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, 2018
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
x
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Accelerated filer
¨
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Non-accelerated filer
¨
(Do not check if a smaller reporting company)
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Smaller reporting company
¨
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Emerging growth company
¨
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
As of
May 1, 2018
, the issuer had
243,605,883
shares of Common Stock outstanding.
CHENIERE ENERGY, INC.
TABLE OF CONTENTS
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i
DEFINITIONS
As used in this
quarterly
report, the terms listed below have the following meanings:
Common Industry and Other Terms
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Bcf
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billion cubic feet
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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 that, through a refrigeration process, has been cooled to a liquid state, which occupies a volume that is approximately 1/600th of its gaseous state
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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 with which the United States does not have a free trade agreement providing for national treatment for trade in natural gas and with which trade is permitted
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SEC
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U.S. Securities and Exchange Commission
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SPA
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LNG sale and purchase agreement
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TBtu
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trillion British thermal units, an energy unit
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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 Legal Entity Structure
The following diagram depicts our abbreviated legal entity structure as of
March 31, 2018
, including our ownership of certain subsidiaries, and the references to these entities used in this
quarterly
report:
Unless the context requires otherwise, references to “
Cheniere
,” the “Company,” “we,” “us” and “our” refer to
Cheniere Energy, Inc.
and its consolidated subsidiaries, including our publicly traded subsidiaries,
Cheniere Partners
and
Cheniere Holdings
.
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 millions, except share data)
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March 31,
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December 31,
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|||||
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2018
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2017
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|||||
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ASSETS
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(unaudited)
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Current assets
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Cash and cash equivalents
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$
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715
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$
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722
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Restricted cash
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1,696
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1,880
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Accounts and other receivables
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606
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369
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Accounts receivable—related party
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2
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2
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Inventory
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123
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243
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Derivative assets
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23
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57
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Other current assets
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103
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96
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Total current assets
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3,268
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3,369
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Non-current restricted cash
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11
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11
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Property, plant and equipment, net
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24,474
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23,978
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Debt issuance costs, net
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138
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149
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Non-current derivative assets
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81
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34
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Goodwill
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77
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77
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Other non-current assets, net
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292
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288
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Total assets
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$
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28,341
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$
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27,906
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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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21
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$
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25
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Accrued liabilities
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729
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1,078
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Deferred revenue
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120
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111
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Derivative liabilities
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25
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37
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Total current liabilities
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895
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1,251
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Long-term debt, net
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25,656
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25,336
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Non-current deferred revenue
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—
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1
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Non-current derivative liabilities
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9
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19
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Other non-current liabilities
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74
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59
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Commitments and contingencies (see Note 15)
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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, 2018 and December 31, 2017
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Issued: 250.5 million shares and 250.1 million shares at March 31, 2018 and December 31, 2017, respectively
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Outstanding: 237.9 million shares and 237.6 million shares at March 31, 2018 and December 31, 2017, respectively
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1
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1
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Treasury stock: 12.6 million shares and 12.5 million shares at March 31, 2018 and December 31, 2017, respectively, at cost
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(392
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)
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(386
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)
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Additional paid-in-capital
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3,264
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3,248
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Accumulated deficit
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(4,270
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)
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(4,627
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)
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Total stockholders’ deficit
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(1,397
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)
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(1,764
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)
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Non-controlling interest
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3,104
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3,004
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Total equity
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1,707
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1,240
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Total liabilities and equity
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$
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28,341
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$
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27,906
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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 INCOME
(in millions, except per share data)
(unaudited)
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Three Months Ended March 31,
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|||||||
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2018
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2017
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Revenues
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LNG revenues
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$
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2,166
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$
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1,143
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Regasification revenues
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65
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65
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Other revenues
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10
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3
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Other—related party
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1
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—
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Total revenues
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2,242
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1,211
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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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1,178
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624
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Operating and maintenance expense
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140
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78
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Development expense
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1
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3
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Selling, general and administrative expense
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67
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54
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Depreciation and amortization expense
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109
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70
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Restructuring expense
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—
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6
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Total operating costs and expenses
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1,495
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835
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Income from operations
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747
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376
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Other income (expense)
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Interest expense, net of capitalized interest
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(216
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)
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(165
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)
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Loss on early extinguishment of debt
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—
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(42
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)
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Derivative gain, net
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77
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1
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Other income
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7
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2
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Total other expense
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(132
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)
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(204
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)
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Income before income taxes and non-controlling interest
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615
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172
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Income tax provision
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(15
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)
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—
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Net income
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600
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172
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Less: net income attributable to non-controlling interest
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243
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118
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Net income attributable to common stockholders
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$
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357
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$
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54
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Net income per share attributable to common stockholders—basic
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$
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1.52
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$
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0.23
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Net income per share attributable to common stockholders—diluted
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$
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1.50
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$
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0.23
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Weighted average number of common shares outstanding—basic
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235.5
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232.4
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Weighted average number of common shares outstanding—diluted
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238.0
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232.7
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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 millions)
(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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|||||||||||||||||||||||||
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Balance at December 31, 2017
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237.6
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$
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1
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12.5
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$
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(386
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)
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$
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3,248
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$
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(4,627
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)
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$
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3,004
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$
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1,240
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Issuances of restricted stock
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0.3
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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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—
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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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16
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—
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—
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16
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Shares repurchased related to share-based compensation
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—
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—
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0.1
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(6
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)
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—
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—
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—
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(6
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)
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|||||||||||||
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Net income 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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243
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243
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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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(143
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)
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(143
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)
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|||||||||||||
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Net income
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—
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|
—
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—
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—
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—
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357
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—
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357
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|||||||||||||
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Balance at March 31, 2018
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237.9
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$
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1
|
|
12.6
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$
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(392
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)
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$
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3,264
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$
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(4,270
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)
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$
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3,104
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$
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1,707
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The accompanying notes are an integral part of these consolidated financial statements.
5
CHENIERE ENERGY, INC. AND SUBSIDIARIES
(in millions)
(unaudited)
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|
Three Months Ended March 31,
|
||||||
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2018
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2017
|
|||||
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Cash flows from operating activities
|
|||||||
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Net income
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$
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600
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$
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172
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation and amortization expense
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109
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70
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Share-based compensation expense
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28
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24
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Non-cash interest expense
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15
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20
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Amortization of debt issuance costs, deferred commitment fees, premium and discount
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17
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17
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Loss on early extinguishment of debt
|
—
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42
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|||
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Total losses (gains) on derivatives, net
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(31
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)
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44
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|||
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Net cash used for settlement of derivative instruments
|
(4
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)
|
(29
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)
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|||
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Other
|
(10
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)
|
—
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|
|||
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Changes in operating assets and liabilities:
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|||||||
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Accounts and other receivables
|
(237
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)
|
(6
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)
|
|||
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Inventory
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120
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54
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|
|||
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Accounts payable and accrued liabilities
|
(156
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)
|
(76
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)
|
|||
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Deferred revenue
|
8
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|
(11
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)
|
|||
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Other, net
|
10
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|
(12
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)
|
|||
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Net cash provided by operating activities
|
469
|
|
309
|
|
|||
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Cash flows from investing activities
|
|||||||
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Property, plant and equipment, net
|
(776
|
)
|
(1,319
|
)
|
|||
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Other
|
—
|
|
29
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|
|||
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Net cash used in investing activities
|
(776
|
)
|
(1,290
|
)
|
|||
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Cash flows from financing activities
|
|||||||
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Proceeds from issuances of debt
|
266
|
|
2,862
|
|
|||
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Repayments of debt
|
—
|
|
(703
|
)
|
|||
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Debt issuance and deferred financing costs
|
(1
|
)
|
(43
|
)
|
|||
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Distributions and dividends to non-controlling interest
|
(143
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)
|
(20
|
)
|
|||
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Payments related to tax withholdings for share-based compensation
|
(6
|
)
|
(1
|
)
|
|||
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Net cash provided by financing activities
|
116
|
|
2,095
|
|
|||
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
(191
|
)
|
1,114
|
|
|||
|
Cash, cash equivalents and restricted cash—beginning of period
|
2,613
|
|
1,827
|
|
|||
|
Cash, cash equivalents and restricted cash—end of period
|
$
|
2,422
|
|
$
|
2,941
|
|
|
Balances per Consolidated Balance Sheet:
|
March 31,
|
|||
|
2018
|
|||
|
Cash and cash equivalents
|
$
|
715
|
|
|
Restricted cash
|
1,696
|
|
|
|
Non-current restricted cash
|
11
|
|
|
|
Total cash, cash equivalents and restricted cash
|
$
|
2,422
|
|
The accompanying notes are an integral part of these consolidated financial statements.
6
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
We are currently developing and constructing
two
natural gas liquefaction and export facilities. The Sabine Pass LNG terminal is located in Cameron Parish, Louisiana, on the Sabine-Neches Waterway less than four miles from the Gulf Coast. Cheniere Partners is developing, constructing and operating natural gas liquefaction facilities
(the “SPL Project”)
at the Sabine Pass LNG terminal adjacent to the existing regasification facilities (described below) through a wholly owned subsidiary, SPL. Cheniere Partners plans to construct up to
six
Trains, which are in various stages of development, construction and operations. Trains 1 through 4 are operational, Train 5 is under construction and Train 6 is being commercialized and has all necessary regulatory approvals in place. The Sabine Pass LNG terminal has operational regasification facilities owned by Cheniere Partners’ wholly owned subsidiary, SPLNG, and a
94
-mile pipeline that interconnects the Sabine Pass LNG terminal with a number of large interstate pipelines owned by Cheniere Partners’ wholly owned subsidiary, CTPL. Regasification revenues include LNG regasification capacity reservation fees that are received from our
two
long-term TUA customers. We also recognize tug services fees that are received by Sabine Pass Tug Services, LLC, a wholly owned subsidiary of SPLNG.
We are developing and constructing a second natural gas liquefaction and export facility at the Corpus Christi LNG terminal, which is on nearly
2,000
acres of land that we own or control near Corpus Christi, Texas, and a pipeline facility
(collectively, the “CCL Project”)
through wholly owned subsidiaries CCL and CCP, respectively. The
CCL Project
is being developed in stages. The first stage includes Trains 1 and
2
,
two
LNG storage tanks,
one
complete marine berth and a second partial berth and all of the
CCL Project
’s necessary infrastructure facilities
(“Stage 1”)
. The second stage includes Train 3,
one
LNG storage tank and the completion of the second partial berth
(“Stage 2”)
. The
CCL Project
also includes a
23
-mile natural gas supply pipeline that will interconnect the Corpus Christi LNG terminal with several interstate and intrastate natural gas pipelines
(the “Corpus Christi Pipeline”)
, which is being constructed concurrently with the first stage. Trains 1 and 2 are currently under construction, and Train 3 is being commercialized and has all necessary regulatory approvals in place. The construction of the Corpus Christi Pipeline is expected to be completed in second quarter of 2018.
Additionally, we are developing an expansion of the Corpus Christi LNG terminal adjacent to the
CCL Project
and recently amended our regulatory filings with FERC to incorporate a project design change, from
two
Trains with an expected aggregate nominal production capacity of approximately
9.0
mtpa to up to
seven
midscale Trains with an expected aggregate nominal production capacity of approximately
9.5
mtpa. We remain focused on leveraging infrastructure through the expansion of our existing sites. We are also in various stages of developing other projects, including infrastructure projects in support of natural gas supply and LNG demand, which, among other things, will require acceptable commercial and financing arrangements before we make a final investment decision
(“FID”)
.
Basis of Presentation
The accompanying unaudited Consolidated Financial Statements of Cheniere have been prepared in accordance with GAAP for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our
annual report on Form 10-K for the year ended December 31, 2017
. In our opinion, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation, have been included. Certain reclassifications have been made to conform prior period information to the current presentation. The reclassifications did not have a material effect on our consolidated financial position, results of operations or cash flows.
On January 1, 2018, we adopted ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
, and subsequent amendments thereto (“ASC 606”) using the full retrospective method. The adoption of ASC 606 represents a change in accounting principle that will provide financial statement readers with enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The adoption of ASC 606 did not impact our previously reported financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings.
Results of operations for the
three months ended March 31, 2018
are not necessarily indicative of the results of operations that will be realized for the year ending December 31,
2018
.
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. As of
March 31, 2018
and
December 31, 2017
, restricted cash consisted of the following (in millions):
|
March 31,
|
December 31,
|
|||||||
|
2018
|
2017
|
|||||||
|
Current restricted cash
|
||||||||
|
SPL Project
|
$
|
561
|
|
$
|
544
|
|
||
|
Cheniere Partners and cash held by guarantor subsidiaries
|
916
|
|
1,045
|
|
||||
|
CCL Project
|
83
|
|
227
|
|
||||
|
Cash held by our subsidiaries restricted to Cheniere
|
136
|
|
64
|
|
||||
|
Total current restricted cash
|
$
|
1,696
|
|
$
|
1,880
|
|
||
|
Non-current restricted cash
|
||||||||
|
Other
|
$
|
11
|
|
$
|
11
|
|
||
Under Cheniere Partners’
$2.8 billion
credit facilities
(the “2016 CQP Credit Facilities”)
, Cheniere Partners, as well as Cheniere Investments, SPLNG and CTPL as Cheniere Partners’ guarantor subsidiaries, are subject to limitations on the use of cash under the terms of the
2016 CQP Credit Facilities
and the related depositary agreement governing the extension of credit to Cheniere Partners. Specifically, Cheniere Partners, Cheniere Investments, SPLNG 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, 2018
and
December 31, 2017
, accounts and other receivables consisted of the following (in millions):
|
|
March 31,
|
December 31,
|
||||||
|
|
2018
|
2017
|
||||||
|
Trade receivables
|
||||||||
|
SPL
|
$
|
232
|
|
$
|
185
|
|
||
|
Cheniere Marketing
|
351
|
|
163
|
|
||||
|
Other accounts receivable
|
23
|
|
21
|
|
||||
|
Total accounts and other receivables
|
$
|
606
|
|
$
|
369
|
|
||
Pursuant to the accounts agreement entered into with the collateral trustee for the benefit of SPL’s debt holders, SPL is required to deposit all cash received into reserve accounts controlled by the collateral trustee. The usage or withdrawal of such cash is restricted to the payment of liabilities related to the
SPL Project
and other restricted payments.
As of
March 31, 2018
and
December 31, 2017
, inventory consisted of the following (in millions):
|
|
March 31,
|
December 31,
|
||||||
|
|
2018
|
2017
|
||||||
|
Natural gas
|
$
|
16
|
|
$
|
17
|
|
||
|
LNG
|
24
|
|
44
|
|
||||
|
LNG in-transit
|
30
|
|
130
|
|
||||
|
Materials and other
|
53
|
|
52
|
|
||||
|
Total inventory
|
$
|
123
|
|
$
|
243
|
|
||
8
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Property, plant and equipment, net consists of LNG terminal costs and fixed assets and other, as follows (in millions):
|
|
March 31,
|
December 31,
|
||||||
|
|
2018
|
2017
|
||||||
|
LNG terminal costs
|
|
|
||||||
|
LNG terminal
|
$
|
12,675
|
|
$
|
12,687
|
|
||
|
LNG terminal construction-in-process
|
12,547
|
|
11,932
|
|
||||
|
LNG site and related costs
|
86
|
|
86
|
|
||||
|
Accumulated depreciation
|
(983
|
)
|
(882
|
)
|
||||
|
Total LNG terminal costs, net
|
24,325
|
|
23,823
|
|
||||
|
Fixed assets and other
|
|
|
|
|
||||
|
Computer and office equipment
|
14
|
|
14
|
|
||||
|
Furniture and fixtures
|
19
|
|
19
|
|
||||
|
Computer software
|
93
|
|
92
|
|
||||
|
Leasehold improvements
|
41
|
|
41
|
|
||||
|
Land
|
59
|
|
59
|
|
||||
|
Other
|
16
|
|
16
|
|
||||
|
Accumulated depreciation
|
(93
|
)
|
(86
|
)
|
||||
|
Total fixed assets and other, net
|
149
|
|
155
|
|
||||
|
Property, plant and equipment, net
|
$
|
24,474
|
|
$
|
23,978
|
|
||
Depreciation expense was
$108 million
and
$70 million
during the
three months ended March 31, 2018 and 2017
, respectively.
We realized offsets to LNG terminal costs of
$131 million
in the
three months ended March 31, 2017
that were related to the sale of commissioning cargoes because these amounts were earned or loaded prior to the start of commercial operations of the respective Train of the
SPL Project
, during the testing phase for its construction. We did
no
t realize any offsets to LNG terminal costs in the
three months ended March 31, 2018
.
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 credit facilities
(“Interest Rate Derivatives”)
;
|
|
•
|
commodity derivatives consisting of natural gas supply contracts for the commissioning and operation of the
SPL Project
and the
CCL Project
(“Physical Liquefaction Supply Derivatives”)
and associated economic hedges
(collectively, the “Liquefaction Supply Derivatives”)
;
|
|
•
|
financial derivatives to hedge the exposure to the commodity markets in which we have contractual arrangements to purchase or sell physical LNG
(“LNG Trading Derivatives”)
; and
|
|
•
|
foreign currency exchange
(“FX”)
contracts to hedge exposure to currency risk associated with both LNG Trading Derivatives and operations in countries outside of the United States
(“FX Derivatives”)
.
|
We recognize our derivative instruments as either assets or liabilities and measure those instruments at fair value. None of our derivative instruments are designated as cash flow hedging instruments, and changes in fair value are recorded within our Consolidated
Statements of Income
to the extent not utilized for the commissioning process.
