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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, 2019
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-16383
CHENIERE ENERGY, INC.
(Exact name of registrant as specified in its charter)
|
| |
Delaware | 95-4352386 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
700 Milam Street, Suite 1900 | |
Houston, Texas | 77002 |
(Address of principal executive offices) | (Zip Code) |
(713) 375-5000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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.
|
| |
Large accelerated filer x | Accelerated filer o |
Non-accelerated filer o | Smaller reporting company o |
| Emerging growth company o |
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
Securities registered pursuant to Section 12(b) of the Act:
|
| | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, $ 0.003 par value | LNG | NYSE American |
As of April 30, 2019, the issuer had 257,414,024 shares of Common Stock outstanding.
CHENIERE ENERGY, INC.
TABLE OF CONTENTS
DEFINITIONS
As used in this quarterly report, the terms listed below have the following meanings:
Common Industry and Other Terms
|
| | |
Bcf | | billion cubic feet |
Bcf/d | | billion cubic feet per day |
Bcf/yr | | billion cubic feet per year |
Bcfe | | billion cubic feet equivalent |
DOE | | U.S. Department of Energy |
EPC | | engineering, procurement and construction |
FERC | | Federal Energy Regulatory Commission |
FTA countries | | countries with which the United States has a free trade agreement providing for national treatment for trade in natural gas |
GAAP | | generally accepted accounting principles in the United States |
Henry Hub | | the final settlement price (in USD per MMBtu) for the New York Mercantile Exchange’s Henry Hub natural gas futures contract for the month in which a relevant cargo’s delivery window is scheduled to begin |
LIBOR | | London Interbank Offered Rate |
LNG | | liquefied natural gas, a product of natural gas that, through a refrigeration process, has been cooled to a liquid state, which occupies a volume that is approximately 1/600th of its gaseous state |
MMBtu | | million British thermal units, an energy unit |
mtpa | | million tonnes per annum |
non-FTA countries | | countries with which the United States does not have a free trade agreement providing for national treatment for trade in natural gas and with which trade is permitted |
SEC | | U.S. Securities and Exchange Commission |
SPA | | LNG sale and purchase agreement |
TBtu | | trillion British thermal units, an energy unit |
Train | | an industrial facility comprised of a series of refrigerant compressor loops used to cool natural gas into LNG |
TUA | | terminal use agreement |
Abbreviated Legal Entity Structure
The following diagram depicts our abbreviated legal entity structure as of March 31, 2019, including our ownership of certain subsidiaries, and the references to these entities used in this quarterly report:
Unless the context requires otherwise, references to “Cheniere,” the “Company,” “we,” “us” and “our” refer to Cheniere Energy, Inc. and its consolidated subsidiaries, including our publicly traded subsidiary, Cheniere Partners.
Unless the context requires otherwise, references to the “CCH Group” refer to CCH HoldCo II, CCH HoldCo I, CCH, CCL and CCP, collectively.
