lng-20230630

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 June 30, 2023

☐ 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 July 27, 2023, the issuer had 240,623,212 shares of Common Stock outstanding.

CHENIERE ENERGY, INC.

TABLE OF CONTENTS
























	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’ Equity (Deficit)	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 and Cash Equivalents	8
	Note 3—Trade and Other Receivables, Net of Current Expected Credit Losses	8
	Note 4—Inventory	8
	Note 5—Property, Plant and Equipment, Net of Accumulated Depreciation	9
	Note 6—Derivative Instruments	9

	Note 7—Non-Controlling Interest and Variable Interest Entity	14
	Note 8—Accrued Liabilities	15
	Note 9—Debt	16
	Note 10—Leases	18
	Note 11—Revenues	20
	Note 12—Related Party Transactions	22
	Note 13—Income Taxes	22

	Note 14—Net Income (Loss) per Share Attributable to Common Stockholders	23

	Note 15—S hare Repurchase Programs	24
	Note 16—Customer Concentration	24
	Note 17—Supplemental Cash Flow Information	24

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37

Item 4.	Controls and Procedures	37

Part II. Other Information
Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 5.	Other Information

Item 6.	Exhibits	38

	Signatures	41

Table of Contents

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
FID						final investment decision
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 June 30, 2023, 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.

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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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues
LNG revenues	$	3,919	$	7,873	$	11,010	$	15,213
Regasification revenues	33		68		67		136
Other revenues	150		66		335		142

Total revenues	4,102		8,007		11,412		15,491

Operating costs and expenses (recoveries)
Cost (recovery) of sales (excluding items shown separately below)	912		5,752		(627)		13,088

Operating and maintenance expense	487		419		931		808
Selling, general and administrative expense	87		77		194		173
Depreciation and amortization expense	297		276		594		547



Other	11		6		21		11

Total operating costs and expenses	1,794		6,530		1,113		14,627

Income from operations	2,308		1,477		10,299		864

Other income (expense)
Interest expense, net of capitalized interest	(291)		(357)		(588)		(706)
Gain (loss) on modification or extinguishment of debt	(2)		(28)		18		(46)
Interest rate derivative gain (loss), net	—		(1)		—		2
Interest income	55		7		89		8
Other income (expense), net	—		(4)		3		—
Total other expense	(238)		(383)		(478)		(742)

Income before income taxes and non-controlling interest	2,070		1,094		9,821		122
Less: income tax provision (benefit)	363		181		1,679		(10)
Net income	1,707		913		8,142		132
Less: net income attributable to non-controlling interest	338		172		1,339		256
Net income (loss) attributable to common stockholders	$	1,369	$	741	$	6,803	$	(124)

Net income (loss) per share attributable to common stockholders—basic (1)	$	5.65	$	2.92	$	27.99	$	(0.49)
Net income (loss) per share attributable to common stockholders—diluted (1)	$	5.61	$	2.90	$	27.79	$	(0.49)

Weighted average number of common shares outstanding—basic	242.3		253.6		243.1		253.8
Weighted average number of common shares outstanding—diluted	243.8		255.9		244.8		253.8
___________________
(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)



	June 30,		December 31,
	2023		2022
ASSETS	(unaudited)
Current assets
Cash and cash equivalents	$	4,529	$	1,353
Restricted cash and cash equivalents	640		1,134
Trade and other receivables, net of current expected credit losses	709		1,944

Inventory	404		826
Current derivative assets	93		120
Margin deposits	36		134

Other current assets	129		97
Total current assets	6,540		5,608


Property, plant and equipment, net of accumulated depreciation	31,821		31,528
Operating lease assets	2,487		2,625

Derivative assets	282		35
Goodwill	77		77
Deferred tax assets	36		864
Other non-current assets, net	560		529
Total assets	$	41,803	$	41,266

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable	$	100	$	124
Accrued liabilities	1,037		2,679