9
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table shows the fair value of our derivative instruments that are required to be measured at fair value on a recurring basis as of
March 31, 2018
and
December 31, 2017
, which are classified as
derivative assets
,
non-current derivative assets
,
derivative liabilities
or
non-current derivative liabilities
in our Consolidated Balance Sheets (in millions).
|
Fair Value Measurements as of
|
|||||||||||||||||||||||||||||||
|
March 31, 2018
|
December 31, 2017
|
||||||||||||||||||||||||||||||
|
Quoted Prices in Active Markets
(Level 1) |
Significant Other Observable Inputs
(Level 2) |
Significant Unobservable Inputs
(Level 3) |
Total
|
Quoted Prices in Active Markets
(Level 1) |
Significant Other Observable Inputs
(Level 2) |
Significant Unobservable Inputs
(Level 3) |
Total
|
||||||||||||||||||||||||
|
CQP Interest Rate Derivatives asset
|
$
|
—
|
|
$
|
27
|
|
$
|
—
|
|
$
|
27
|
|
$
|
—
|
|
$
|
21
|
|
$
|
—
|
|
$
|
21
|
|
|||||||
|
CCH Interest Rate Derivatives asset (liability)
|
—
|
|
43
|
|
—
|
|
43
|
|
—
|
|
(32
|
)
|
—
|
|
(32
|
)
|
|||||||||||||||
|
Liquefaction Supply Derivatives asset
|
—
|
|
—
|
|
10
|
|
10
|
|
2
|
|
10
|
|
43
|
|
55
|
|
|||||||||||||||
|
LNG Trading Derivatives asset (liability)
|
(9
|
)
|
3
|
|
—
|
|
(6
|
)
|
(13
|
)
|
5
|
|
—
|
|
(8
|
)
|
|||||||||||||||
|
FX Derivatives liability
|
—
|
|
(4
|
)
|
—
|
|
(4
|
)
|
—
|
|
(1
|
)
|
—
|
|
(1
|
)
|
|||||||||||||||
There have been no changes to our evaluation of and accounting for our derivative positions during the
three months ended March 31, 2018
. See
Note 7—Derivative Instruments
of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended
December 31, 2017
for additional information.
We value our
Interest Rate Derivatives
using an income-based approach utilizing observable inputs to the valuation model including interest rate curves, risk adjusted discount rates, credit spreads and other relevant data. We value our
LNG Trading Derivatives
and our Liquefaction Supply Derivatives using market based approach incorporating present value techniques, as needed, using observable commodity price curves, when available, and other relevant data. We value our
FX Derivatives
with a market approach using observable FX rates and other relevant data.
The fair value of our
Physical Liquefaction Supply Derivatives
is predominantly driven by 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 satisfaction of conditions precedent, including 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 supply contracts.
We include a portion of our Physical Liquefaction Supply Derivatives as Level 3 within the valuation hierarchy as the fair value is developed through the use of internal models which may be impacted by inputs that are unobservable in the marketplace. The curves used to generate the fair value of our
Physical Liquefaction Supply Derivatives
are based on basis adjustments applied to forward curves for a liquid trading point. In addition, there may be observable liquid market basis information in the near term, but terms of a
Physical Liquefaction Supply Derivatives
contract may exceed the period for which such information is available, resulting in a Level 3 classification. In these instances, the fair value of the contract incorporates extrapolation assumptions made in the determination of the market basis price for future delivery periods in which applicable commodity basis prices were either not observable or lacked corroborative market data. As of
March 31, 2018
and
December 31, 2017
, some of our
Physical Liquefaction Supply Derivatives
existed within markets for which the pipeline infrastructure is under development to accommodate marketable physical gas flow.
10
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The Level 3 fair value measurements of our
Physical Liquefaction Supply Derivatives
could be materially impacted by a significant change in certain natural gas market basis spreads due to the contractual notional amount represented by our Level 3 positions, which is a substantial portion of our overall Physical Liquefaction Supply portfolio. The following table includes quantitative information for the unobservable inputs for our Level 3
Physical Liquefaction Supply Derivatives
as of
March 31, 2018
:
|
Net Fair Value Asset
(in millions)
|
Valuation Approach
|
Significant Unobservable Input
|
Significant Unobservable Inputs Range
|
|||||
|
Physical Liquefaction Supply Derivatives
|
$10
|
Market approach incorporating present value techniques
|
Basis Spread
|
$(0.725) - $0.095
|
||||
The following table shows the changes in the fair value of our Level 3
Physical Liquefaction Supply Derivatives
during the
three months ended March 31, 2018 and 2017
(in millions):
|
Three Months Ended March 31,
|
||||||||
|
2018
|
2017
|
|||||||
|
Balance, beginning of period
|
$
|
43
|
|
$
|
79
|
|
||
|
Realized and mark-to-market losses:
|
||||||||
|
Included in cost of sales
|
(13
|
)
|
(41
|
)
|
||||
|
Purchases and settlements:
|
||||||||
|
Purchases
|
3
|
|
4
|
|
||||
|
Settlements
|
(23
|
)
|
(1
|
)
|
||||
|
Balance, end of period
|
$
|
10
|
|
$
|
41
|
|
||
|
Change in unrealized gains relating to instruments still held at end of period
|
$
|
(13
|
)
|
$
|
(41
|
)
|
||
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. Additionally, we evaluate our own ability to meet our commitments in instances where our derivative instruments are in a liability position. Our derivative instruments are subject to contractual provisions which provide for the unconditional right of set-off for all derivative assets and liabilities with a given counterparty in the event of default.
Interest Rate Derivatives
During the
three months ended March 31, 2018
, there were no changes to the terms of the interest rate swaps
(“CQP Interest Rate Derivatives”)
entered into by CQP to hedge a portion of the variable interest payments on its
2016 CQP Credit Facilities
or the interest rate swaps
(“CCH Interest Rate Derivatives”)
entered into by CCH to protect against volatility of future cash flows and hedge a portion of the variable interest payments on its credit facility
(the “2015 CCH Credit Facility”)
. See
Note 7—Derivative Instruments
of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended
December 31, 2017
for additional information.
SPL had entered into interest rate swaps (“SPL Interest Rate Derivatives”) to protect against volatility of future cash flows and hedge a portion of the variable interest payments on the credit facilities it entered into in June 2015 (the “2015 SPL Credit Facilities”). In March 2017, SPL settled the SPL Interest Rate Derivatives and recognized a derivative loss of
$7 million
in conjunction with the termination of approximately
$1.6 billion
of commitments under the
2015 SPL Credit Facilities
.
As of
March 31, 2018
, we had the following Interest Rate Derivatives outstanding:
|
Initial Notional Amount
|
Maximum Notional Amount
|
Effective Date
|
Maturity Date
|
Weighted Average Fixed Interest Rate Paid
|
Variable Interest Rate Received
|
|||||||
|
CQP Interest Rate Derivatives
|
$225 million
|
$1.3 billion
|
March 22, 2016
|
February 29, 2020
|
1.19%
|
One-month LIBOR
|
||||||
|
CCH Interest Rate Derivatives
|
$29 million
|
$4.9 billion
|
May 20, 2015
|
May 31, 2022
|
2.29%
|
One-month LIBOR
|
||||||
11
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table shows the fair value and location of our Interest Rate Derivatives on our Consolidated Balance Sheets (in millions):
|
March 31, 2018
|
December 31, 2017
|
|||||||||||||||||||||||
|
CQP Interest Rate Derivatives
|
CCH Interest Rate Derivatives
|
Total
|
CQP Interest Rate Derivatives
|
CCH Interest Rate Derivatives
|
Total
|
|||||||||||||||||||
|
Balance Sheet Location
|
||||||||||||||||||||||||
|
Derivative assets
|
$
|
12
|
|
$
|
—
|
|
$
|
12
|
|
$
|
7
|
|
$
|
—
|
|
$
|
7
|
|
||||||
|
Non-current derivative assets
|
15
|
|
49
|
|
64
|
|
14
|
|
3
|
|
17
|
|
||||||||||||
|
Total derivative assets
|
27
|
|
49
|
|
76
|
|
21
|
|
3
|
|
24
|
|
||||||||||||
|
Derivative liabilities
|
—
|
|
(6
|
)
|
(6
|
)
|
—
|
|
(20
|
)
|
(20
|
)
|
||||||||||||
|
Non-current derivative liabilities
|
—
|
|
—
|
|
—
|
|
—
|
|
(15
|
)
|
(15
|
)
|
||||||||||||
|
Total derivative liabilities
|
—
|
|
(6
|
)
|
(6
|
)
|
—
|
|
(35
|
)
|
(35
|
)
|
||||||||||||
|
Derivative asset (liability), net
|
$
|
27
|
|
$
|
43
|
|
$
|
70
|
|
$
|
21
|
|
$
|
(32
|
)
|
$
|
(11
|
)
|
||||||
The following table shows the changes in the fair value and settlements of our
Interest Rate Derivatives
recorded in
derivative gain, net
on our Consolidated
Statements of Income
during the
three months ended March 31, 2018 and 2017
(in millions):
|
Three Months Ended March 31,
|
||||||||
|
2018
|
2017
|
|||||||
|
CQP Interest Rate Derivatives gain
|
$
|
8
|
|
$
|
2
|
|
||
|
CCH Interest Rate Derivatives gain
|
69
|
|
1
|
|
||||
|
SPL Interest Rate Derivatives loss
|
—
|
|
(2
|
)
|
||||
Commodity Derivatives
The following table shows the fair value and location of our
Liquefaction Supply Derivatives
and
LNG Trading Derivatives
(collectively, “Commodity Derivatives”)
on our Consolidated Balance Sheets (in millions, except notional amount):
|
March 31, 2018
|
December 31, 2017
|
||||||||||||||||||||||
|
Liquefaction Supply Derivatives (1)
|
LNG Trading Derivatives (2)
|
Total
|
Liquefaction Supply Derivatives (1)
|
LNG Trading Derivatives (2)
|
Total
|
||||||||||||||||||
|
Balance Sheet Location
|
|||||||||||||||||||||||
|
Derivative assets
|
$
|
8
|
|
$
|
3
|
|
$
|
11
|
|
$
|
41
|
|
$
|
9
|
|
$
|
50
|
|
|||||
|
Non-current derivative assets
|
9
|
|
7
|
|
16
|
|
17
|
|
—
|
|
17
|
|
|||||||||||
|
Total derivative assets
|
17
|
|
10
|
|
27
|
|
58
|
|
9
|
|
67
|
|
|||||||||||
|
Derivative liabilities
|
(4
|
)
|
(14
|
)
|
(18
|
)
|
—
|
|
(17
|
)
|
(17
|
)
|
|||||||||||
|
Non-current derivative liabilities
|
(3
|
)
|
(2
|
)
|
(5
|
)
|
(3
|
)
|
—
|
|
(3
|
)
|
|||||||||||
|
Total derivative liabilities
|
(7
|
)
|
(16
|
)
|
(23
|
)
|
(3
|
)
|
(17
|
)
|
(20
|
)
|
|||||||||||
|
Derivative asset (liability), net
|
$
|
10
|
|
$
|
(6
|
)
|
$
|
4
|
|
$
|
55
|
|
$
|
(8
|
)
|
$
|
47
|
|
|||||
|
Notional amount (in TBtu) (3)
|
2,573
|
|
27
|
|
2,539
|
|
25
|
|
|||||||||||||||
|
(1)
|
Does not include a collateral call of
$1 million
for such contracts, which is included in
other current assets
in our Consolidated Balance Sheets as of both
March 31, 2018
and
December 31, 2017
.
|
|
(2)
|
Does not include collateral of
$25 million
and
$28 million
deposited for such contracts, which are included in
other current assets
in our Consolidated Balance Sheets as of
March 31, 2018
and
December 31, 2017
, respectively.
|
|
(3)
|
SPL had secured up to approximately
2,179
TBtu and
2,214
TBtu of natural gas feedstock through natural gas supply contracts as of
March 31, 2018
and
December 31, 2017
, respectively. CCL has secured up to approximately
2,057
TBtu and
2,024
TBtu of natural gas feedstock through natural gas supply contracts, a portion of which is subject to the
|
12
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
achievement of certain project milestones and other conditions precedent, as of
March 31, 2018
and
December 31, 2017
, respectively.
The following table shows the changes in the fair value, settlements and location of our
Commodity Derivatives
recorded on our Consolidated
Statements of Income
during the
three months ended March 31, 2018 and 2017
(in millions):
|
Statement of Income Location (1)
|
Three Months Ended March 31,
|
||||||||
|
2018
|
2017
|
||||||||
|
LNG Trading Derivatives gain (loss)
|
LNG revenues
|
$
|
7
|
|
$
|
(6
|
)
|
||
|
Liquefaction Supply Derivatives loss (2)
|
Cost of sales
|
50
|
|
39
|
|
||||
|
(1)
|
Fair value fluctuations associated with commodity derivative activities are classified and presented consistently with the item economically hedged and the nature and intent of the derivative instrument.
|
|
(2)
|
Does not include the realized value associated with derivative instruments that settle through physical delivery.
|
FX Derivatives
The following table shows the fair value and location of our
FX Derivatives
on our Consolidated Balance Sheets (in millions):
|
Fair Value Measurements as of
|
|||||||||
|
Balance Sheet Location
|
March 31, 2018
|
December 31, 2017
|
|||||||
|
FX Derivatives
|
Non-current derivative assets
|
$
|
1
|
|
$
|
—
|
|
||
|
FX Derivatives
|
Derivative liabilities
|
(1
|
)
|
—
|
|
||||
|
FX Derivatives
|
Non-current derivative liabilities
|
(4
|
)
|
(1
|
)
|
||||
The total notional amount of our
FX Derivatives
was
$79 million
and
$27 million
as of
March 31, 2018
and
December 31, 2017
, respectively.
The following table shows the changes in the fair value of our
FX Derivatives
recorded on our Consolidated
Statements of Income
during the
three months ended March 31, 2018 and 2017
(in millions):
|
Three Months Ended March 31,
|
|||||||||
|
Statement of Income Location
|
2018
|
2017
|
|||||||
|
FX Derivatives loss
|
LNG revenues
|
$
|
(3
|
)
|
$
|
—
|
|
||
13
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Balance Sheet Presentation
Our derivative instruments are presented on a net basis on our Consolidated Balance Sheets as described above. The following table shows the fair value of our derivatives outstanding on a gross and net basis (in millions):
|
Gross Amounts Recognized
|
Gross Amounts Offset in the Consolidated Balance Sheets
|
Net Amounts Presented in the Consolidated Balance Sheets
|
||||||||||
|
Offsetting Derivative Assets (Liabilities)
|
||||||||||||
|
As of March 31, 2018
|
||||||||||||
|
CQP Interest Rate Derivatives
|
$
|
27
|
|
$
|
—
|
|
$
|
27
|
|
|||
|
CCH Interest Rate Derivatives
|
49
|
|
—
|
|
49
|
|
||||||
|
CCH Interest Rate Derivatives
|
(7
|
)
|
1
|
|
(6
|
)
|
||||||
|
Liquefaction Supply Derivatives
|
25
|
|
(8
|
)
|
17
|
|
||||||
|
Liquefaction Supply Derivatives
|
(10
|
)
|
3
|
|
(7
|
)
|
||||||
|
LNG Trading Derivatives
|
16
|
|
(6
|
)
|
10
|
|
||||||
|
LNG Trading Derivatives
|
(22
|
)
|
6
|
|
(16
|
)
|
||||||
|
FX Derivatives
|
1
|
|
—
|
|
1
|
|
||||||
|
FX Derivatives
|
(5
|
)
|
—
|
|
(5
|
)
|
||||||
|
As of December 31, 2017
|
|
|
||||||||||
|
CQP Interest Rate Derivatives
|
$
|
21
|
|
$
|
—
|
|
$
|
21
|
|
|||
|
CCH Interest Rate Derivatives
|
3
|
|
—
|
|
3
|
|
||||||
|
CCH Interest Rate Derivatives
|
(35
|
)
|
—
|
|
(35
|
)
|
||||||
|
Liquefaction Supply Derivatives
|
64
|
|
(6
|
)
|
58
|
|
||||||
|
Liquefaction Supply Derivatives
|
(3
|
)
|
—
|
|
(3
|
)
|
||||||
|
LNG Trading Derivatives
|
9
|
|
—
|
|
9
|
|
||||||
|
LNG Trading Derivatives
|
(37
|
)
|
20
|
|
(17
|
)
|
||||||
|
FX Derivatives
|
(1
|
)
|
—
|
|
(1
|
)
|
||||||
As of
March 31, 2018
and
December 31, 2017
, other non-current assets, net consisted of the following (in millions):
|
|
March 31,
|
December 31,
|
||||||
|
|
2018
|
2017
|
||||||
|
Advances made under EPC and non-EPC contracts
|
$
|
18
|
|
$
|
26
|
|
||
|
Advances made to municipalities for water system enhancements
|
93
|
|
97
|
|
||||
|
Advances and other asset conveyances to third parties to support LNG terminals
|
53
|
|
48
|
|
||||
|
Tax-related payments and receivables
|
28
|
|
29
|
|
||||
|
Equity method investments
|
64
|
|
64
|
|
||||
|
Other
|
36
|
|
24
|
|
||||
|
Total other non-current assets, net
|
$
|
292
|
|
$
|
288
|
|
||
Equity Method Investments
Our equity method investments consist of interests in privately-held companies. In 2017, we acquired an equity interest in Midship Holdings, LLC (“Midship Holdings”), which manages the business and affairs of Midship Pipeline Company, LLC (“Midship Pipeline”). Midship Pipeline is pursuing the development, construction, operation and maintenance of an approximately
230
-mile natural gas pipeline project (the “Midship Project”) that connects new production in the Anadarko Basin to Gulf Coast markets. Midship Holdings entered into agreements with investment funds managed by EIG Global Energy Partners (“EIG”) under which EIG-managed funds committed to make an investment of up to
$500 million
(the “EIG Investment”) in the Midship Project, subject to the terms and conditions contained in the applicable agreements. The EIG Investment, when combined with equity contributed by us, is intended to ensure the Midship Project has the equity funding expected to be required to develop and construct the project. Midship Holdings requires acceptable financing arrangements and regulatory and other approvals before construction of the proposed Midship Project commences.
We have determined that Midship Holdings is a variable interest entity (“VIE”) because it is thinly capitalized at formation such that the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated
14
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
financial support. We do not consolidate Midship Holdings because we do not have power to direct the activities that most significantly impact its economic performance. We continually monitor both consolidated and unconsolidated VIEs to determine if any events have occurred that could cause a change in our identification of a VIE or determination of the primary beneficiary to a VIE. We account for our investment in Midship Holdings under the equity method as we have the ability to exercise significant influence over the operating and financial policies of Midship Holdings through our non-controlling voting rights on its board of managers. Our investment in Midship Holdings was
$55 million
at both
March 31, 2018
and
December 31, 2017
. Obligations to make additional investments in Midship Holdings are not significant and we have not provided financial support to Midship Holdings beyond amounts contractually required.
