, 2016 and 2015
:
|
Three Months Ended March 31,
|
||||||||||
|
Statement of Operations Location
|
2016
|
2015
|
||||||||
|
FX Derivatives gain
|
Derivative loss, net
|
$
|
50
|
|
$
|
—
|
|
|||
|
FX Derivatives loss
|
LNG revenues
|
(2,600
|
)
|
—
|
|
|||||
14
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Balance Sheet Presentation
Our
Interest Rate Derivatives
and
Commodity Derivatives
are presented on a net basis on our Consolidated Balance Sheets as described above. The following table (in thousands) shows the fair value of our derivatives outstanding on a gross and net basis:
|
Gross Amounts Recognized
|
Gross Amounts Offset in the Consolidated Balance Sheets
|
Net Amounts Presented in the Consolidated Balance Sheets
|
||||||||||
|
Offsetting Derivative Assets (Liabilities)
|
||||||||||||
|
As of March 31, 2016
|
||||||||||||
|
SPL Interest Rate Derivatives
|
$
|
(18,009
|
)
|
$
|
—
|
|
$
|
(18,009
|
)
|
|||
|
CQP Interest Rate Derivatives
|
(9,490
|
)
|
—
|
|
(9,490
|
)
|
||||||
|
CCH Interest Rate Derivatives
|
(259,304
|
)
|
—
|
|
(259,304
|
)
|
||||||
|
Liquefaction Supply Derivatives
|
30,618
|
|
(186
|
)
|
30,432
|
|
||||||
|
Liquefaction Supply Derivatives
|
(1,668
|
)
|
1,139
|
|
(529
|
)
|
||||||
|
LNG Trading Derivatives
|
15,412
|
|
(9,598
|
)
|
5,814
|
|
||||||
|
FX Derivatives
|
73
|
|
—
|
|
73
|
|
||||||
|
FX Derivatives
|
(2,600
|
)
|
—
|
|
(2,600
|
)
|
||||||
|
As of December 31, 2015
|
|
|
||||||||||
|
SPL Interest Rate Derivatives
|
$
|
(8,740
|
)
|
$
|
—
|
|
$
|
(8,740
|
)
|
|||
|
CCH Interest Rate Derivatives
|
(104,999
|
)
|
—
|
|
(104,999
|
)
|
||||||
|
Liquefaction Supply Derivatives
|
33,636
|
|
(595
|
)
|
33,041
|
|
||||||
|
Liquefaction Supply Derivatives
|
(574
|
)
|
—
|
|
(574
|
)
|
||||||
|
LNG Trading Derivatives
|
1,922
|
|
(699
|
)
|
1,223
|
|
||||||
|
LNG Trading Derivatives
|
(2,826
|
)
|
2,656
|
|
(170
|
)
|
||||||
|
Natural Gas Derivatives
|
188
|
|
(254
|
)
|
(66
|
)
|
||||||
As of
March 31, 2016
and
December 31, 2015
, other non-current assets consisted of the following (in thousands):
|
|
March 31,
|
December 31,
|
||||||
|
|
2016
|
2015
|
||||||
|
Advances made under EPC and non-EPC contracts
|
$
|
19,766
|
|
$
|
83,579
|
|
||
|
Advances made to municipalities for water system enhancements
|
88,151
|
|
89,953
|
|
||||
|
Tax-related payments and receivables
|
29,197
|
|
31,712
|
|
||||
|
Equity method investments
|
20,543
|
|
20,295
|
|
||||
|
Other
|
104,829
|
|
88,916
|
|
||||
|
Total other non-current assets
|
$
|
262,486
|
|
$
|
314,455
|
|
||
Cheniere Holdings
On January 1, 2016, we adopted ASU 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation Analysis
. This guidance changed (1) the identification of variable interests, (2) the variable interest entity characteristics for a limited partnership or similar entity and (3) the primary beneficiary determination.
Cheniere Holdings is a limited liability company formed by us in 2013 to hold our Cheniere Partners limited partner interests. As of March 31, 2016, we owned
80.1%
of Cheniere Holdings as well as a director voting share. The director voting share is the sole share entitled to vote in the election of Cheniere Holdings’ board of directors and allows us to remove members of the board of directors at any time and for any reason. If we cease to own greater than
25%
of the common shares of Cheniere Holdings or if we choose to relinquish the director voting share, the director voting share will be extinguished.
The board of directors makes all major operating and financial decisions on behalf of Cheniere Holdings. Because ownership of the director voting share allows us to control Cheniere Holdings, irrespective of our majority ownership interest, and the director voting share cannot be removed from our control by the other equity holders of Cheniere Holdings, we have determined that
15
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Cheniere Holdings is now a variable interest entity. However, this determination has not changed the consolidation of Cheniere Holdings as we have determined that we are its primary beneficiary. Therefore, the determination that Cheniere Holdings is now a variable interest entity had no impact on our Consolidated Financial Statements.
Cheniere Holdings was formed by us to hold our limited partner interest in Cheniere Partners and in December 2013, completed its initial public offering. As of both
March 31, 2016
and
December 31, 2015
, our ownership interest in Cheniere Holdings was
80.1%
, with the remaining non-controlling interest held by the public. Cheniere Holdings owns a
55.9%
limited partner interest in Cheniere Partners in the form of
12.0 million
common units,
45.3 million
Class B units and
135.4 million
subordinated units, with the remaining non-controlling interest held by Blackstone CQP Holdco LP and the public. We also own
100%
of the general partner interest and the incentive distribution rights in Cheniere Partners.
As of
March 31, 2016
and
December 31, 2015
, accrued liabilities consisted of the following (in thousands):
|
|
March 31,
|
December 31,
|
||||||
|
|
2016
|
2015
|
||||||
|
Interest expense and related debt fees
|
$
|
169,921
|
|
$
|
159,968
|
|
||
|
Compensation and benefits
|
43,991
|
|
99,511
|
|
||||
|
Liquefaction projects costs
|
434,990
|
|
145,105
|
|
||||
|
LNG terminal costs
|
4,230
|
|
3,918
|
|
||||
|
Other accrued liabilities
|
17,452
|
|
18,697
|
|
||||
|
Total accrued liabilities
|
$
|
670,584
|
|
$
|
427,199
|
|
||
16
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
As of
March 31, 2016
and
December 31, 2015
, our debt consisted of the following (in thousands):
|
|
March 31,
|
December 31,
|
||||||
|
|
2016
|
2015
|
||||||
|
Long-term debt:
|
||||||||
|
SPLNG
|
||||||||
|
6.50% Senior Secured Notes due 2020 (“2020 SPLNG Senior Notes”) (1)
|
$
|
420,000
|
|
$
|
420,000
|
|
||
|
SPL
|
|
|
||||||
|
5.625% Senior Secured Notes due 2021 (“2021 SPL Senior Notes”), net of unamortized premium of $8,341 and $8,718
|
2,008,341
|
|
2,008,718
|
|
||||
|
6.25% Senior Secured Notes due 2022 (“2022 SPL Senior Notes”)
|
1,000,000
|
|
1,000,000
|
|
||||
|
5.625% Senior Secured Notes due 2023 (“2023 SPL Senior Notes”), net of unamortized premium of $6,212 and $6,392
|
1,506,212
|
|
1,506,392
|
|
||||
|
5.75% Senior Secured Notes due 2024 (“2024 SPL Senior Notes”)
|
2,000,000
|
|
2,000,000
|
|
||||
|
5.625% Senior Secured Notes due 2025 (“2025 SPL Senior Notes”)
|
2,000,000
|
|
2,000,000
|
|
||||
|
2015 SPL Credit Facilities
|
1,505,000
|
|
845,000
|
|
||||
|
CTPL
|
||||||||
|
$400.0 million Term Loan Facility (“CTPL Term Loan”), net of unamortized discount of zero and $1,429
|
—
|
|
398,571
|
|
||||
|
Cheniere Partners
|
||||||||
|
2016 CQP Credit Facilities
|
450,000
|
|
—
|
|
||||
|
CCH
|
||||||||
|
2015 CCH Credit Facility
|
3,386,000
|
|
2,713,000
|
|
||||
|
CCH HoldCo II
|
||||||||
|
11.0% Convertible Senior Notes due 2025 (“2025 CCH HoldCo II Convertible Senior Notes”)
|
1,079,479
|
|
1,050,588
|
|
||||
|
Cheniere
|
||||||||
|
4.875% Convertible Unsecured Notes due 2021 (“2021 Cheniere Convertible Unsecured Notes”), net of unamortized discount of $165,738 and $174,095
|
888,296
|
|
879,938
|
|
||||
|
4.25% Convertible Senior Notes due 2045 (“2045 Cheniere Convertible Senior Notes”), net of unamortized discount of $318,535 and $319,062
|
306,465
|
|
305,938
|
|
||||
|
Unamortized debt issuance costs (2)
|
(201,694
|
)
|
(207,718
|
)
|
||||
|
Total long-term debt, net
|
16,348,099
|
|
14,920,427
|
|
||||
|
Current debt:
|
||||||||
|
7.50% Senior Secured Notes due 2016 (“2016 SPLNG Senior Notes”), net of unamortized discount of $3,130 and $4,303 (3)
|
1,662,370
|
|
1,661,197
|
|
||||
|
$1.2 billion SPL Working Capital Facility (“SPL Working Capital Facility”)
|
125,000
|
|
15,000
|
|
||||
|
Unamortized debt issuance costs (2)
|
(2,052
|
)
|
(2,818
|
)
|
||||
|
Total current debt, net
|
1,785,318
|
|
1,673,379
|
|
||||
|
Total debt, net
|
$
|
18,133,417
|
|
$
|
16,593,806
|
|
||
|
(1)
|
Must be redeemed or repaid concurrently with the 2016 Senior Notes under the terms of the
2016 CQP Credit Facilities
if the obligations under the 2016 Senior Notes are satisfied with borrowings under the
2016 CQP Credit Facilities
.
|
|
(2)
|
Effective January 1, 2016, we adopted ASU 2015-03 and ASU 2015-15, which require debt issuance costs related to term notes to be presented in the balance sheet as a direct deduction from the debt liability, rather than as an asset, retrospectively for each reporting period presented. As a result, we reclassified
$207.8 million
and
$2.8 million
from debt issuance costs, net to long-term debt, net and current debt, net, respectively, as of
December 31, 2015
.
|
|
(3)
|
Matures on November 30, 2016. We currently anticipate satisfying this obligation with borrowings under the
2016 CQP Credit Facilities
.
|
17
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
2016 Debt Issuances and Redemptions
2016 CQP Credit Facilities
In February 2016, Cheniere Partners entered into the
$2.8 billion
2016 CQP Credit Facilities
which consist of: (1) a
$450.0 million
CTPL tranche term loan that was used to prepay the
$400.0 million
CTPL Term Loan
in February 2016, (2) an approximately
$2.1 billion
SPLNG tranche term loan that will be used to redeem or repay the approximately
$2.1 billion
of the
2016 SPLNG Senior Notes
and the
2020 SPLNG Senior Notes
(which must be redeemed or repaid concurrently under the terms of the
2016 CQP Credit Facilities
), (3) a
$125.0 million
debt service reserve credit facility
(the “DSR Facility”)
that may be used to satisfy a
six
-month debt service reserve requirement and (4) a
$115.0 million
revolving credit facility that may be used for general business purposes.
The
2016 CQP Credit Facilities
accrue interest at a variable rate per annum equal to
LIBOR or the base rate
(equal to the highest of the prime rate, the federal funds effective rate, as published by the Federal Reserve Bank of New York, plus
0.50%
and adjusted one month LIBOR plus
1.0%
), plus the applicable margin. The applicable margin for LIBOR loans is
2.25%
per annum, and the applicable margin for base rate loans is
1.25%
per annum, in each case with a
0.50%
step-up beginning on February 25, 2019. Interest on LIBOR loans is due and payable at the end of each applicable LIBOR period (and at the end of every three month period within the LIBOR period, if any), and interest on base rate loans is due and payable at the end of each calendar quarter.
Cheniere Partners incurred
$48.7 million
of debt issuance costs during the
three months ended March 31, 2016
, and will incur an additional
$21.5 million
of debt issuance costs when the SPLNG tranche is funded. The prepayment of the
CTPL Term Loan
resulted in a write-off of unamortized discount and debt issuance costs of
$1.5 million
during the
three months ended March 31, 2016
. Cheniere Partners pays a commitment fee equal to an annual rate of
40%
of the margin for LIBOR loans multiplied by the average daily amount of the undrawn commitment, payable quarterly in arrears. The DSR Facility and the revolving credit facility are both available for the issuance of letters of credit, which incur a fee equal to an annual rate of
2.25%
of the undrawn portion with a
0.50%
step-up beginning on February 25, 2019.
The
2016 CQP Credit Facilities
mature on February 25, 2020, and the outstanding balance may be repaid, in whole or in part, at any time without premium or penalty, except for interest hedging and interest rate breakage costs. The
2016 CQP Credit Facilities
contain conditions precedent for extensions of credit, as well as customary affirmative and negative covenants and limit Cheniere Partners’ ability to make restricted payments, including distributions, to once per fiscal quarter as long as certain conditions are satisfied. Under the terms of the
2016 CQP Credit Facilities
, Cheniere Partners is required to hedge not less than
50%
of the variable interest rate exposure on its projected aggregate outstanding balance, maintain a minimum debt service coverage ratio of at least
1.15
x at the end of each fiscal quarter beginning March 31, 2019 and have a projected debt service coverage ratio of
1.55
x in order to incur additional indebtedness to refinance a portion of the existing obligations.
The
2016 CQP Credit Facilities
are unconditionally guaranteed by each subsidiary of Cheniere Partners other than: (1) SPL, (2) SPLNG until funding of its tranche term loan and (3) certain of the subsidiaries of Cheniere Partners owning other development projects, as well as certain other specified subsidiaries and members of the foregoing entities.