| |
PART I. | FINANCIAL INFORMATION |
| |
ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
|
| | | | | | | |
| March 31, | | December 31, |
| 2019 | | 2018 |
ASSETS | (unaudited) | | |
Current assets | | | |
Cash and cash equivalents | $ | 1,093 |
| | $ | 981 |
|
Restricted cash | 1,918 |
| | 2,175 |
|
Accounts and other receivables | 390 |
| | 581 |
|
Accounts receivable—related party | 3 |
| | 4 |
|
Inventory | 279 |
| | 316 |
|
Derivative assets | 107 |
| | 63 |
|
Other current assets | 106 |
| | 114 |
|
Total current assets | 3,896 |
| | 4,234 |
|
| | | |
Property, plant and equipment, net | 27,953 |
| | 27,245 |
|
Operating lease assets, net | 542 |
| | — |
|
Debt issuance costs, net | 58 |
| | 72 |
|
Non-current derivative assets | 42 |
| | 54 |
|
Goodwill | 77 |
| | 77 |
|
Other non-current assets, net | 317 |
| | 305 |
|
Total assets | $ | 32,885 |
| | $ | 31,987 |
|
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | |
|
Current liabilities | |
| | |
|
Accounts payable | $ | 66 |
| | $ | 58 |
|
Accrued liabilities | 1,101 |
| | 1,169 |
|
Accrued liabilities—related party | 5 |
| | — |
|
Current debt | — |
| | 239 |
|
Deferred revenue | 108 |
| | 139 |
|
Current operating lease liabilities | 325 |
| | — |
|
Derivative liabilities | 37 |
| | 128 |
|
Other current liabilities | 17 |
| | 9 |
|
Total current liabilities | 1,659 |
| | 1,742 |
|
| | | |
Long-term debt, net | 28,726 |
| | 28,179 |
|
Non-current operating lease liabilities | 207 |
| | — |
|
Non-current finance lease liabilities | 58 |
| | 57 |
|
Non-current derivative liabilities | 39 |
| | 22 |
|
Other non-current liabilities | 58 |
| | 58 |
|
| | | |
Commitments and contingencies (see Note 16) |
|
| |
|
|
| | | |
Stockholders’ equity | |
| | |
|
Preferred stock, $0.0001 par value, 5.0 million shares authorized, none issued | — |
| | — |
|
Common stock, $0.003 par value | | | |
|
Authorized: 480.0 million shares at March 31, 2019 and December 31, 2018 | | | |
Issued: 270.4 million shares at March 31, 2019 and 269.8 million shares at December 31, 2018 |
|
| |
|
|
Outstanding: 257.4 million shares at March 31, 2019 and 257.0 million shares at December 31, 2018 | 1 |
| | 1 |
|
Treasury stock: 13.0 million shares and 12.8 million shares at March 31, 2019 and December 31, 2018, respectively, at cost | (418 | ) | | (406 | ) |
Additional paid-in-capital | 4,063 |
| | 4,035 |
|
Accumulated deficit | (4,015 | ) | | (4,156 | ) |
Total stockholders’ deficit | (369 | ) | | (526 | ) |
Non-controlling interest | 2,507 |
| | 2,455 |
|
Total equity | 2,138 |
| | 1,929 |
|
Total liabilities and equity | $ | 32,885 |
| | $ | 31,987 |
|
The accompanying notes are an integral part of these consolidated financial statements.
3
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
Revenues | | | |
LNG revenues | $ | 2,143 |
| | $ | 2,166 |
|
Regasification revenues | 66 |
| | 65 |
|
Other revenues | 48 |
| | 10 |
|
Other—related party | 4 |
| | 1 |
|
Total revenues | 2,261 |
| | 2,242 |
|
| | | |
Operating costs and expenses | | | |
Cost of sales (excluding depreciation and amortization expense shown separately below) | 1,204 |
| | 1,178 |
|
Cost of sales—related party | 10 |
| | — |
|
Operating and maintenance expense | 221 |
| | 140 |
|
Development expense | 1 |
| | 1 |
|
Selling, general and administrative expense | 73 |
| | 67 |
|
Depreciation and amortization expense | 144 |
| | 109 |
|
Impairment expense and loss on disposal of assets | 2 |
| | — |
|