Cheniere LNG O&M Services, LLC (“O&M Services”), our wholly owned subsidiary, provides the development, construction, operation and maintenance services associated with the Midship Project pursuant to agreements in which O&M Services receives an agreed upon fee and reimbursement of costs incurred. O&M Services recorded
$1 million
and
zero
of income in other—related party during the
three months ended March 31, 2018 and 2017
, respectively, and
$2 million
of accounts receivable—related party as of both
March 31, 2018
and
December 31, 2017
for services provided to Midship Pipeline under these agreements. CCL has entered into transportation precedent agreements with Midship Pipeline to secure firm pipeline transportation capacity for a period of
10 years
following commencement of the Midship Project.
As of both
March 31, 2018
and
December 31, 2017
, we owned
82.7%
of Cheniere Holdings as well as the director voting share, with the remaining non-controlling interest held by the public. Cheniere Holdings owns a
48.6%
limited partner interest in Cheniere Partners in the form of
104.5 million
common units and
135.4 million
subordinated units, with the remaining non-controlling interest held by Blackstone CQP Holdco LP and the public. We also own
100%
of the general partner interest and the incentive distribution rights in Cheniere Partners. Both Cheniere Holdings and Cheniere Partners are accounted for as variable interest entities. See
Note 9—Variable Interest Entities
of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended
December 31, 2017
for further information.
As of
March 31, 2018
and
December 31, 2017
, accrued liabilities consisted of the following (in millions):
|
|
March 31,
|
December 31,
|
||||||
|
|
2018
|
2017
|
||||||
|
Interest costs and related debt fees
|
$
|
251
|
|
$
|
397
|
|
||
|
Compensation and benefits
|
47
|
|
141
|
|
||||
|
LNG terminals and related pipeline costs
|
380
|
|
490
|
|
||||
|
Other accrued liabilities
|
51
|
|
50
|
|
||||
|
Total accrued liabilities
|
$
|
729
|
|
$
|
1,078
|
|
||
15
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
As of
March 31, 2018
and
December 31, 2017
, our debt consisted of the following (in millions):
|
|
March 31,
|
December 31,
|
||||||
|
|
2018
|
2017
|
||||||
|
Long-term debt:
|
||||||||
|
SPL
|
|
|
||||||
|
5.625% Senior Secured Notes due 2021 (“2021 SPL Senior Notes”), net of unamortized premium of $5 and $6
|
$
|
2,005
|
|
$
|
2,006
|
|
||
|
6.25% Senior Secured Notes due 2022 (“2022 SPL Senior Notes”)
|
1,000
|
|
1,000
|
|
||||
|
5.625% Senior Secured Notes due 2023 (“2023 SPL Senior Notes”), net of unamortized premium of $5 and $5
|
1,505
|
|
1,505
|
|
||||
|
5.75% Senior Secured Notes due 2024 (“2024 SPL Senior Notes”)
|
2,000
|
|
2,000
|
|
||||
|
5.625% Senior Secured Notes due 2025 (“2025 SPL Senior Notes”)
|
2,000
|
|
2,000
|
|
||||
|
5.875% Senior Secured Notes due 2026 (“2026 SPL Senior Notes”)
|
1,500
|
|
1,500
|
|
||||
|
5.00% Senior Secured Notes due 2027 (“2027 SPL Senior Notes”)
|
1,500
|
|
1,500
|
|
||||
|
4.200% Senior Secured Notes due 2028 (“2028 SPL Senior Notes”), net of unamortized discount of $1 and $1
|
1,349
|
|
1,349
|
|
||||
|
5.00% Senior Secured Notes due 2037 (“2037 SPL Senior Notes”)
|
800
|
|
800
|
|
||||
|
Cheniere Partners
|
||||||||
|
5.250% Senior Notes due 2025 (“2025 CQP Senior Notes”)
|
1,500
|
|
1,500
|
|
||||
|
2016 CQP Credit Facilities
|
1,090
|
|
1,090
|
|
||||
|
CCH
|
||||||||
|
7.000% Senior Secured Notes due 2024 (“2024 CCH Senior Notes”)
|
1,250
|
|
1,250
|
|
||||
|
5.875% Senior Secured Notes due 2025 (“2025 CCH Senior Notes”)
|
1,500
|
|
1,500
|
|
||||
|
5.125% Senior Secured Notes due 2027 (“2027 CCH Senior Notes”)
|
1,500
|
|
1,500
|
|
||||
|
2015 CCH Credit Facility
|
2,751
|
|
2,485
|
|
||||
|
CCH HoldCo II
|
||||||||
|
11.0% Convertible Senior Notes due 2025 (“2025 CCH HoldCo II Convertible Senior Notes”)
|
1,341
|
|
1,305
|
|
||||
|
Cheniere
|
||||||||
|
4.875% Convertible Unsecured Notes due 2021 (“2021 Cheniere Convertible Unsecured Notes”), net of unamortized discount of $114 and $121
|
1,047
|
|
1,040
|
|
||||
|
4.25% Convertible Senior Notes due 2045 (“2045 Cheniere Convertible Senior Notes”), net of unamortized discount of $314 and $314
|
311
|
|
311
|
|
||||
|
$750 million Cheniere Revolving Credit Facility (“Cheniere Revolving Credit Facility”)
|
—
|
|
—
|
|
||||
|
Unamortized debt issuance costs
|
(293
|
)
|
(305
|
)
|
||||
|
Total long-term debt, net
|
25,656
|
|
25,336
|
|
||||
|
Current debt:
|
||||||||
|
$1.2 billion SPL Working Capital Facility (“SPL Working Capital Facility”)
|
—
|
|
—
|
|
||||
|
$350 million CCH Working Capital Facility (“CCH Working Capital Facility”)
|
—
|
|
—
|
|
||||
|
Cheniere Marketing trade finance facilities
|
—
|
|
—
|
|
||||
|
Total current debt
|
—
|
|
—
|
|
||||
|
Total debt, net
|
$
|
25,656
|
|
$
|
25,336
|
|
||
16
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, 2018
(in millions):
|
SPL Working Capital Facility
|
2016 CQP Credit Facilities
|
2015 CCH Credit Facility
|
CCH Working Capital Facility
|
Cheniere Revolving Credit Facility
|
||||||||||||||||
|
Original facility size
|
$
|
1,200
|
|
$
|
2,800
|
|
$
|
8,404
|
|
$
|
350
|
|
$
|
750
|
|
|||||
|
Less:
|
||||||||||||||||||||
|
Outstanding balance
|
—
|
|
1,090
|
|
2,751
|
|
—
|
|
—
|
|
||||||||||
|
Commitments prepaid or terminated
|
—
|
|
1,470
|
|
3,832
|
|
—
|
|
—
|
|
||||||||||
|
Letters of credit issued
|
706
|
|
20
|
|
—
|
|
289
|
|
—
|
|
||||||||||
|
Available commitment
|
|
$
|
494
|
|
|
$
|
220
|
|
|
$
|
1,821
|
|
|
$
|
61
|
|
|
$
|
750
|
|
|
Interest rate
|
LIBOR plus 1.75% or base rate plus 0.75%
|
LIBOR plus 2.25% or base rate plus 1.25% (1)
|
LIBOR plus 2.25% or base rate plus 1.25% (2)
|
LIBOR plus 1.50% - 2.00% or base rate plus 0.50% - 1.00%
|
LIBOR plus 3.25% or base rate plus 2.25%
|
|||||||||||||||
|
Maturity date
|
December 31, 2020, with various terms for underlying loans
|
February 25, 2020, with principal payments due quarterly commencing on March 31, 2019
|
Earlier of May 13, 2022 or second anniversary of CCL Trains 1 and 2 completion date
|
December 14, 2021, with various terms for underlying loans
|
March 2, 2021
|
|||||||||||||||
|
(1)
|
There is a
0.50%
step-up for both LIBOR and base rate loans beginning on February 25, 2019.
|
|
(2)
|
There is a
0.25%
step-up for both LIBOR and base rate loans following the completion of Trains 1 and 2 of the
CCL Project
as defined in the common terms agreement.
|
Convertible Notes
Below is a summary of our convertible notes outstanding as of
March 31, 2018
(in millions):
|
2021 Cheniere Convertible Unsecured Notes
|
2025 CCH HoldCo II Convertible Senior Notes
|
2045 Cheniere Convertible Senior Notes
|
||||||||||
|
Aggregate original principal
|
$
|
1,000
|
|
$
|
1,000
|
|
$
|
625
|
|
|||
|
Debt component, net of discount
|
$
|
1,047
|
|
$
|
1,341
|
|
$
|
311
|
|
|||
|
Equity component
|
$
|
206
|
|
$
|
—
|
|
$
|
194
|
|
|||
|
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
|
|
||||||
|
Contractual interest rate
|
4.875
|
%
|
11.0
|
%
|
4.25
|
%
|
||||||
|
Effective interest rate (8)
|
8.3
|
%
|
11.9
|
%
|
9.4
|
%
|
||||||
|
Remaining debt discount and debt issuance costs amortization period (9)
|
3.2 years
|
|
2.5 years
|
|
27.0 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
|
17
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
for the
90
trading day period prior to the date notice is provided, and (2) a
10%
discount to the closing price of our common stock on the trading day preceding the date notice is provided.
|
(4)
|
Redeemable at any time after March 15, 2020 at a redemption price payable in cash equal to the accreted amount of the 2045 Cheniere Convertible Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to such redemption date.
|
|
(5)
|
Initially convertible at
$93.64
(subject to adjustment upon the occurrence of certain specified events), provided that the closing price of our common stock is greater than or equal to the conversion price on the conversion date.
|
|
(6)
|
Convertible on or after the
six
-month anniversary of the Eligible Conversion Date, provided that our total market capitalization is not less than
$10.0 billion
, at a price equal to the average of the daily VWAP of our common stock for the
90
trading day period prior to the date on which notice of conversion is provided.
|
|
(7)
|
Prior to December 15, 2044, convertible only under certain circumstances as specified in the indenture; thereafter, holders may convert their notes regardless of these circumstances. The conversion rate will initially equal
7.2265
shares of our common stock per $1,000 principal amount of the 2045 Cheniere Convertible Senior Notes, which corresponds to an initial conversion price of approximately
$138.38
per share of our common stock (subject to adjustment upon the occurrence of certain specified events).
|
|
(8)
|
Rate to accrete the discounted carrying value of the convertible notes to the face value over the remaining amortization period.
|
|
(9)
|
We amortize any debt discount and debt issuance costs using the effective interest over the period through contractual maturity except for the
2025 CCH HoldCo II Convertible Senior Notes
, which are amortized through the date they are first convertible by holders into our common stock.
|
Restrictive Debt Covenants
As of
March 31, 2018
, each of our issuers was in compliance with all covenants related to their respective debt agreements.
Interest Expense
Total interest expense, including interest expense related to our convertible notes, consisted of the following (in millions):
|
|
Three Months Ended March 31,
|
|||||||
|
|
2018
|
2017
|
||||||
|
Interest cost on convertible notes:
|
||||||||
|
Interest per contractual rate
|
$
|
58
|
|
$
|
53
|
|
||
|
Amortization of debt discount
|
8
|
|
7
|
|
||||
|
Amortization of debt issuance costs
|
2
|
|
2
|
|
||||
|
Total interest cost related to convertible notes
|
68
|
|
62
|
|
||||
|
Interest cost on debt excluding convertible notes
|
336
|
|
|
292
|
|
|||
|
Total interest cost
|
404
|
|
354
|
|
||||
|
Capitalized interest
|
(188
|
)
|
(189
|
)
|
||||
|
Total interest expense, net
|
$
|
216
|
|
$
|
165
|
|
||
18
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Fair Value Disclosures
The following table shows the carrying amount and estimated fair value of our debt (in millions):
|
|
March 31, 2018
|
December 31, 2017
|
||||||||||||||
|
|
Carrying
Amount |
Estimated
Fair Value |
Carrying
Amount |
Estimated
Fair Value |
||||||||||||
|
Senior notes, net of premium or discount (1)
|
$
|
18,609
|
|
$
|
19,557
|
|
$
|
18,610
|
|
$
|
20,075
|
|
||||
|
2037 SPL Senior Notes (2)
|
800
|
|
838
|
|
800
|
|
871
|
|
||||||||
|
Credit facilities (3)
|
3,841
|
|
3,841
|
|
3,575
|
|
3,575
|
|
||||||||
|
2021 Cheniere Convertible Unsecured Notes, net of discount (2)
|
1,047
|
|
1,152
|
|
1,040
|
|
1,136
|
|
||||||||
|
2025 CCH HoldCo II Convertible Senior Notes (2)
|
1,341
|
|
1,521
|
|
1,305
|
|
1,535
|
|
||||||||
|
2045 Cheniere Convertible Senior Notes, net of discount (4)
|
311
|
|
485
|
|
311
|
|
447
|
|
||||||||
|
(1)
|
Includes
2021 SPL Senior Notes
,
2022 SPL Senior Notes
,
2023 SPL Senior Notes
,
2024 SPL Senior Notes
,
2025 SPL Senior Notes
,
2026 SPL Senior Notes
,
2027 SPL Senior Notes
,
2028 SPL Senior Notes
,
2025 CQP Senior Notes
,
2024 CCH Senior Notes
,
2025 CCH Senior Notes
and
2027 CCH Senior Notes
. The Level 2 estimated fair value was based on quotes obtained from broker-dealers or market makers of these senior notes and other similar instruments.
|
|
(2)
|
The Level 3 estimated fair value was calculated based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including our stock price and interest rates based on debt issued by parties with comparable credit ratings to us and inputs that are not observable in the market.
|
|
(3)
|
Includes
SPL Working Capital Facility
,
2016 CQP Credit Facilities
,
2015 CCH Credit Facility
,
CCH Working Capital Facility
,
Cheniere Revolving Credit Facility
and
Cheniere Marketing trade finance facilities
. The Level 3 estimated fair value approximates the principal amount because the interest rates are variable and reflective of market rates and the debt may be repaid, in full or in part, at any time without penalty.
|
|
(4)
|
The Level 1 estimated fair value was based on unadjusted quoted prices in active markets for identical liabilities that we had the ability to access at the measurement date.
|
The following table represents a disaggregation of revenue earned from contracts with customers during the
three months ended March 31, 2018 and 2017
(in millions):
|
Three Months Ended March 31,
|
||||||||
|
2018
|
2017
|
|||||||
|
LNG revenues
|
$
|
2,143
|
|
$
|
1,143
|
|
||
|
Regasification revenues
|
65
|
|
65
|
|
||||
|
Other revenues
|
10
|
|
1
|
|
||||
|
Other—related party
|
1
|
|
—
|
|
||||
|
Total revenues from customers
|
2,219
|
|
1,209
|
|
||||
|
Revenues from derivative instruments
|
23
|
|
2
|
|
||||
|
Total revenues
|
$
|
2,242
|
|
$
|
1,211
|
|
||
LNG Revenues
We have entered into numerous SPAs with third party customers for the sale of LNG on a Free on Board (“FOB”) (delivered to the customer at either the Sabine Pass or Corpus Christi LNG terminal) or Delivered at Terminal (“DAT”) (delivered to the customer at their LNG receiving terminal) basis. Our customers generally purchase LNG for a price consisting of a fixed fee per MMBtu of LNG (a portion of which is subject to annual adjustment for inflation) plus a variable fee per MMBtu of LNG equal to approximately
115%
of Henry Hub. The fixed fee component is the amount payable to us regardless of a cancellation or suspension of LNG cargo deliveries by the customers. The variable fee component is the amount generally payable to us only upon delivery of LNG plus all future adjustments to the fixed fee for inflation. The SPAs and contracted volumes to be made available under the SPAs are not tied to a specific Train; however, the term of each SPA generally commences upon the date of first commercial delivery of a specified Train.
19
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
We intend to primarily use LNG sourced from our Sabine Pass or Corpus Christi terminal to provide contracted volumes to our customers. However, we supplement this LNG with volumes procured from third parties. We recognized
$110 million
and
$48 million
in LNG revenues from LNG that was procured from third parties for the
three months ended March 31, 2018 and 2017
.
Revenues from the sale of LNG are recognized at a point in time when the LNG is delivered to the customer, either at the Sabine Pass LNG terminal or at the customer’s LNG receiving terminal, based on the terms of the contract, which is the point legal title, physical possession and the risks and rewards of ownership transfers to the customer. Each individual molecule of LNG is viewed as a separate performance obligation. The stated contract price (including both fixed and variable fees) per MMBtu in each LNG sales arrangement is representative of the stand-alone selling price for LNG at the time the sale was negotiated. We have concluded that the variable fees meet the optional exception for allocating variable consideration. As such, the variable consideration for these contracts is allocated to each distinct molecule of LNG and recognized when that distinct molecule of LNG is delivered to the customer. Because of the use of the optional exception, variable consideration related to the sale of LNG is also not included in the transaction price.
When we sell LNG on a DAT basis, we consider all transportation costs, including vessel chartering, loading/unloading and canal fees, as fulfillment costs and not as separate services provided to the customer within the arrangement, regardless of whether or not such activities occur prior to or after the customer obtains control of the LNG. We expense fulfillment costs as incurred unless otherwise dictated by GAAP.
Fees received pursuant to SPAs are recognized as LNG revenues only after substantial completion of the respective Train. Prior to substantial completion, sales generated during the commissioning phase are offset against the cost of construction for the respective Train, as the production and removal of LNG from storage is necessary to test the facility and bring the asset to the condition necessary for its intended use.
Regasification Revenues
The Sabine Pass LNG terminal has operational regasification capacity of approximately
4.0
Bcf/d. Approximately
2.0
Bcf/d of the regasification capacity at the Sabine Pass LNG terminal has been reserved under
two
long-term TUAs with unaffiliated third-party customers, under which they are required to pay fixed monthly fees regardless of their use of the LNG terminal. Each of the customers has reserved approximately
1.0
Bcf/d of regasification capacity. The customers are each obligated to make monthly capacity payments to SPLNG aggregating approximately
$125 million
annually for
20
years that commenced in 2009, which is representative of fixed consideration in the contract. A portion of this fee is adjusted annually for inflation which is considered variable consideration. The remaining capacity of the Sabine Pass LNG terminal has been reserved by SPL, for which the associated revenues are eliminated in consolidation.