18
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
March 31, 2016
(in thousands):
|
2015 SPL Credit Facilities
|
SPL Working Capital Facility
|
2016 CQP Credit Facilities
|
2015 CCH Term Loan Facilities
|
|||||||||||||
|
Total facility size
|
$
|
4,600,000
|
|
$
|
1,200,000
|
|
$
|
2,800,000
|
|
$
|
8,403,714
|
|
||||
|
Outstanding balance
|
1,505,000
|
|
125,000
|
|
450,000
|
|
3,386,000
|
|
||||||||
|
Letters of credit issued
|
—
|
|
236,459
|
|
7,500
|
|
—
|
|
||||||||
|
Available commitment
|
$
|
3,095,000
|
|
$
|
838,541
|
|
$
|
2,342,500
|
|
$
|
5,017,714
|
|
||||
|
Interest rate
|
LIBOR plus 1.30% - 1.75% or base rate plus 1.75%
|
LIBOR plus 1.75% or base rate plus 0.75%
|
LIBOR plus 2.25% or base rate plus 1.25% (1)
|
LIBOR plus 2.25% or base rate plus 1.25% (2)
|
||||||||||||
|
Maturity date
|
Earlier of December 31, 2020 or second anniversary of SPL Trains 1 through 5 completion date
|
December 31, 2020, with various terms for underlying loans
|
February 25, 2020, with principals due quarterly commencing on February 19, 2019
|
Earlier of May 13, 2022 or second anniversary of CCL Trains 1 and 2 completion date
|
||||||||||||
|
(1)
|
There is a
0.50%
step-up for both LIBOR and base rate loans beginning on February 25, 2019.
|
|
(2)
|
There is a
0.25%
step-up for both LIBOR and base rate loans following completion of the first two Trains of the
CCL Project
.
|
Convertible Notes
Below is a summary of our convertible notes outstanding as of
March 31, 2016
(in thousands):
|
2021 Cheniere Convertible Unsecured Notes
|
2025 CCH HoldCo II Convertible Senior Notes
|
2045 Cheniere Convertible Senior Notes
|
||||||||||
|
Aggregate principal
|
$
|
1,000,000
|
|
$
|
1,000,000
|
|
$
|
625,000
|
|
|||
|
Debt component, net of discount
|
$
|
888,296
|
|
$
|
1,079,479
|
|
$
|
306,465
|
|
|||
|
Equity component
|
$
|
203,035
|
|
$
|
—
|
|
$
|
194,082
|
|
|||
|
Interest payment method
|
Paid-in-kind
|
|
Paid-in-kind (1)
|
|
Cash
|
|
||||||
|
Conversion by us (2)
|
—
|
|
(3)
|
|
(4)
|
|
||||||
|
Conversion by holders (2)
|
(5)
|
|
(6)
|
|
(7)
|
|
||||||
|
Conversion basis
|
Cash and/or stock
|
|
Stock
|
|
Cash and/or stock
|
|
||||||
|
Conversion value in excess of principal
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|||
|
Maturity date
|
May 28, 2021
|
|
March 1, 2025
|
|
March 15, 2045
|
|
||||||
|
Effective interest rate
|
9.6
|
%
|
11.9
|
%
|
9.4
|
%
|
||||||
|
Remaining debt discount and debt issuance costs amortization period (8)
|
5.2 years
|
|
4.5 years
|
|
29.0 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.
|
|
(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.
|
19
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
|
(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)
|
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 into our common stock.
|
Interest Expense
Total interest expense, including interest expense related to our convertible notes, consisted of the following (in thousands):
|
|
Three Months Ended March 31,
|
|||||||
|
|
2016
|
2015
|
||||||
|
Interest cost on convertible notes:
|
||||||||
|
Interest per contractual rate
|
$
|
49,040
|
|
$
|
13,939
|
|
||
|
Amortization of debt discount
|
8,885
|
|
6,598
|
|
||||
|
Amortization of debt issuance costs
|
1,151
|
|
14
|
|
||||
|
Total interest cost related to convertible notes
|
59,076
|
|
20,551
|
|
||||
|
Interest cost on other debt
|
234,216
|
|
160,087
|
|
||||
|
Total interest cost
|
293,292
|
|
180,638
|
|
||||
|
Capitalized interest
|
(216,955
|
)
|
(121,026
|
)
|
||||
|
Total interest expense, net
|
$
|
76,337
|
|
$
|
59,612
|
|
||
Fair Value Disclosures
The following table (in thousands) shows the carrying amount and estimated fair value of our debt:
|
|
March 31, 2016
|
December 31, 2015
|
||||||||||||||
|
|
Carrying
Amount |
Estimated
Fair Value |
Carrying
Amount |
Estimated
Fair Value |
||||||||||||
|
Senior Notes, net of premium or discount (1)
|
$
|
10,596,923
|
|
$
|
10,299,660
|
|
$
|
10,596,307
|
|
$
|
9,525,809
|
|
||||
|
CTPL Term Loan, net of discount (2)
|
—
|
|
—
|
|
398,571
|
|
400,000
|
|
||||||||
|
Credit facilities (2) (3)
|
5,466,000
|
|
5,466,000
|
|
3,573,000
|
|
3,573,000
|
|
||||||||
|
2021 Cheniere Convertible Unsecured Notes, net of discount (4)
|
888,296
|
|
858,091
|
|
879,938
|
|
825,413
|
|
||||||||
|
2025 CCH HoldCo II Convertible Senior Notes (4)
|
1,079,479
|
|
1,071,219
|
|
1,050,588
|
|
914,363
|
|
||||||||
|
2045 Cheniere Convertible Senior Notes, net of discount (5)
|
306,465
|
|
334,375
|
|
305,938
|
|
331,919
|
|
||||||||
|
(1)
|
Includes
2016 SPLNG Senior Notes
, net of discount;
2020 SPLNG Senior Notes
;
2021 SPL Senior Notes
, net of premium;
2022 SPL Senior Notes
;
2023 SPL Senior Notes
, net of premium;
2024 SPL Senior Notes
and
2025 SPL Senior Notes
(collectively, the “Senior Notes”)
. The Level 2 estimated fair value was based on quotes obtained from broker-dealers or market makers of our Senior Notes and other similar instruments.
|
|
(2)
|
The Level 3 estimated fair value approximates the principal amount because the interest rates are variable and reflective of market rates and the debt may be repaid, in full or in part, at any time without penalty.
|
|
(3)
|
Includes
2015 SPL Credit Facilities
,
SPL Working Capital Facility
,
2016 CQP Credit Facilities
and
2015 CCH Credit Facility
.
|
20
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
|
(4)
|
The Level 3 estimated fair value was calculated based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including our stock price and interest rates based on debt issued by parties with comparable credit ratings to us and inputs that are not observable in the market.
|
|
(5)
|
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.
|
We are not presently a taxpayer for federal or state income tax purposes and have not recorded a provision for federal or state income taxes in any of the periods included in the accompanying Consolidated Financial Statements. However, we are presently an international taxpayer and have recorded a net provision of
$0.6 million
and
$0.7 million
for the
three months ended March 31, 2016 and 2015
, respectively, for international income taxes.
We experienced an ownership change within the provisions of Internal Revenue Code (“IRC”) Section 382 in 2008, 2010 and 2012. An analysis of the annual limitation on the utilization of our net operating losses (“NOLs”) was performed in accordance with IRC Section 382. It was determined that IRC Section 382 will not limit the use of our NOLs in full over the carryover period. We will continue to monitor trading activity in our shares which may cause an additional ownership change which could ultimately affect our ability to fully utilize our existing tax NOL carryforwards.
We have granted stock, restricted stock, phantom units and options to purchase common stock to employees, outside directors and a consultant under the Amended and Restated 2003 Stock Incentive Plan, as amended
(the “2003 Plan”)
, 2011 Incentive Plan, as amended
(the “2011 Plan”)
and the 2015 Long-Term Cash Incentive Plan
(the “2015 Plan”)
.
The
2003 Plan
and
2011 Plan
provide for the issuance of
21.0 million
shares and
35.0 million
shares, respectively, of our common stock that may be in the form of non-qualified stock options, incentive stock options, purchased stock, restricted (non-vested) stock, bonus (unrestricted) stock, stock appreciation rights, phantom units and other share-based performance awards deemed by the Compensation Committee of our Board of Directors
(the “Compensation Committee”)
to be consistent with the purposes of the
2003 Plan
and
2011 Plan
. As of
March 31, 2016
, all of the shares under the
2003 Plan
have been granted and
26.8 million
shares, net of cancellations, have been granted under the
2011 Plan
. The 2015 Plan generally provides for cash-settled awards in the form of stock appreciation rights, phantom unit awards, performance unit awards, other-stock based awards and cash awards. The 2014-2018 Long-Term Cash Incentive Program (the “2014-2018 LTIP”) is a sub-plan of the 2015 Plan and provides for performance-based phantom unit awards. As of March 31, 2016,
5.4 million
phantom units have been granted under the 2015 Plan.
Total share-based compensation expense consisted of the following (in thousands):
|
|
Three Months Ended March 31,
|
|||||||
|
|
2016
|
2015
|
||||||
|
Total share-based compensation
|
$
|
17,525
|
|
$
|
17,991
|
|
||
|
Capitalized share-based compensation
|
(1,354
|
)
|
(1,851
|
)
|
||||
|
Total share-based compensation expense, net
|
$
|
16,171
|
|
$
|
16,140
|
|
||
The total unrecognized compensation cost at
March 31, 2016
relating to non-vested share-based compensation arrangements was
$132.6 million
, which is expected to be recognized over a weighted average period of
2.0 years
.
We received
zero
and
$1.0 million
in the
three months ended March 31, 2016 and 2015
, respectively, of proceeds from the exercise of stock options.
21
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Basic net loss per share attributable to common stockholders
(“EPS”)
excludes dilution and is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted
EPS
reflects potential dilution and is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period increased by the number of additional common shares that would have been outstanding if the potential common shares had been issued.
The following table (in thousands, except for loss per share) reconciles basic and diluted weighted average common shares outstanding for the
three months ended March 31, 2016 and 2015
:
|
|
Three Months Ended March 31,
|
|||||||
|
|
2016
|
2015
|
||||||
|
Weighted average common shares outstanding:
|
||||||||
|
Basic
|
228,138
|
|
226,328
|
|
||||
|
Dilutive common stock options (1)
|
—
|
|
—
|
|
||||
|
Diluted
|
228,138
|
|
226,328
|
|
||||
|
Basic and diluted net loss per share attributable to common stockholders
|
$
|
(1.41
|
)
|
$
|
(1.18
|
)
|
||
|
(1)
|
Stock options and unvested stock of
7.4 million
shares and
10.3 million
shares as of
March 31, 2016
and
2015
, respectively, representing securities that could potentially dilute basic
EPS
in the future, were not included in the diluted net loss per share computations because their effect would have been anti-dilutive. In addition,
82.7 million
and
21.1 million
shares in aggregate, issuable upon conversion of the
2021 Cheniere Convertible Unsecured Notes
, the
2025 CCH HoldCo II Convertible Senior Notes
and the
2045 Cheniere Convertible Senior Notes
, were not included in the computation of diluted net loss per share for the
three months ended March 31, 2016 and 2015
, respectively, because the computation of diluted net loss per share utilizing the “if-converted” method at the share price as of
March 31, 2016
and
2015
, respectively, would be anti-dilutive.
|
Cheniere has 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
March 31, 2016
, are not recognized as liabilities.
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 Suit”). CLNGT asserted claims in the Texas Suit for (1) recovery of all amounts due under the Secured Note and (2) declaratory relief establishing that CLNGT is entitled to enforce its rights under the Secured Note and Pledge Agreement in accordance with each instrument’s terms and that CLNGT has no obligations of any sort to Parallax Enterprises concerning the Potential Liquefaction Transactions. On March 11, 2016, Parallax Enterprises and the other defendants in the Texas Suit moved to dismiss the suit for lack of subject matter jurisdiction. CLNGT has responded to that motion, and it remains pending before the court.
22
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
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 seeks
$400 million
in alleged economic damages and rescission of the Secured Note. On April 11, 2016, we and CLNGT removed the Louisiana Suit to the United States District Court for the Eastern District of Louisiana, where it is pending as Civil Action No. 2:16-cv-03209-CJB-SS. On April 18, 2016, we and CLNGT filed a motion in the Louisiana Suit seeking (1) dismissal of all claims against us for lack of personal jurisdiction, (2) dismissal, stay, or transfer of the suit to the United States District Court for the Southern District of Texas in deference to the first-filed Texas Suit, and (3) alternatively, transfer of the suit for convenience of the parties and witnesses. Our motion is set for oral argument on May 18, 2016. We do not expect that the resolution of this litigation will have a material adverse impact on our financial results.
Obligations under Certain Guarantee Contracts
Cheniere and certain of its subsidiaries enter into guarantee arrangements in the normal course of business to facilitate transactions with third parties. These arrangements include financial guarantees, letters of credit and debt guarantees. As of
March 31, 2016
and
December 31, 2015
, there were
no
liabilities recognized under these guarantee arrangements.
We have
two
reportable segments: LNG terminal segment and LNG and natural gas marketing segment. We determine our reportable segments by identifying each segment that engaged in business activities from which it may earn revenues and incur expenses, had operating results regularly reviewed by the entities’ chief operating decision maker for purposes of resource allocation and performance assessment, and had discrete financial information. Substantially all of our revenues from external customers are attributed to the United States. Substantially all of our long-lived assets are located in the United States.
Our LNG terminal segment consists of the Sabine Pass and Corpus Christi LNG terminals. We own and operate the Sabine Pass LNG terminal located on the Sabine-Neches Waterway less than four miles from the Gulf Coast through our ownership interest in and management agreements with Cheniere Partners. We own
100%
of the general partner interest in Cheniere Partners and
80.1%
of the common shares of Cheniere Holdings, which owns a
55.9%
limited partner interest in Cheniere Partners. We are also developing and constructing a second natural gas liquefaction and export facility at the Corpus Christi LNG terminal near Corpus Christi, Texas.
Our LNG and natural gas marketing segment consists of LNG and natural gas marketing activities by Cheniere Marketing. Cheniere Marketing is developing a platform for LNG sales to international markets with professional staff based in the United States, United Kingdom, Singapore and Chile.