Total operating costs and expenses | 1,655 |
| | 1,495 |
|
| | | |
Income from operations | 606 |
| | 747 |
|
| | | |
Other income (expense) | | | |
Interest expense, net of capitalized interest | (247 | ) | | (216 | ) |
Derivative gain (loss), net | (35 | ) | | 77 |
|
Other income | 16 |
| | 7 |
|
Total other expense | (266 | ) | | (132 | ) |
| | | |
Income before income taxes and non-controlling interest | 340 |
|
| 615 |
|
Income tax provision | (3 | ) |
| (15 | ) |
Net income | 337 |
|
| 600 |
|
Less: net income attributable to non-controlling interest | 196 |
|
| 243 |
|
Net income attributable to common stockholders | $ | 141 |
|
| $ | 357 |
|
|
|
|
|
|
|
Net income per share attributable to common stockholders—basic | $ | 0.55 |
|
| $ | 1.52 |
|
Net income per share attributable to common stockholders—diluted (1) | $ | 0.54 |
| | $ | 1.50 |
|
|
|
|
|
|
|
Weighted average number of common shares outstanding—basic | 257.1 |
| | 235.5 |
|
Weighted average number of common shares outstanding—diluted | 258.5 |
| | 238.0 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2019 | | | | | | | | | | | | | | | |
| Total Stockholders’ Equity | | | |
| Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Non-controlling Interest | | Total Equity |
| Shares | | Par Value Amount | | Shares | | Amount | | | | |
Balance at December 31, 2018 | 257.0 |
|
| $ | 1 |
|
| 12.8 |
|
| $ | (406 | ) |
| $ | 4,035 |
|
| $ | (4,156 | ) |
| $ | 2,455 |
|
| $ | 1,929 |
|
Vesting of restricted stock units | 0.6 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Share-based compensation | — |
| | — |
| | — |
| | — |
| | 28 |
| | — |
| | — |
| | 28 |
|
Shares repurchased related to share-based compensation | (0.2 | ) | | — |
| | 0.2 |
| | (12 | ) | | — |
| | — |
| | — |
| | (12 | ) |
Net income attributable to non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 196 |
| | 196 |
|
Distributions and dividends to non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (144 | ) | | (144 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 141 |
| | — |
| | 141 |
|
Balance at March 31, 2019 | 257.4 |
| | $ | 1 |
| | 13.0 |
| | $ | (418 | ) | | $ | 4,063 |
| | $ | (4,015 | ) | | $ | 2,507 |
| | $ | 2,138 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2018 | | | | | | | | | | | | | | | |
| Total Stockholders’ Equity | | | |
| Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Non-controlling Interest | | Total Equity |
| Shares | | Par Value Amount | | Shares | | Amount | | | | |
Balance at December 31, 2017 | 237.6 |
| | $ | 1 |
| | 12.5 |
| | $ | (386 | ) | | $ | 3,248 |
| | $ | (4,627 | ) | | $ | 3,004 |
| | $ | 1,240 |
|
Vesting of restricted stock units | 0.3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Share-based compensation | — |
| | — |
| | — |
| | — |
| | 16 |
| | — |
| | — |
| | 16 |
|
Shares repurchased related to share-based compensation | — |
| | — |
| | 0.1 |
| | (6 | ) | | — |
| | — |
| | — |
| | (6 | ) |
Net income attributable to non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 243 |
| | 243 |
|
Distributions and dividends to non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (143 | ) | | (143 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 357 |
| | — |
| | 357 |
|
Balance at March 31, 2018 | 237.9 |
| | $ | 1 |
| | 12.6 |
| | $ | (392 | ) | | $ | 3,264 |
| | $ | (4,270 | ) | | $ | 3,104 |
| | $ | 1,707 |
|
The accompanying notes are an integral part of these consolidated financial statements.