Because SPLNG is continuously available to provide regasification service on a daily basis with the same pattern of transfer, we have concluded that SPLNG provides a single performance obligation to its customers on a continuous basis over time. We have determined that an output method of recognition based on elapsed time best reflects the benefits of this service to the customer and accordingly, LNG regasification capacity reservation fees are recognized as regasification revenues on a straight-line basis over the term of the respective TUAs. We have concluded that the inflation element within the contract meets the optional exception for allocating variable consideration and accordingly the inflation adjustment is not included in the transaction price and will be recognized over the year in which the inflation adjustment relates on a straight-line basis.
In 2012, SPL entered into a partial TUA assignment agreement with Total Gas & Power North America, Inc.
(“Total”)
, whereby SPL would progressively gain access to
Total
’s capacity and other services provided under its TUA with SPLNG. This agreement provides SPL with additional berthing and storage capacity at the Sabine Pass LNG terminal that may be used to provide increased flexibility in managing LNG cargo loading and unloading activity, permit SPL to more flexibly manage its LNG storage capacity and accommodate the development of Trains 5 and 6.
Upon substantial completion of Train 3, SPL gained access to a portion of
Total
’s capacity and other services provided under
Total
’s TUA with SPLNG. Upon substantial completion of Train 5, SPL will gain access to substantially all of
Total
’s capacity. Notwithstanding any arrangements between Total and SPL, payments required to be made by
Total
to SPLNG will continue to be made by Total to SPLNG in accordance with its TUA and we continue to recognize the payments received from
Total
as revenue.
20
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
During the
three months ended March 31, 2018 and 2017
, SPL recorded
$8 million
and
zero
as operating and maintenance expense under this partial TUA assignment agreement.
Deferred Revenue Reconciliation
The following table reflects the changes in our contract liabilities, which we classify as “Deferred revenue” (in millions):
|
Three Months Ended March 31,
|
||||||||
|
2018
|
2017
|
|||||||
|
Deferred revenues, beginning of period
|
$
|
111
|
|
$
|
73
|
|
||
|
Cash received but not yet recognized
|
120
|
|
61
|
|
||||
|
Revenue recognized from prior period deferral
|
(111
|
)
|
(71
|
)
|
||||
|
Deferred revenues, end of period
|
$
|
120
|
|
$
|
63
|
|
||
We record deferred revenue when we receive consideration, or such consideration is unconditionally due from a customer, prior to transferring goods or services to the customer under the terms of a sales contract. Changes in deferred revenue during the
three months ended March 31, 2018 and 2017
are primarily attributable to differences between the timing of revenue recognition and the receipt of advance payments related to delivery of LNG under certain SPAs.
Transaction Price Allocated to Future Performance Obligations
Because many of our sales contracts have long-term durations, we are contractually entitled to significant future consideration which we have not yet recognized as revenue. The following table discloses the aggregate amount of the transaction price that is allocated to performance obligations that have not yet been satisfied as of
March 31, 2018
:
|
Unsatisfied
Transaction Price
(in billions)
|
Weighted Average Recognition Timing (years) (1)
|
|||||
|
LNG revenues
|
$
|
91.3
|
|
10.7
|
||
|
Regasification revenues
|
2.8
|
|
5.6
|
|||
|
Total revenues
|
$
|
94.1
|
|
|
||
|
(1)
|
The weighted average recognition timing represents an estimate of the number of years during which we shall have recognized half of the unsatisfied transaction price.
|
We have elected the following optional exemptions which omit certain potential future sources of revenue from the table above:
|
(1)
|
We omit from the table above all performance obligations that are part of a contract that has an original expected duration of one year or less.
|
|
(2)
|
We omit from the table above all variable consideration that is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation when that performance obligation qualifies as a series. The table above excludes all variable consideration under our SPAs and TUAs. The amount of revenue from variable fees that is not included in the transaction price will vary based on the future prices of Henry Hub throughout the contract terms, to the extent customers elect to take delivery of their LNG, and adjustments to the consumer price index. Certain of our contracts contain additional variable consideration based on the outcome of contingent events and the movement of various indexes. The receipt of such variable consideration is considered constrained due to the uncertainty of ultimate pricing and receipt and we have not included such variable consideration in the transaction price. During the
three months ended March 31, 2018
, approximately
56%
of our LNG Revenues from contracts with a duration of over one year and approximately
3%
of our Regasification Revenues were related to variable consideration received from customers.
|
We have entered into contracts to sell LNG that are conditioned upon one or both of the parties achieving certain milestones such as reaching
FID
on a certain liquefaction Train or obtaining financing. These contracts are considered completed contracts for revenue recognition purposes and are included in the transaction price above.
21
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
We have elected the practical expedient to omit the disclosure of the transaction price allocated to future performance obligations and an explanation of when the entity expects to recognize the amount as revenue as of
March 31, 2017
.
During the
three months ended March 31, 2018
, we recorded a
$15 million
income tax provision, which was primarily related to increased profitability in the U.K. We have elected to account for the tax on global intangible low-taxed income (“GILTI”) as a tax expense in the period in which it is incurred.
Due to historical losses and other available evidence related to our ability to generate taxable income, we have established a valuation allowance to fully offset our federal and state net deferred tax assets at
March 31, 2018
and
December 31, 2017
.
We have granted restricted stock shares, restricted stock units, performance stock units and phantom units to employees and non-employee directors under the Amended and Restated 2003 Stock Incentive Plan, as amended, the 2011 Incentive Plan, as amended
(the “2011 Plan”)
, the 2015 Employee Inducement Incentive Plan and the 2015 Long-Term Cash Incentive Plan.
For the
three months ended March 31, 2018
, we granted
1.5 million
restricted stock units and
0.2 million
performance stock units at target performance under the
2011 Plan
to certain employees. Restricted stock units are stock awards that vest over a
three
-year service period and entitle the holder to receive shares of our common stock upon vesting, subject to restrictions on transfer and to a risk of forfeiture if the recipient terminates employment with us prior to the lapse of the restrictions. Performance stock units provide for
three
-year cliff vesting with payouts based on our cumulative distributable cash flow per share from January 1, 2018 through December 31, 2020 compared to a pre-established performance target. The number of shares that may be earned at the end of the vesting period ranges from
50
to
200
percent of the target award amount if the threshold performance is met. Both restricted stock units and performance stock units will be settled in Cheniere common stock (on a one-for-one basis) and are classified as equity awards.
Total share-based compensation consisted of the following (in millions):
|
Three Months Ended March 31,
|
||||||||
|
2018
|
2017
|
|||||||
|
Share-based compensation costs, pre-tax:
|
||||||||
|
Equity awards
|
$
|
17
|
|
$
|
5
|
|
||
|
Liability awards
|
17
|
|
27
|
|
||||
|
Total share-based compensation
|
|
34
|
|
|
32
|
|
||
|
Capitalized share-based compensation
|
(6
|
)
|
(8
|
)
|
||||
|
Total share-based compensation expense
|
|
$
|
28
|
|
|
$
|
24
|
|
|
Tax benefit associated with share-based compensation expense
|
$
|
2
|
|
$
|
—
|
|
||
For further discussion of our equity incentive plans, see
Note 15—Share-Based Compensation
of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended
December 31, 2017
.
NOTE 14—
NET INCOME
PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
Basic
net income
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 dilutive effect of unvested stock is calculated using the treasury-stock method and the dilutive effect of convertible securities is calculated using the if-converted method.
22
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table reconciles basic and diluted weighted average common shares outstanding for the
three months ended March 31, 2018 and 2017
(in millions, except per share data):
|
Three Months Ended March 31,
|
||||||||
|
|
2018
|
2017
|
||||||
|
Weighted average common shares outstanding:
|
||||||||
|
Basic
|
235.5
|
|
232.4
|
|
||||
|
Dilutive unvested stock
|
2.5
|
|
0.3
|
|
||||
|
Diluted
|
238.0
|
|
232.7
|
|
||||
|
Basic net income per share attributable to common stockholders
|
$
|
1.52
|
|
$
|
0.23
|
|
||
|
Diluted net income per share attributable to common stockholders
|
$
|
1.50
|
|
$
|
0.23
|
|
||
Potentially dilutive securities that were not included in the diluted
net income
per share computations because their effects would have been anti-dilutive were as follows (in millions):
|
Three Months Ended March 31,
|
||||||
|
|
2018
|
2017
|
||||
|
Unvested stock (1)
|
2.0
|
|
1.2
|
|
||
|
Convertible notes (2)
|
17.1
|
|
16.5
|
|
||
|
Total potentially dilutive common shares
|
19.1
|
|
17.7
|
|
||
|
(1)
|
Does not include
0.4 million
shares and
5.1 million
shares for the
three months ended March 31, 2018 and 2017
, respectively, of unvested stock because the performance conditions had not yet been satisfied as of
March 31, 2018
and
2017
, respectively.
|
|
(2)
|
Includes number of shares in aggregate issuable upon conversion of the
2021 Cheniere Convertible Unsecured Notes
and the
2045 Cheniere Convertible Senior Notes
. There were
no
shares included in the computation of diluted
net income
per share for the
2025 CCH HoldCo II Convertible Senior Notes
because substantive non-market-based contingencies underlying the eligible conversion date have not been met as of
March 31, 2018
.
|
We have various contractual obligations which are recorded as liabilities in our Consolidated Financial Statements. Other items, such as certain purchase commitments and other executed contracts which do not meet the definition of a liability as of
March 31, 2018
, are not recognized as liabilities but require disclosures in our Consolidated Financial Statements.
Obligations under Certain Guarantee Contracts
Cheniere and certain of its subsidiaries enter into guarantee arrangements in the normal course of business to facilitate transactions with third parties. These arrangements include financial guarantees, letters of credit and debt guarantees. As of
March 31, 2018
and
December 31, 2017
, there were
no
liabilities recognized under these guarantee arrangements.
Legal Proceedings
We may in the future be involved as a party to various legal proceedings, which are incidental to the ordinary course of business. We regularly analyze current information and, as necessary, provide accruals for probable liabilities on the eventual disposition of these matters.
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
23
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
30, 2015, September 30, 2015 and November 4, 2015 (the “Secured Note”). The Secured Note was secured by all assets of Parallax Enterprises and its subsidiary entities. On June 30, 2015, Parallax Enterprises’ parent entity, Parallax Energy LLC (“Parallax Energy”), executed a Pledge and Guarantee Agreement further securing repayment of the Secured Note by providing a parent guaranty and a pledge of all of the equity of Parallax Enterprises in satisfaction of the Secured Note (the “Pledge Agreement”). CLNGT and Parallax Enterprises never executed a definitive agreement to pursue the Potential Liquefaction Transactions. The Secured Note matured on December 11, 2015, and Parallax Enterprises failed to make payment. On February 3, 2016, CLNGT filed an action against Parallax Energy, Parallax Enterprises and certain of Parallax Enterprises’ subsidiary entities, styled Cause No. 4:16-cv-00286, Cheniere LNG Terminals, LLC v. Parallax Energy LLC, et al., in the United States District Court for the Southern District of Texas (the “Texas Federal Suit”). CLNGT asserted claims in the Texas Federal Suit for (1) recovery of all amounts due under the Secured Note and (2) declaratory relief establishing that CLNGT is entitled to enforce its rights under the Secured Note and Pledge Agreement in accordance with each instrument’s terms and that CLNGT has no obligations of any sort to Parallax Enterprises concerning the Potential Liquefaction Transactions. On March 11, 2016, Parallax Enterprises and the other defendants in the Texas Federal Suit moved to dismiss the suit for lack of subject matter jurisdiction. On August 2, 2016, the court denied the defendants’ motion to dismiss without prejudice and permitted the parties to pursue jurisdictional discovery.
On March 11, 2016, Parallax Enterprises filed a suit against us and CLNGT styled Civil Action No. 62-810, Parallax Enterprises LLP v. Cheniere Energy, Inc. and Cheniere LNG Terminals, LLC, in the 25th Judicial District Court of Plaquemines Parish, Louisiana (the “Louisiana Suit”), wherein Parallax Enterprises asserted claims for breach of contract, fraudulent inducement, negligent misrepresentation, detrimental reliance, unjust enrichment and violation of the Louisiana Unfair Trade Practices Act. Parallax Enterprises predicated its claims in the Louisiana Suit on an allegation that we and CLNGT breached a purported agreement to jointly develop the Potential Liquefaction Transactions. Parallax Enterprises sought
$400 million
in alleged economic damages and rescission of the Secured Note. On April 15, 2016, we and CLNGT removed the Louisiana Suit to the United States District Court for the Eastern District of Louisiana, which subsequently transferred the Louisiana Suit to the United States District Court for the Southern District of Texas, where it was assigned Civil Action No. 4:16-cv-01628 and transferred to the same judge presiding over the Texas Federal Suit for coordinated handling. On August 22, 2016, Parallax Enterprises voluntarily dismissed all claims asserted against CLNGT and us in the Louisiana Suit without prejudice to refiling.
On July 27, 2017, the Parallax entities named as defendants in the Texas Federal Suit reurged their motion to dismiss and simultaneously filed counterclaims against CLNGT and third party claims against us for breach of contract, breach of fiduciary duty, promissory estoppel, quantum meruit and fraudulent inducement of the Secured Note and Pledge Agreement, based on substantially the same factual allegations Parallax Enterprises made in the Louisiana Suit. These Parallax entities also simultaneously filed an action styled Cause No. 2017-49685, Parallax Enterprises, LLC, et al. v. Cheniere Energy, Inc., et al., in the 61st District Court of Harris County, Texas (the “Texas State Suit”), which asserts substantially the same claims these entities asserted in the Texas Federal Suit. On July 31, 2017, CLNGT withdrew its opposition to the dismissal of the Texas Federal Suit without prejudice on jurisdictional grounds and the federal court subsequently dismissed the Texas Federal Suit without prejudice. We and CLNGT simultaneously filed an answer and counterclaims in the Texas State Suit, asserting the same claims CLNGT had previously asserted in the Texas Federal Suit. Additionally, CLNGT filed third party claims against Parallax principals Martin Houston, Christopher Bowen Daniels, Howard Candelet and Mark Evans, as well as Tellurian Investments, Inc., Driftwood LNG, LLC, Driftwood LNG Pipeline LLC and Tellurian Services LLC, formerly known as Parallax Services LLC, including claims for tortious interference with CLNGT’s collateral rights under the Secured Note and Pledge Agreement, fraudulent transfer, conspiracy/aiding and abetting. Discovery in the Texas State Suit is ongoing. Trial is currently set for September 2018.
We do not expect that the resolution of this litigation will have a material adverse impact on our financial results.
24
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table shows customers with revenues of 10% or greater of total third-party revenues and customers with accounts receivable balances of 10% or greater of total accounts receivable from third parties:
|
Percentage of Total Third-Party Revenues
|
Percentage of Accounts Receivable from Third Parties
|
|||||||
|
Three Months Ended March 31,
|
March 31,
|
December 31,
|
||||||
|
2018
|
2017
|
2018
|
2017
|
|||||
|
Customer A
|
17%
|
33%
|
13%
|
28%
|
||||
|
Customer B
|
12%
|
13%
|
7%
|
16%
|
||||
|
Customer C
|
24%
|
—%
|
18%
|
14%
|
||||
|
Customer D
|
*
|
—%
|
10%
|
—%
|
||||
|
Customer E
|
*
|
10%
|
21%
|
15%
|
||||
|
Customer F
|
*
|
—%
|
11%
|
—%
|
||||
* Less than 10%
The following table provides supplemental disclosure of cash flow information (in millions):
|
|
Three Months Ended March 31,
|
|||||||
|
|
2018
|
2017
|
||||||
|
Cash paid during the period for interest, net of amounts capitalized
|
$
|
282
|
|
$
|
163
|
|
||
The balance in property, plant and equipment, net funded with accounts payable and accrued liabilities was
$310 million
and
$503 million
as of
March 31, 2018
and
2017
, respectively.
