lng-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐ 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)

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


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $ 0.003 par value	LNG	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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 ☒ 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

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 29, 2022, the issuer had 254,139,054 shares of Common Stock outstanding.

CHENIERE ENERGY, INC.

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	Definitions	1
Part I. Financial Information
Item 1.	Consolidated Financial Statements	3
	Consolidated Statements of Operations	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Stockholders’ Equit y (Defi cit)	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
	Note 1—Nature of Operations and Basis of Presentation	7
	Note 2—Restricted Cash	8
	Note 3—Trade and Other Receivables, Net of Current Expected Credit Losses	9
	Note 4—Inventory	9
	Note 5—Property, Plant and Equipment, Net of Accumulated Depreciation	9
	Note 6—Derivative Instruments	10

	Note 7—Non-Controlling Interest and Variable Interest Entity	15
	Note 8—Accrued Liabilities	16
	Note 9—Debt	17
	Note 10—Leases	20
	Note 11—Revenues from Contracts with Customers	21
	Note 12—Related Party Transactions	23
	Note 13—Income Taxes	23

	Note 1 4 —Net Income (Loss) per Share Attributable to Common Stockholders	24

	Note 15—Stockholders’ Deficit	24
	Note 1 6 —Customer Concentration	25
	Note 1 7 —Supplemental Cash Flow Information	25

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37

Item 4.	Controls and Procedures	38

Part II. Other Information
Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 6.	Exhibits	41

	Signatures	42

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DEFINITIONS

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

Common Industry and Other Terms


ASU						Accounting Standards Update
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
FASB						Financial Accounting Standards Board
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
IPM agreements						integrated production marketing agreements in which the gas producer sells to us gas on a global LNG index price, less a fixed liquefaction fee, shipping and other costs
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; one British thermal unit measures the amount of energy required to raise the temperature of one pound of water by one degree Fahrenheit
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
SOFR						Secured Overnight Financing Rate
SPA						LNG sale and purchase agreement
TBtu						trillion British thermal units; one British thermal unit measures the amount of energy required to raise the temperature of one pound of water by one degree Fahrenheit
Train						an industrial facility comprised of a series of refrigerant compressor loops used to cool natural gas into LNG
TUA						terminal use agreement

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Abbreviated Legal Entity Structure

The following diagram depicts our abbreviated legal entity structure as of March 31, 2022, 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, CQP.

Unless the context requires otherwise, references to the “CCH Group” refer to CCH, CCL and CCP, collectively.

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

CHENIERE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(unaudited)


	Three Months Ended March 31,
		2022		2021
Revenues
LNG revenues		$	7,340	$	2,999
Regasification revenues		68		67
Other revenues		76		24

Total revenues		7,484		3,090

Operating costs and expenses
Cost of sales (excluding items shown separately below)		7,336		1,386

Operating and maintenance expense		389		322
Development expense		5		1
Selling, general and administrative expense		96		81
Depreciation and amortization expense		271		236




Total operating costs and expenses		8,097		2,026

Income (loss) from operations		(613)		1,064

Other income (expense)
Interest expense, net of capitalized interest		(349)		(356)
Loss on modification or extinguishment of debt		(18)		(55)
Interest rate derivative gain, net		3		1
Other income, net		5		6
Total other expense		(359)		(404)

Income (loss) before income taxes and non-controlling interest		(972)		660
Less: income tax provision (benefit)		(191)		89
Net income (loss)		(781)		571
Less: net income attributable to non-controlling interest		84		178
Net income (loss) attributable to common stockholders		$	(865)	$	393

Net income (loss) per share attributable to common stockholders—basic (1)		$	(3.41)	$	1.56
Net income (loss) per share attributable to common stockholders—diluted (1)		$	(3.41)	$	1.54

Weighted average number of common shares outstanding—basic		254.0		252.9
Weighted average number of common shares outstanding—diluted		254.0		258.9

(1)Earnings per share in the table may not recalculate exactly due to rounding because it is calculated based on whole numbers, not the rounded numbers presented.