5
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
|
| | | | | | | |
| Three Months Ended March 31, |
| 2019 | | 2018 |
Cash flows from operating activities | | | |
Net income | $ | 337 |
| | $ | 600 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization expense | 144 |
| | 109 |
|
Share-based compensation expense | 28 |
| | 28 |
|
Non-cash interest expense | 33 |
| | 15 |
|
Amortization of debt issuance costs, deferred commitment fees, premium and discount | 18 |
| | 17 |
|
Amortization of operating lease assets | 79 |
| | — |
|
Total gains on derivatives, net | (122 | ) | | (31 | ) |
Net cash provided by (used for) settlement of derivative instruments | 16 |
| | (4 | ) |
Impairment expense and loss on disposal of assets | 2 |
| | — |
|
Other | — |
| | (10 | ) |
Changes in operating assets and liabilities: | | | |
Accounts and other receivables | 98 |
| | (237 | ) |
Accounts receivable—related party | 1 |
| | — |
|
Inventory | 44 |
| | 120 |
|
Accounts payable and accrued liabilities | (151 | ) | | (156 | ) |
Accrued liabilities—related party | 5 |
| | — |
|
Deferred revenue | (31 | ) | | 8 |
|
Operating lease liabilities | (85 | ) | | — |
|
Finance lease liabilities | 1 |
| | — |
|
Other, net | (5 | ) | | 10 |
|
Net cash provided by operating activities | 412 |
| | 469 |
|
| | | |
Cash flows from investing activities | | | |
Property, plant and equipment, net | (625 | ) | | (776 | ) |
Investment in equity method investment | (24 | ) | | — |
|
Other | (2 | ) | | — |
|
Net cash used in investing activities | (651 | ) | | (776 | ) |
| | | |
Cash flows from financing activities | | | |
Proceeds from issuances of debt | 692 |
| | 266 |
|
Repayments of debt | (441 | ) | | — |
|
Debt issuance and deferred financing costs | — |
| | (1 | ) |
Distributions and dividends to non-controlling interest | (144 | ) | | (143 | ) |
Payments related to tax withholdings for share-based compensation | (12 | ) | | (6 | ) |
Other | (1 | ) | | — |
|
Net cash provided by financing activities | 94 |
| | 116 |
|
| | | |
Net decrease in cash, cash equivalents and restricted cash | (145 | ) | | (191 | ) |
Cash, cash equivalents and restricted cash—beginning of period | 3,156 |
| | 2,613 |
|
Cash, cash equivalents and restricted cash—end of period | $ | 3,011 |
| | $ | 2,422 |
|
Balances per Consolidated Balance Sheet:
|
| | | |
| March 31, |
| 2019 |
Cash and cash equivalents | $ | 1,093 |
|
Restricted cash | 1,918 |
|
Total cash, cash equivalents and restricted cash | $ | 3,011 |
|
The accompanying notes are an integral part of these consolidated financial statements.
6
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1—NATURE OF OPERATIONS AND BASIS OF PRESENTATION
We are currently developing and constructing two natural gas liquefaction and export facilities. The Sabine Pass LNG terminal is located in Cameron Parish, Louisiana, on the Sabine-Neches Waterway less than four miles from the Gulf Coast. Cheniere Partners is developing, constructing and operating natural gas liquefaction facilities (the “SPL Project”) at the Sabine Pass LNG terminal adjacent to the existing regasification facilities (described below) through a wholly owned subsidiary, SPL. Cheniere Partners plans to construct up to six Trains, which are in various stages of development, construction and operations. Trains 1 through 5 are operational and early works have begun for Train 6 under limited notices to proceed ahead of an anticipated positive final investment decision (“FID”). 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.
We are developing and constructing a second natural gas liquefaction and export facility at the Corpus Christi LNG terminal near Corpus Christi, Texas, and operate a 23-mile natural gas supply pipeline that interconnects the Corpus Christi LNG terminal with several interstate and intrastate natural gas pipelines (the “Corpus Christi Pipeline” and together with the liquefaction facilities, the “CCL Project”) through our wholly owned subsidiaries CCL and CCP, respectively. The CCL Project is being developed in stages with the first phase being three Trains (“Phase 1”). The first stage includes Trains 1 and 2, two LNG storage tanks, one complete marine berth and a second partial berth and all of the CCL Project’s necessary infrastructure facilities (“Stage 1”). The second stage includes Train 3, one LNG storage tank and the completion of the second partial berth (“Stage 2”). Train 1 is operational, Train 2 is undergoing commissioning and Train 3 is under construction.
Additionally, separate from the CCH Group, we are developing an expansion of the Corpus Christi LNG terminal adjacent to the CCL Project and filed an application with FERC in June 2018 for seven midscale Trains with an expected aggregate nominal production capacity of approximately 9.5 mtpa and one LNG storage tank.
We remain focused on expansion of our existing sites by leveraging existing infrastructure. We continue to consider development of 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.
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, 2018. In our opinion, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation, have been included.
Results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2019.