23
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table (in thousands) summarizes revenues (losses) and loss from operations for each of our reporting segments:
|
|
Segments
|
||||||||||||||
|
|
LNG Terminal
|
LNG & Natural Gas Marketing
|
Corporate and Other (1)
|
Total
Consolidation
|
|||||||||||
|
Three Months Ended March 31, 2016
|
|
||||||||||||||
|
Revenues from external customers (2)
|
$
|
65,551
|
|
$
|
2,704
|
|
$
|
826
|
|
$
|
69,081
|
|
|||
|
Intersegment revenues (losses) (3)
|
918
|
|
7,594
|
|
(8,512
|
)
|
—
|
|
|||||||
|
Depreciation and amortization expense
|
17,973
|
|
315
|
|
5,801
|
|
24,089
|
|
|||||||
|
Loss from operations
|
(12,549
|
)
|
(30,547
|
)
|
(47,463
|
)
|
(90,559
|
)
|
|||||||
|
Interest expense, net of capitalized interest
|
(51,366
|
)
|
—
|
|
(24,971
|
)
|
(76,337
|
)
|
|||||||
|
Loss before income taxes and non-controlling interest (4)
|
(240,971
|
)
|
(30,680
|
)
|
(76,707
|
)
|
(348,358
|
)
|
|||||||
|
Share-based compensation
|
2,777
|
|
4,889
|
|
9,859
|
|
17,525
|
|
|||||||
|
Expenditures for additions to long-lived assets
|
1,501,378
|
|
235
|
|
6,446
|
|
1,508,059
|
|
|||||||
|
|
|||||||||||||||
|
Three Months Ended March 31, 2015
|
|||||||||||||||
|
Revenues from external customers (2)
|
$
|
66,802
|
|
$
|
662
|
|
$
|
905
|
|
$
|
68,369
|
|
|||
|
Intersegment revenues (losses) (3)
|
103
|
|
7,017
|
|
(7,120
|
)
|
—
|
|
|||||||
|
Depreciation and amortization expense
|
14,941
|
|
200
|
|
2,628
|
|
17,769
|
|
|||||||
|
Loss from operations
|
(24,335
|
)
|
(5,183
|
)
|
(30,726
|
)
|
(60,244
|
)
|
|||||||
|
Interest expense, net of capitalized interest
|
(42,845
|
)
|
—
|
|
(16,767
|
)
|
(59,612
|
)
|
|||||||
|
Loss before income taxes and non-controlling interest (4)
|
(277,655
|
)
|
(5,390
|
)
|
(52,121
|
)
|
(335,166
|
)
|
|||||||
|
Share-based compensation
|
3,197
|
|
4,035
|
|
10,759
|
|
17,991
|
|
|||||||
|
Expenditures for additions to long-lived assets
|
590,245
|
|
714
|
|
28,781
|
|
619,740
|
|
|||||||
|
(1)
|
Includes corporate activities, business development, oil and gas exploration, development and exploitation, strategic activities and certain intercompany eliminations. These activities have been included in the corporate and other column due to the lack of a material impact that these activities have on our Consolidated Financial Statements.
|
|
(2)
|
Substantially all of the LNG terminal revenues relate to regasification capacity reservation fee payments made by Total Gas & Power North America, Inc. and Chevron U.S.A. Inc. LNG and natural gas marketing and trading revenue consists primarily of the domestic marketing of natural gas imported into the Sabine Pass LNG terminal.
|
|
(3)
|
Intersegment revenues (losses) related to our LNG and natural gas marketing segment are primarily a result of international revenue allocations using a cost plus transfer pricing methodology. These LNG and natural gas marketing segment intersegment revenues (losses) are eliminated with intersegment revenues (losses) in our Consolidated
Statements of Operations
.
|
|
(4)
|
Items to reconcile loss from operations and loss before income taxes and non-controlling interest include consolidated other income (expense) amounts as presented on our Consolidated
Statements of Operations
primarily related to our LNG terminal segment.
|
The following table (in thousands) shows total assets for each of our reporting segments:
|
|
March 31,
|
December 31,
|
||||||
|
|
2016
|
2015
|
||||||
|
LNG Terminal
|
$
|
19,068,923
|
|
$
|
17,363,750
|
|
||
|
LNG & Natural Gas Marketing
|
549,509
|
|
550,896
|
|
||||
|
Corporate and Other
|
812,515
|
|
894,407
|
|
||||
|
Total Consolidation
|
$
|
20,430,947
|
|
$
|
18,809,053
|
|
||
24
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table (in thousands) provides supplemental disclosure of cash flow information:
|
|
Three Months Ended March 31,
|
|||||||
|
|
2016
|
2015
|
||||||
|
Cash paid during the period for interest, net of amounts capitalized and deferred
|
$
|
15,251
|
|
$
|
—
|
|
||
The balance in property, plant and equipment, net funded with accounts payable and accrued liabilities was
$577.3 million
and
$150.6 million
as of
March 31, 2016
and
2015
, respectively.
The following table provides a brief description of recent accounting standards that had not been adopted by the Company as of
March 31, 2016
:
|
Standard
|
Description
|
Expected Date of Adoption
|
Effect on our Consolidated Financial Statements or Other Significant Matters
|
|||
|
ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
, and subsequent amendments thereto
|
This standard amends 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. This guidance may be early adopted beginning January 1, 2017, and may be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption.
|
January 1, 2018
|
We are currently evaluating the impact of the provisions of this guidance on our Consolidated Financial Statements and related disclosures.
|
|||
|
ASU 2014-15,
Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
|
This standard requires an entity’s management to evaluate, for each reporting period, whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued. Additional disclosures are required if management concludes that conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. Early adoption is permitted.
|
December 31, 2016
|
The adoption of this guidance is not expected to have an impact on our Consolidated Financial Statements or related disclosures.
|
|||
|
ASU 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory
|
This standard requires inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This guidance may be early adopted and must be adopted prospectively.
|
January 1, 2017
|
We are currently evaluating the impact of the provisions of this guidance on our Consolidated Financial Statements and related disclosures.
|
|||
|
ASU 2016-02,
Leases (Topic 842)
|
This standard requires a lessee to recognize leases on its balance sheet by recording a liability representing the obligation to make future lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term. A lessee is permitted to make an election not to recognize lease assets and liabilities for leases with a term of 12 months or less. The standard also modifies the definition of a lease and requires expanded disclosures. This guidance may be early adopted, and must be adopted using a modified retrospective approach with certain available practical expedients.
|
January 1, 2019
|
We are currently evaluating the impact of the provisions of this guidance on our Consolidated Financial Statements and related disclosures.
|
|||
25
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
|
Standard
|
Description
|
Expected Date of Adoption
|
Effect on our Consolidated Financial Statements or Other Significant Matters
|
|||
|
ASU 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
|
This standard primarily requires the recognition of excess tax benefits for share-based awards in the statement of operations and the classification of excess tax benefits as an operating activity within the statement of cash flows. The guidance also allows an entity to elect to account for forfeitures when they occur. This guidance may be early adopted, but all of the guidance must be adopted in the same period.
|
January 1, 2017
|
We are currently evaluating the impact of the provisions of this guidance on our Consolidated Financial Statements and related disclosures.
|
|||
Additionally, the following table provides a brief description of recent accounting standards that were adopted by the Company during the reporting period:
|
Standard
|
Description
|
Date of Adoption
|
Effect on our Consolidated Financial Statements or Other Significant Matters
|
|||
|
ASU 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation Analysis
|
These amendments primarily affect asset managers and reporting entities involved with limited partnerships or similar entities, but the analysis is relevant in the evaluation of any reporting organization’s requirement to consolidate a legal entity. This guidance changes (1) the identification of variable interests, (2) the variable interest entity characteristics for a limited partnership or similar entity and (3) the primary beneficiary determination. This guidance may be early adopted, and may be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption.
|
January 1, 2016
|
The adoption of this guidance did not have an impact on our Consolidated Financial Statements or related disclosures.
|
|||
|
ASU 2015-03,
Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
and ASU 2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
|
These standards require debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the debt liability rather than as an asset. Debt issuance costs incurred in connection with line of credit arrangements may be presented as an asset and subsequently amortized ratably over the term of the line of credit arrangement. This guidance may be early adopted, and must be adopted retrospectively to each prior reporting period presented.
|
January 1, 2016
|
Upon adoption of these standards, the balance of debt, net was reduced by the balance of debt issuance costs, net, except for the balance related to line of credit arrangements, on our Consolidated Balance Sheets. See
Note 10—Debt
for additional disclosures.
|
|||
|
ASU 2015-05,
Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement
|
This standard clarifies the circumstances under which a cloud computing customer would account for the arrangement as a license of internal-use software. This guidance may be early adopted, and may be adopted as either retrospectively or prospectively to arrangements entered into, or materially modified, after the effective date.
|
January 1, 2016
|
The adoption of this guidance did not have an impact on our Consolidated Financial Statements or related disclosures.
|
|||
26
|
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 facts, 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 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 ability to enter into such transactions;
|
|
•
|
statements relating to the construction of our Trains, including statements concerning the engagement of any
EPC
contractor or other contractor and the anticipated terms and provisions of any agreement with any
EPC
or other contractor, and anticipated costs related thereto;
|
|
•
|
statements regarding any
SPA
or any 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, including the financing of such Trains;
|
|
•
|
statements that our Trains, when completed, will have certain characteristics, including amounts of liquefaction capacities;
|
|
•
|
statements regarding our business strategy, our strengths, our business and operation plans or any other plans, forecasts, projections, or objectives, including anticipated revenues and capital expenditures, any or all of which are subject to change;
|
|
•
|
statements regarding legislative, governmental, regulatory, administrative or other public body actions, approvals, requirements, permits, applications, filings, investigations, proceedings or decisions;
|
|
•
|
statements regarding our anticipated LNG and natural gas marketing activities; and
|
|
•
|
any other statements that relate to non-historica
l or future information.
|
All of these types of statements, other than statements of historical fact, are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology. The forward-looking statements contained in this
quarterly
report are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe that such estimates are reasonable, they are inherently uncertain and involve a number of risks and uncertainties beyond our control. In addition, assumptions may prove to be inaccurate. We caution that the forward-looking statements contained in this
quarterly
report are not guarantees of future performance and that such statements may not be realized or the forward-looking statements or events may not occur. Actual results may differ materially from those anticipated or implied in forward-looking statements due to factors described in this
quarterly
report and in the other reports and other information that we file with the
SEC
. These forward-looking statements speak only as of the date made, and other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed under “Risk Factors” in our annual report on Form 10-K for the year ended
December 31,
27
2015
. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these risk factors. Other than as required under the securities laws, we assume no obligation to update or revise these forward-looking statements or provide reasons why actual results may differ.
Introduction
The following discussion and analysis presents management’s view of our business, financial condition and overall performance and should be read in conjunction with our Consolidated Financial Statements and the accompanying notes. This information is intended to provide investors with an understanding of our past performance, current financial condition and outlook for the future. Our discussion and analysis includes the following subjects:
|
•
|
Overview of Business
|
|
•
|
Overview of Significant Events
|
|
•
|
Liquidity and Capital Resources
|
|
•
|
Results of Operations
|
|
•
|
Off-Balance Sheet Arrangements
|
|
•
|
Summary of Critical Accounting Estimates
|
|
•
|
Recent Accounting Standards
|
Overview of Business
Cheniere, a Delaware corporation, is a Houston-based energy company primarily engaged in LNG-related businesses. We own and operate the Sabine Pass LNG terminal in Louisiana through our ownership interest in and management agreements with Cheniere Partners, which is a publicly traded limited partnership that we created in 2007. We own
100%
of the general partner interest in Cheniere Partners and
80.1%
of Cheniere Holdings, which is a publicly traded limited liability company formed in 2013 that owns a
55.9%
limited partner interest in Cheniere Partners. We are currently developing and constructing two natural gas liquefaction and export facilities.
The Sabine Pass LNG terminal is located on the Sabine-Neches Waterway less than four miles from the Gulf Coast. The Sabine Pass LNG terminal has operational regasification facilities owned by Cheniere Partners’ wholly owned subsidiary, SPLNG, that include existing infrastructure of five LNG storage tanks with capacity of approximately 16.9
Bcfe
, two marine berths that can accommodate vessels with nominal capacity of up to 266,000 cubic meters and vaporizers with regasification capacity of approximately 4.0
Bcf/d
. Cheniere Partners is developing and constructing 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. Trains 1 and 2 are undergoing commissioning, Trains 3 through 5 are under construction and Train 6 is fully permitted. Each Train is expected to have a nominal production capacity of approximately 4.5
mtpa
of LNG. Cheniere Partners also owns a 94-mile pipeline that interconnects the Sabine Pass LNG terminal with a number of large interstate pipelines
(the “Creole Trail Pipeline”)
through a wholly owned subsidiary, CTPL.
We are developing and constructing a second natural gas liquefaction and export facility at the Corpus Christi LNG terminal, which is on nearly
2,000
acres of land that we own or control near Corpus Christi, Texas, and a pipeline facility
(collectively, the “CCL Project”)
through wholly owned subsidiaries CCL and CCP, respectively. The
CCL Project
is being developed for up to three Trains, with expected aggregate nominal production capacity of approximately 13.5
mtpa
of LNG, three LNG storage tanks with capacity of approximately 10.1
Bcfe
and two marine berths that can accommodate vessels with nominal capacity of up to 266,000 cubic meters. The
CCL Project
is being developed in stages. The first stage
(“Stage 1”)
includes Trains 1 and 2, two LNG storage tanks, one complete marine berth and a second partial berth and all of the
CCL Project
’s necessary infrastructure facilities. The second stage
(“Stage 2”)
includes Train 3, one LNG storage tank and the completion of the second partial berth. The
CCL Project
also includes a 23-mile, 48-inch natural gas supply pipeline that will interconnect the Corpus Christi LNG terminal with several interstate and intrastate natural gas pipelines
(the “Corpus Christi Pipeline”)
.
28
Corpus Christi Liquefaction Stage III, LLC and Cheniere Corpus Christi Pipeline Stage III, LLC (the “CCL Stage III entities”), wholly owned subsidiaries of Cheniere separate from the CCH Group, are also developing two additional Trains and one LNG storage tank at the Corpus Christi LNG terminal adjacent to the
CCL Project
, along with a second natural gas pipeline.
Cheniere Marketing is engaged in the LNG and natural gas marketing business and is developing a portfolio of long-term, short-term and spot
SPA
s. Cheniere Marketing has entered into
SPA
s with SPL and CCL to purchase LNG produced by the
SPL Project
and the
CCL Project
.
We are also in various stages of developing other projects which, among other things, will require acceptable commercial and financing arrangements before we make a final investment decision
(“FID”)
.