The accompanying notes are an integral part of these consolidated financial statements.

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CHENIERE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (1)

(in millions, except share data)



	March 31,		December 31,
	2022		2021
ASSETS	(unaudited)
Current assets
Cash and cash equivalents	$	2,487	$	1,404
Restricted cash and cash equivalents	419		413
Trade and other receivables, net of current expected credit losses	1,461		1,506

Inventory	571		706
Current derivative assets	215		55
Margin deposits	456		765
Other current assets	96		207
Total current assets	5,705		5,056


Property, plant and equipment, net of accumulated depreciation	30,314		30,288
Operating lease assets	1,975		2,102

Derivative assets	43		69
Goodwill	77		77
Deferred tax assets	1,450		1,204
Other non-current assets, net	491		462
Total assets	$	40,055	$	39,258

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable	$	167	$	155
Accrued liabilities	1,963		2,299

Current debt, net of discount and debt issuance costs	62		366
Deferred revenue	120		155
Current operating lease liabilities	527		535
Current derivative liabilities	1,746		1,089
Other current liabilities	20		94
Total current liabilities	4,605		4,693

Long-term debt, net of premium, discount and debt issuance costs	28,907		29,449
Operating lease liabilities	1,423		1,541
Finance lease liabilities	57		57

Derivative liabilities	6,256		3,501
Other non-current liabilities	66		50



Stockholders' deficit
Preferred stock: $0.0001 par value, 5.0 million shares authorized, none issued	—		—
Common stock: $0.003 par value, 480.0 million shares authorized; 276.5 million shares and 275.2 million shares issued at March 31, 2022 and December 31, 2021, respectively	1		1



Treasury stock: 22.1 million shares and 21.6 million shares at March 31, 2022 and December 31, 2021, respectively, at cost	(988)		(928)
Additional paid-in-capital	4,244		4,377
Accumulated deficit	(6,967)		(6,021)
Total stockholders' deficit	(3,710)		(2,571)
Non-controlling interest	2,451		2,538
Total deficit	(1,259)		(33)
Total liabilities and stockholders' deficit	$	40,055	$	39,258

(1)Amounts presented include balances held by our consolidated variable interest entity (“VIE”), CQP, as further discussed in Note 7 —Non-controlling Interest and Variable Interest Entity. As of March 31, 2022, total assets and liabilities of CQP, which are included in our Consolidated Balance Sheets, were $19.2 billion and $21.8 billion, respectively, including $1.2 billion of cash and cash equivalents and $0.1 billion of restricted cash and cash equivalents.

The accompanying notes are an integral part of these consolidated financial statements.

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CHENIERE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in millions)

(unaudited)


Three Months Ended March 31, 2022
	Total Stockholders’ Deficit
	Common Stock			Treasury Stock			Additional Paid-in Capital		Accumulated Deficit		Non-controlling Interest		Total Deficit
	Shares	Par Value Amount		Shares	Amount






















Balance at December 31, 2021	253.6	$	1	21.6	$	(928)	$	4,377	$	(6,021)	$	2,538	$	(33)


















Vesting of share-based compensation awards	1.3	—		—	—		—		—		—		—
Share-based compensation	—	—		—	—		38		—		—		38
Issued shares withheld from employees related to share-based compensation, at cost	(0.3)	—		0.3	(35)		(18)		—		—		(53)
Shares repurchased, at cost	(0.2)	—		0.2	(25)		—		—		—		(25)
Adoption of ASU 2020-06, net of tax (see Note 1)	—	—		—	—		(153)		4		—		(149)
Net income attributable to non-controlling interest	—	—		—	—		—		—		84		84

Distributions to non-controlling interest	—	—		—	—		—		—		(171)		(171)
Dividends declared ($0.33 per common share)	—	—		—	—		—		(85)		—		(85)
Net loss	—	—		—	—		—		(865)		—		(865)
Balance at March 31, 2022	254.4	$	1	22.1	$	(988)	$	4,244	$	(6,967)	$	2,451	$	(1,259)