25
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table provides a brief description of a recent accounting standard that had not been adopted by us as of
March 31, 2018
:
|
Standard
|
Description
|
Expected Date of Adoption
|
Effect on our Consolidated Financial Statements or Other Significant Matters
|
|||
|
ASU 2016-02,
Leases (Topic 842)
, and subsequent amendments thereto
|
This standard requires a lessee to recognize leases on its balance sheet by recording a lease liability representing the obligation to make future lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term. A lessee is permitted to make an election not to recognize lease assets and liabilities for leases with a term of 12 months or less. The standard also modifies the definition of a lease and requires expanded disclosures. This guidance may be early adopted, and must be adopted using a modified retrospective approach with certain available practical expedients.
|
January 1, 2019
|
We continue to evaluate the effect of this standard on our Consolidated Financial Statements. This evaluation process includes reviewing all forms of leases, performing a completeness assessment over the lease population, analyzing the practical expedients and assessing opportunities to make certain changes to our lease accounting information technology system in order to determine the best implementation strategy. Preliminarily, we anticipate a material impact from the requirement to recognize all leases upon our Consolidated Balance Sheets. Because this assessment is preliminary and the accounting for leases is subject to significant judgment, this conclusion could change as we finalize our assessment. We have not yet determined the impact of the adoption of this standard upon our results of operations or cash flows. We expect to elect the package of practical expedients permitted under the transition guidance which, among other things, allows the carryforward of prior conclusions related to lease identification and classification. We also expect to elect the practical expedient to retain our existing accounting for land easements which were not previously accounted for as leases. We have not yet determined whether we will elect any other practical expedients upon transition.
|
|||
26
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Additionally, the following table provides a brief description of recent accounting standards that were adopted by us during the reporting period:
|
Standard
|
Description
|
Date of Adoption
|
Effect on our Consolidated Financial Statements or Other Significant Matters
|
|||
|
ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
, and subsequent amendments thereto
|
This standard provides a single, comprehensive revenue recognition model which replaces and supersedes most existing revenue recognition guidance and requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard requires that the costs to obtain and fulfill contracts with customers should be recognized as assets and amortized to match the pattern of transfer of goods or services to the customer if expected to be recoverable. The standard also requires enhanced disclosures. This guidance may be adopted either retrospectively to each prior reporting period presented subject to allowable practical expedients (“full retrospective approach”) or as a cumulative-effect adjustment as of the date of adoption (“modified retrospective approach”).
|
January 1, 2018
|
We adopted this guidance on January 1, 2018, using the full retrospective method. The adoption of this guidance represents a change in accounting principle that will provide financial statement readers with enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The adoption of this guidance did not impact our previously reported financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings. See
Note 11—Revenues from Contracts with Customers
for additional disclosures.
|
|||
|
ASU 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
|
This standard requires the immediate recognition of the tax consequences of intercompany asset transfers other than inventory. This guidance may be early adopted, but only at the beginning of an annual period, and must be adopted using a modified retrospective approach.
|
January 1, 2018
|
The adoption of this guidance did not have an impact on our Consolidated Financial Statements or related disclosures.
|
|||
27
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Information Regarding Forward-Looking Statements
This
quarterly
report contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)
. All statements, other than statements of historical or present facts or conditions, included herein or incorporated herein by reference are “forward-looking statements.” Included among “forward-looking statements” are, among other things:
|
•
|
statements that we expect to commence or complete construction of our proposed LNG terminals, liquefaction facilities, pipeline facilities or other projects, or any expansions or portions thereof, by certain dates, or at all;
|
|
•
|
statements regarding future levels of domestic and international natural gas production, supply or consumption or future levels of LNG imports into or exports from North America and other countries worldwide or purchases of natural gas, regardless of the source of such information, or the transportation or other infrastructure or demand for and prices related to natural gas, LNG or other hydrocarbon products;
|
|
•
|
statements regarding any financing transactions or arrangements, or our ability to enter into such transactions;
|
|
•
|
statements relating to the construction of our Trains and pipelines, including statements concerning the engagement of any
EPC
contractor or other contractor and the anticipated terms and provisions of any agreement with any such
EPC
or other contractor, and anticipated costs related thereto;
|
|
•
|
statements regarding any
SPA
or other agreement to be entered into or performed substantially in the future, including any revenues anticipated to be received and the anticipated timing thereof, and statements regarding the amounts of total LNG regasification, natural gas liquefaction or storage capacities that are, or may become, subject to contracts;
|
|
•
|
statements regarding our planned development and construction of additional Trains and pipelines, including the financing of such Trains;
|
|
•
|
statements that our Trains, when completed, will have certain characteristics, including amounts of liquefaction capacities;
|
|
•
|
statements regarding our business strategy, our strengths, our business and operation plans or any other plans, forecasts, projections, or objectives, including anticipated revenues, capital expenditures, maintenance and operating costs and cash flows, any or all of which are subject to change;
|
|
•
|
statements regarding legislative, governmental, regulatory, administrative or other public body actions, approvals, requirements, permits, applications, filings, investigations, proceedings or decisions;
|
|
•
|
statements regarding marketing of volumes expected to be made available to our integrated marketing function; and
|
|
•
|
any other statements that relate to non-historica
l or future information.
|
All of these types of statements, other than statements of historical or present facts or conditions, are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “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 as a result of a variety of factors described in this
quarterly
report and in the other reports and other information that we file with the SEC, including those discussed under “Risk Factors” in our
annual report on Form 10-K for the year ended December 31, 2017
. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these risk factors. These forward-looking statements speak only as of the date made, and other than as required by law, we undertake no obligation to update or revise any forward-looking statement or provide reasons why actual results may differ, whether as a result of new information, future events or otherwise.
28
Introduction
The following discussion and analysis presents management’s view of our business, financial condition and overall performance and should be read in conjunction with our Consolidated Financial Statements and the accompanying notes. This information is intended to provide investors with an understanding of our past performance, current financial condition and outlook for the future. Our discussion and analysis includes the following subjects:
|
•
|
Overview of Business
|
|
•
|
Overview of Significant Events
|
|
•
|
Liquidity and Capital Resources
|
|
•
|
Results of Operations
|
|
•
|
Off-Balance Sheet Arrangements
|
|
•
|
Summary of Critical Accounting Estimates
|
|
•
|
Recent Accounting Standards
|
Overview of Business
Cheniere, a Delaware corporation, is a Houston-based energy company primarily engaged in LNG-related businesses. Our vision is to provide clean, secure and affordable energy to the world, while responsibly delivering a reliable, competitive and integrated source of LNG, in a safe and rewarding work environment. We own and operate the Sabine Pass LNG terminal in Louisiana through our ownership interest in and management agreements with Cheniere Partners, which is a publicly traded limited partnership that we created in 2007. As of
March 31, 2018
, we owned
100%
of the general partner interest in Cheniere Partners and
82.7%
of Cheniere Holdings, which is a publicly traded limited liability company formed in 2013 that owned a
48.6%
limited partner interest in Cheniere Partners. We are currently developing and constructing two natural gas liquefaction and export facilities. The liquefaction of natural gas into LNG allows it to be shipped economically from areas of the world where natural gas is abundant and inexpensive to produce to other areas where natural gas demand and infrastructure exist to economically justify the use of LNG.
The Sabine Pass LNG terminal is located in Cameron Parish, Louisiana, on the Sabine-Neches Waterway less than four miles from the Gulf Coast. Cheniere Partners is developing, constructing and operating natural gas liquefaction facilities
(the “SPL Project”)
at the Sabine Pass LNG terminal adjacent to the existing regasification facilities through a wholly owned subsidiary, SPL. Cheniere Partners plans to construct up to six Trains, which are in various stages of development, construction and operations. Trains 1 through 4 are operational, Train 5 is under construction and Train 6 is being commercialized and has all necessary regulatory approvals in place. Each Train is expected to have a nominal production capacity, which is prior to adjusting for planned maintenance, production reliability and potential overdesign, of approximately 4.5 mtpa of LNG and an adjusted nominal production capacity of approximately 4.3 to 4.6 mtpa of LNG. The Sabine Pass LNG terminal has operational regasification facilities owned by Cheniere Partners’ wholly owned subsidiary, SPLNG, that include pre-existing infrastructure of five LNG storage tanks with aggregate capacity of approximately 16.9
Bcfe
, two marine berths that can each accommodate vessels with nominal capacity of up to 266,000 cubic meters and vaporizers with regasification capacity of approximately 4.0
Bcf/d
. Cheniere Partners also owns a 94-mile pipeline that interconnects the Sabine Pass LNG terminal with a number of large interstate pipelines
(the “Creole Trail Pipeline”)
through a wholly owned subsidiary, CTPL.
We are developing and constructing a second natural gas liquefaction and export facility at the Corpus Christi LNG terminal, which is on nearly
2,000
acres of land that we own or control near Corpus Christi, Texas, and a pipeline facility
(collectively, the “CCL Project”)
through wholly owned subsidiaries CCL and CCP, respectively. The
CCL Project
is being developed for up to three Trains, with expected aggregate nominal production capacity, which is prior to adjusting for planned maintenance, production reliability and potential overdesign, of approximately 13.5
mtpa
of LNG, three LNG storage tanks with aggregate capacity of approximately 10.1
Bcfe
and two marine berths that can each accommodate vessels with nominal capacity of up to 266,000 cubic meters. The
CCL Project
is being developed in stages. The first stage
(“Stage 1”)
includes Trains 1 and 2, two LNG storage tanks, one complete marine berth and a second partial berth and all of the
CCL Project
’s necessary infrastructure facilities. The second stage
(“Stage 2”)
includes Train 3, one LNG storage tank and the completion of the second partial berth. The
CCL Project
also includes a 23-mile natural gas supply pipeline that will interconnect the Corpus Christi LNG terminal with several interstate and
29
intrastate natural gas pipelines
(the “Corpus Christi Pipeline”)
. Stage 1 and the Corpus Christi Pipeline are currently under construction, and Train 3 is being commercialized and has all necessary regulatory approvals in place. The construction of the Corpus Christi Pipeline is expected to be completed in second quarter of 2018.
Additionally, we are developing an expansion of the Corpus Christi LNG terminal adjacent to the
CCL Project
(the “Corpus Christi Expansion Project”) and recently began the process of amending our regulatory filings with FERC to incorporate a project design change, from
two
Trains with an expected aggregate nominal production capacity of approximately
9.0
mtpa to up to
seven
midscale Trains with an expected aggregate nominal production capacity of approximately
9.5
mtpa. We remain focused on expansion of our existing sites by leveraging existing infrastructure. We are also in various stages of developing other projects, including infrastructure projects in support of natural gas supply and LNG demand, which, among other things, will require acceptable commercial and financing arrangements before we make a final investment decision
(“FID”)
. We have made an equity investment of
$55 million
in Midship Pipeline Company, LLC (“Midship Pipeline”), which is developing a pipeline with expected capacity of up to 1.44 million Dekatherms per day that will connect new gas production in the Anadarko Basin to Gulf Coast markets, including markets serving the
SPL Project
and the
CCL Project
.
Overview of Significant Events
Our significant accomplishments since January 1,
2018
and through the filing date of this Form 10-Q include the following:
Strategic
|
•
|
In February 2018, we entered into two SPAs with PetroChina International Company Limited, a subsidiary of China National Petroleum Corporation, for the sale of approximately 1.2 mtpa of LNG through 2043, with a portion of the supply beginning in 2018 and the balance beginning in 2023.
|
|
•
|
In January 2018, we entered into a 15-year SPA with Trafigura Pte Ltd for the sale of approximately 1 mtpa of LNG beginning in 2019.
|
Operational
|
•
|
As of April 30, approximately
90
cargoes have been produced, loaded and exported from the SPL Project in 2018. To date, approximately
350
cumulative LNG cargoes have been exported from the
SPL Project
, with deliveries to
26
countries and regions worldwide.
|
Financial
|
•
|
In March 2018, the date of first commercial delivery was reached under the 20-year SPA with GAIL (India) Limited relating to Train 4 of the
SPL Project
.
|
|
•
|
In April 2018, we engaged financial institutions to assist in the structuring and arranging of up to $6.4 billion of credit facilities for CCH through an amendment and upsize of its existing credit facilities
(the “2015 CCH Credit Facility”)
, the proceeds of which will be used to fund a portion of the costs of developing, constructing and placing into service three Trains and related facilities of the CCL Project, and the related pipeline being developed near Corpus Christi, Texas and for related business purposes.
|
|
•
|
In April and May 2018, we acquired a total of 21,453,482 common shares of Cheniere Holdings in a series of privately negotiated transactions pursuant to share purchase and exchange agreements, in exchange for a total of 10,278,739 unregistered shares of Cheniere. Subsequent to the completion of these transactions, our ownership of Cheniere Holdings is approximately 91.9%.
|
Liquidity and Capital Resources
Although results are consolidated for financial reporting, Cheniere, Cheniere Holdings, Cheniere Partners, SPL and the CCH Group operate with independent capital structures. We expect the cash needs for at least the next twelve months will be met for each of these independent capital structures as follows:
•
SPL through project debt and borrowings and operating cash flows;
|
•
|
Cheniere Partners through operating cash flows from SPLNG, SPL and CTPL and debt or equity offerings;
|
•
Cheniere Holdings through distributions from Cheniere Partners;
•
CCH Group through project debt and borrowings and equity contributions from Cheniere; and
30
|
•
|
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 our other subsidiaries and distributions from our investments in Cheniere Holdings and Cheniere Partners.
|
The following table provides a summary of our liquidity position at
March 31, 2018
and
December 31, 2017
(in millions):
|
March 31,
|
December 31,
|
||||||
|
|
2018
|
2017
|
|||||
|
Cash and cash equivalents
|
$
|
715
|
|
$
|
722
|
|
|
|
Restricted cash designated for the following purposes:
|
|||||||
|
SPL Project
|
561
|
|
544
|
|
|||
|
Cheniere Partners and cash held by guarantor subsidiaries
|
916
|
|
1,045
|
|
|||
|
CCL Project
|
83
|
|
227
|
|
|||
|
Other
|
147
|
|
75
|
|
|||
|
Available commitments under the following credit facilities:
|
|||||||
|
$1.2 billion SPL Working Capital Facility (“SPL Working Capital Facility”)
|
494
|
|
470
|
|
|||
|
2016 CQP Credit Facilities
|
220
|
|
220
|
|
|||
|
2015 CCH Credit Facility
|
1,821
|
|
2,087
|
|
|||
|
$350 million CCH Working Capital Facility (“CCH Working Capital Facility”)
|
61
|
|
186
|
|
|||
|
$750 million Cheniere Revolving Credit Facility (“Cheniere Revolving Credit Facility”)
|
750
|
|
750
|
|
|||
For additional information regarding our debt agreements, see
Note 10—Debt
of our Notes to Consolidated Financial Statements in this quarterly report and
Note 12—Debt
of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended
December 31, 2017
.
Cheniere
Convertible Notes
In November 2014, we issued an aggregate principal amount of $1.0 billion of Convertible Unsecured Notes due 2021
(the “2021 Cheniere Convertible Unsecured Notes”)
. The
2021 Cheniere Convertible Unsecured Notes
are convertible at the option of the holder into our common stock at the then applicable conversion rate, provided that the closing price of our common stock is greater than or equal to the conversion price on the date of conversion. In March 2015, we issued $625 million aggregate principal amount of 4.25% Convertible Senior Notes due 2045
(the “2045 Cheniere Convertible Senior Notes”)
. We have the right, at our option, at any time after March 15, 2020, to redeem all or any part of the
2045 Cheniere Convertible Senior Notes
at a redemption price equal to the accreted amount of the
2045 Cheniere Convertible Senior Notes
to be redeemed, plus accrued and unpaid interest, if any, to such redemption date. We have the option to satisfy the conversion obligation for the
2021 Cheniere Convertible Unsecured Notes
and the
2045 Cheniere Convertible Senior Notes
with cash, common stock or a combination thereof.
Cheniere Revolving Credit Facility
In March 2017, we entered into the
Cheniere Revolving Credit Facility
that may be used to fund, through loans and letters of credit, equity capital contributions to
CCH HoldCo II
and its subsidiaries for the development of the
CCL Project
and, provided that certain conditions are met, for general corporate purposes. No advances or letters of credit under the
Cheniere Revolving Credit Facility
were available until either (1) Cheniere’s unrestricted cash and cash equivalents are less than $500 million or (2) Train 4 of the
SPL Project
has achieved substantial completion.
The
Cheniere Revolving Credit Facility
matures on March 2, 2021 and contains representations, warranties and affirmative and negative covenants customary for companies like Cheniere with lenders of the type participating in the
Cheniere Revolving Credit Facility
that limit our ability to make restricted payments, including distributions, unless certain conditions are satisfied, as well as limitations on indebtedness, guarantees, hedging, liens, investments and affiliate transactions. Under the
Cheniere Revolving Credit Facility
, we are required to ensure that the sum of our unrestricted cash and the amount of undrawn commitments under the
Cheniere Revolving Credit Facility
is at least equal to the lesser of (1) 20% of the commitments under the
Cheniere Revolving Credit Facility
and (2) $100 million.
31
The
Cheniere Revolving Credit Facility
is secured by a first priority security interest (subject to permitted liens and other customary exceptions) in substantially all of our assets, including our interests in our direct subsidiaries (excluding CCH HoldCo II).
Cash Receipts from Subsidiaries
As of
March 31, 2018
, we had an
82.7%
direct ownership interest in Cheniere Holdings. We receive dividends on our Cheniere Holdings shares from the distributions that Cheniere Holdings receives from Cheniere Partners. We received
$98 million
and
$4 million
in dividends on our Cheniere Holdings common shares during the
three months ended March 31, 2018 and 2017
, respectively.
Our ownership interest in the Sabine Pass LNG terminal is held through Cheniere Partners. As of
March 31, 2018
, we owned
82.7%
of Cheniere Holdings, which owned a 48.6% interest in Cheniere Partners in the form of 104.5 million common units and 135.4 million subordinated units. We also own 100% of the general partner interest and the incentive distribution rights in Cheniere Partners. We receive quarterly equity distributions from Cheniere Partners related to our 2% general partner interest and quarterly distributions from our incentive distribution rights.
We also receive fees for providing management services to Cheniere Holdings, Cheniere Partners, SPLNG, SPL and CTPL. We received
$20 million
and
$47 million
in total service fees from these subsidiaries during the
three months ended March 31, 2018 and 2017
, respectively.
Cheniere Partners
2025 CQP Senior Notes
In September 2017, Cheniere Partners issued an aggregate principal amount of $1.5 billion of the
2025 CQP Senior Notes
, which are jointly and severally guaranteed by each of Cheniere Partners’ subsidiaries other than SPL and, subject to certain conditions governing the release of its guarantee, Sabine Pass LNG-LP, LLC
(collectively, the “CQP Guarantors”)
. The
2025 CQP Senior Notes
are governed by an indenture
(the “CQP Indenture”)
, which contains customary terms and events of default and certain covenants that, among other things, limit the ability of Cheniere Partners and the
CQP Guarantors
to incur liens and sell assets, enter into transactions with affiliates, enter into sale-leaseback transactions and consolidate, merge or sell, lease or otherwise dispose of all or substantially all of the applicable entity’s properties or assets.
At any time prior to October 1, 2020, Cheniere Partners may redeem all or a part of the
2025 CQP Senior Notes
at a redemption price equal to 100% of the aggregate principal amount of the
2025 CQP Senior Notes
redeemed, plus the “applicable premium” set forth in the
CQP Indenture
, plus accrued and unpaid interest, if any, to the date of redemption. In addition, at any time prior to October 1, 2020, Cheniere Partners may redeem up to 35% of the aggregate principal amount of the
2025 CQP Senior Notes
with an amount of cash not greater than the net cash proceeds from certain equity offerings at a redemption price equal to 105.250% of the aggregate principal amount of the
2025 CQP Senior Notes
redeemed, plus accrued and unpaid interest, if any, to the date of redemption. Cheniere Partners also may at any time on or after October 1, 2020 through the maturity date of October 1, 2025, redeem the
2025 CQP Senior Notes
, in whole or in part, at the redemption prices set forth in the
CQP Indenture
.