Overview of Significant Events
Our significant accomplishments since January 1,
2016
and through the filing date of this Form 10-Q include the following:
|
•
|
In February 2016, Cheniere Partners entered into a Credit and Guaranty Agreement for the incurrence of debt of up to an aggregate amount of approximately $2.8 billion
(the “2016 CQP Credit Facilities”)
. The
2016 CQP Credit Facilities
consist of: (1) a
$450.0 million
CTPL tranche term loan that was used to prepay the
$400.0 million
CTPL Term Loan
in February 2016, (2) an approximately
$2.1 billion
SPLNG tranche term loan that will be used to redeem or repay the approximately
$2.1 billion
of the 7.50% Senior Secured Notes due 2016 issued by SPLNG
(the “2016 SPLNG Senior Notes”)
and the 6.50% Senior Secured Notes due 2020 issued by SPLNG
(the “2020 SPLNG Senior Notes” and collectively with the 2016 SPLNG Senior Notes, the “SPLNG Senior Notes”)
(which must be redeemed or repaid concurrently under the terms of the
2016 CQP Credit Facilities
), (3) a
$125.0 million
debt service reserve credit facility
(the “DSR Facility”)
that may be used to satisfy a
six
-month debt service reserve requirement and (4) a
$115.0 million
revolving credit facility that may be used for general business purposes.
|
|
•
|
In February 2016, SPL commenced production and shipment of LNG commissioning cargoes from Train 1 of the
SPL Project
.
|
Liquidity and Capital Resources
Although results are consolidated for financial reporting, Cheniere, Cheniere Holdings, Cheniere Partners, SPL, SPLNG, CTPL and the CCH Group operate with independent capital structures. We expect the cash needs for at least the next twelve months will be met for each of these independent capital structures as follows:
•
SPLNG through operating cash flows, existing unrestricted cash and debt offerings or equity contributions;
•
SPL through project debt and borrowings, equity contributions from Cheniere Partners and operating cash flows;
|
•
|
Cheniere Partners through operating cash flows from SPLNG, SPL and CTPL, existing unrestricted cash and debt or equity offerings;
|
•
Cheniere Holdings through distributions from Cheniere Partners;
•
CCH Group through project financing, operating cash flow from CCL and CCP and equity contributions from Cheniere;
and
|
•
|
Cheniere through project financing, existing unrestricted cash, debt and equity offerings by us or our subsidiaries, operating cash flows, services fees from Cheniere Holdings, Cheniere Partners and its other subsidiaries and distributions from our investments in Cheniere Holdings and Cheniere Partners.
|
As of
March 31, 2016
, we had cash and cash equivalents of
$1,094.8 million
available to Cheniere. In addition, we had current and non-current restricted cash of
$764.3 million
(which included current and non-current restricted cash available to us and our subsidiaries) designated for the following purposes:
$295.3 million
for the
CCL Project
;
$177.6 million
for the
SPL Project
;
$108.9 million
for restrictions under the
2016 CQP Credit Facilities
;
$129.1 million
for interest payments related to the
SPLNG Senior Notes
; and
$53.4 million
for other restricted purposes.
In November 2014, we issued an aggregate principal amount of $1.0 billion 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
29
is greater than or equal to the conversion price on the date of conversion. The initial conversion price was $93.64 and is subject to adjustment upon the occurrence of certain specified events. We have the option to satisfy the conversion obligation with cash, common stock or a combination thereof.
In March 2015, we issued the $625.0 million aggregate principal amount of 4.25% Convertible Senior Notes due 2045
(the “2045 Cheniere Convertible Senior Notes”)
. We have the right, at our option, at any time after March 15, 2020, to redeem all or any part of the
2045 Cheniere Convertible Senior Notes
at a redemption price equal to the accreted amount of the
2045 Cheniere Convertible Senior Notes
to be redeemed, plus accrued and unpaid interest, if any, to such redemption date. The conversion rate will initially equal 7.2265 shares of our common stock per $1,000 principal amount of the
2045 Cheniere Convertible Senior Notes
, which corresponds to an initial conversion price of approximately $138.38 per share of our common stock. The conversion rate is subject to adjustment upon the occurrence of certain specified events. We have the option to satisfy the conversion obligation with cash, common stock or a combination thereof.
Cheniere Holdings
Cheniere Holdings was formed by us to hold our Cheniere Partners limited partner interests, thereby allowing us to segregate our lower risk, stable, cash flow generating assets from our higher risk, early stage development projects and marketing activities. As of
March 31, 2016
, we had an
80.1%
direct ownership interest in Cheniere Holdings. We receive dividends on our Cheniere Holdings shares from the distributions that Cheniere Holdings receives from Cheniere Partners, and we receive management fees for managing Cheniere Holdings. We received
$3.7 million
and $3.5 million in dividends on our Cheniere Holdings common shares during the
three months ended March 31, 2016 and 2015
, respectively, and
$0.3 million
of management fees from Cheniere Holdings in each of the
three months ended March 31, 2016 and 2015
.
Cheniere Partners
Our ownership interest in the Sabine Pass LNG terminal is held through Cheniere Partners. As of
March 31, 2016
, we own
80.1%
of Cheniere Holdings, which owns a 55.9% limited partner interest in Cheniere Partners in the form of
11,963,488
common units,
45,333,334
Class B units and
135,383,831
subordinated units. We also own 100% of the general partner interest and the incentive distribution rights in Cheniere Partners.
Prior to the initial public offering by Cheniere Holdings, we received quarterly equity distributions from Cheniere Partners related to our limited partner and 2% general partner interests. We will continue to receive quarterly equity distributions from Cheniere Partners related to our 2% general partner interest, and we receive fees for providing services to Cheniere Partners, SPLNG, SPL and CTPL. We received $0.5 million in distributions on our general partner interest during each of the
three months ended March 31, 2016 and 2015
, and we received
$62.3 million
and $19.1 million in total service fees from Cheniere Partners, SPLNG, SPL and CTPL, during the
three months ended March 31, 2016 and 2015
, respectively.
Cheniere Partners’ common unit and general partner distributions are being funded from accumulated operating surplus. We have not received distributions on our subordinated units with respect to the quarters ended on or after June 30, 2010. Cheniere Partners will not make distributions on our subordinated units until it generates additional cash flow from the
SPL Project
, SPLNG’s excess capacity or other new business, which would be used to make quarterly distributions on our subordinated units before any increase in distributions to the common unitholders.
Cheniere Partners’ Class B units are subject to conversion, mandatorily or at the option of the Class B unitholders under specified circumstances, into a number of common units based on the then-applicable conversion value of the Class B units. The Cheniere Partners Class B units are not entitled to cash distributions except in the event of a liquidation of Cheniere Partners, a merger, consolidation or other combination of Cheniere Partners with another person or the sale of all or substantially all of the assets of Cheniere Partners. On a quarterly basis beginning on the initial purchase date of the Class B units, the conversion value of the Class B units increases at a compounded rate of 3.5% per quarter, subject to an additional upward adjustment for certain equity and debt financings. The accreted conversion ratio of the Class B units owned by Cheniere Holdings and Blackstone CQP Holdco LP was
1.68
and
1.65
, respectively, as of
March 31, 2016
. We expect the Class B units to mandatorily convert into common units within 90 days of the substantial completion date of Train 3 of the
SPL Project
, which Cheniere Partners currently expects to occur before April 30, 2017. If the Class B units are not mandatorily converted by July 2019, the holders of the Class B units have the option to convert the Class B units into common units at that time.
30
LNG Terminal Business
Sabine Pass LNG Terminal
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
TUA
s, under which SPLNG’s customers are required to pay fixed monthly fees, whether or not they use the LNG terminal. Each of Total Gas & Power North America, Inc.
(“Total”)
and Chevron U.S.A. Inc.
(“Chevron”)
has reserved approximately 1.0
Bcf/d
of regasification capacity and is obligated to make monthly capacity payments to SPLNG aggregating approximately $125 million annually for 20 years that commenced in 2009. Total S.A. has guaranteed
Total
’s obligations under its
TUA
up to $2.5 billion, subject to certain exceptions, and Chevron Corporation has guaranteed
Chevron
’s obligations under its
TUA
up to 80% of the fees payable by
Chevron
.
The remaining approximately 2.0
Bcf/d
of capacity has been reserved under a
TUA
by SPL. SPL is obligated to make monthly capacity payments to SPLNG aggregating approximately $250 million annually, continuing until at least 20 years after SPL delivers its first commercial cargo at the
SPL Project
. SPL entered into a partial TUA assignment agreement with
Total
, whereby SPL will progressively gain access to
Total
’s capacity and other services provided under
Total
’s TUA with SPLNG. This agreement will provide SPL with additional berthing and storage capacity at the Sabine Pass LNG terminal that may be used to accommodate the development of Trains 5 and 6, provide increased flexibility in managing LNG cargo loading and unloading activity starting with the commencement of commercial operations of Train 3 and permit SPL to more flexibly manage its LNG storage capacity with the commencement of Train 1. 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.
Under each of these
TUA
s, SPLNG is entitled to retain 2% of the LNG delivered to the Sabine Pass LNG terminal.
Liquefaction Facilities
The
SPL Project
is being developed and constructed at the Sabine Pass LNG terminal adjacent to the existing regasification facilities. We have received authorization from the FERC to site, construct and operate Trains 1 through 6. We commenced construction of Trains 1 and 2 and the related new facilities needed to treat, liquefy, store and export natural gas in August 2012. Construction of Trains 3 and 4 and the related facilities commenced in May 2013. In June 2015, we commenced construction of Train 5 and the related facilities.
The
DOE
has authorized the export of domestically produced LNG by vessel from the Sabine Pass LNG terminal (1) to
FTA countries
for a 30-year term and (2) to
non-FTA countries
for a 20-year term with a 3-year makeup period for LNG volumes SPL was unable to export during the initial 20-year export period, in an amount up to a combined total of the equivalent of 16
mtpa
(approximately 803
Bcf/yr
of natural gas). The
DOE
further issued an order authorizing SPL to export domestically produced LNG from the Sabine Pass LNG terminal to
FTA countries
for a 25-year term and non-FTA countries for a 20-year term up to the equivalent of approximately 203
Bcf/yr
of natural gas. Additionally, the
DOE
issued orders authorizing SPL to export domestically produced LNG from the Sabine Pass LNG terminal to
FTA countries
and
non-FTA countries
for a 20-year term up to a combined total of 503.3
Bcf/yr
of natural gas. A party to the proceedings requested rehearings of the orders above related to the export of 203
Bcf/yr
and 503.3
Bcf/yr
to non-FTA countries and the
DOE
has not yet issued a final ruling on the rehearing requests. 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 5 to 10 years from the date the order was issued. Furthermore, the DOE issued an order authorizing SPL to export domestically produced LNG by vessel from the Sabine Pass LNG terminal to FTA countries and non-FTA countries over a two-year period commencing on January 15, 2016 up to 600 Bcf in total of natural gas.
As of
March 31, 2016
, the overall project completion percentages for Trains 1 and 2 and Trains 3 and 4 of the
SPL Project
were approximately
98.3%
and
83.8%
, respectively. As of
March 31, 2016
, the overall project completion percentage for Train 5 of the
SPL Project
was approximately
28.8%
with engineering, procurement, subcontract work and Bechtel direct hire construction approximately
59.1%
,
45.1%
,
24.2%
and
0.4%
complete, respectively. As of
March 31, 2016
, the overall project completion of each of our Trains was ahead of the contractual schedule. We produced our first LNG from Train 1 of the
SPL Project
in February 2016. Based on our current construction schedule, we anticipate that Train 2 will produce LNG as early as mid-2016 and Trains 3 through 5 are expected to commence operations on a staggered basis thereafter.
31
Customers
SPL has entered into six fixed price, 20-year
SPA
s with third parties to make available an aggregate amount of LNG that equates to approximately 19.75
mtpa
of LNG, which is approximately 88%
of the expected aggregate nominal production capacity of Trains 1 through 5. The obligation to make LNG available under the SPAs
commences from the date of first commercial delivery for Trains 1 through 5, as specified in each SPA. Under these
SPA
s, the customers will purchase LNG from SPL for a price consisting of a fixed fee (a portion of which is subject to annual adjustment for inflation) per MMBtu of LNG plus a variable fee equal to 115% of
Henry Hub
per
MMBtu
of LNG. In certain circumstances, the customers may elect to cancel or suspend deliveries of LNG cargoes, in which case the customers would still be required to pay the fixed fee with respect to the contracted volumes that are not delivered as a result of such cancellation or suspension. The
SPA
s and contracted volumes to be made available under the
SPA
s are not tied to a specific Train; however, the term of each
SPA
commences upon the start of operations of a specified Train.
In aggregate, the fixed fee portion to be paid by the third-party SPA customers is approximately $2.9 billion annually for Trains 1 through 5, with the applicable fixed fees starting from the commencement of commercial operations of the applicable Train. These fixed fees equal approximately $411 million, $564 million, $650 million, $648 million and $588 million for each of Trains 1 through 5, respectively.
In addition, Cheniere Marketing has entered into an
SPA
with SPL to purchase, at Cheniere Marketing’s option, any LNG produced by SPL in excess of that required for other customers.
Natural Gas Transportation, Storage and Supply
To ensure SPL is able to transport adequate natural gas feedstock to the Sabine Pass LNG terminal, it has entered into transportation precedent agreements to secure firm pipeline transportation capacity with CTPL and third-party pipeline companies. For SPL’s natural gas storage requirements, SPL has entered into firm storage services agreements with third parties. The storage services agreements assist SPL in managing volatility in natural gas needs for the
SPL Project
. SPL has also entered into enabling agreements and natural gas purchase agreements with third parties in order to secure natural gas feedstock for the
SPL Project
. As of
March 31, 2016
, SPL has secured up to approximately
2,047.9
million
MMBtu
of natural gas feedstock through natural gas purchase agreements.
Construction
SPL entered into lump sum turnkey contracts with
Bechtel
for the engineering, procurement and construction of Trains 1 through 5, under which
Bechtel
charges a lump sum for all work performed and generally bears project cost risk unless certain specified events occur, in which case
Bechtel
may cause SPL to enter into a change order, or SPL agrees with
Bechtel
to a change order.
The total contract prices of the EPC contract for Trains 1 and 2, the EPC contract for Trains 3 and 4 and the EPC Contract for Train 5 of the
SPL Project
are approximately
$4.1 billion
,
$3.8 billion
and
$3.0 billion
, respectively, reflecting amounts incurred under change orders through
March 31, 2016
. Total expected capital costs for Trains 1 through 5 are estimated to be between
$12.5 billion
and
$13.5 billion
before financing costs and between
$17.0 billion
and
$18.0 billion
after financing costs including, in each case, estimated owner’s costs and contingencies.