Three Months Ended March 31, 2021
	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, 2020	252.3	$	1	20.8	$	(872)	$	4,273	$	(3,593)	$	2,409	$	2,218
Vesting of share-based compensation awards	1.8	—		—	—		—		—		—		—
Share-based compensation	—	—		—	—		33		—		—		33
Issued shares withheld from employees related to share-based compensation, at cost	(0.6)	—		0.6	(42)		—		—		—		(42)
Net income attributable to non-controlling interest	—	—		—	—		—		—		178		178
Distributions to non-controlling interest	—	—		—	—		—		—		(160)		(160)
Net income	—	—		—	—		—		393		—		393
Balance at March 31, 2021	253.5	$	1	21.4	$	(914)	$	4,306	$	(3,200)	$	2,427	$	2,620

The accompanying notes are an integral part of these consolidated financial statements.

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CHENIERE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)


	Three Months Ended March 31,
	March 31,
	2022		2021
Cash flows from operating activities
Net income (loss)	$	(781)	$	571
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense	271		236
Share-based compensation expense	43		32
Non-cash interest expense	2		8
Amortization of debt issuance costs, premium and discount	15		20
Reduction of right-of-use assets	134		85
Loss on modification or extinguishment of debt	18		55
Total losses on derivative instruments, net	3,592		74
Net cash provided by (used for) settlement of derivative instruments	(314)		5

Impairment expense and loss (income) on equity method investments	(5)		(7)
Deferred taxes	(206)		87
Repayment of paid-in-kind interest related to repurchase of convertible notes	(13)		—
Other	—		1
Changes in operating assets and liabilities:
Trade and other receivables, net of current expected credit losses	(16)		(3)

Inventory	133		(16)
Margin deposits	309		(17)
Other current assets	99		16
Accounts payable and accrued liabilities	(386)		52

Deferred revenue	(24)		(36)
Operating lease liabilities	(134)		(86)
Finance lease liabilities	1		—
Other, net	(83)		(11)
Net cash provided by operating activities	2,655		1,066

Cash flows from investing activities
Property, plant and equipment	(178)		(190)


Other	—		(10)
Net cash used in investing activities	(178)		(200)

Cash flows from financing activities
Proceeds from issuances of debt	575		1,800
Redemptions and repayments of debt	(1,615)		(2,088)
Debt issuance and other financing costs	—		(19)
Debt modification or extinguishment costs	(13)		(40)

Distributions to non-controlling interest	(171)		(160)
Payments related to tax withholdings for share-based compensation	(53)		(42)
Repurchase of common stock	(25)		—
Cash dividends to shareholders	(86)		—
Other	—		4
Net cash used in financing activities	(1,388)		(545)

Net increase in cash, cash equivalents and restricted cash and cash equivalents	1,089		321
Cash, cash equivalents and restricted cash and cash equivalents—beginning of period	1,817		2,077
Cash, cash equivalents and restricted cash and cash equivalents—end of period	$	2,906	$	2,398

Balances per Consolidated Balance Sheet:


	March 31,
	2022
Cash and cash equivalents	$	2,487
Restricted cash and cash equivalents	419

Total cash, cash equivalents and restricted cash and cash equivalents	$	2,906

The accompanying notes are an integral part of these consolidated financial statements.

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CHENIERE ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1—NATURE OF OPERATIONS AND BASIS OF PRESENTATION

We operate two natural gas liquefaction and export facilities located in Cameron Parish, Louisiana at Sabine Pass and near Corpus Christi, Texas (respectively, the “Sabine Pass LNG Terminal” and “Corpus Christi LNG Terminal”).