Current debt, net of discount and debt issuance costs	1,796		813
Deferred revenue	130		234
Current operating lease liabilities	598		616
Current derivative liabilities	1,215		2,301
Other current liabilities	37		28
Total current liabilities	4,913		6,795

Long-term debt, net of premium, discount and debt issuance costs	23,380		24,055
Operating lease liabilities	1,863		1,971
Finance lease liabilities	483		494

Derivative liabilities	3,740		7,947
Deferred tax liabilities	731		—
Other non-current liabilities	201		175



Stockholders’ equity (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; 277.7 million shares and 276.7 million shares issued at June 30, 2023 and December 31, 2022, respectively	1		1



Treasury stock: 36.8 million shares and 31.2 million shares at June 30, 2023 and December 31, 2022, respectively, at cost	(3,162)		(2,342)
Additional paid-in-capital	4,363		4,314
Accumulated income (deficit)	1,666		(4,942)
Total Cheniere stockholders’ equity (deficit)	2,868		(2,969)
Non-controlling interest	3,624		2,798
Total stockholders’ equity (deficit)	6,492		(171)
Total liabilities and stockholders’ equity (deficit)	$	41,803	$	41,266

(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 June 30, 2023, total assets and liabilities of CQP were $19.3 billion and $20.5 billion, respectively, including $1.8 billion of cash and cash equivalents and $241 million 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 and Six Months Ended June 30, 2023
	Total Stockholders’ Equity (Deficit)
	Common Stock			Treasury Stock			Additional Paid-in Capital		Accumulated Income (Deficit)		Non-controlling Interest		Total Equity (Deficit)
	Shares	Par Value Amount		Shares	Amount




















Balance at December 31, 2022	245.5	$	1	31.2	$	(2,342)	$	4,314	$	(4,942)	$	2,798	$	(171)
Vesting of share-based compensation awards	1.0	—		—	—		—		—		—		—
Share-based compensation	—	—		—	—		43		—		—		43
Issued shares withheld from employees related to share-based compensation, at cost	(0.2)	—		0.2	(26)		(29)		—		—		(55)
Shares repurchased, at cost	(3.1)	—		3.1	(453)		—		—		—		(453)

Net income attributable to non-controlling interest	—	—		—	—		—		—		1,001		1,001
Distributions to non-controlling interest	—	—		—	—		—		—		(261)		(261)
Dividends declared ($0.33 per common share)	—	—		—	—		—		(98)		—		(98)
Net income attributable to common stockholders	—	—		—	—		—		5,434		—		5,434
Balance at March 31, 2023	243.2	1		34.5	(2,821)		4,328		394		3,538		5,440










Share-based compensation	—	—		—	—		36		—		—		36
Issued shares withheld from employees related to share-based compensation, at cost	—	—		—	—		(1)		—		—		(1)
Shares repurchased, at cost	(2.3)	—		2.3	(341)		—		—		—		(341)

Net income attributable to non-controlling interest	—	—		—	—		—		—		338		338

Distributions to non-controlling interest	—	—		—	—		—		—		(252)		(252)
Dividends declared ($0.395 per common share)	—	—		—	—		—		(97)		—		(97)

Net income attributable to common stockholders	—	—		—	—		—		1,369		—		1,369
Balance at June 30, 2023	240.9	$	1	36.8	$	(3,162)	$	4,363	$	1,666	$	3,624	$	6,492


Three and Six Months Ended June 30, 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	—	—		—	—		(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 attributable to common stockholders	—	—		—	—		—		(865)		—		(865)
Balance at March 31, 2022	254.4	1		22.1	(988)		4,244		(6,967)		2,451		(1,259)
Vesting of share-based compensation awards	0.1	—		—	—		—		—		—		—
Share-based compensation	—	—		—	—		34		—		—		34
Issued shares withheld from employees related to share-based compensation, at cost	—	—		—	(1)		(1)		—		—		(2)
Shares repurchased, at cost	(4.1)	—		4.1	(540)		—		—		—		(540)
Net income attributable to non-controlling interest	—	—		—	—		—		—		172		172
Dividends declared ($0.33 per common share)	—	—		—	—		—		—		(256)		(256)
Distributions to non-controlling interest	—	—		—	—		—		(85)		—		(85)
Net income attributable to common stockholders	—	—		—	—		—		741		—		741
Balance at June 30, 2022	250.4	$	1	26.2	$	(1,529)	$	4,277	$	(6,311)	$	2,367	$	(1,195)