Final Investment Decision on Train 6
We will contemplate making an
FID
to commence construction of Train 6 of the
SPL Project
based upon, among other things, entering into an
EPC
contract, entering into acceptable commercial arrangements and obtaining adequate financing to construct the Train.
Capital Resources
We currently expect that SPL’s capital resources requirements with respect to Trains 1 through 5 of the
SPL Project
will be financed through one or more of the following: borrowings, equity contributions from Cheniere Partners and cash flows under the
SPA
s. We believe that with the net proceeds of borrowings, available commitments under the
2015 SPL Credit Facilities
, available
32
commitments under the
SPL Working Capital Facility
and cash flows from operations, we will have adequate financial resources available to complete Trains 1 through 5 of the
SPL Project
and to meet our currently anticipated capital, operating and debt service requirements. SPL will begin generating cash flow from operations through the sale of LNG cargoes in 2016.
Senior Secured Notes
As of
March 31, 2016
, Cheniere Partners’ subsidiaries had seven series of senior secured notes outstanding
(collectively, the “Senior Notes”)
:
|
•
|
$1.7 billion
of
2016 SPLNG Senior Notes
;
|
|
•
|
$0.4 billion
of
2020 SPLNG Senior Notes
;
|
|
•
|
$2.0 billion
of 5.625% Senior Secured Notes due 2021 issued by SPL
(the “2021 SPL Senior Notes”)
;
|
|
•
|
$1.0 billion
of 6.25% Senior Secured Notes due 2022 issued by SPL
(the “2022 SPL Senior Notes”)
;
|
|
•
|
$1.5 billion
of 5.625% Senior Secured Notes due 2023 issued by SPL
(the “2023 SPL Senior Notes”)
;
|
|
•
|
$2.0 billion
of 5.75% Senior Secured Notes due 2024 issued by SPL
(the “2024 SPL Senior Notes”)
; and
|
|
•
|
$2.0 billion
of 5.625% Senior Secured Notes due 2025
(the “2025 SPL Senior Notes” and collectively with the 2021 SPL Senior Notes, the 2022 SPL Senior Notes, the 2023 SPL Senior Notes and the 2024 SPL Senior Notes, the “SPL Senior Notes”)
.
|
Interest on the
SPL Senior Notes
is payable semi-annually in arrears. Subject to permitted liens, the
SPLNG Senior Notes
are secured on a
pari passu
first-priority basis by a security interest in all of SPLNG’s equity interests and substantially all of SPLNG’s operating assets. The
SPL Senior Notes
are secured on a first-priority basis by a security interest in all of the membership interests in SPL and substantially all of SPL’s assets.
SPLNG may redeem all or part of its
2016 SPLNG Senior Notes
at any time at a redemption price equal to 100% of the principal plus any accrued and unpaid interest plus the greater of:
•
1.0% of the principal amount of the
2016 SPLNG Senior Notes
; or
|
•
|
the excess of: (1) the present value at such redemption date of (a) the redemption price of the
2016 SPLNG Senior Notes
plus (b) all required interest payments due on the
2016 SPLNG Senior Notes
(excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the treasury rate as of such redemption date plus 50 basis points; over (2) the principal amount of the
2016 SPLNG Senior Notes
, if greater.
|
SPLNG may redeem all or part of the
2020 SPLNG Senior Notes
at any time on or after November 1, 2016 at fixed redemption prices specified in the indenture governing the
2020 SPLNG Senior Notes
, plus accrued and unpaid interest, if any, to the date of redemption. SPLNG may also, at its option, redeem all or part of the
2020 SPLNG Senior Notes
at any time prior to November 1, 2016, at a “make-whole” price set forth in the indenture governing the
2020 SPLNG Senior Notes
, plus accrued and unpaid interest, if any, to the date of redemption.
At any time prior to three months before the respective dates of maturity for each series of the
SPL Senior Notes
, SPL may redeem all or part of such series of the
SPL Senior Notes
at a redemption price equal to the “make-whole” price set forth in the common indenture governing the
SPL Senior Notes
(the “SPL Indenture”)
, plus accrued and unpaid interest, if any, to the date of redemption. SPL may also, at any time within three months of the respective maturity dates for each series of the
SPL Senior Notes
, 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.
Under the indentures governing the
SPLNG Senior Notes
(the “SPLNG Indentures”)
, except for permitted tax distributions, SPLNG may not make distributions until, among other requirements, deposits are made into debt service reserve accounts and a fixed charge coverage ratio test of 2:1 is satisfied. Under the
SPL Indenture
, SPL may not make any distributions until, among other requirements, substantial completion of Trains 1 and 2 of the
SPL Project
has occurred, deposits are made into debt service reserve accounts as required and a debt service coverage ratio test of 1.25:1.00 is satisfied. During the
three months ended March 31, 2016 and 2015
, SPLNG made distributions of
$63.4 million
and
$70.8 million
, respectively, after satisfying all the applicable conditions in the
SPLNG Indentures
.
33
The
SPL Indenture
includes restrictive covenants. SPL may incur additional indebtedness in the future, including by issuing additional notes, and such indebtedness could be at higher interest rates and have different maturity dates and more restrictive covenants than the current outstanding indebtedness of SPL, including the
SPL Senior Notes
, the
2015 SPL Credit Facilities
and the
SPL Working Capital Facility
.
2015 SPL Credit Facilities
In June 2015, SPL entered into the
2015 SPL Credit Facilities
with commitments aggregating $4.6 billion. The
2015 SPL Credit Facilities
are being used to fund a portion of the costs of developing, constructing and placing into operation Trains 1 through 5 of the
SPL Project
. Borrowings under the
2015 SPL Credit Facilities
may be refinanced, in whole or in part, at any time without premium or penalty; however, interest rate hedging and interest rate breakage costs may be incurred. As of
March 31, 2016
, SPL had
$3.1 billion
of available commitments and
$1.5 billion
of outstanding borrowings under the
2015 SPL Credit Facilities
.
Loans under the
2015 SPL Credit Facilities
accrue interest at a variable rate per annum equal to, at SPL’s election,
LIBOR
or the base rate plus the applicable margin. The applicable margin for
LIBOR
loans ranges from 1.30% to 1.75%, depending on the applicable
2015 SPL Credit Facility
, and the applicable margin for base rate loans is 1.75%. Interest on
LIBOR
loans is due and payable at the end of each
LIBOR
period and interest on base rate loans is due and payable at the end of each quarter. In addition, SPL is required to pay insurance/guarantee premiums of 0.45% per annum on any drawn amounts under the covered tranches of the
2015 SPL Credit Facilities
. The
2015 SPL Credit Facilities
also require SPL to pay a quarterly commitment fee calculated at a rate per annum equal to either: (1) 40% of the applicable margin, multiplied by the average daily amount of the undrawn commitment, or (2) 0.70% of the undrawn commitment, depending on the applicable
2015 SPL Credit Facility
. The principal of the loans made under the
2015 SPL Credit Facilities
must be repaid in quarterly installments, commencing with the earlier of June 30, 2020 and the last day of the first full calendar quarter after the completion date of Trains 1 through 5 of the
SPL Project
. Scheduled repayments are based upon an 18-year amortization profile, with the remaining balance due upon the maturity of the
2015 SPL Credit Facilities
.
The
2015 SPL Credit Facilities
contain conditions precedent for borrowings, as well as customary affirmative and negative covenants. The obligations of SPL under the
2015 SPL Credit Facilities
are secured by substantially all of the assets of SPL as well as all of the membership interests in SPL on a
pari passu
basis with the
SPL Senior Notes
and
SPL Working Capital Facility
.
Under the terms of the
2015 SPL Credit Facilities
, SPL is required to hedge not less than 65% of the variable interest rate exposure of its projected outstanding borrowings, calculated on a weighted average basis in comparison to its anticipated draw of principal. Additionally, SPL may not make any distributions until substantial completion of Trains 1 and 2 of the
SPL Project
has occurred, deposits are made into debt service reserve accounts and a debt service coverage ratio test of 1.25:1.00 is satisfied.
2013 SPL Credit Facilities
In May 2013, SPL entered into four credit facilities aggregating $5.9 billion
(collectively, the “2013 SPL Credit Facilities”)
to fund a portion of the costs of developing, constructing and placing into operation Trains 1 through 4 of the
SPL Project
. In June 2015, the
2013 SPL Credit Facilities
were replaced with the
2015 SPL Credit Facilities
.
In March 2015, in conjunction with SPL’s issuance of the
2025 SPL Senior Notes
, SPL terminated approximately $1.8 billion of commitments under the
2013 SPL Credit Facilities
. This termination resulted in a write-off of debt issuance costs and deferred commitment fees associated with the
2013 SPL Credit Facilities
of $89.0 million for the
three months ended March 31, 2015
.
CTPL Term Loan
In May 2013, CTPL entered into a $400.0 million term loan facility
(the “CTPL Term Loan”)
, which was used to fund modifications to the
Creole Trail Pipeline
and for general business purposes. In February 2016, CTPL prepaid the full amount of $400.0 million outstanding under the
CTPL Term Loan
with capital contributions from Cheniere Partners, which in turn was funded with borrowings under the
2016 CQP Credit Facilities
. This prepayment resulted in a write-off of unamortized discount and debt issuance costs of
$1.5 million
during the
three months ended March 31, 2016
.
34
2016 CQP Credit Facilities
In February 2016, Cheniere Partners entered into the
2016 CQP Credit Facilities
. The
2016 CQP Credit Facilities
consist of: (1) a
$450.0 million
CTPL tranche term loan that was used to prepay the
$400.0 million
CTPL Term Loan
in February 2016, (2) an approximately
$2.1 billion
SPLNG tranche term loan that will be used to redeem or repay the approximately
$2.1 billion
of the
2016 SPLNG Senior Notes
and the
2020 SPLNG Senior Notes
(which must be redeemed or repaid concurrently under the terms of the
2016 CQP Credit Facilities
), (3) a
$125.0 million
debt service reserve credit facility
(the “DSR Facility”)
that may be used to satisfy a
six
-month debt service reserve requirement and (4) a
$115.0 million
revolving credit facility that may be used for general business purposes. As of
March 31, 2016
, Cheniere Partners had
$2.3 billion
of available commitments,
$7.5 million
aggregate amount of issued letters of credit and
$450.0 million
of outstanding borrowings under the
2016 CQP Credit Facilities
.
The
2016 CQP Credit Facilities
accrue interest at a variable rate per annum equal to LIBOR or the base rate (equal to the highest of the prime rate, the federal funds effective rate, as published by the Federal Reserve Bank of New York, plus 0.50% and adjusted one month LIBOR plus 1.0%), plus the applicable margin. The applicable margin for LIBOR loans is 2.25% per annum, and the applicable margin for base rate loans is 1.25% per annum, in each case with a 0.50% step-up beginning on February 25, 2019. Interest on LIBOR loans is due and payable at the end of each applicable LIBOR period (and at the end of every three month period within the LIBOR period, if any), and interest on base rate loans is due and payable at the end of each calendar quarter.
Cheniere Partners incurred
$48.7 million
of debt issuance costs during the
three months ended March 31, 2016
, and will incur an additional
$21.5 million
of debt issuance costs when the SPLNG tranche is funded. Cheniere Partners pays a commitment fee equal to an annual rate of
40%
of the margin for LIBOR loans multiplied by the average daily amount of the undrawn commitment, payable quarterly in arrears. The DSR Facility and the revolving credit facility are both available for the issuance of letters of credit, which incur a fee equal to an annual rate of
2.25%
of the undrawn portion with a
0.50%
step-up beginning on February 25, 2019.
The
2016 CQP Credit Facilities
mature on February 25, 2020, and the outstanding balance may be repaid, in whole or in part, at any time without premium or penalty, except for interest hedging and interest rate breakage costs. The
2016 CQP Credit Facilities
contain conditions precedent for extensions of credit, as well as customary affirmative and negative covenants and limit Cheniere Partners’ ability to make restricted payments, including distributions, to once per fiscal quarter as long as certain conditions are satisfied. Under the terms of the
2016 CQP Credit Facilities
, Cheniere Partners is required to hedge not less than
50%
of the variable interest rate exposure on its projected aggregate outstanding balance, maintain a minimum debt service coverage ratio of at least
1.15
x at the end of each fiscal quarter beginning March 31, 2019 and have a projected debt service coverage ratio of
1.55
x in order to incur additional indebtedness to refinance a portion of the existing obligations.
The
2016 CQP Credit Facilities
are unconditionally guaranteed by each subsidiary of Cheniere Partners other than: (1) SPL, (2) SPLNG until funding of its tranche term loan and (3) certain of the subsidiaries of Cheniere Partners owning other development projects, as well as certain other specified subsidiaries and members of the foregoing entities.
SPL Working Capital Facility
In September 2015, SPL entered into a $1.2 billion Amended and Restated Senior Working Capital Revolving Credit and Letter of Credit Reimbursement Agreement
(the “SPL Working Capital Facility”)
, which replaced the $325.0 million Senior Letter of Credit and Reimbursement Agreement that was entered into in April 2014
(the “SPL LC Agreement”)
. The
SPL Working Capital Facility
is intended to be used for loans to SPL
(“Working Capital Loans”)
, the issuance of letters of credit, as well as for swing line loans to 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
March 31, 2016
, SPL had
$838.5 million
of available commitments,
$236.5 million
aggregate amount of issued letters of credit and
$125.0 million
outstanding under the
SPL Working Capital Facility
. As of
December 31, 2015
, SPL had $1.1 billion of available commitments, $135.2 million aggregate amount of issued letters of credit and $15.0 million outstanding under the
SPL Working Capital Facility
.
The
SPL Working Capital Facility
accrues interest at a variable rate per annum equal to LIBOR or the base rate (equal to the highest of the senior facility agent’s published prime rate, the federal funds effective rate, as published by the Federal Reserve
35
Bank of New York, plus 0.50% and one month LIBOR plus 0.50%), plus the applicable margin. The applicable margin for LIBOR loans under the
SPL Working Capital Facility
is 1.75% per annum, and the applicable margin for base rate loans under the
SPL Working Capital Facility
is 0.75% per annum. Interest on
Swing Line Loans
and loans deemed made in connection with a draw upon a letter of credit
(“LC Loans”)
is due and payable on the date the loan becomes due. Interest on LIBOR
Working Capital Loans
is due and payable at the end of each applicable LIBOR period, and interest on base rate
Working Capital Loans
is due and payable at the end of each fiscal quarter. However, if such base rate Working Capital Loan is converted into a LIBOR Working Capital Loan, interest is due and payable on that date. Additionally, if the loans become due prior to such periods, the interest also becomes due on that date.