CQP owns the Sabine Pass LNG Terminal which has natural gas liquefaction facilities consisting of six operational Trains, with Train 6 achieving substantial completion on February 4, 2022, for a total production capacity of approximately 30 mtpa of LNG (the “SPL Project”). The Sabine Pass LNG Terminal also has operational regasification facilities that include five LNG storage tanks, vaporizers and two marine berths, with an additional marine berth that is under construction. CQP 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 its subsidiary, CTPL. As of March 31, 2022, we owned 100% of the general partner interest and a 48.6% limited partner interest in CQP.

The Corpus Christi LNG Terminal currently has three Trains, for a total production capacity of approximately 15 mtpa of LNG. We also own a 21.5-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 Trains, the “CCL Project”) through our subsidiary CCP, as part of the CCH Group. The CCL Project also includes three LNG storage tanks and two marine berths.

Additionally, separate from the CCH Group, we are developing an expansion of the Corpus Christi LNG Terminal adjacent to the CCL Project (“Corpus Christi Stage 3”) through our subsidiary CCL Stage III, for up to seven midscale Trains with an expected total production capacity of over 10 mtpa of LNG. We received approval from FERC in November 2019 to site, construct and operate the expansion project. In March 2022, CCL Stage III issued limited notice to proceed to Bechtel Oil, Gas and Chemicals, Inc. to commence early engineering, procurement and site works.

We have increased available liquefaction capacity at the SPL Project and the CCL Project (collectively, the “Liquefaction Projects”) as a result of debottlenecking and other optimization projects. We hold significant land positions at both the Sabine Pass LNG Terminal and the Corpus Christi LNG Terminal which provide opportunity for further liquefaction capacity expansion. The development of these sites or other projects, including infrastructure projects in support of natural gas supply and LNG demand, will require, among other things, 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 in accordance 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 fiscal year ended December 31, 202 1. Reclassifications that are not material to our Consolidated Financial Statements, if any, are made to prior period financial information to conform to the current year presentation.

Results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2022.

Recent Accounting Standards

ASU 2020-06

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This guidance simplifies the accounting for convertible instruments primarily by eliminating the existing cash conversion and beneficial conversion models within Subtopic 470-20, which will result in fewer embedded conversion options being accounted for separately from the debt host. The guidance also amends and simplifies the calculation of earnings per share relating to convertible instruments. This guidance is effective for annual periods beginning after December 15, 2021, including interim periods within that reporting period, with earlier adoption permitted for fiscal years

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CHENIERE ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

beginning after December 15, 2020, including interim periods within that reporting period, using either a full or modified retrospective approach. We adopted this guidance on January 1, 2022 using the modified retrospective approach. The adoption of ASU 2020-06 primarily resulted in the reclassification of the previously bifurcated equity component associated with the 4.25% Convertible Senior Notes due 2045 (the “2045 Cheniere Convertible Senior Notes”) to debt as a result of the elimination of the cash conversion model. As of January 1, 2022, the reclassification resulted in: (1) a $194 million reduction of the equity component recorded in additional paid-in capital, before offsetting tax effect of $41 million, (2) a $189 million increase in the carrying value of our 2045 Cheniere Convertible Senior Notes and (3) a $5 million decrease in accumulated deficit, before offsetting tax effect of $1 million. In December 2021, we issued a notice of redemption for all $625 million aggregate principal amount outstanding of our 2045 Cheniere Convertible Senior Notes, which were redeemed on January 5, 2022. See Note 9 —Debt for further discussion of the 2045 Cheniere Convertible Senior Notes.

The adoption of ASU 2020-06 also impacted the calculation of the dilutive effect of our 2045 Cheniere Convertible Senior Notes on our net loss per share for the three months ended March 31, 2022, as further discussed in Note 14—Net Income (Loss) per Share Attributable to Common Stockholders.

ASU 2020-04

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance primarily provides temporary optional expedients which simplify the accounting for contract modifications to existing contracts expected to arise from the market transition from LIBOR to alternative reference rates. The transition period under this standard is effective March 12, 2020 and will apply through December 31, 2022.