Recent Accounting Standards
We adopted ASU 2016-02, Leases (Topic 842), and subsequent amendments thereto (“ASC 842”) on January 1, 2019 using the optional transition approach to apply the standard at the beginning of the first quarter of 2019 with no retrospective adjustments to prior periods. The adoption of the standard resulted in the recognition of right-of-use assets and lease liabilities for operating leases of approximately $550 million on our Consolidated Balance Sheets, with no material impact on our Consolidated Statements of Operations or Consolidated Statements of Cash Flows. We have elected the practical expedients to (1) carryforward prior conclusions related to lease identification and classification for existing leases, (2) combine lease and non-lease components of an arrangement for all classes of leased assets, (3) omit short-term leases with a term of 12 months or less from recognition on the balance sheet and (4) carryforward our existing accounting for land easements not previously accounted for as leases. See Note 11—Leases for additional information on our leases following the adoption of this standard.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 2—RESTRICTED CASH
Restricted cash consists of funds that are contractually 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, 2019 and December 31, 2018, restricted cash consisted of the following (in millions):
|
| | | | | | | | |
| | March 31, | | December 31, |
| | 2019 | | 2018 |
Current restricted cash | | | | |
SPL Project | | $ | 621 |
| | $ | 756 |
|
Cheniere Partners and cash held by guarantor subsidiaries | | 676 |
| | 785 |
|
CCL Project | | 218 |
| | 289 |
|
Cash held by our subsidiaries restricted to Cheniere | | 403 |
| | 345 |
|
Total current restricted cash | | $ | 1,918 |
| | $ | 2,175 |
|
Pursuant to the accounts agreements entered into with the collateral trustees for the benefit of SPL’s debt holders and CCH’s debt holders, SPL and CCH are required to deposit all cash received into reserve accounts controlled by the collateral trustees. The usage or withdrawal of such cash is restricted to the payment of liabilities related to the SPL Project and the CCL Project and other restricted payments.
Under Cheniere Partners’ credit facilities (the “CQP Credit Facilities”), Cheniere Partners and each of its subsidiaries 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, as guarantor subsidiaries, are subject to limitations on the use of cash under the terms of the CQP Credit Facilities and the related depositary agreement governing the extension of credit to Cheniere Partners. Specifically, Cheniere Partners may only withdraw funds from collateral accounts held at a designated depositary bank on a limited basis and for specific purposes, including for the payment of operating expenses of Cheniere Partners and its guarantor subsidiaries. In addition, distributions and capital expenditures may only be made quarterly and are subject to certain restrictions.
NOTE 3—ACCOUNTS AND OTHER RECEIVABLES
As of March 31, 2019 and December 31, 2018, accounts and other receivables consisted of the following (in millions):
|
| | | | | | | | |
| | March 31, | | December 31, |
| | 2019 | | 2018 |
Trade receivables | | | | |
SPL | | $ | 187 |
| | $ | 330 |
|
Cheniere Marketing | | 152 |
| | 205 |
|
Other accounts receivable | | 51 |
| | 46 |
|
Total accounts and other receivables | | $ | 390 |
| | $ | 581 |
|
NOTE 4—INVENTORY
As of March 31, 2019 and December 31, 2018, inventory consisted of the following (in millions):
|
| | | | | | | | |
| | March 31, | | December 31, |
| | 2019 | | 2018 |
Natural gas | | $ | 10 |
| | $ | 30 |
|
LNG | | 67 |
| | 24 |
|
LNG in-transit | | 81 |
| | 173 |
|
Materials and other | | 121 |
| | 89 |
|
Total inventory | | $ | 279 |
| | $ | 316 |
|
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 5—PROPERTY, PLANT AND EQUIPMENT