SPL pays (1) a commitment fee equal to an annual rate of 0.70% on the average daily amount of the excess of the total commitment amount over the principal amount outstanding without giving effect to any outstanding
Swing Line Loans
and (2) a letter of credit fee equal to an annual rate of 1.75% of the undrawn portion of all letters of credit issued under the
SPL Working Capital Facility
. If draws are made upon a letter of credit issued under the
SPL Working Capital Facility
and SPL does not elect for such draw
(an “LC Draw”)
to be deemed an LC Loan, SPL is required to pay the full amount of the
LC Draw
on or prior to the business day following the notice of the
LC Draw
. An
LC Draw
accrues interest at an annual rate of 2.0% plus the base rate. As of
March 31, 2016
, no
LC Draw
s had been made upon any letters of credit issued under the
SPL Working Capital Facility
.
The
SPL Working Capital Facility
matures on December 31, 2020, and the outstanding balance may be repaid, in whole or in part, at any time without premium or penalty upon three business days’ notice.
LC Loans
have a term of up to one year.
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 Swing Line Loan is made and (3) the first borrowing date for a Working Capital Loan or Swing Line Loan occurring at least three business days following the date the Swing Line Loan is made. SPL is required to reduce the aggregate outstanding principal amount of all
Working Capital Loans
to zero for a period of five consecutive business days at least once each year.
The
SPL Working Capital Facility
contains conditions precedent for extensions of credit, as well as customary affirmative and negative covenants. The obligations of SPL under the
SPL Working Capital Facility
are secured by substantially all of the assets of SPL as well as all of the membership interests in SPL on a
pari passu
basis with the
SPL Senior Notes
and the
2015 SPL Credit Facilities
.
Corpus Christi LNG Terminal
Liquefaction Facilities
The
CCL Project
is being developed and constructed at the Corpus Christi LNG terminal, on nearly
2,000
acres of land that we own or control near Corpus Christi, Texas. In December 2014, we received authorization from the
FERC
to site, construct and operate Stages 1 and 2 of the
CCL Project
. In May 2015, we commenced construction of
Stage 1
of the
CCL Project
.
Through the CCL Stage III entities, which are separate from the CCH Group, we are developing two additional Trains and one LNG storage tank at the Corpus Christi LNG terminal adjacent to the
CCL Project
, along with a second natural gas pipeline, and we commenced the regulatory approval process in June 2015.
The
DOE
has authorized the export of domestically produced LNG by vessel from the
CCL Project
to
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. A party to the proceeding requested a rehearing of the non-FTA order, and the
DOE
has not yet issued a final ruling on the rehearing request. Additionally, the DOE has authorized the export of domestically produced LNG by vessel from the two additional Trains being developed adjacent to the
CCL Project
to FTA countries for a 20-year term in an amount equivalent to 514 Bcf/yr (approximately 10 mtpa) of natural gas. The application for authorization to export that same 514 Bcf/yr of domestically produced LNG by vessel to non-FTA countries is currently pending at the DOE. In each case, the terms of these authorizations begin on the earlier of the date of first export thereunder or the date specified in the particular order, which ranges from 7 to 10 years from the date the order was issued.
As of
March 31, 2016
, the overall project completion percentage for
Stage 1
of the
CCL Project
was approximately
32.5%
with engineering, procurement and construction approximately
97.1%
,
46.0%
and
4.6%
complete, respectively. The construction of the
Corpus Christi Pipeline
is planned to commence in 2016. Based on our current construction schedule, we anticipate that
36
Train 1 of the
CCL Project
will produce LNG as early as late 2018, and Train 2 is expected to commence operations several months thereafter.
Customers
CCL has entered into seven fixed price, 20-year
SPA
s with six third parties to make available an aggregate amount of LNG that equates to approximately 7.7
mtpa
of LNG, which is approximately 86% of the expected aggregate nominal production capacity of Trains 1 and 2. The obligation to make LNG available under these SPAs commences from the date of first commercial delivery for Trains 1 and 2, as specified in each SPA. In addition, CCL has entered into one fixed price, 20-year SPA with a third party for another 0.8 mtpa of LNG that commences with the date of first commercial delivery for Train 3. Under these eight
SPA
s, the customers will purchase LNG from CCL for a price consisting of a fixed fee of $3.50 (a portion of which is subject to annual adjustment for inflation) per MMBtu of LNG plus a variable fee equal to 115% of
Henry Hub
per
MMBtu
of LNG. In certain circumstances, the customers may elect to cancel or suspend deliveries of LNG cargoes, in which case the customers would still be required to pay the fixed fee with respect to the contracted volumes that are not delivered as a result of such cancellation or suspension. The
SPA
s and contracted volumes to be made available under the
SPA
s are not tied to a specific Train; however, the term of each
SPA
commences upon the start of operations of a specified Train.
In aggregate, the fixed fee portion to be paid by the third-party SPA customers is approximately $1.4 billion annually for Trains 1 and 2, and $1.5 billion if we make a positive
FID
with respect to
Stage 2
of the
CCL Project
, with the applicable fixed fees starting from the commencement of commercial operations of the applicable Train. These fixed fees equal approximately $550 million, $846 million and $140 million for each of Trains 1 through 3, respectively.
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. For CCL’s natural gas storage requirements, CCL has entered into a firm storage services agreement with a third party. The storage services agreement assists CCL in managing volatility in natural gas needs for the
CCL Project
. CCL has also entered into enabling agreements with third parties, and will continue to enter into such agreements, in order to secure natural gas feedstock for the
CCL Project
.
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
contracts for Stages 1 and 2, which do not include the
Corpus Christi Pipeline
, are approximately
$7.6 billion
and
$2.4 billion
, respectively, reflecting amounts incurred under change orders through
March 31, 2016
. Total expected capital costs for Stages 1 and 2 are estimated to be between
$12.0 billion
and
$13.0 billion
before financing costs, and between
$15.0 billion
and
$16.0 billion
after financing costs including, in each case, estimated owner’s costs and contingencies. Total expected capital costs for
Stage 1
only are estimated to be between $9.0 billion and $10.0 billion before financing costs, and between $11.0 billion and $12.0 billion after financing costs including, in each case, estimated owner’s costs and contingencies.
Final Investment Decision on
Stage 2
We will contemplate making an
FID
to commence construction of
Stage 2
of the
CCL Project
based upon, among other things, entering into acceptable commercial arrangements and obtaining adequate financing to construct the facility.
Capital Resources
We expect to finance the construction costs of the
CCL Project
from one or more of the following: project financing, operating cash flow from CCL and CCP and equity contributions from Cheniere.
37
2025 CCH HoldCo II Convertible Senior Notes
In May 2015, CCH HoldCo II issued $1.0 billion aggregate principal amount of the
2025 CCH HoldCo II Convertible Senior Notes
on a private placement basis. The $1.0 billion principal of the
2025 CCH HoldCo II Convertible Senior Notes
will be used to partially fund costs associated with
Stage 1
of the
CCL Project
and the
Corpus Christi Pipeline
. The
2025 CCH HoldCo II Convertible Senior Notes
bear interest at a rate of 11.0% per annum, which is payable quarterly in arrears. Prior to the substantial completion of Train 2 of the
CCL Project
, interest on the
2025 CCH HoldCo II Convertible Senior Notes
will be paid entirely in kind. Following this date, the interest generally must be paid in cash; however, a portion of the interest may be paid in kind under certain specified circumstances. The
2025 CCH HoldCo II Convertible Senior Notes
are secured by a pledge by us of 100% of the equity interests in CCH HoldCo II, and a pledge by CCH HoldCo II of 100% of the equity interests in CCH HoldCo I.
At
CCH HoldCo II
’s option, the outstanding
2025 CCH HoldCo II Convertible Senior Notes
are convertible into our common stock, provided that our total market capitalization at that time is not less than $10.0 billion, on or after the later of (1) 58 months from May 1, 2015, and (2) the substantial completion of Train 2 of the
CCL Project
(the “Eligible Conversion Date”)
. The conversion price for
2025 CCH HoldCo II Convertible Senior Notes
converted at
CCH HoldCo II
’s option is the lower of (1) a 10% discount to the average of the daily volume-weighted average price
(“VWAP”)
of our common stock for the 90 trading day period prior to the date on which notice of conversion is provided, and (2) a 10% discount to the closing price of our common stock on the trading day preceding the date on which notice of conversion is provided. At the option of the holders, the
2025 CCH HoldCo II Convertible Senior Notes
are convertible on or after the six-month anniversary of the
Eligible Conversion Date
at a conversion price equal to the average of the daily
VWAP
of our common stock for the 90 trading day period prior to the date on which notice of conversion is provided. Conversions are also subject to various limitations and conditions.
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.
2015 CCH Credit Facility
In May 2015, CCH entered into a $8.4 billion credit facility
(the “2015 CCH Credit Facility”)
, which is being used to fund a portion of the costs associated with the development, construction, operation and maintenance of
Stage 1
of the
CCL Project
and the
Corpus Christi Pipeline
. Borrowings under the
2015 CCH Credit Facility
may be refinanced, in whole or in part, at any time without premium or penalty; however, interest rate hedging and interest rate breakage costs may be incurred. As of
March 31, 2016
, CCH had
$5.0 billion
of available commitments and
$3.4 billion
of outstanding borrowings under the
2015 CCH Credit Facility
.
The principal of the loans made under the
2015 CCH Credit Facility
must be repaid in quarterly installments, commencing on the earlier of (1) the first quarterly payment date occurring more than three calendar months following project completion and (2) a set date determined by reference to the date under which a certain LNG buyer linked to Train 2 of the
CCL Project
is entitled to terminate its
SPA
for failure to achieve the date of first commercial delivery for that agreement. Scheduled repayments will be based upon a 19-year tailored amortization, commencing the first full quarter after the project completion and designed to achieve a minimum projected fixed debt service coverage ratio of 1.55:1.
Loans under the
2015 CCH Credit Facility
accrue interest at a variable rate per annum equal to, at CCH’s election,
LIBOR
or the base rate, plus the applicable margin. The applicable margins for
LIBOR
loans are 2.25% prior to completion and 2.50% on completion and thereafter. The applicable margins for base rate loans are 1.25% prior to completion and 1.50% on completion and thereafter. Interest on
LIBOR
loans is due and payable at the end of each applicable interest period and interest on base rate loans is due and payable at the end of each quarter. The
2015 CCH Credit Facility
also requires CCH to pay a commitment fee at a rate per annum equal to 40% of the margin for
LIBOR
loans, multiplied by the outstanding undrawn debt commitments.
The obligations of CCH under the
2015 CCH Credit Facility
are secured by a first priority lien on substantially all of the assets of CCH and its subsidiaries and by a pledge by CCH HoldCo I of its limited liability company interests in CCH.
Under the terms of the
2015 CCH Credit Facility
, CCH is required to hedge not less than 65% of the variable interest rate exposure of its senior secured debt. CCH is restricted from making distributions under agreements governing its indebtedness generally until, among other requirements, the completion of the construction of Trains 1 and 2 of the
CCL Project
, funding of a
38
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.
LNG and Natural Gas Marketing Business
Cheniere Marketing is engaged in the LNG and natural gas marketing business and is developing a portfolio of long-term, short-term and spot LNG SPAs. Cheniere Marketing has purchased, transported and unloaded commercial LNG cargoes into the Sabine Pass LNG terminal and other LNG terminals worldwide and has used trading strategies intended to maximize margins on these cargoes. Cheniere Marketing has secured the following rights and obligations to support its business:
|
•
|
pursuant to an
SPA
with SPL, the right to purchase, at Cheniere Marketing’s option, any LNG produced by SPL in excess of that required for other customers;
|
|
•
|
pursuant to
SPA
s with CCL, the right to purchase, at Cheniere Marketing’s option, any LNG produced by CCL not required for other customers; and
|
|
•
|
a portfolio of LNG vessel time charters.
|
In addition, as of
March 31, 2016
, Cheniere Marketing has sold approximately 524 million MMBtu of LNG to be delivered to mostly investment grade counterparties between 2016 and 2023, with delivery obligations conditioned on the performance of the
SPL Project
and the
CCL Project
. The cargoes have been sold with a portfolio of delivery points, either on a Free on Board basis (delivered to the counterparty at the Sabine Pass LNG terminal) or a Delivered at Terminal
(“DAT”)
basis (delivered to the counterparty at their LNG receiving terminal). Cheniere Marketing has chartered LNG vessels to be utilized in
DAT
transactions. In addition, Cheniere Marketing has entered into a long-term agreement to sell LNG cargoes on a
DAT
basis. The agreement is conditioned upon the buyer achieving certain milestones, including reaching an
FID
related to certain projects and obtaining related financing.
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 which, among other things, will require acceptable commercial and financing arrangements before we make an
FID
.