We have interest rate swaps and various credit facilities indexed to LIBOR, as further described in Note 6 —Derivative Instruments and Note 9 —Debt, respectively. To date, we have amended certain of our credit facilities to incorporate a fallback replacement rate indexed to SOFR as a result of the expected LIBOR transition. We elected to apply the optional expedients as applicable to certain modified terms, however the impact of applying the optional expedients was not material, and we do not expect the transition to a replacement rate indexed to SOFR to have a material impact on our future cash flows. We will continue to elect to apply the optional expedients to qualifying contract modifications in the future.

NOTE 2—RESTRICTED CASH AND CASH EQUIVALENTS

Restricted cash and cash equivalents consist of funds that are contractually or legally restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on our Consolidated Balance Sheets. Restricted cash and cash equivalents consisted of the following (in millions):



	March 31,		December 31,
	2022		2021
Restricted cash and cash equivalents
SPL Project	$	136	$	98

CCL Project	50		44
Cash held by our subsidiaries that is restricted to Cheniere	233		271
Total restricted cash and cash equivalents	$	419	$	413

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 Liquefaction Projects and other restricted payments. The majority of the cash held by our subsidiaries that is restricted to Cheniere relates to advance funding for operation and construction needs of the Liquefaction Projects.

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CHENIERE ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

NOTE 3—TRADE AND OTHER RECEIVABLES, NET OF CURRENT EXPECTED CREDIT LOSSES

Trade and other receivables, net of current expected credit losses consisted of the following (in millions):



	March 31,		December 31,
	2022		2021
Trade receivables
SPL and CCL	$	571	$	802

Cheniere Marketing	750		640
Other receivables	140		64
Total trade and other receivables, net of current expected credit losses	$	1,461	$	1,506

NOTE 4—INVENTORY

Inventory consisted of the following (in millions):



	March 31,		December 31,
	2022		2021
Materials	$	178	$	174
LNG in-transit	210		312
LNG	135		153
Natural gas	44		64
Other	4		3
Total inventory	$	571	$	706

NOTE 5—PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION

Property, plant and equipment, net of accumulated depreciation consisted of the following (in millions):



	March 31,		December 31,
	2022		2021
LNG terminal
LNG terminal and interconnecting pipeline facilities	$	33,138	$	30,660
LNG site and related costs	442		441
LNG terminal construction-in-process	809		2,995
Accumulated depreciation	(4,176)		(3,912)
Total LNG terminal, net of accumulated depreciation	30,213		30,184
Fixed assets and other
Computer and office equipment	26		25
Furniture and fixtures	19		20
Computer software	123		120
Leasehold improvements	46		45
Land	1		1
Other	18		19
Accumulated depreciation	(181)		(176)
Total fixed assets and other, net of accumulated depreciation	52		54
Assets under finance lease
Tug vessels	60		60
Accumulated depreciation	(11)		(10)
Total assets under finance lease, net of accumulated depreciation	49		50
Property, plant and equipment, net of accumulated depreciation	$	30,314	$	30,288

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CHENIERE ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

The following table shows depreciation expense and offsets to LNG terminal costs (in millions):


	Three Months Ended March 31,
		2022		2021
Depreciation expense		$	270	$	234
Offsets to LNG terminal costs (1)		204		191

(1)We recognize offsets to LNG terminal costs related to the sale of commissioning cargoes because these amounts were earned or loaded prior to the start of commercial operations of the respective Trains of the Liquefaction Projects during the testing phase for its construction.