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)


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities
Net income	$	8,142	$	132
Adjustments to reconcile net income to net cash provided by operating activities:
Unrealized foreign currency exchange gain, net	(2)		—
Depreciation and amortization expense	594		547
Share-based compensation expense	85		79

Amortization of debt issuance costs, premium and discount	23		29
Reduction of right-of-use assets	315		280
Loss (gain) on modification or extinguishment of debt	(18)		46
Total losses (gains) on derivative instruments, net	(5,411)		4,530
Net cash used for settlement of derivative instruments	(102)		(487)


Deferred taxes	1,581		(32)
Repayment of paid-in-kind interest related to repurchase of convertible notes	—		(13)
Other, net	6		6
Changes in operating assets and liabilities:
Trade and other receivables	1,249		(445)

Inventory	418		(44)
Margin deposits	98		596

Other current assets	(36)		40
Accounts payable and accrued liabilities	(1,551)		278

Total deferred revenue	(78)		9
Total operating lease liabilities	(305)		(286)

Other, net	(8)		(93)
Net cash provided by operating activities	5,000		5,172

Cash flows from investing activities
Property, plant and equipment, net	(1,044)		(1,023)

Investment in equity method investment	(18)		—
Other, net	(6)		(10)
Net cash used in investing activities	(1,068)		(1,033)

Cash flows from financing activities
Proceeds from issuances of debt	1,397		1,015
Redemptions, repayments and repurchases of debt	(1,098)		(2,715)
Debt issuance and other financing costs	(27)		(43)
Debt modification or extinguishment gains (costs)	26		(30)

Distributions to non-controlling interest	(513)		(427)
Payments related to tax withholdings for share-based compensation	(56)		(55)
Repurchase of common stock	(774)		(565)
Dividends to stockholders	(195)		(170)
Payments of finance lease liabilities	(13)		—

Net cash used in financing activities	(1,253)		(2,990)
Effect of exchange rate changes on cash, cash equivalents and restricted cash and cash equivalents	3		—

Net increase in cash, cash equivalents and restricted cash and cash equivalents	2,682		1,149
Cash, cash equivalents and restricted cash and cash equivalents—beginning of period	2,487		1,817
Cash, cash equivalents and restricted cash and cash equivalents—end of period	$	5,169	$	2,966

Balances per Consolidated Balance Sheet:


	June 30, 2023
Cash and cash equivalents	$	4,529
Restricted cash and cash equivalents	640

Total cash, cash equivalents and restricted cash and cash equivalents	$	5,169

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, 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 three marine berths. Additionally, the Sabine Pass LNG Terminal includes a 94-mile pipeline owned by CTPL, a subsidiary of CQP, that interconnects our facilities with a number of large interstate and intrastate pipelines. As of June 30, 2023, 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 operational Trains for a total production capacity of approximately 15 mtpa of LNG, three LNG storage tanks and two marine berths. Additionally, we are constructing an expansion of the Corpus Christi LNG Terminal (the “Corpus Christi Stage 3 Project”) for up to seven midscale Trains with an expected total production capacity of over 10 mtpa of LNG. Through our subsidiary CCP, 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 Corpus Christi LNG Terminal and the Corpus Christi Stage 3 Project, the “CCL Project”).