39
Sources and Uses of Cash
The following table (in thousands) summarizes the sources and uses of our cash and cash equivalents for the
three months ended March 31, 2016 and 2015
. 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.
|
Three Months Ended March 31,
|
|||||||
|
|
2016
|
2015
|
|||||
|
Sources of cash and cash equivalents
|
|
|
|||||
|
Proceeds from issuances of debt
|
$
|
1,908,000
|
|
$
|
2,500,000
|
|
|
|
Use of restricted cash for the acquisition of property, plant and equipment
|
1,151,073
|
|
572,623
|
|
|||
|
Proceeds from exercise of stock options
|
—
|
|
958
|
|
|||
|
Other
|
2
|
|
20
|
|
|||
|
Total sources of cash and cash equivalents
|
3,059,075
|
|
3,073,601
|
|
|||
|
Uses of cash and cash equivalents
|
|
|
|
|
|||
|
Investment in restricted cash
|
(1,423,595
|
)
|
(1,929,288
|
)
|
|||
|
Property, plant and equipment, net
|
(1,149,827
|
)
|
(590,998
|
)
|
|||
|
Debt issuance and deferred financing costs
|
(49,307
|
)
|
(58,395
|
)
|
|||
|
Repayments of debt
|
(415,000
|
)
|
—
|
|
|||
|
Distributions and dividends to non-controlling interest
|
(20,098
|
)
|
(20,050
|
)
|
|||
|
Payments related to tax withholdings for share-based compensation
|
(976
|
)
|
(3,771
|
)
|
|||
|
Operating cash flow
|
(88,690
|
)
|
(14,180
|
)
|
|||
|
Other
|
(17,861
|
)
|
(46,164
|
)
|
|||
|
Total uses of cash and cash equivalents
|
(3,165,354
|
)
|
(2,662,846
|
)
|
|||
|
Net increase (decrease) in cash and cash equivalents
|
(106,279
|
)
|
410,755
|
|
|||
|
Cash and cash equivalents—beginning of period
|
1,201,112
|
|
1,747,583
|
|
|||
|
Cash and cash equivalents—end of period
|
$
|
1,094,833
|
|
$
|
2,158,338
|
|
|
Proceeds from Issuances of Debt, Debt Issuance and Deferred Financing Costs and Repayments of Debt
In February 2016, we entered into the
2016 CQP Credit Facilities
and borrowed $450.0 million to prepay the $400.0 million CTPL Term Loan. Additionally, during the
three months ended March 31, 2016
, we borrowed $660.0 million under the
2015 SPL Credit Facilities
, $125.0 million under the
SPL Working Capital Facility
and $673.0 million under the
2015 CCH Term Loan Facilities
, which was offset by a $15.0 million repayment of borrowings made under the
SPL Working Capital Facility
. In March 2015, SPL issued an aggregate principal amount of $2.0 billion of the
2025 SPL Senior Notes
and we issued an aggregate principal amount of $625.0 million of the
2045 Cheniere Convertible Senior Notes
, with an original issued discount of 20% for net proceeds of $495.7 million. Debt issuance and deferred financing costs in the
three months ended March 31, 2016
primarily related to the up-front fees paid upon the closing of the
2016 CQP Credit Facilities
and in the
three months ended March 31, 2015
related to the issuance of the
2025 SPL Senior Notes
and the
2045 Cheniere Convertible Senior Notes
.
Use of Restricted Cash for the Acquisition of Property, Plant and Equipment and Property, Plant and Equipment, net
During the
three months ended March 31, 2016 and 2015
, we used
$1,151.1 million
and
$572.6 million
, respectively, of restricted cash for investing activities to partially fund
$1,149.8 million
and
$591.0 million
, respectively, of costs primarily related to the construction costs for Trains 1 through 5 of the
SPL Project
and Trains 1 and 2 of the
CCL Project
, which are capitalized as construction-in-process.
Investment in Restricted Cash and Distributions and Dividends to Non-controlling Interest
In the
three months ended March 31, 2016
, we invested
$1,423.6 million
in restricted cash primarily related to the borrowings under the credit facilities described above, net of deferred financing costs, repayment of the CTPL Term Loan and the payment of distributions to non-controlling interest by Cheniere Partners and Cheniere Holdings. In the
three months ended March 31, 2015
, we invested
$1,929.3 million
in restricted cash primarily related to the net proceeds from the
2025 SPL Senior Notes
, partially
40
offset by the use of restricted cash related to the payment of commitment fees for the
2013 SPL Credit Facilities
and the payment of distributions to non-controlling interest.
Payments Related to Tax Withholdings for Share-based Compensation
During the
three months ended March 31, 2016 and 2015
, we used
$1.0 million
and
$3.8 million
, respectively, of cash and cash equivalents to purchase restricted stock that was returned to us by employees to cover taxes related to their restricted stock that vested during such periods.
Operating Cash Flow
During the
three months ended March 31, 2016 and 2015
, we used
$88.7 million
and
$14.2 million
, respectively, of cash in operating activities. The increase in operating cash outflows in 2016 compared to 2015 primarily related to amounts paid for phantom stock vestings and accelerated payments made on share-based compensation resulting from employee terminations.
Other
During the
three months ended March 31, 2016 and 2015
, we used
$17.9 million
and
$46.2 million
, respectively, of cash in other activities primarily as a result of payments made to a municipal water district for water system enhancements that will increase potable water supply to our Sabine Pass LNG terminal and investments made in unconsolidated entities.
Results of Operations
Three Months Ended March 31, 2016
vs.
Three Months Ended March 31, 2015
Our consolidated net loss attributable to common stockholders was
$320.8 million
, or
$1.41
per share (basic and diluted), in the
three months ended March 31, 2016
compared to a net loss attributable to common stockholders of
$267.7 million
, or
$1.18
per share (basic and diluted), in the
three months ended March 31, 2015
. This
$53.1 million
increase in net loss was primarily a result of increased derivative loss, net, decreased loss attributable to non-controlling interest and increased interest expense, net of amounts capitalized, which was partially offset by decreased loss on early extinguishment of debt.
Derivative loss, net increased
$54.2 million
, from
$126.7 million
in the
three months ended March 31, 2015
to
$180.9 million
in the
three months ended March 31, 2016
. The derivative loss recognized during the
three months ended March 31, 2016
was attributable to a decrease in the forward LIBOR curve during that period, which was higher than the decrease in the forward LIBOR curve during the
three months ended March 31, 2015
. Derivative loss recognized during the
three months ended March 31, 2015
was primarily attributable to the loss recognized upon meeting the contingency related to the CCH Interest Rate Derivatives, as well as the loss recognized in March 2015 upon the termination of interest rate swaps associated with approximately $1.8 billion of commitments that were terminated under the
2013 SPL Credit Facilities
.
Net loss attributable to non-controlling interest decreased
$40.0 million
, from
$68.1 million
in the
three months ended March 31, 2015
, to
$28.1 million
in the
three months ended March 31, 2016
, as a result of the decrease in consolidated net loss recognized by Cheniere Partners in which the non-controlling interest is held. The consolidated net loss recognized by Cheniere Partners decreased from
$178.7 million
in the
three months ended March 31, 2015
to
$74.9 million
in the
three months ended March 31, 2016
, primarily as a result of decreased loss on early extinguishment of debt, decreased derivative loss, net and decreased operating and maintenance expense.
Interest expense, net increased
$16.7 million
in the
three months ended March 31, 2016
, as compared to the
three months ended March 31, 2015
, primarily as a result of an increase in our indebtedness outstanding as of
March 31, 2016
compared to
March 31, 2015
. For the
three months ended March 31, 2016 and 2015
, we incurred
$293.3 million
and
$180.6 million
of total interest cost, respectively, of which we capitalized and deferred
$217.0 million
and
$121.0 million
, respectively, which were directly related to the construction of the
SPL Project
and the
CCL Project
.
Offsetting the above increase in expenses, loss on early extinguishment of debt decreased
$87.5 million
, from
$89.0 million
in the
three months ended March 31, 2015
, to
$1.5 million
in the
three months ended March 31, 2016
. Loss on early extinguishment of debt during the
three months ended March 31, 2016
was attributable to the write-off of debt issuance costs and unamortized discount in connection with the prepayment of the CTPL Term Loan in February 2016. Loss on early extinguishment of debt
41
during the
three months ended March 31, 2015
was attributable to the write-off of debt issuance costs and deferred commitment fees related to the termination of approximately
$1.8 billion
of commitments under the 2013 SPL Credit Facilities in March 2015.
During the
three months ended March 31, 2016
, we did not have any LNG revenues related to amounts received from the sale of commissioning cargoes because amounts received were offset against LNG terminal construction-in-process. Amounts received relating to the commissioning cargoes, and the related costs incurred, are capitalized as testing costs for the construction of the
SPL Project
.
Off-Balance Sheet Arrangements
As of
March 31, 2016
, we had no transactions that met the definition of off-balance sheet arrangements that may have a current or future material effect on our consolidated financial position or operating results.
Summary of Critical Accounting Estimates
The preparation of our Consolidated Financial Statements in conformity with
GAAP
requires management to make certain estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the accompanying notes. There have been no significant changes to our critical accounting estimates from those disclosed in our annual report on Form 10-K for the year ended
December 31, 2015
.
Recent Accounting Standards
For descriptions of recently issued accounting standards, see
Note 17—Recent Accounting Standards
of our Notes to Consolidated Financial Statements.
|
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 purchase agreements to secure natural gas feedstock for the
SPL Project
(“Liquefaction Supply Derivatives”)
. In order to test the sensitivity of the fair value of the
Liquefaction Supply Derivatives
to changes in underlying commodity prices, management modeled a 10% change in the basis price for natural gas for each delivery location. As of
March 31, 2016
, we estimated the fair value of the
Liquefaction Supply Derivatives
to be
$29.9 million
. Based on actual derivative contractual volumes, a 10% increase or decrease in the underlying basis price would have resulted in a change in the fair value of the
Liquefaction Supply Derivatives
of
$6.1 million
as of
March 31, 2016
, compared to $0.9 million as of
December 31, 2015
. See
Note 5—Derivative Instruments
for additional details about our derivative instruments.
We have also entered into financial derivatives to hedge the exposure to the commodity markets in which we have contractual arrangements to purchase or sell physical LNG
(“LNG Trading Derivatives”)
. In order to test the sensitivity of the fair value of the
LNG Trading Derivatives
to changes in underlying commodity prices, management modeled a 10% change in the basis price for LNG. As of
March 31, 2016
, we estimated the fair value of the
LNG Trading Derivatives
to be
$5.8 million
. Based on actual derivative contractual volumes, a 10% increase or decrease in the underlying basis price would have resulted in a change in the fair value of the
LNG Trading Derivatives
of $0.6 million as of
March 31, 2016
, whereas it was immaterial as of
December 31, 2015
. See
Note 5—Derivative Instruments
for additional details about our derivative instruments.
Interest Rate Risk
SPL has entered into interest rate swaps to hedge the exposure to volatility in a portion of the floating-rate interest payments under the
2015 SPL Credit Facilities
(“SPL Interest Rate Derivatives”)
. In order to test the sensitivity of the fair value of the
SPL Interest Rate Derivatives
to changes in interest rates, management modeled a 10% change in the forward 1-month
LIBOR
curve
42
across the remaining term of the
SPL Interest Rate Derivatives
. As of
March 31, 2016
, we estimated the fair value of the
SPL Interest Rate Derivatives
to be
$18.0 million
. This 10% change in interest rates would have resulted in a change in the fair value of the
SPL Interest Rate Derivatives
of
$1.9 million
as of
March 31, 2016
, compared to $3.1 million as of
December 31, 2015
. The decrease in the effect of change in interest rates was due to a decrease in the forward 1-month
LIBOR
curve during the
three months ended March 31, 2016
.
Cheniere Partners has entered into interest rate swaps to hedge the exposure to volatility in a portion of the floating-rate interest payments under the
2016 CQP Credit Facilities
(“CQP Interest Rate Derivatives”)
. In order to test the sensitivity of the fair value of the
CQP Interest Rate Derivatives
to changes in interest rates, management modeled a 10% change in the forward 1-month
LIBOR
curve across the remaining term of the
CQP Interest Rate Derivatives
. As of
March 31, 2016
, we estimated the fair value of the
CQP Interest Rate Derivatives
to be
$9.5 million
. This 10% change in interest rates would have resulted in a change in the fair value of the
CQP Interest Rate Derivatives
of
$4.2 million
as of
March 31, 2016
.
CCH has entered into interest rate swaps to hedge the exposure to volatility in a portion of the floating-rate interest payments under the
2015 CCH Credit Facility
(“CCH Interest Rate Derivatives”)
. In order to test the sensitivity of the fair value of the
CCH Interest Rate Derivatives
to changes in interest rates, management modeled a 10% change in the forward 1-month
LIBOR
curve across the remaining term of the
CCH Interest Rate Derivatives
. As of
March 31, 2016
, we estimated the fair value of the
CCH Interest Rate Derivatives
to be
$259.3 million
. This 10% change in interest rates would have resulted in a change in the fair value of the
CCH Interest Rate Derivatives
of
$43.5 million
as of
March 31, 2016
, compared to $55.6 million as of
December 31, 2015
. The decrease in the effect of change in interest rates was due to a decrease in the forward 1-month
LIBOR
curve during the
three months ended March 31, 2016
.
Foreign Currency Exchange Risk
We have entered into foreign currency exchange (“FX”) contracts to hedge exposure to currency risk associated with operations in countries outside of the United States
(“FX Derivatives”)
. In order to test the sensitivity of the fair value of the
FX Derivatives
to changes in FX rates, management modeled a 10% change in FX rate between the U.S. dollar and the applicable foreign currencies. As of
March 31, 2016
, we estimated the fair value of the
FX Derivatives
to be
$2.5 million
. This 10% change in FX rates would have resulted in a change in the fair value of the
FX Derivatives
of $0.3 million as of
March 31, 2016
.
|
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.
43
|
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.
LDEQ Matter
SPLNG, SPL and Sabine Pass Liquefaction Expansion, LLC (“SPLE”), are in discussions with the Louisiana Department of Environmental Quality (“LDEQ”) to resolve self-reported deviations arising from operation of the Sabine Pass LNG terminal and the commissioning of the natural gas liquefaction facilities at such terminal and relating to certain requirements under its operating permit issued under Title V of the Clean Air Act Title V permit conditions. The matter involves deviations self-reported to LDEQ pursuant to the Title V permit and covering the time period from January 1, 2012 through March 25, 2016. On April 11, 2016, SPLNG, SPL and SPLE received a Consolidated Compliance Order and Notice of Potential Penalty (the “Compliance Order”) from LDEQ covering deviations self-reported during that time period. SPLNG, SPL and SPLE continue to work with LDEQ to resolve the matters identified in the Compliance Order. We do not expect that any ultimate sanction will have a material adverse impact on our financial results.