The
2025 CQP Senior Notes
are Cheniere Partners’ senior obligations, ranking equally in right of payment with Cheniere Partners’ other existing and future unsubordinated debt and senior to any of its future subordinated debt. The
2025 CQP Senior Notes
will be secured alongside the
2016 CQP Credit Facilities
on a first-priority basis (subject to permitted encumbrances) with liens on (1) substantially all the existing and future tangible and intangible assets and rights of Cheniere Partners and the
CQP Guarantors
and equity interests in the
CQP Guarantors
(except, in each case, for certain excluded properties set forth in the
2016 CQP Credit Facilities
) and (2) substantially all of the real property of SPLNG (except for excluded properties referenced in the
2016 CQP Credit Facilities
). The liens securing the
2025 CQP Senior Notes
would be released if (1) the aggregate principal amount of all indebtedness then outstanding under the term loans under the
2016 CQP Credit Facilities
secured by such liens does not exceed $1.0 billion and (2) the aggregate amount of Cheniere Partners’ secured indebtedness and the secured indebtedness of the
CQP Guarantors
(other than the
2025 CQP Senior Notes
or any other series of notes issued under the
CQP Indenture
) outstanding at any one time, together with all Attributable Indebtedness (as defined in the
CQP Indenture
) from sale-leaseback transactions (subject to certain exceptions), does not exceed the greater of (1) $1.5 billion and (2) 10% of net tangible assets. Upon the release of the liens securing the
2025 CQP Senior Notes
, the limitation on liens covenant under the
CQP Indenture
will continue to govern the incurrence of liens by Cheniere Partners and the
CQP Guarantors
.
32
2016 CQP Credit Facilities
In February 2016, Cheniere Partners entered into the
2016 CQP Credit Facilities
. The
2016 CQP Credit Facilities
consist of: (1) a $450 million CTPL tranche term loan that was used to prepay the $400 million term loan facility
(the “CTPL Term Loan”)
in February 2016, (2) an approximately $2.1 billion SPLNG tranche term loan that was used to repay and redeem in November 2016 the approximately $2.1 billion of the senior notes previously issued by SPLNG, (3) a $125 million facility that may be used to satisfy a six-month debt service reserve requirement and (4) a $115 million revolving credit facility that may be used for general business purposes. In September 2017, Cheniere Partners issued the
2025 CQP Senior Notes
and the net proceeds were used to prepay $1.5 billion of the outstanding indebtedness under the
2016 CQP Credit Facilities
. As of both
March 31, 2018
and
December 31, 2017
, Cheniere Partners had
$220 million
of available commitments,
$20 million
aggregate amount of issued letters of credit and
$1.1 billion
of outstanding borrowings under the
2016 CQP Credit Facilities
.
The
2016 CQP Credit Facilities
mature on February 25, 2020, with principal payments due quarterly commencing on March 31, 2019. The outstanding balance may be repaid, in whole or in part, at any time without premium or penalty, except for interest hedging and interest rate breakage costs. The
2016 CQP Credit Facilities
contain conditions precedent for extensions of credit, as well as customary affirmative and negative covenants and limit Cheniere Partners’ ability to make restricted payments, including distributions, to once per fiscal quarter as long as certain conditions are satisfied. Under the
2016 CQP Credit Facilities
, Cheniere Partners is required to hedge not less than 50% of the variable interest rate exposure on its projected aggregate outstanding balance, maintain a minimum debt service coverage ratio of at least 1.15x at the end of each fiscal quarter beginning March 31, 2019 and have a projected debt service coverage ratio of 1.55x in order to incur additional indebtedness to refinance a portion of the existing obligations.
The
2016 CQP Credit Facilities
are unconditionally guaranteed by each subsidiary of Cheniere Partners other than (1) SPL and (2) certain subsidiaries of Cheniere Partners owning other development projects, as well as certain other specified subsidiaries and members of the foregoing entities.
Sabine Pass LNG Terminal
Liquefaction Facilities
We are developing, constructing and operating the
SPL Project
at the Sabine Pass LNG terminal adjacent to the existing regasification facilities. We have received authorization from the FERC to site, construct and operate Trains 1 through 6. We have achieved substantial completion of Trains 1, 2, 3 and 4 of the
SPL Project
and commenced operating activities in May 2016, September 2016, March 2017 and October 2017, respectively. The following table summarizes the status of Train 5 of the
SPL Project
as of
March 31, 2018
:
|
SPL Train 5
|
|||
|
Overall project completion percentage
|
89.3%
|
||
|
Completion percentage of:
|
|||
|
Engineering
|
100%
|
||
|
Procurement
|
100%
|
||
|
Subcontract work
|
70.2%
|
||
|
Construction
|
78.0%
|
||
|
Date of expected substantial completion
|
1H 2019
|
||
The following orders have been issued by the DOE authorizing the export of domestically produced LNG by vessel from the Sabine Pass LNG terminal:
|
•
|
Trains 1 through 4—
FTA countries
for a 30-year term, which commenced on May 15, 2016, and
non-FTA countries
for a 20-year term, which commenced on June 3, 2016, in an amount up to a combined total of the equivalent of 16
mtpa
(approximately 803
Bcf/yr
of natural gas).
|
|
•
|
Trains 1 through 4—
FTA countries
for a 25-year term and non-FTA countries for a 20-year term in an amount up to a combined total of the equivalent of approximately 203
Bcf/yr
of natural gas (approximately 4 mtpa).
|
|
•
|
Trains 5 and 6—
FTA countries
and
non-FTA countries
for a 20-year term, in an amount up to a combined total of 503.3
Bcf/yr
of natural gas (approximately 10 mtpa).
|
33
In each case, the terms of these authorizations begin on the earlier of the date of first export thereunder or the date specified in the particular order, which ranges from five to 10 years from the date the order was issued. In addition, SPL received an order providing for a three-year makeup period with respect to each of the non-FTA orders for LNG volumes SPL was authorized but unable to export during any portion of the initial 20-year export period of such order.
In January 2018, the DOE issued orders authorizing SPL to export domestically produced LNG by vessel from the Sabine Pass LNG terminal to
FTA countries
and
non-FTA countries
over a two-year period commencing January 2018, in an aggregate amount up to the equivalent of 600
Bcf
of natural gas (however, exports under this order, when combined with exports under the orders above, may not exceed 1,509
Bcf/yr
).
Customers
SPL has entered into six fixed price
SPA
s with terms of at least 20 years (plus extension rights) with third parties to make available an aggregate amount of LNG that is between approximately 80% to 95% of the expected aggregate adjusted nominal production capacity of Trains 1 through 5. Under these
SPA
s, the customers will purchase LNG from SPL for a price consisting of a fixed fee per MMBtu of LNG (a portion of which is subject to annual adjustment for inflation) plus a variable fee per
MMBtu
of LNG equal to approximately 115% of
Henry Hub
. In certain circumstances, the customers may elect to cancel or suspend deliveries of LNG cargoes, in which case the customers would still be required to pay the fixed fee with respect to the contracted volumes that are not delivered as a result of such cancellation or suspension. We refer to the fee component that is applicable regardless of a cancellation or suspension of LNG cargo deliveries under the SPAs as the fixed fee component of the price under SPL’s SPAs. We refer to the fee component that is applicable only in connection with LNG cargo deliveries as the variable fee component of the price under SPL’s SPAs. The variable fees under SPL’s SPAs were sized at the time of entry into each SPA with the intent to cover the costs of gas purchases and transportation related to, and operating and maintenance costs to produce, the LNG to be sold under each such SPA. The
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
generally commences upon the date of first commercial delivery of a specified Train. Under SPL’s SPA with BG Gulf Coast LNG, LLC
(“BG”)
,
BG
has contracted for volumes related to Trains 3 and 4 for which the obligation to make LNG available to
BG
is expected to commence approximately one year after the date of first commercial delivery for the respective Train.
In aggregate, the annual fixed fee portion to be paid by the third-party SPA customers is approximately $1.6 billion for Trains 1 through 3, increasing to $2.3 billion upon the date of first commercial delivery of Train 4 and to $2.9 billion upon the date of first commercial delivery of Train 5, with the applicable fixed fees starting from the date of first commercial delivery from the applicable Train, as specified in each SPA.
In addition, Cheniere Marketing has entered into an SPA with SPL to purchase, at Cheniere Marketing’s option, any LNG produced by SPL in excess of that required for other customers.
Natural Gas Transportation, Storage and Supply
To ensure SPL is able to transport adequate natural gas feedstock to the Sabine Pass LNG terminal, it has entered into transportation precedent and other agreements to secure firm pipeline transportation capacity with CTPL and third-party pipeline companies. SPL has entered into firm storage services agreements with third parties to assist in managing volatility in natural gas needs for the
SPL Project
. SPL has also entered into enabling agreements and long-term natural gas supply contracts with third parties in order to secure natural gas feedstock for the
SPL Project
. As of
March 31, 2018
, SPL has secured up to approximately
2,179
TBtu
of natural gas feedstock through long-term and short-term natural gas supply contracts.
Construction
SPL entered into lump sum turnkey contracts with Bechtel Oil, Gas and Chemicals, Inc.
(“Bechtel”)
for the engineering, procurement and construction of Trains 1 through 5 of the
SPL Project
, under which
Bechtel
charges a lump sum for all work performed and generally bears project cost risk unless certain specified events occur, in which case
Bechtel
may cause SPL to enter into a change order, or SPL agrees with
Bechtel
to a change order.
The total contract price of the EPC contract for Train 5 of the
SPL Project
is approximately
$3.1 billion
reflecting amounts incurred under change orders through
March 31, 2018
. Total expected capital costs for Trains 1 through 5 are estimated to be
34
between
$12.5 billion
and
$13.5 billion
before financing costs and between
$17.5 billion
and
$18.5 billion
after financing costs including, in each case, estimated owner’s costs and contingencies.
Final Investment Decision on Train 6
We will contemplate making an
FID
to commence construction of Train 6 of the
SPL Project
based upon, among other things, entering into an
EPC
contract, entering into acceptable commercial arrangements and obtaining adequate financing to construct Train 6.
Regasification Facilities
The Sabine Pass LNG terminal has operational regasification capacity of approximately 4.0
Bcf/d
and aggregate LNG storage capacity of approximately 16.9
Bcfe
. Approximately 2.0
Bcf/d
of the regasification capacity at the Sabine Pass LNG terminal has been reserved under two long-term third-party
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 May 2016. SPL entered into a partial TUA assignment agreement with
Total
, whereby upon substantial completion of Train 3, SPL gained access to a portion of
Total
’s capacity and other services provided under
Total
’s TUA with SPLNG. This agreement provides SPL with additional berthing and storage capacity at the Sabine Pass LNG terminal that may be used to provide increased flexibility in managing LNG cargo loading and unloading activity, permit SPL to more flexibly manage its LNG storage capacity and accommodate the development of Trains 5 and 6. Notwithstanding any arrangements between
Total
and SPL, payments required to be made by
Total
to SPLNG will continue to be made by
Total
to SPLNG in accordance with its TUA. During the
three months ended March 31, 2018 and 2017
, SPL recorded
$8 million
and zero, respectively, as operating and maintenance expense under this partial TUA assignment agreement.
Under each of these
TUA
s, SPLNG is entitled to retain 2% of the LNG delivered to the Sabine Pass LNG terminal.
Capital Resources
We currently expect that SPL’s capital resources requirements with respect to Trains 1 through 5 of the
SPL Project
will be financed through project debt and borrowings and cash flows under the
SPA
s. We believe that with the net proceeds of borrowings, available commitments under the
SPL Working Capital Facility
and cash flows from operations
,
we will have adequate financial resources available to complete Train 5 of the
SPL Project
and to meet our currently anticipated capital, operating and debt service requirements. SPL began generating cash flows from operations from the
SPL Project
in May 2016, when Train 1 achieved substantial completion and initiated operating activities. Trains 2, 3 and 4 subsequently achieved substantial completion in September 2016, March 2017 and October 2017, respectively. We realized offsets to LNG terminal costs of
$131 million
in the
three months ended March 31, 2017
that were related to the sale of commissioning cargoes because these amounts were earned or loaded prior to the start of commercial operations, during the testing phase for the construction of those Trains of the
SPL Project
. We did not realize any offsets to LNG terminal costs in the
three months ended March 31, 2018
. Additionally, SPLNG generates cash flows from the TUAs, as discussed above.
35
The following table provides a summary of our capital resources from borrowings and available commitments for the Sabine Pass LNG Terminal, excluding equity contributions to our subsidiaries and cash flows from operations (as described in
Sources and Uses of Cash
), at
March 31, 2018
and
December 31, 2017
(in millions):
|
March 31,
|
December 31,
|
|||||||
|
|
2018
|
2017
|
||||||
|
Senior notes (1)
|
$
|
15,150
|
|
$
|
15,150
|
|
||
|
Credit facilities outstanding balance (2)
|
1,090
|
|
1,090
|
|
||||
|
Letters of credit issued (3)
|
706
|
|
730
|
|
||||
|
Available commitments under credit facilities (3)
|
494
|
|
470
|
|
||||
|
Total capital resources from borrowings and available commitments (4)
|
$
|
17,440
|
|
$
|
17,440
|
|
||
|
(1)
|
Includes SPL’s 5.625% Senior Secured Notes due 2021, 6.25% Senior Secured Notes due 2022, 5.625% Senior Secured Notes due 2023, 5.75% Senior Secured Notes due 2024, 5.625% Senior Secured Notes due 2025, 5.875% Senior Secured Notes due 2026
(the “2026 SPL Senior Notes”)
, 5.00% Senior Secured Notes due 2027
(the “2027 SPL Senior Notes”)
, 4.200% Senior Secured Notes due 2028
(the “2028 SPL Senior Notes”)
and 5.00% Senior Secured Notes due 2037
(the “2037 SPL Senior Notes”)
(collectively, the “SPL Senior Notes”)
and Cheniere Partners’
2025 CQP Senior Notes
.
|
|
(2)
|
Includes
SPL Working Capital Facility
and CTPL and SPLNG tranche term loans outstanding under the 2016 CQP Credit Facilities.
|
|
(3)
|
Consists of
SPL Working Capital Facility
. Does not include the letters of credit issued or available commitments under the
2016 CQP Credit Facilities
, which are not specifically for the Sabine Pass LNG Terminal.
|
|
(4)
|
Does not include Cheniere’s additional borrowings from the
2021 Cheniere Convertible Unsecured Notes
and the
2045 Cheniere Convertible Senior Notes
, which may be used for the Sabine Pass LNG Terminal.
|
For additional information regarding our debt agreements related to the Sabine Pass LNG Terminal, see
Note 10—Debt
of our Notes to Consolidated Financial Statements in this quarterly report and
Note 12—Debt
of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended
December 31, 2017
.
SPL Senior Notes
The
SPL Senior Notes
are secured on a
pari passu
first-priority basis by a security interest in all of the membership interests in SPL and substantially all of SPL’s assets.
At any time prior to three months before the respective dates of maturity for each series of the
SPL Senior Notes
(except for the
2026 SPL Senior Notes
,
2027 SPL Senior Notes
,
2028 SPL Senior Notes
and
2037 SPL Senior Notes
, in which case the time period is six months before the respective dates of maturity), SPL may redeem all or part of such series of the
SPL Senior Notes
at a redemption price equal to the “make-whole” price (except for the
2037 SPL Senior Notes
, in which case the redemption price is equal to the “optional redemption” price) set forth in the respective indentures governing the
SPL Senior Notes
, plus accrued and unpaid interest, if any, to the date of redemption. SPL may also, at any time within three months of the respective maturity dates for each series of the
SPL Senior Notes
(except for the
2026 SPL Senior Notes
,
2027 SPL Senior Notes
,
2028 SPL Senior Notes
and
2037 SPL Senior Notes
, in which case the time period is within six months of the respective dates of maturity), redeem all or part of such series of the
SPL Senior Notes
at a redemption price equal to 100% of the principal amount of such series of the
SPL Senior Notes
to be redeemed, plus accrued and unpaid interest, if any, to the date of redemption.
Both the indenture governing the
2037 SPL Senior Notes
(the “
2037 SPL Senior Notes
Indenture”) and the common indenture governing the remainder of the
SPL Senior Notes
(the “SPL Indenture”)
include restrictive covenants. SPL may incur additional indebtedness in the future, including by issuing additional notes, and such indebtedness could be at higher interest rates and have different maturity dates and more restrictive covenants than the current outstanding indebtedness of SPL, including the
SPL Senior Notes
and the
SPL Working Capital Facility
. Under the
2037 SPL Senior Notes
Indenture and the
SPL Indenture
, SPL may not make any distributions until, among other requirements, deposits are made into debt service reserve accounts as required and a debt service coverage ratio test of 1.25:1.00 is satisfied. Semi-annual principal payments for the
2037 SPL Senior Notes
are due on March 15 and September 15 of each year beginning September 15, 2025.
36
SPL Working Capital Facility
In September 2015, SPL entered into the
SPL Working Capital Facility
, which is intended to be used for loans to SPL
(“SPL Working Capital Loans”)
, the issuance of letters of credit on behalf of SPL, as well as for swing line loans to SPL
(“SPL Swing Line Loans”)
, primarily for certain working capital requirements related to developing and placing into operation the
SPL Project
. SPL may, from time to time, request increases in the commitments under the
SPL Working Capital Facility
of up to $760 million and, upon the completion of the debt financing of Train 6 of the
SPL Project
, request an incremental increase in commitments of up to an additional $390 million. As of
March 31, 2018
and
2017
, SPL had
$494 million
and $653 million of available commitments,
$706 million
and $324 million aggregate amount of issued letters of credit and
zero
and $224 million of loans outstanding under the
SPL Working Capital Facility
, respectively.
The
SPL Working Capital Facility
matures on December 31, 2020, and the outstanding balance may be repaid, in whole or in part, at any time without premium or penalty upon three business days’ notice. Loans deemed made in connection with a draw upon a letter of credit have a term of up to one year.
SPL Swing Line Loans
terminate upon the earliest of (1) the maturity date or earlier termination of the
SPL Working Capital Facility
, (2) the date 15 days after such SPL Swing Line Loan is made and (3) the first borrowing date for a SPL Working Capital Loan or SPL Swing Line Loan occurring at least three business days following the date the SPL Swing Line Loan is made. SPL is required to reduce the aggregate outstanding principal amount of all
SPL Working Capital Loans
to zero for a period of five consecutive business days at least once each year.
The
SPL Working Capital Facility
contains conditions precedent for extensions of credit, as well as customary affirmative and negative covenants. The obligations of SPL under the
SPL Working Capital Facility
are secured by substantially all of the assets of SPL as well as all of the membership interests in SPL on a
pari passu
basis with the
SPL Senior Notes
.