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. In March 2023, certain of our subsidiaries submitted an application with the FERC under the Natural Gas Act for an expansion adjacent to the CCL Project consisting of two midscale Trains with an expected total production capacity of approximately 3 mtpa of LNG. In May 2023, certain subsidiaries of CQP entered the pre-filing review process with the FERC under the National Environmental Policy Act for an expansion adjacent to the SPL Project consisting of up to three Trains with an expected total production capacity of approximately 20 mtpa of LNG (the “SPL Expansion Project”). 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 positive 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 and reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of the financial results for the interim periods presented. 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, 2022.

Results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2023.

Recent Accounting Standards

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 temporary optional expedients under the standard became effective March 12, 2020 and will be available until December 31, 2024 following a subsequent amendment to the standard.

As further detailed in Note 9—Debt, our existing credit facilities include a variable interest rate indexed to SOFR, incorporated through amendments or replacements of previous credit facilities subsequent to the effective date of ASU

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CHENIERE ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

2020-04. We elected to apply the optional expedients as applicable to certain modified or replaced facilities; however, the impact of applying the optional expedients was not material, and the transition to SOFR did not have a material impact on our cash flows.

NOTE 2—RESTRICTED CASH AND CASH EQUIVALENTS

Restricted cash and cash equivalents consisted of the following (in millions):



	June 30,		December 31,
	2023		2022
Restricted cash and cash equivalents
SPL Project	$	241	$	92

CCL Project	152		738
Cash held by our subsidiaries that is restricted to Cheniere	247		304
Total restricted cash and cash equivalents	$	640	$	1,134

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.

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):



	June 30,		December 31,
	2023		2022
Trade receivables
SPL and CCL	$	282	$	922

Cheniere Marketing	369		917
Other receivables	58		105
Total trade and other receivables, net of current expected credit losses	$	709	$	1,944

NOTE 4—INVENTORY

Inventory consisted of the following (in millions):



	June 30,		December 31,
	2023		2022
LNG in-transit	$	82	$	356
LNG	94		212
Materials	194		194
Natural gas	31		60
Other	3		4
Total inventory	$	404	$	826

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CHENIERE ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

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

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



	June 30,		December 31,
	2023		2022
LNG terminal
Terminal and interconnecting pipeline facilities	$	33,918	$	33,815
Site and related costs	452		451
Construction-in-process	2,446		1,685
Accumulated depreciation	(5,542)		(4,985)
Total LNG terminal, net of accumulated depreciation	31,274		30,966
Fixed assets and other
Computer and office equipment	35		33
Furniture and fixtures	20		20
Computer software	123		121
Leasehold improvements	55		48
Land	1		1
Other	20		19
Accumulated depreciation	(198)		(191)
Total fixed assets and other, net of accumulated depreciation	56		51
Assets under finance leases
Marine assets	529		533
Accumulated depreciation	(38)		(22)
Total assets under finance lease, net of accumulated depreciation	491		511
Property, plant and equipment, net of accumulated depreciation	$	31,821	$	31,528

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Depreciation expense	$	295	$	274	$	591	$	544
Offsets to LNG terminal costs (1)	—		—		—		204

(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:

•commodity derivatives consisting of natural gas and power supply contracts, including those under our IPM agreements, for the development, commissioning and operation of the Liquefaction Projects and associated economic hedges (collectively, “Liquefaction Supply Derivatives”);

•LNG derivatives in which we have contractual net settlement and economic hedges on 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 such changes are capitalized.

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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 (in millions):


	Fair Value Measurements as of
	June 30, 2023								December 31, 2022
	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


Liquefaction Supply Derivatives asset (liability)	$	23	$	47	$	(4,611)	$	(4,541)	$	(66)	$	(29)	$	(9,924)	$	(10,019)
LNG Trading Derivatives asset (liability)	(8)		(27)		—		(35)		1		(47)		—		(46)
FX Derivatives liability	—		(4)		—		(4)		—		(28)		—		(28)

We value our Liquefaction Supply Derivatives and LNG Trading 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.