As of March 31, 2019 and December 31, 2018, property, plant and equipment, net consisted of the following (in millions):
|
| | | | | | | | |
| | March 31, | | December 31, |
| | 2019 | | 2018 |
LNG terminal costs | | | | |
LNG terminal and interconnecting pipeline facilities | | $ | 23,626 |
| | $ | 13,386 |
|
LNG site and related costs | | 319 |
| | 86 |
|
LNG terminal construction-in-process | | 5,239 |
| | 14,864 |
|
Accumulated depreciation | | (1,433 | ) | | (1,299 | ) |
Total LNG terminal costs, net | | 27,751 |
| | 27,037 |
|
Fixed assets and other | | |
| | |
|
Computer and office equipment | | 18 |
| | 17 |
|
Furniture and fixtures | | 22 |
| | 22 |
|
Computer software | | 101 |
| | 100 |
|
Leasehold improvements | | 41 |
| | 41 |
|
Land | | 59 |
| | 59 |
|
Other | | 22 |
| | 21 |
|
Accumulated depreciation | | (119 | ) | | (111 | ) |
Total fixed assets and other, net | | 144 |
| | 149 |
|
Assets under finance lease | | | | |
Tug vessels | | 60 |
| | 60 |
|
Accumulated depreciation | | (2 | ) | | (1 | ) |
Total assets under finance lease, net | | 58 |
| | 59 |
|
Property, plant and equipment, net | | $ | 27,953 |
| | $ | 27,245 |
|
Depreciation expense was $143 million and $108 million during the three months ended March 31, 2019 and 2018, respectively.
We realize offsets to LNG terminal costs for sales of commissioning cargoes that were earned or loaded prior to the start of commercial operations of the respective Train during the testing phase for its construction. We realized offsets to LNG terminal costs of $202 million in the three months ended March 31, 2019 for sales of commissioning cargoes from Train 5 of the SPL Project and Train 1 of the CCL Project. We did not realize any offsets to LNG terminal costs in the three months ended March 31, 2018.
NOTE 6—DERIVATIVE INSTRUMENTS
We have entered into the following derivative instruments that are reported at fair value:
| |
• | interest rate swaps to hedge the exposure to volatility in a portion of the floating-rate interest payments under 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 Operations to the extent not utilized for the commissioning process.
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table shows the fair value of our derivative instruments that are required to be measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018, which are classified as derivative assets, non-current derivative assets, derivative liabilities or non-current derivative liabilities in our Consolidated Balance Sheets (in millions).
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of |
| March 31, 2019 | | December 31, 2018 |
| Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
CCH Interest Rate Derivatives asset (liability) | $ | — |
| | $ | (19 | ) | | $ | — |
| | $ | (19 | ) | | $ | — |
| | $ | 18 |
| | $ | — |
| | $ | 18 |
|
Liquefaction Supply Derivatives asset (liability) | 1 |
| | 3 |
| | 31 |
| | 35 |
| | 6 |
| | (19 | ) | | (29 | ) | | (42 | ) |
LNG Trading Derivatives asset (liability) | (17 | ) | | 51 |
| | — |
| | 34 |
| | 1 |
| | (25 | ) | | — |
| | (24 | ) |
FX Derivatives asset | — |
| | 23 |
| | — |
| | 23 |
| | — |
| | 15 |
| | — |
| | 15 |
|
There have been no changes to our evaluation of and accounting for our derivative positions during the three months ended March 31, 2019.
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 a 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, as applicable to our natural gas supply contracts, our assessment of the associated conditions precedent, including evaluating whether the respective market is available as pipeline infrastructure is developed. 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, 2019 and December 31, 2018, some of our Physical Liquefaction Supply Derivatives existed within markets for which the pipeline infrastructure is under development to accommodate marketable physical gas flow.