NOTE 6—DERIVATIVE INSTRUMENTS

We have entered into the following derivative instruments that are reported at fair value:

•interest rate swaps (“Interest Rate Derivatives”) to hedge the exposure to volatility in a portion of the floating-rate interest payments on CCH’s amended and restated term loan credit facility (the “CCH Credit Facility”);

•commodity derivatives consisting of natural gas supply contracts, including those under our IPM agreements, for the commissioning and operation of the Liquefaction Projects and potential future development of Corpus Christi Stage 3 (“Physical Liquefaction Supply Derivatives”) and associated economic hedges (“Financial Liquefaction Supply Derivatives,” and collectively with the Physical Liquefaction Supply Derivatives, the “Liquefaction Supply Derivatives”);

•physical derivatives consisting of liquified natural gas contracts in which we have contractual net settlement (“Physical LNG Trading Derivatives”) and financial derivatives to hedge the exposure to the commodity markets in which we have contractual arrangements to purchase or sell physical LNG (collectively, “LNG Trading Derivatives”); and

•foreign currency exchange (“FX”) contracts to hedge exposure to currency risk associated with cash flows denominated in currencies other than United States dollar (“FX Derivatives”), associated with both LNG Trading Derivatives and operations in countries outside of the United States.

We recognize our derivative instruments as either assets or liabilities and measure those instruments at fair value. None of our derivative instruments are designated as cash flow or fair value hedging instruments, and changes in fair value are recorded within our Consolidated Statements of Operations to the extent not utilized for the commissioning process, in which case it is capitalized.

The following table shows the fair value of our derivative instruments that are required to be measured at fair value on a recurring basis (in millions):


	Fair Value Measurements as of
	March 31, 2022								December 31, 2021
	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
Interest Rate Derivatives liability	$	—	$	(12)	$	—	$	(12)	$	—	$	(40)	$	—	$	(40)

Liquefaction Supply Derivatives asset (liability)	(75)		9		(7,423)		(7,489)		7		(9)		(4,036)		(4,038)
LNG Trading Derivatives liability	(8)		(260)		—		(268)		(22)		(378)		—		(400)
FX Derivatives asset	—		25		—		25		—		12		—		12

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 or option-based approach incorporating present value techniques, as needed, using observable commodity price curves, when available, and other relevant data. We value our FX Derivatives with a market approach using observable FX rates and other relevant data.

Table of Contents

CHENIERE ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

The fair value of our Physical Liquefaction Supply Derivatives and LNG Trading Derivatives are predominantly driven by observable and unobservable market commodity prices and, as applicable to our natural gas supply contracts, our assessment of the associated events deriving fair value, including, but not limited to, evaluation of whether the respective market exists from the perspective of market participants as infrastructure is developed.

We include our Physical LNG Trading Derivatives and 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 incorporate significant unobservable inputs. In instances where observable data is unavailable, consideration is given to the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks, such as future prices of energy units for unobservable periods, liquidity and volatility.

The Level 3 fair value measurements of our Physical LNG Trading Derivatives and the natural gas positions within our Physical Liquefaction Supply Derivatives could be materially impacted by a significant change in certain natural gas and international LNG prices. The following table includes quantitative information for the unobservable inputs for our Level 3 Physical Liquefaction Supply Derivatives as of March 31, 2022:

Net Fair Value Liability
(in millions)

Valuation Approach

Significant Unobservable Input

Range of Significant Unobservable Inputs / Weighted Average (1)

Physical Liquefaction Supply Derivatives

$(7,423)

Market approach incorporating present value techniques

Henry Hub basis spread

$(1.578) - $0.215 / $(0.094)

Option pricing model

International LNG pricing spread, relative to Henry Hub (2)

101% - 533% / 190%

(1)Unobservable inputs were weighted by the relative fair value of the instruments.

(2)Spread contemplates U.S. dollar-denominated pricing.

Increases or decreases in basis or pricing spreads, in isolation, would decrease or increase, respectively, the fair value of our Physical LNG Trading Derivatives and our Physical Liquefaction Supply Derivatives.

The following table shows the changes in the fair value of our Level 3 Physical LNG Trading Derivatives and Physical Liquefaction Supply Derivatives (in millions):


	Three Months Ended March 31,
		2022		2021
Balance, beginning of period		$	(4,036)	$	241
Realized and mark-to-market losses:
Included in cost of sales		(3,540)		(