The fair value of our 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 a significant portion of our 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 natural gas positions within our 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 Liquefaction Supply Derivatives as of June 30, 2023:

Net Fair Value Liability

(in millions)

Valuation Approach

Significant Unobservable Input

Range of Significant Unobservable Inputs / Weighted Average (1)

Liquefaction Supply Derivatives

$(4,611)

Market approach incorporating present value techniques

Henry Hub basis spread

$(1.733) - $0.660 / $(0.054)

Option pricing model

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

83% - 484% / 191%

(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 Liquefaction Supply Derivatives.

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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 Liquefaction Supply Derivatives and LNG Trading Derivatives (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Balance, beginning of period	$	(5,426)	$	(7,423)	$	(9,924)	$	(4,036)
Realized and change in fair value gains (losses) included in net income (loss) (1):
Included in cost of sales, existing deals (2)	635		(1,407)		4,518		(4,482)
Included in cost of sales, new deals (3)	3		—		9		—
Purchases and settlements:
Purchases (4)	—		90		—		(242)
Settlements (5)	175		278		780		298
Transfers in and/or out of level 3

Transfers out of level 3 (6)	2		—		6		—
Balance, end of period	$	(4,611)	$	(8,462)	$	(4,611)	$	(8,462)
Favorable (unfavorable) changes in fair value relating to instruments still held at the end of the period	$	638	$	(1,407)	$	4,527	$	(4,482)

(1)Does not include the realized value associated with derivative instruments that settle through physical delivery, as settlement is equal to contractually fixed price from trade date multiplied by contractual volume. See settlements line item in this table.

(2)Impact to earnings on deals that existed at the beginning of the period and continue to exist at the end of the period.

(3)Impact to earnings on deals that were entered into during the reporting period and continue to exist at the end of the period.

(4)Includes any day one gain (loss) recognized during the reporting period on deals that were entered into during the reporting period which continue to exist at the end of the period, in addition to any derivative contracts acquired from entities at a value other than zero on acquisition date, such as derivatives assigned or novated during the reporting period and continuing to exist at the end of the period.

(5)Roll-off in the current period of amounts recognized in our Consolidated Balance Sheets at the end of the previous period due to settlement of the underlying instruments in the current period.

(6)Transferred out of Level 3 as a result of observable market for the underlying natural gas purchase agreements.

All existing counterparty derivative contracts provide for the unconditional right of set-off in the event of default. We have elected to report derivative assets and liabilities arising from those derivative contracts with the same counterparty and the unconditional contractual right of set-off on a net basis. The use of derivative instruments exposes us to counterparty credit risk, or the risk that a counterparty will be unable to meet its commitments, in instances when our derivative instruments are in an asset position. Additionally, counterparties are at risk that we will be unable to meet our commitments in instances where our derivative instruments are in a liability position. We incorporate both our own nonperformance risk and the respective counterparty’s nonperformance risk in fair value measurements depending on the position of the derivative. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of any applicable credit enhancements, such as collateral postings, set-off rights and guarantees.

Commodity Derivatives

SPL and CCL hold Liquefaction Supply Derivatives which are primarily indexed to the natural gas market and international LNG indices. The terms of the Liquefaction Supply Derivatives range up to approximately 15 years, some of which commence upon the satisfaction of certain events or states of affairs.

Cheniere Marketing has historically entered into, and may from time to time enter into, LNG transactions that provide for contractual net settlement. Such transactions are accounted for as LNG Trading Derivatives along with financial commodity contracts in the form of swaps or futures. The terms of LNG Trading Derivatives range up to approximately one year.

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CHENIERE ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

The following table shows the notional amounts of our Liquefaction Supply Derivatives and LNG Trading Derivatives (collectively, “Commodity Derivatives”):

June 30, 2023

December 31, 2022

Liquefaction Supply Derivatives (1)

LNG Trading Derivatives

Liquefaction Supply Derivatives

LNG Trading Derivatives

Notional amount, net (in TBtu)

13,947

14,504

(1)Excludes notional amounts associated with extension options that were uncertain to be taken as of June 30, 2023.