The Level 3 fair value measurements of natural gas positions within our Physical Liquefaction Supply Derivatives could be materially impacted by a significant change in certain natural gas market basis spreads due to the contractual notional amount represented by our Level 3 positions, which is a substantial portion of our overall Physical Liquefaction Supply Derivatives portfolio. The following table includes quantitative information for the unobservable inputs for our Level 3 Physical Liquefaction Supply Derivatives as of March 31, 2019:
|
| | | | | | | | |
| | Net Fair Value Asset (in millions) | | Valuation Approach | | Significant Unobservable Input | | Significant Unobservable Inputs Range |
Physical Liquefaction Supply Derivatives | | $31 | | Market approach incorporating present value techniques | | Basis Spread | | $(0.703) - $0.082 |
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
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, 2019 and 2018 (in millions):
|
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2019 | | 2018 |
Balance, beginning of period | | $ | (29 | ) | | $ | 43 |
|
Realized and mark-to-market gains (losses): | | | | |
Included in cost of sales | | 12 |
| | (13 | ) |
Purchases and settlements: | | | | |
Purchases | | 1 |
| | 3 |
|
Settlements | | 47 |
| | (23 | ) |
Balance, end of period | | $ | 31 |
| | $ | 10 |
|
Change in unrealized gains (losses) relating to instruments still held at end of period | | $ | 12 |
| | $ | (13 | ) |
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, 2019, there were no changes to the terms of 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 “CCH Credit Facility”).
Cheniere Partners previously had interest rate swaps (“CQP Interest Rate Derivatives”) to hedge a portion of the variable interest payments on its CQP Credit Facilities, which were terminated in October 2018.
As of March 31, 2019, we had the following Interest Rate Derivatives outstanding:
|
| | | | | | | | | | | | |
| | Initial Notional Amount | | Maximum Notional Amount | | Effective Date | | Maturity Date | | Weighted Average Fixed Interest Rate Paid | | Variable Interest Rate Received |
CCH Interest Rate Derivatives | | $29 million | | $4.7 billion | | May 20, 2015 | | May 31, 2022 | | 2.30% | | One-month LIBOR |
The following table shows the fair value and location of the CCH Interest Rate Derivatives on our Consolidated Balance Sheets (in millions):
|
| | | | | | | | |
| | March 31, | | December 31, |
| | 2019 | | 2018 |
Consolidated Balance Sheet Location | | | | |
Derivative assets | | $ | 4 |
| | $ | 10 |
|
Non-current derivative assets | | — |
| | 8 |
|
Total derivative assets | | 4 |
| | 18 |
|
| | | | |
Non-current derivative liabilities | | (23 | ) | | — |
|
| | | | |
Derivative asset (liability), net | | $ | (19 | ) | | $ | 18 |
|
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table shows the changes in the fair value and settlements of our Interest Rate Derivatives recorded in derivative gain (loss), net on our Consolidated Statements of Operations during the three months ended March 31, 2019 and 2018 (in millions):
|
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2019 | | 2018 |
CCH Interest Rate Derivatives gain (loss) | | $ | (35 | ) | | $ | 69 |
|
CQP Interest Rate Derivatives gain | | — |
| | 8 |
|
Commodity Derivatives
SPL and CCL have entered into primarily index-based physical natural gas supply contracts and associated economic hedges to purchase natural gas for the commissioning and operation of the SPL Project and the CCL Project. The terms of the physical natural gas supply contracts range up to eight years, some of which commence upon the satisfaction of certain conditions precedent.
We have entered into, and may from time to time enter into, financial LNG Trading Derivatives in the form of swaps, forwards, options or futures to economically hedge exposure to the commodity markets in which we have contractual arrangements to purchase or sell physical LNG. We have entered into LNG Trading Derivatives to secure a fixed price position to minimize future cash flow variability associated with LNG purchase and sale transactions.
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, 2019 | | December 31, 2018 |
| Liquefaction Supply Derivatives (1) | | LNG Trading Derivatives (2) | | Total | | Liquefaction Supply Derivatives (1) | | LNG Trading Derivatives (2) | | Total |
Consolidated Balance Sheet Location | | | | | | | | | | | |
Derivative assets | $ | 21 |
| | $ | 58 |
| | $ | 79 |
| | $ | 13 |
| | $ | 24 |
| | $ | 37 |
|
Non-current derivative assets | 42 |
| | — |
| | 42 |
| | 46 |
| | — |
| | 46 |
|
Total derivative assets | 63 |
| | 58 |
| | 121 |
| | 59 |
| |
|