Parallax Litigation
In 2015, Cheniere Energy Inc.’s (“CEI”) wholly owned subsidiary, Cheniere LNG Terminals, LLC (“CLNGT”), entered into discussions with Parallax Enterprises, LLC (“Parallax Enterprises”) regarding the potential joint development of two liquefaction plants in Louisiana (the “Potential Liquefaction Transactions”). While the parties negotiated regarding the Potential Liquefaction Transactions, CLNGT loaned Parallax Enterprises approximately $46 million, as reflected in a secured note dated April 23, 2015, as amended on June 30, 2015, September 30, 2015, and November 4, 2015 (the “Secured Note”). The Secured Note was secured by all assets of Parallax Enterprises and its subsidiary entities. On June 30, 2015, Parallax Enterprises’ parent entity, Parallax Energy LLC (“Parallax Energy”), executed a Pledge and Guarantee Agreement further securing repayment of the Secured Note by providing a parent guaranty and a pledge of all of the equity of Parallax Enterprises in satisfaction of the Secured Note (the “Pledge Agreement”). CLNGT and Parallax Enterprises never executed a definitive agreement to pursue the Potential Liquefaction Transactions. The Secured Note matured on December 11, 2015, and Parallax Enterprises failed to make payment. On February 3, 2016, CLNGT filed an action against Parallax Energy, Parallax Enterprises, and certain of Parallax Enterprises’ subsidiary entities, styled Cause No. 4:16-cv-00286, Cheniere LNG Terminals, LLC v. Parallax Energy LLC, et al., in the United States District Court for the Southern District of Texas (the “Texas Suit”). CLNGT asserted claims in the Texas Suit for (1) recovery of all amounts due under the Secured Note and (2) declaratory relief establishing that CLNGT is entitled to enforce its rights under the Secured Note and Pledge Agreement in accordance with each instrument’s terms and that CLNGT has no obligations of any sort to Parallax Enterprises concerning the Potential Liquefaction Transactions. On March 11, 2016, Parallax Enterprises and the other defendants in the Texas Suit moved to dismiss the suit for lack of subject matter jurisdiction. CLNGT has responded to that motion, and it remains pending before the court.
On March 11, 2016, Parallax Enterprises filed a suit against CEI and CLNGT styled Civil Action No. 62-810, Parallax Enterprises LLP v. Cheniere Energy, Inc. and Cheniere LNG Terminals, LLC, in the 25th Judicial District Court of Plaquemines Parish, Louisiana (the “Louisiana Suit”), wherein Parallax Enterprises asserted claims for breach of contract, fraudulent inducement, negligent misrepresentation, detrimental reliance, unjust enrichment, and violation of the Louisiana Unfair Trade Practices Act. Parallax Enterprises predicated its claims in the Louisiana Suit on an allegation that CEI and CLNGT breached a purported agreement to jointly develop the Potential Liquefaction Transactions. Parallax Enterprises seeks $400 million in alleged economic damages and rescission of the Secured Note. On April 11, 2016, CEI and CLNGT removed the Louisiana Suit to the United States District Court for the Eastern District of Louisiana, where it is pending as Civil Action No. 2:16-cv-03209-CJB-SS. On April 18, 2016, CEI and CLNGT filed a motion in the Louisiana Suit seeking (1) dismissal of all claims against CEI for lack of personal jurisdiction, (2) dismissal, stay, or transfer of the suit to the United States District Court for the Southern District of Texas in deference to the first-filed Texas Suit, and (3) alternatively, transfer of the suit for convenience of the parties and witnesses. On May 4, 2016, Parallax Enterprises filed a motion to remand the Louisiana Suit to state court. The motion to remand and CEI and CLNGT’s motion are set for oral argument on May 18, 2016. We do not expect that the resolution of this litigation will have a material adverse impact on our financial results.
44
|
ITEM 1A.
|
RISK FACTORS
|
There have been no material changes from the risk factors disclosed in our annual report on Form 10-K for the year ended
December 31, 2015
.
|
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 March 31, 2016
:
|
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
|
|||||
|
January 1 - 31, 2016
|
3,601
|
|
$37.25
|
—
|
—
|
||||
|
February 1 - 29, 2016
|
19,839
|
|
$29.28
|
—
|
—
|
||||
|
March 1 - 31, 2016
|
7,577
|
|
$34.06
|
—
|
—
|
||||
|
Total
|
31,017
|
|
—
|
—
|
|||||
|
(1)
|
Represents shares surrendered to us by participants in our share-based compensation plans to settle the participants’ personal tax liabilities that resulted from the lapsing of restrictions on shares awarded to the participants under these plans.
|
|
(2)
|
The price paid per share was based on the closing trading price of our common stock on the dates on which we repurchased shares from the participants under our share-based compensation plans.
|
|
ITEM 5.
|
OTHER INFORMATION
|
On May 4, 2016, Cheniere Energy, Inc. (“CEI”) entered into a letter agreement (the “Letter Agreement”) with Mr. Teague, its Executive Vice President, Asset Group. Pursuant to the terms of the Letter Agreement, unless terminated earlier by either party, Mr. Teague’s employment with CEI will continue through the date that is seven days after the date of substantial completion of Train 2 at the Company’s liquefaction project under construction and development at the Sabine Pass LNG terminal in Louisiana (the “Continuation Period”), which we expect to be achieved in September 2016, based on the current construction schedule. On a termination of Mr. Teague’s employment at the end of the Continuation Period, he will be entitled to (i) the waiver of the continuous service requirement of his previously disclosed restricted stock award pursuant to the CEI 2011 Incentive Plan Restricted Stock Grant dated February 18, 2013 between Mr. Teague and CEI and (ii) vesting of all of his other previously disclosed unvested long-term incentive awards. In addition, Mr. Teague has agreed in the Letter Agreement not to use or disclose any of the Company’s confidential or proprietary information.
The foregoing description of the Letter Agreement is qualified in its entirety by reference to such agreement, which is filed as Exhibit 10.7 hereto and incorporated herein by reference.
Compliance Disclosure
Pursuant to Section 13(r) of the
Exchange Act
, if during the quarter ended
March 31, 2016
, we or any of our affiliates had engaged in certain transactions with Iran or with persons or entities designated under certain executive orders, we would be required to disclose information regarding such transactions in our quarterly report on Form 10-Q as required under Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012
(“ITRA”)
. During the quarter ended
March 31, 2016
, we did not engage in any transactions with Iran or with persons or entities related to Iran.
Blackstone CQP Holdco LP, an affiliate of The Blackstone Group L.P. (
“Blackstone Group”
), is a holder of more than 29% of the outstanding equity interests of Cheniere Partners and has three representatives on the board of directors of Cheniere Partners GP. Accordingly,
Blackstone Group
may be deemed an “affiliate” of Cheniere Partners, as that term is defined in
Exchange Act
Rule 12b-2. We have received notice from
Blackstone Group
that it may include in its quarterly report on Form 10-Q for the quarterly period ended
March 31, 2016
disclosures pursuant to
ITRA
regarding two of its portfolio companies that may be deemed to be affiliates of
Blackstone Group
. Because of the broad definition of “affiliate” in
Exchange Act
Rule 12b-2, these portfolio
45
companies of
Blackstone Group
, through
Blackstone Group
’s ownership of Cheniere Partners, may also be deemed to be affiliates of ours. We have not independently verified the disclosure described in the following paragraphs.
We have received notice from
Blackstone Group
that Travelport Worldwide Limited
(“Travelport”)
has engaged in the following activities: as part of its global business in the travel industry,
Travelport
provides certain passenger travel related Travel Commerce Platform and Technology Services to Iran Air.
Travelport
also provides certain airline Technology Services to Iran Air Tours. The gross revenues and net profits attributable to such activities by
Travelport
during the quarter ended
March 31, 2016
have not been reported by
Travelport
.
Blackstone Group
informed us that
Travelport
intends to continue these business activities with Iran Air and Iran Air Tours as such activities are either exempt from applicable sanctions prohibitions or specifically licensed by the Office of Foreign Assets Control (the “OFAC”).
We have received notice from
Blackstone Group
that NCR Corporation (“NCR”) has engaged in the following activities: NCR has reported that during the period from January 1, 2016 through March 31, 2016, NCR maintained a bank account and guarantees at the Commercial Bank of Syria (“CBS”), which was designated as a Specially Designated National pursuant to Executive Order 13382 (“EO 13382”) on August 10, 2011. This bank account and the guarantees at CBS were maintained in the normal course of business prior to the listing of CBS pursuant to EO 13382. NCR reported that the last known account balance as of March 31, 2016, was approximately $3,468. The bank account did not generate interest from January 1, 2016 through March 31, 2016, and the guarantees did not generate any revenue or profits for NCR. Pursuant to a license granted to NCR by the OFAC on January 3, 2013, and subsequent licenses granted on April 29, 2013, July 12, 2013, February 28, 2014, November 12, 2014, and October 24, 2015, NCR has been winding down its past operations in Syria. NCR’s current license expired on April 30, 2016. NCR has also received licenses from OFAC to close the CBS account and terminate any guarantees. NCR’s application to renew the license to transact business with CBS, which was submitted to OFAC on May 18, 2015, remains pending. Following the termination of guarantees and the closure of the account, NCR does not intend to engage in any further business activities with CBS.
46
|
ITEM 6.
|
EXHIBITS
|
|
Exhibit No.
|
Description
|
|
|
10.1
|
Credit and Guaranty Agreement, dated as of February 25, 2016, among Cheniere Partners, as Borrower, certain subsidiaries of Cheniere Partners, as Subsidiary Guarantors, the lenders from time to time party thereto, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Issuing Bank, Administrative Agent and Coordinating Lead Arranger, and certain arrangers and other participants (Incorporated by reference to Exhibit 10.1 to Cheniere Partners’ Current Report on Form 8-K (SEC File No. 001-33366), filed on March 2, 2016)
|
|
|
10.2
|
Depositary Agreement, dated as of February 25, 2016, among Cheniere Partners, certain subsidiaries of the Cheniere Partners, as Subsidiary Guarantors, MUFG Union Bank, N.A., as Collateral Agent and MUFG Union Bank, N.A., as Depositary Bank (Incorporated by reference to Exhibit 10.2 to Cheniere Partners’ Current Report on Form 8-K (SEC File No. 001-33366), filed on March 2, 2016)
|
|
|
10.3
|
Change order to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the Sabine Pass LNG Liquefaction Facility, dated as of November 11, 2011, between Sabine Pass Liquefaction, LLC and Bechtel Oil, Gas and Chemicals, Inc.: the Change Order CO-00044 Potable Water Bypass Line and Pipeline Installation Tie-In at 135-A Metering Station, dated December 17, 2015 (Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a request for confidential treatment.) (Incorporated by reference to Exhibit 10.1 to SPL’s Quarterly Report on Form 10-Q (SEC File No. 333-192373), filed on May 5, 2016)
|
|
|
10.4
|
Change order to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the Sabine Pass LNG Stage 2 Liquefaction Facility, dated as of December 20, 2012, between Sabine Pass Liquefaction, LLC and Bechtel Oil, Gas and Chemicals, Inc.: the Change Order CO-00020 Milestone Payment Adjustments, dated January 12, 2016 (Incorporated by reference to Exhibit 10.2 to SPL’s Quarterly Report on Form 10-Q (SEC File No. 333-192373), filed on May 5, 2016)
|
|
|
10.5
|
Change order to the Lump Sum Turnkey Agreement for the Engineering, Procurement and Construction of the Sabine Pass LNG Stage 3 Liquefaction Facility, dated as of May 4, 2015, between Sabine Pass Liquefaction, LLC and Bechtel Oil, Gas and Chemicals, Inc.: the Change Order CO-00004 DOE Regulation Change Impacts, RECON Schedule Change, Addition of Dry Flare Connection, Fuel Gas Supply Transfer to Train 5 & East Meter Fuel Gas, dated February 18, 2016 (Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a request for confidential treatment.) (Incorporated by reference to Exhibit 10.3 to SPL’s Quarterly Report on Form 10-Q (SEC File No. 333-192373), filed on May 5, 2016)
|
|
|
10.6*
|
Change orders to the Fixed Price Separated Turnkey Agreement for the Engineering, Procurement and Construction of the Corpus Christi Stage 1 Liquefaction Facility, dated as of December 6, 2013, between Corpus Christi Liquefaction, LLC and Bechtel Oil, Gas and Chemicals, Inc.: (i) the Change Order CO-00014 Stage 1 Isolation, dated January 11, 2016, (ii) the Change Order CO-00015 IAC Conversion to Lump Sum, dated January 20, 2016, and (iii) the Change Order CO-00016 Permanent Plant Buildings, dated January 20, 2016 (Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a request for confidential treatment.)
|
|
|
10.7*†
|
Letter agreement between R. Keith Teague and the Company, dated May 4, 2016
|
|
|
10.8
|
Administrative Amendment, dated December 31, 2015, to the Second Amended and Restated Common Terms Agreement dated as of June 30, 2015, among Sabine Pass Liquefaction, LLC and Société Générale, as the Common Security Trustee and Intercreditor Agent (Incorporated by reference to Exhibit 10.7 to Cheniere Partners’ Quarterly Report on Form 10-Q (SEC File No. 001-33366), filed on May 5, 2016)
|
|
|
31.1*
|
Certification by Chief Executive Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act
|
|
|
31.2*
|
Certification by Chief Financial Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act
|
|
|
32.1**
|
Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
32.2**
|
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
101.INS*
|
XBRL Instance Document
|
|
|
101.SCH*
|
XBRL Taxonomy Extension Schema Document
|
|
|
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
101.DEF*
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
101.LAB*
|
XBRL Taxonomy Extension Labels Linkbase Document
|
|
|
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
47
|
*
|
Filed herewith.
|
|
**
|
Furnished herewith.
|
|
†
|
Management contract or compensatory plan or arrangement
|
48
SIGNATURES
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.
|
CHENIERE ENERGY, INC.
|
|||
|
|
|
||
|
Date:
|
May 5, 2016
|
By:
|
/s/ Michael J. Wortley
|
|
Michael J. Wortley
|
|||
|
Senior Vice President and Chief Financial Officer
|
|||
|
|
(on behalf of the registrant and
as principal financial officer) |
||
|
Date:
|
May 5, 2016
|
By:
|
/s/ Leonard Travis
|
|
Leonard Travis
|
|||
|
Vice President and Chief Accounting Officer
|
|||
|
|
(on behalf of the registrant and
as principal accounting officer) |
||
49
TABLE OF CONTENTS
Part IItem 1. Consolidated Financial StatementsNote 1 Basis Of PresentationNote 2 Restricted CashNote 3 InventoryNote 4 Property, Plant and EquipmentNote 5 Derivative InstrumentsNote 6 Other Non-current AssetsNote 7 Variable Interest EntityNote 8 Non-controlling InterestNote 9 Accrued LiabilitiesNote 10 DebtNote 11 Income TaxesNote 12 Share-based CompensationNote 13 Net Loss Per Share Attributable To Common StockholdersNote 14 Commitments and ContingenciesNote 15 Business Segment InformationNote 16 Supplemental Cash Flow InformationNote 17 Recent Accounting StandardsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 5. Other InformationItem 6. Exhibits