Corpus Christi LNG Terminal
Liquefaction Facilities
The
CCL Project
is being developed and constructed at the Corpus Christi LNG terminal. In December 2014, we received authorization from the
FERC
to site, construct and operate Stages 1 and 2 of the
CCL Project
. The following table summarizes the overall project status of Stage 1 of the
CCL Project
as of
March 31, 2018
:
|
CCL Stage 1
|
||
|
Overall project completion percentage
|
85.7%
|
|
|
Completion percentage of:
|
||
|
Engineering
|
100%
|
|
|
Procurement
|
100%
|
|
|
Subcontract work
|
68.9%
|
|
|
Construction
|
68.1%
|
|
|
Expected date of substantial completion
|
Train 1
|
1H 2019
|
|
Train 2
|
2H 2019
|
|
Train 3 is being commercialized and has all necessary regulatory approvals in place. Separate from the CCH Group, we are also developing the
Corpus Christi Expansion Project
, adjacent to the
CCL Project
. We commenced the regulatory approval process in June 2015 and recently began the process of amending our regulatory filings with FERC to incorporate a project design change, from two Trains with an expected aggregate nominal production capacity of approximately 9.0 mtpa to up to seven midscale Trains with an expected aggregate nominal production capacity of approximately 9.5 mtpa.
The following orders have been issued by the DOE authorizing the export of domestically produced LNG by vessel from the Corpus Christi LNG terminal:
|
•
|
CCL Project—
FTA countries
for a 25-year term and to
non-FTA countries
for a 20-year term up to a combined total of the equivalent of 767
Bcf/yr
(approximately 15 mtpa) of natural gas.
|
|
•
|
Corpus Christi Expansion Project—FTA countries for a 20-year term in an amount equivalent to 514 Bcf/yr (approximately 10 mtpa) of natural gas. The application for authorization to export that same 514 Bcf/yr of domestically produced LNG by vessel to non-FTA countries is currently pending before the DOE. We intend to amend our DOE applications consistent with the design change in our amended FERC filings.
|
37
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.
Customers
CCL entered into eight fixed-price
SPA
s with terms of at least 20 years (plus extension rights) with seven third parties to make available an aggregate amount of LNG that is between approximately 85% to 95% of the expected aggregate adjusted nominal production capacity of Trains 1 and 2. Under these eight SPAs, the customers will purchase LNG from CCL for a price consisting of a fixed fee per MMBtu of LNG (a portion of which is subject to annual adjustment for inflation) plus a variable fee per
MMBtu
of LNG equal to approximately 115% of Henry Hub. In certain circumstances, the customers may elect to cancel or suspend deliveries of LNG cargoes, in which case the customers would still be required to pay the fixed fee with respect to the contracted volumes that are not delivered as a result of such cancellation or suspension. We refer to the fee component that is applicable regardless of a cancellation or suspension of LNG cargo deliveries under the SPAs as the fixed fee component of the price under our SPAs. We refer to the fee component that is applicable only in connection with LNG cargo deliveries as the variable fee component of the price under our SPAs
.
The variable fee under CCL’s SPAs entered into in connection with the development of
Stage 1
of the
CCL Project
was sized at the time of entry into each SPA with the intent to cover the costs of gas purchases and transportation related to, and operating and maintenance costs to produce, the LNG to be sold under each such SPA. The SPAs and contracted volumes to be made available under the SPAs are not tied to a specific Train; however, the term of each SPA generally commences upon the date of first commercial delivery for Train 1 or Train 2, as specified in each SPA.
In aggregate, the annual fixed fee portion to be paid by the third-party SPA customers is approximately $550 million for Train 1, increasing to $1.4 billion upon the date of first commercial delivery of Train 2 of the
CCL Project
, with the applicable fixed fees generally starting from the date of first commercial delivery from the applicable Train, as specified in each SPA.
In addition, Cheniere Marketing has entered into an SPA with CCL to purchase, at Cheniere Marketing’s option, any LNG produced by CCL in excess of that required for other customers.
Natural Gas Transportation, Storage and Supply
To ensure CCL is able to transport adequate natural gas feedstock to the Corpus Christi LNG terminal, it has entered into transportation precedent agreements to secure firm pipeline transportation capacity with CCP and certain third-party pipeline companies. CCL has entered into a firm storage services agreement with a third party to assist in managing volatility in natural gas needs for the
CCL Project
. CCL has also entered into enabling agreements and long-term natural gas supply contracts with third parties, and will continue to enter into such agreements, in order to secure natural gas feedstock for the
CCL Project
. As of
March 31, 2018
, CCL has secured up to approximately
2,057
TBtu
of natural gas feedstock through long-term natural gas supply contracts, a portion of which is subject to the achievement of certain project milestones and other conditions precedent.
Construction
CCL entered into separate lump sum turnkey contracts with
Bechtel
for the engineering, procurement and construction of Stages 1 and 2 of the
CCL Project
under which
Bechtel
charges a lump sum for all work performed and generally bears project cost risk unless certain specified events occur, in which case
Bechtel
may cause CCL to enter into a change order, or CCL agrees with
Bechtel
to a change order.
The total contract price of the
EPC
contract for Stage 1, which does not include the
Corpus Christi Pipeline
, is approximately
$7.8 billion
, reflecting amounts incurred under change orders through
March 31, 2018
. Total expected capital costs for
Stage 1
and the
Corpus Christi Pipeline
are estimated to be between
$9.0 billion
and
$10.0 billion
before financing costs, and between
$11.0 billion
and
$12.0 billion
after financing costs including, in each case, estimated owner’s costs and contingencies and total expected capital costs for the
Corpus Christi Pipeline
of between $350 million and $400 million. The total contract price of the EPC contract for Stage 2, which was amended and restated in December 2017, is approximately $2.4 billion.
Pipeline Facilities
In December 2014, the FERC issued a certificate of public convenience and necessity under Section 7(c) of the Natural Gas Act of 1938, as amended, authorizing CCP to construct and operate the Corpus Christi Pipeline. The Corpus Christi Pipeline is designed to transport 2.25 Bcf/d of natural gas feedstock required by the CCL Project from the existing regional natural gas
38
pipeline grid. The construction of the Corpus Christi Pipeline commenced in January 2017 and is expected to be completed in the second quarter of 2018.
Final Investment Decision on
Stage 2
CCL has issued limited notice to proceed to Bechtel for the commencement of certain engineering, procurement and construction activities for
Stage 2
of the
CCL Project
.
FID
and full notice to proceed for
Stage 2
of the
CCL Project
will be contingent on 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 flows from CCL and CCP and equity contributions to our subsidiaries. The following table provides a summary of our capital resources from borrowings and available commitments for the CCL Project, excluding equity contributions to our subsidiaries, at
March 31, 2018
and
December 31, 2017
(in millions):
|
March 31,
|
December 31,
|
|||||||
|
|
2018
|
2017
|
||||||
|
Senior notes (1)
|
$
|
4,250
|
|
$
|
4,250
|
|
||
|
11% Convertible Senior Secured Notes due 2025
|
1,341
|
|
1,305
|
|
||||
|
Credit facilities outstanding balance (2)
|
2,751
|
|
2,485
|
|
||||
|
Letters of credit issued (2)
|
289
|
|
164
|
|
||||
|
Available commitments under credit facilities (2)
|
1,882
|
|
2,273
|
|
||||
|
Total capital resources from borrowings and available commitments (3)
|
$
|
10,513
|
|
$
|
10,477
|
|
||
|
(1)
|
Includes CCH’s 7.000% Senior Secured Notes due 2024, 5.875% Senior Secured Notes due 2025 and 5.125% Senior Secured Notes due 2027
(collectively, the “CCH Senior Notes”)
.
|
|
(2)
|
Includes
2015 CCH Credit Facility
and
CCH Working Capital Facility
.
|
|
(3)
|
Does not include Cheniere’s additional borrowings from
2021 Cheniere Convertible Unsecured Notes
,
2045 Cheniere Convertible Senior Notes
and
Cheniere Revolving Credit Facility
, which may be used for the
CCL Project
.
|
For additional information regarding our debt agreements related to the
CCL Project
, see
Note 10—Debt
of our Notes to Consolidated Financial Statements in this quarterly report and
Note 12—Debt
of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended
December 31, 2017
.
2025 CCH HoldCo II Convertible Senior Notes
In May 2015, CCH HoldCo II issued $1.0 billion aggregate principal amount of 11% Convertible Senior Secured Notes due 2025
(the “2025 CCH HoldCo II Convertible Senior Notes”)
on a private placement basis. The
2025 CCH HoldCo II Convertible Senior Notes
are convertible at the option of
CCH HoldCo II
or the holders, provided that various conditions are met. CCH HoldCo II is restricted from making distributions to Cheniere under agreements governing its indebtedness generally until, among other requirements, Trains 1 and 2 of the
CCL Project
are in commercial operation and a historical debt service coverage ratio and a projected fixed debt service coverage ratio of 1.20:1.00 are achieved.
CCH Senior Notes
The
CCH Senior Notes
are jointly and severally guaranteed by its subsidiaries, CCL, CCP and Corpus Christi Pipeline GP, LLC
(the “CCH Guarantors”)
.
The indenture governing the
CCH Senior Notes
(the “CCH Indenture”)
contains customary terms and events of default and certain covenants that, among other things, limit CCH’s ability and the ability of CCH’s restricted subsidiaries to: incur additional indebtedness or issue preferred stock; make certain investments or pay dividends or distributions on membership interests or subordinated indebtedness or purchase, redeem or retire membership interests; sell or transfer assets, including membership or partnership interests of CCH’s restricted subsidiaries; restrict dividends or other payments by restricted subsidiaries to CCH or any of CCH’s restricted subsidiaries; incur liens; enter into transactions with affiliates; dissolve, liquidate, consolidate, merge, sell
39
or lease all or substantially all of the properties or assets of CCH and its restricted subsidiaries taken as a whole; or permit any
CCH Guarantor
to dissolve, liquidate, consolidate, merge, sell or lease all or substantially all of its properties and assets.
At any time prior to six months before the respective dates of maturity for each series of the
CCH Senior Notes
, CCH may redeem all or part of such series of the
CCH Senior Notes
at a redemption price equal to the “make-whole” price set forth in the
CCH Indenture
, plus accrued and unpaid interest, if any, to the date of redemption. CCH also may at any time within six months of the respective dates of maturity for each series of the
CCH Senior Notes
, redeem all or part of such series of the
CCH Senior Notes
, in whole or in part, at a redemption price equal to 100% of the principal amount of the
CCH Senior Notes
to be redeemed, plus accrued and unpaid interest, if any, to the date of redemption.
2015 CCH Credit Facility
In May 2015, CCH entered into the
2015 CCH Credit Facility
. 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. As of
March 31, 2018
and
December 31, 2017
, CCH had
$1.8 billion
and
$2.1 billion
of available commitments and
$2.8 billion
and
$2.5 billion
of outstanding borrowings under the
2015 CCH Credit Facility
, respectively.
The principal of the loans made under the
2015 CCH Credit Facility
must be repaid in quarterly installments, commencing on the earlier of (1) the first quarterly payment date occurring more than three calendar months following project completion and (2) a set date determined by reference to the date under which a certain LNG buyer linked to Train 2 of the
CCL Project
is entitled to terminate its
SPA
for failure to achieve the date of first commercial delivery for that agreement. Scheduled repayments will be based upon a 19-year tailored amortization, commencing the first full quarter after the project completion and designed to achieve a minimum projected fixed debt service coverage ratio of 1.55:1.00.
Under the
2015 CCH Credit Facility
, CCH is required to hedge not less than 65% of the variable interest rate exposure of its senior secured debt. CCH is restricted from making distributions under agreements governing its indebtedness generally until, among other requirements, the completion of the construction of Trains 1 and 2 of the
CCL Project
, funding of a debt service reserve account equal to six months of debt service and achieving a historical debt service coverage ratio and fixed projected debt service coverage ratio of at least 1.25:1.00.
CCH Working Capital Facility
In December 2016, CCH entered into the $350 million
CCH Working Capital Facility
, which is intended to be used for loans to CCH
(“CCH Working Capital Loans”)
, the issuance of letters of credit on behalf of CCH, as well as for swing line loans to CCH
(“CCH Swing Line Loans”)
for certain working capital requirements related to developing and placing into operation the
CCL Project
. Loans under the
CCH Working Capital Facility
are guaranteed by the
CCH Guarantors
. CCH may, from time to time, request increases in the commitments under the
CCH Working Capital Facility
of up to the maximum allowed under the Common Terms Agreement that was entered into concurrently with the
2015 CCH Credit Facility
. CCH did not have any amounts outstanding under the
CCH Working Capital Facility
as of both
March 31, 2018
and
December 31, 2017
. CCH had
$289 million
and $164 million aggregate amount of issued letters of credit as of
March 31, 2018
and
December 31, 2017
, respectively.
The
CCH Working Capital Facility
matures on December 14, 2021, and CCH may prepay the
CCH Working Capital Loans
,
CCH Swing Line Loans
and loans made in connection with a draw upon any letter of credit
(“CCH LC Loans”)
at any time without premium or penalty upon three business days’ notice and may re-borrow at any time.
CCH LC Loans
have a term of up to one year.
CCH Swing Line Loans
terminate upon the earliest of (1) the maturity date or earlier termination of the
CCH Working Capital Facility
, (2) the date that is 15 days after such CCH Swing Line Loan is made and (3) the first borrowing date for a CCH Working Capital Loan or CCH Swing Line Loan occurring at least four business days following the date the CCH Swing Line Loan is made. CCH is required to reduce the aggregate outstanding principal amount of all
CCH Working Capital Loans
to zero for a period of five consecutive business days at least once each year.
The
CCH Working Capital Facility
contains conditions precedent for extensions of credit, as well as customary affirmative and negative covenants. The obligations of CCH under the
CCH Working Capital Facility
are secured by substantially all of the assets of CCH and the
CCH Guarantors
as well as all of the membership interests in CCH and each of the
CCH Guarantors
on a
pari passu
basis with the
CCH Senior Notes
and the
2015 CCH Credit Facility
.
40
Restrictive Debt Covenants
As of
March 31, 2018
, each of our issuers was in compliance with all covenants related to their respective debt agreements.
Marketing
We market and sell LNG produced by the
SPL Project
and the
CCL Project
that is not required for other customers through our integrated marketing function. We are developing a portfolio of long-, medium- and short-term SPAs to transport and unload commercial LNG cargoes to locations worldwide, which is primarily sourced by LNG produced by the
SPL Project
and the
CCL Project
but supplemented by volume procured from other locations worldwide, as needed. As of
March 31, 2018
, we have sold or have options to sell approximately 1,572 TBtu of LNG to be delivered to customers between 2018 and 2043. The cargoes have been sold either on a Free on Board basis (delivered to the customer at the Sabine Pass LNG terminal) or a Delivered at Terminal
(“DAT”)
basis (delivered to the customer at their LNG receiving terminal). We have chartered LNG vessels to be utilized in
DAT
transactions. In addition, we have entered into a long-term agreement to sell LNG cargoes on a
DAT
basis that is conditioned upon the buyer achieving certain milestones.
Cheniere Marketing entered into uncommitted trade finance facilities with available commitments of $300 million as of
March 31, 2018
, primarily to be used for the purchase and sale of LNG for ultimate resale in the course of its operations. The finance facilities are intended to be used for advances, guarantees or the issuance of letters of credit or standby letters of credit on behalf of Cheniere Marketing. As of
March 31, 2018
and
December 31, 2017
, Cheniere Marketing had $14 million and $2 million, respectively, in standby letters of credit and guarantees outstanding under the finance facilities. Cheniere Marketing had no loans outstanding under the finance facilities as of both
March 31, 2018
and
December 31, 2017
. Cheniere Marketing pays interest or fees on utilized commitments.
Corporate and Other Activities
We are required to maintain corporate and general and administrative functions to serve our business activities described above. We are also in various stages of developing other projects, including infrastructure projects in support of natural gas supply and LNG demand, which, among other things, will require acceptable commercial and financing arrangements before we make an
FID
. We have made an equity investment of
$55 million
in Midship Pipeline, which is developing a pipeline with expected capacity of up to 1.44 million Dekatherms per day that will connect new gas production in the Anadarko Basin to Gulf Coast markets, including markets serving the
SPL Project
and the
CCL Project
.
Sources and Uses of Cash
The following table summarizes the sources and uses of our cash, cash equivalents and restricted cash for the
three months ended March 31, 2018 and 2017
(in millions). The table presents capital expenditures on a cash basis; therefore, these amounts differ from the amounts of capital expenditures, including accruals, which are referred to elsewhere in this report. Additional discussion of these items follows the table.
|
Three Months Ended March 31,
|
|||||||
|
|
2018
|
2017
|
|||||
|
Operating cash flows
|
$
|
469
|
|
$
|
309
|
|
|
|
Investing cash flows
|
(776
|
)
|
(1,290
|
)
|
|||
|
Financing cash flows
|
116
|
|
2,095
|
|
|||
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
(191
|
)
|
|
1,114
|
|
||
|
Cash, cash equivalents and restricted cash—beginning of period
|
2,613
|
|
1,827
|
|
|||
|
Cash, cash equivalents and restricted cash—end of period
|
$
|
2,422
|
|
$
|
2,941
|
|
|
Operating Cash Flows
Our operating cash inflows during the
three months ended March 31, 2018 and 2017
were
$469 million
and
$309 million
, respectively. The
$160 million
increase in operating cash inflows in 2018 compared to 2017 was primarily related to increased cash receipts from the sale of LNG cargoes, partially offset by increased operating costs and expenses as a result of the of additional Trains that were operating at the
SPL Project
in 2018. There were four Trains operating during the
three months ended March 31, 2018
, whereas two Trains were operating during the
three months ended March 31, 2017
.
41
Investing Cash Flows
Investing cash outflows during the
three months ended March 31, 2018 and 2017
were
$0.8 billion
and
$1.3 billion
, respectively, and were primarily used to fund the construction costs for the
SPL Project
and the
CCL Project
. These costs are capitalized as construction-in-process until achievement of substantial completion. In addition to cash outflows for construction costs for the
SPL Project
and the
CCL Project
, we received $36 million during the during the
three months ended March 31, 2017
from the return of collateral payments previously paid for the
CCL Project
, which was offset by $7 million for investments in unconsolidated entities and other projects.