The following table shows the effect and location of our Commodity Derivatives recorded on our Consolidated Statements of Operations (in millions):


		Gain (Loss) Recognized in Consolidated Statements of Operations
	Consolidated Statements of Operations Location (1)	Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022		2023		2022

LNG Trading Derivatives	LNG revenues	$	(46)	$	30	$	15	$	(217)
LNG Trading Derivatives	Recovery (cost) of sales	(3)		17		(87)		107
Liquefaction Supply Derivatives (2)	LNG revenues	(1)		16		(6)		11
Liquefaction Supply Derivatives (2)	Recovery (cost) of sales	826		(1,039)		5,497		(4,500)

(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 Liquefaction Supply Derivatives that settle through physical delivery.

FX Derivatives

Cheniere Marketing holds FX Derivatives to protect against the volatility in future cash flows attributable to changes in international currency exchange rates. The FX Derivatives economically hedge the foreign currency exposure arising from cash flows expended for both physical and financial LNG transactions that are denominated in a currency other than the United States dollar. The terms of FX Derivatives range up to approximately one year.

The total notional amount of our FX Derivatives was $414 million and $619 million as of June 30, 2023 and December 31, 2022, respectively.

The following table shows the effect and location of our FX Derivatives recorded on our Consolidated Statements of Operations (in millions):


		Gain (Loss) Recognized in Consolidated Statements of Operations
	Consolidated Statements of Operations Location	Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022		2023		2022
FX Derivatives	LNG revenues	$	(6)	$	39	$	(8)	$	67

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CHENIERE ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

Fair Value and Location of Derivative Assets and Liabilities on the Consolidated Balance Sheets

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


	June 30, 2023
	Liquefaction Supply Derivatives (1)		LNG Trading Derivatives (2)		FX Derivatives		Total
Consolidated Balance Sheets Location
Current derivative assets	$	67	$	26	$	—	$	93
Derivative assets	282		—		—		282
Total derivative assets	349		26		—		375

Current derivative liabilities	(1,150)		(61)		(4)		(1,215)
Derivative liabilities	(3,740)		—		—		(3,740)
Total derivative liabilities	(4,890)		(61)		(4)		(4,955)

Derivative liability, net	$	(4,541)	$	(35)	$	(4)	$	(4,580)

	December 31, 2022
	Liquefaction Supply Derivatives (1)		LNG Trading Derivatives (2)		FX Derivatives		Total
Consolidated Balance Sheets Location
Current derivative assets	$	36	$	84	$	—	$	120
Derivative assets	35		—		—		35
Total derivative assets	71		84		—		155

Current derivative liabilities	(2,143)		(130)		(28)		(2,301)
Derivative liabilities	(7,947)		—		—		(7,947)
Total derivative liabilities	(10,090)		(130)		(28)		(10,248)

Derivative liability, net	$	(10,019)	$	(46)	$	(28)	$	(10,093)

(1)Does not include collateral posted with counterparties by us of $3 million and $111 million as of June 30, 2023 and December 31, 2022, respectively, which are included in margin deposits on our Consolidated Balance Sheets, and collateral posted by counterparties to us of $3 million and zero as of June 30, 2023 and December 31, 2022, respectively, which are included in other current liabilities on our Consolidated Balance Sheets.

(2)Does not include collateral posted with counterparties by us of $33 million and $23 million, as of June 30, 2023 and December 31, 2022, respectively, which are included in margin deposits on our Consolidated Balance Sheets, and collateral posted by counterparties to us of $2 million and zero as of June 30, 2023 and December 31, 2022, respectively, which are included in other current liabilities on our Consolidated Balance Sheets.

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CHENIERE ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

Consolidated Balance Sheets Presentation

The following table shows the fair value of our derivatives outstanding on a gross and net basis (in millions) for our derivative instruments that are presented on a net basis on our Consolidated Balance Sheets:

Liquefaction Supply Derivatives

LNG Trading Derivatives

FX Derivatives

As of June 30, 2023

Gross assets