Financing Cash Flows
Financing cash inflows during the
three months ended March 31, 2018
were
$0.1 billion
, primarily as a result of:
|
•
|
$266 million of borrowings under the
2015 CCH Credit Facility
; and
|
|
•
|
$143 million
of distributions and dividends to non-controlling interest by Cheniere Partners and Cheniere Holdings.
|
Financing cash inflows during the
three months ended March 31, 2017
were
$2.1 billion
, primarily as a result of:
|
•
|
issuances of SPL’s senior notes for an aggregate principal amount of $2.15 billion;
|
|
•
|
$55 million of borrowings and $369 million of repayments made under the credit facilities SPL entered into in June 2015;
|
|
•
|
$110 million of borrowings and $334 million of repayments made under the
SPL Working Capital Facility
;
|
|
•
|
$548 million of borrowings under the
2015 CCH Credit Facility
;
|
|
•
|
$43 million
of debt issuance costs related to up-front fees paid upon the closing of these transactions; and
|
|
•
|
$20 million
of distributions and dividends to non-controlling interest by Cheniere Partners and Cheniere Holdings.
|
Results of Operations
The following table summarizes the volumes of operational and commissioning LNG cargoes that were loaded from the
SPL Project
and recognized on our Consolidated Financial Statements during the
three months ended March 31, 2018
:
|
Three Months Ended March 31, 2018
|
||||||
|
(in TBtu)
|
Operational
|
Commissioning
|
||||
|
Volumes loaded during the current period
|
241
|
|
—
|
|
||
|
Volumes loaded during the prior period but recognized during the current period
|
43
|
|
—
|
|
||
|
Less: volumes loaded during the current period and in transit at the end of the period
|
(11
|
)
|
—
|
|
||
|
Total volumes recognized in the current period
|
273
|
|
—
|
|
||
Our consolidated net income attributable to common stockholders was
$357 million
, or
$1.52
per share—basic and
$1.50
per share—diluted, in the
three months ended March 31, 2018
, compared to net income attributable to common stockholders of
$54 million
, or
$0.23
per share (basic and diluted), in the
three months ended March 31, 2017
. This
$303 million
increase in net income in 2018 was primarily a result of increased income from operations due to additional Trains operating between the periods and increased derivative gain, net, which were partially offset by increased allocation of net income to non-controlling interest and increased interest expense, net of amounts capitalized.
42
Revenues
|
Three Months Ended March 31,
|
||||||||||||
|
(in millions)
|
2018
|
2017
|
Change
|
|||||||||
|
LNG revenues
|
$
|
2,166
|
|
$
|
1,143
|
|
$
|
1,023
|
|
|||
|
Regasification revenues
|
65
|
|
65
|
|
—
|
|
||||||
|
Other revenues
|
10
|
|
3
|
|
7
|
|
||||||
|
Other—related party
|
1
|
|
—
|
|
1
|
|
||||||
|
Total revenues
|
|
$
|
2,242
|
|
|
$
|
1,211
|
|
|
$
|
1,031
|
|
We begin recognizing LNG revenues from the
SPL Project
following the substantial completion and the commencement of operating activities of the respective Trains. During the
three months ended March 31, 2018
, Trains 1 through 4 were operational, whereas during the
three months ended March 31, 2017
, only Trains 1 and 2 were operational. Trains 3 and 4 achieved substantial completion in March 2017 and October 2017, respectively. The increase in revenues for the
three months ended March 31, 2018
from the comparable period in 2017 was primarily attributable to the increased volume of LNG sold following the achievement of substantial completion of these Trains. We expect our LNG revenues to increase in the future upon Train 5 of the SPL Project and Trains 1 and 2 of the CCL Project becoming operational.
Prior to substantial completion of a Train, amounts received from the sale of commissioning cargoes from that Train are offset against LNG terminal construction-in-process because these amounts are earned or loaded during the testing phase for the construction of that Train. We realized offset to LNG terminal costs of
$131 million
corresponding to 18
TBtu
of LNG in the
three months ended March 31, 2017
that was related to the sale of commissioning cargoes. There were no commissioning cargoes sold that were realized as offsets to LNG terminal costs in the
three months ended March 31, 2018
.
The following table presents the components of LNG revenues and the corresponding LNG volumes sold.
|
Three Months Ended March 31,
|
||||||||
|
|
2018
|
2017
|
||||||
|
LNG revenues
(in millions)
:
|
||||||||
|
LNG from the SPL Project sold under SPL’s third party long-term SPAs
|
$
|
993
|
|
$
|
462
|
|
||
|
LNG from the SPL Project sold by our integrated marketing function
|
1,021
|
|
629
|
|
||||
|
LNG procured from third parties
|
110
|
|
48
|
|
||||
|
Other revenues and derivative gains (losses)
|
42
|
|
4
|
|
||||
|
Total LNG revenues
|
$
|
2,166
|
|
$
|
1,143
|
|
||
|
Volumes sold as LNG revenues
(in TBtu)
:
|
||||||||
|
LNG from the SPL Project sold under SPL’s third party long-term SPAs
|
165
|
|
76
|
|
||||
|
LNG from the SPL Project sold by our integrated marketing function
|
108
|
|
64
|
|
||||
|
LNG procured from third parties
|
11
|
|
4
|
|
||||
|
Total volumes sold as LNG revenues
|
284
|
|
144
|
|
||||
Operating costs and expenses
|
Three Months Ended March 31,
|
||||||||||||
|
(in millions)
|
2018
|
2017
|
Change
|
|||||||||
|
Cost of sales
|
$
|
1,178
|
|
$
|
624
|
|
$
|
554
|
|
|||
|
Operating and maintenance expense
|
140
|
|
78
|
|
62
|
|
||||||
|
Development expense
|
1
|
|
3
|
|
(2
|
)
|
||||||
|
Selling, general and administrative expense
|
67
|
|
54
|
|
13
|
|
||||||
|
Depreciation and amortization expense
|
109
|
|
70
|
|
39
|
|
||||||
|
Restructuring expense
|
—
|
|
6
|
|
(6
|
)
|
||||||
|
Total operating costs and expenses
|
$
|
1,495
|
|
$
|
835
|
|
$
|
660
|
|
|||
Our total operating costs and expenses increased during the
three months ended March 31, 2018
from the
three months ended March 31, 2017
, primarily as a result of additional Trains that were operating between the periods. There were four Trains
43
operating during the
three months ended March 31, 2018
, compared to two Trains operating during the
three months ended March 31, 2017
.
Cost of sales increased during the
three months ended March 31, 2018
from the
three months ended March 31, 2017
, primarily as a result of the increase in operating Trains during 2018. Cost of sales includes costs incurred directly for the production and delivery of LNG from the
SPL Project
, to the extent those costs are not utilized for the commissioning process. The increase during the
three months ended March 31, 2018
from the
three months ended March 31, 2017
was primarily related to the increase in the volume of natural gas feedstock, partially offset by lower prices of natural gas feedstock between the periods. Cost of sales also includes vessel charter costs, gains and losses from derivatives associated with economic hedges to secure natural gas feedstock for the
SPL Project
, port and canal fees, variable transportation and storage costs and other costs to convert natural gas into LNG.
Operating and maintenance expense increased during the
three months ended March 31, 2018
from the
three months ended March 31, 2017
, as a result of the increase in operating Trains during 2018. Operating and maintenance expense includes costs associated with operating and maintaining the
SPL Project
and
CCL Project
. The increase during the
three months ended March 31, 2018
from the
three months ended March 31, 2017
was primarily related to natural gas transportation and storage capacity demand charges, third-party service and maintenance contract costs and payroll and benefit costs of operations personnel. Operating and maintenance expense also includes TUA reservation charges as a result of payments under the partial TUA assignment agreement with Total, insurance and regulatory costs and other operating costs.
Depreciation and amortization expense increased during the
three months ended March 31, 2018
from the
three months ended March 31, 2017
as a result of an increased number of operational Trains, as the assets related to the Trains of the
SPL Project
began depreciating upon reaching substantial completion.
We expect our operating costs and expenses to generally increase in the future upon Train 5 achieving substantial completion, although certain costs will not proportionally increase with the number of operational Trains as cost efficiencies will be realized.
Other expense (income)
|
Three Months Ended March 31,
|
||||||||||||
|
(in millions)
|
2018
|
2017
|
Change
|
|||||||||
|
Interest expense, net of capitalized interest
|
$
|
216
|
|
$
|
165
|
|
$
|
51
|
|
|||
|
Loss on early extinguishment of debt
|
—
|
|
42
|
|
(42
|
)
|
||||||
|
Derivative gain, net
|
(77
|
)
|
(1
|
)
|
(76
|
)
|
||||||
|
Other income
|
(7
|
)
|
(2
|
)
|
(5
|
)
|
||||||
|
Total other expense
|
$
|
132
|
|
$
|
204
|
|
$
|
(72
|
)
|
|||
Interest expense, net of capitalized interest, increased during the
three months ended March 31, 2018
compared to the
three months ended March 31, 2017
, primarily as a result of a decrease in the portion of total interest costs that could be capitalized as additional Trains of the
SPL Project
completed construction between the periods. For the
three months ended March 31, 2018
, we incurred
$404 million
of total interest cost, of which we capitalized
$188 million
which was directly related to the construction of the SPL Project and the CCL Project. For the
three months ended March 31, 2017
, we incurred
$354 million
of total interest cost, of which we capitalized
$189 million
which was directly related to the construction of the SPL Project and the CCL Project.
Loss on early extinguishment of debt decreased during the
three months ended March 31, 2018
, as compared to the
three months ended March 31, 2017
. Loss on early extinguishment of debt recognized in 2017 was attributable to the write-off of debt issuance costs upon termination of the remaining available balance of $1.6 billion under SPL’s previous credit facilities in connection with the issuance of the
2028 SPL Senior Notes
and the
2037 SPL Senior Notes
.
Derivative gain, net increased during the
three months ended March 31, 2018
compared to the
three months ended March 31, 2017
, primarily due to a favorable shift in the long-term forward LIBOR curve between the periods. During the
three months ended March 31, 2017
, the gain attributable to a relative increase in the long-term forward LIBOR curve during the period was partially offset by the
$7 million
loss recognized upon the termination of interest rate swaps associated with approximately $1.6 billion of commitments that were terminated under SPL’s previous credit facilities.
44
Other
|
Three Months Ended March 31,
|
||||||||||||
|
(in millions)
|
2018
|
2017
|
Change
|
|||||||||
|
Income tax provision
|
$
|
(15
|
)
|
$
|
—
|
|
$
|
(15
|
)
|
|||
|
Net income attributable to non-controlling interest
|
243
|
|
118
|
|
125
|
|
||||||
|
Effective tax rate
|
2.4
|
%
|
—
|
%
|
||||||||
Income tax provision increased
$15 million
during the
three months ended March 31, 2018
from the
three months ended March 31, 2017
primarily due to the increased profitability in the U.K. The effective tax rates for both the
three months ended March 31, 2018 and 2017
were lower than the statutory federal rate of 21% and 35%, respectively, primarily due to the federal and state valuation allowance recorded.
Net income attributable to non-controlling interest increased during the
three months ended March 31, 2018
from the
three months ended March 31, 2017
due to the increase in the share of Cheniere Partners’ net income that is attributed to non-controlling interest holders as a result of changes in ownership percentages between years and an increase in consolidated net income recognized by Cheniere Partners and Cheniere Holdings in which the non-controlling interests are held, partially offset by the nonrecurrence of non-cash amortization of the beneficial conversion feature on Cheniere Partners’ Class B units that occurred in the
three months ended March 31, 2017
. The ownership percentage by non-controlling interest holders increased between the periods as a result of the conversion of Cheniere Partners’ Class B units into common units on August 2, 2017. The consolidated net income recognized by Cheniere Partners increased from
$47 million
in the
three months ended March 31, 2017
to
$335 million
in the
three months ended March 31, 2018
, primarily as a result of the additional Trains that were operating at the
SPL Project
between the periods and decreased loss on early extinguishment of debt, which were partially offset by increased interest expense, net of amounts capitalized. The consolidated net income recognized by Cheniere Holdings increased from
$4 million
in the
three months ended March 31, 2017
to
$123 million
in the
three months ended March 31, 2018
, primarily as a result of an increase in equity income from investment in Cheniere Partners. Additionally, net income attributable to non-controlling interest during the
three months ended March 31, 2017
increased by approximately $84 million due to amortization of the beneficial conversion feature on Cheniere Partners’ Class B units, which ceased upon the conversion of Cheniere Partners’ Class B units into common units.
Off-Balance Sheet Arrangements
We have interests in an unconsolidated variable interest entity (“VIE”) as discussed in
Note 7—Other Non-Current Assets
of our Notes to Consolidated Financial Statements in this
quarterly
report, which we consider to be an off-balance sheet arrangement. We believe that this VIE does not have a current or future material effect on our consolidated financial position or operating results.
Summary of Critical Accounting Estimates
The preparation of our Consolidated Financial Statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the accompanying notes. There have been no significant changes to our critical accounting estimates from those disclosed in our
annual report on Form 10-K for the year ended December 31, 2017
.
Recent Accounting Standards
For descriptions of recently issued accounting standards, see
Note 18—Recent Accounting Standards
of our Notes to Consolidated Financial Statements.
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.
45
Marketing and Trading Commodity Price Risk
We have entered into commodity derivatives consisting of natural gas supply contracts to secure natural gas feedstock for the
SPL Project
and the
CCL Project
(“Liquefaction Supply Derivatives”)
. We have also entered into financial derivatives to hedge the exposure to the commodity markets in which we have contractual arrangements to purchase or sell physical LNG
(“LNG Trading Derivatives”)
. In order to test the sensitivity of the fair value of the
Liquefaction Supply Derivatives
and the
LNG Trading Derivatives
to changes in underlying commodity prices, management modeled a 10% change in the commodity price for natural gas for each delivery location and a 10% change in the commodity price for LNG, respectively, as follows (in millions):
|
March 31, 2018
|
December 31, 2017
|
||||||||||||||
|
Fair Value
|
Change in Fair Value
|
Fair Value
|
Change in Fair Value
|
||||||||||||
|
Liquefaction Supply Derivatives
|
$
|
10
|
|
$
|
—
|
|
$
|
55
|
|
$
|
5
|
|
|||
|
LNG Trading Derivatives
|
(6
|
)
|
3
|
|
(8
|
)
|
2
|
|
|||||||
Interest Rate Risk
Cheniere Partners and CCH have entered into interest rate swaps to hedge the exposure to volatility in a portion of the floating-rate interest payments under the
2016 CQP Credit Facilities
(“CQP Interest Rate Derivatives”)
and the
2015 CCH Credit Facility
(“CCH Interest Rate Derivatives” and collectively with the
CQP Interest Rate Derivatives
, “Interest Rate Derivatives”), respectively. In order to test the sensitivity of the fair value of the Interest Rate Derivatives to changes in interest rates, management modeled a 10% change in the forward 1-month
LIBOR
curve across the remaining terms of the Interest Rate Derivatives as follows (in millions):
|
March 31, 2018
|
December 31, 2017
|
||||||||||||||
|
Fair Value
|
Change in Fair Value
|
Fair Value
|
Change in Fair Value
|
||||||||||||
|
CQP Interest Rate Derivatives
|
$
|
27
|
|
$
|
5
|
|
$
|
21
|
|
$
|
5
|
|
|||
|
CCH Interest Rate Derivatives
|
43
|
|
46
|
|
(32
|
)
|
44
|
|
|||||||
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. This 10% change in FX rates would have resulted in an immaterial change in the fair value of the
FX Derivatives
as of both
March 31, 2018
and
December 31, 2017
.
See
Note 6—Derivative Instruments
for additional details about our derivative instruments.
|
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.
46
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. Other than as discussed below, there have been no material changes to the legal proceedings disclosed in our
annual report on Form 10-K for the year ended December 31, 2017
.
In February 2018, the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) issued a Corrective Action Order (the “CAO”) to SPL in connection with a minor LNG leak from one tank and minor vapor release from a second tank at the Sabine Pass LNG terminal. These two tanks have been taken out of operational service while we conduct analysis, repair and remediation. On April 20, 2018, SPL and PHMSA executed a Consent Agreement and Order (the “Consent Order”) that replaces and supersedes the CAO. We continue to work with PHMSA and other appropriate regulatory authorities to address the matters identified in the Consent Order. We do not expect that the Consent Order and related analysis, repair and remediation will have a material adverse impact on our financial results or operations.
|
ITEM 1A.
|
RISK FACTORS
|
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, 2017
.
|
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, 2018
:
|
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, 2018
|
5,206
|
$54.37
|
—
|
—
|
||||
|
February 1 - 28, 2018
|
98,525
|
$57.49
|
—
|
—
|
||||
|
March 1 - 31, 2018
|
1,150
|
$52.63
|
—
|
—
|
||||
|
(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.
|
47
|
ITEM 6.
|
EXHIBITS
|
|
Exhibit No.
|
Description
|
|
|
10.1*
|
||
|
10.2*
|
||
|
10.3*
|
||
|
10.4*
|
||
|
10.5*
|
||
|
10.6*
|
||
|
31.1*
|
||
|
31.2*
|
||
|
32.1**
|
||
|
32.2**
|
||
|
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
|
|
|
*
|
Filed herewith.
|
|
**
|
Furnished herewith.
|
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 3, 2018
|
By:
|
/s/ Michael J. Wortley
|
|
Michael J. Wortley
|
|||
|
Executive Vice President and Chief Financial Officer
|
|||
|
|
(on behalf of the registrant and
as principal financial officer) |
||
|
Date:
|
May 3, 2018
|
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 Nature Of Operations and Basis Of PresentationNote 2 Restricted CashNote 3 Accounts and Other ReceivablesNote 4 InventoryNote 5 Property, Plant and EquipmentNote 6 Derivative InstrumentsNote 7 Derivative InstrumentsNote 7 Other Non-current AssetsNote 8 Non-controlling InterestNote 9 Variable Interest EntitiesNote 9 Accrued LiabilitiesNote 10 DebtNote 11 Revenues From Contracts with CustomersNote 12 Income TaxesNote 13 Share-based CompensationNote 15 Share-based CompensationNote 14 Net Income Per Share Attributable To Common StockholdersNote 15 Commitments and ContingenciesNote 16 Customer ConcentrationNote 17 Supplemental Cash Flow InformationNote 18 Recent Accounting StandardsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsNote 12 DebtItem 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 6. Exhibits