Annual report pursuant to Section 13 and 15(d)

Leases

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Leases
 12 Months Ended
Dec. 31, 2011
Leases [Abstract]  
Leases of Lessee Disclosure [Text Block]
LEASES

During the years ended December 31, 2011, 2010 and 2009, we recognized rental expense for all operating leases of $11.5 million, $10.2 million and $11.3 million, respectively.
 
Future Annual Minimum Lease Payments
 
Future annual minimum lease payments, excluding inflationary adjustments, are as follows (in thousands): 
Years Ending December 31,
Operating
Leases (2) (3)
2012
$
14,046

2013
14,242

2014
13,188

2015
12,764

2016
12,837

Thereafter (1)
260,195

Total
$
327,272


 
(1)
Includes certain lease option renewals as they were reasonably assured.
(2)
Future annual minimum lease payments do not include $3.4 million expected to be recovered through sublease agreements for our office leases in Houston, Texas.
(3)
Lease payments for our tug boat lease represent third-party tug boat lease payment obligations and do not take into account the payments we receive from our third-party TUA customers that effectively offset $80.2 million, or two-thirds of our lease payment obligations, as discussed below.

Tug Boat Agreements
 
Sabine Pass Tug Services, LLC ("Tug Services"), Cheniere Partners' wholly owned subsidiary, entered into a Marine Services Agreement (the "Tug Agreement") for the use of tug boats and marine services for the Sabine Pass LNG terminal. The term of the Tug Agreement commenced in January 2008 for a period of 10 years, with an option to renew two additional, consecutive terms of five years each. In accordance with accounting literature on how to determine whether an arrangement contains a lease, we determined that the Tug Agreement contains a lease for the tugs specified in the Tug Agreement. In addition, we concluded that the tug boat lease contained in the Tug Agreement is an operating lease, and as such, the equipment component of the Tug Agreement is charged to expense over the term of the Tug Agreement as it becomes payable.

In the second quarter of 2009, Tug Services entered into a Tug Sharing Agreement with Sabine Pass LNG's three TUA customers to provide their LNG cargo vessels with tug boat and marine services at the Sabine Pass LNG terminal and effectively offset the cost of the tug boat lease. The Tug Sharing Agreement provides for each of our customers to pay Tug Services an annual service fee.A
 
LNG Site Leases
 
Our obligations under LNG site options are renewable on an annual or semiannual basis. We may terminate our obligations at any time by electing not to renew or by exercising the options.
 
In January 2005, we exercised our options and entered into three land leases for the site of the Sabine Pass LNG terminal. The leases have an initial term of 30 years, with options to renew for six 10-year extensions with similar terms as the initial term. In February 2005, two of the three leases were amended, thereby increasing the total acreage under lease to 853 acres and increasing the annual lease payments to $1.5 million. In November and December 2011, we entered into two additional land leases, thereby increasing the total acreage under lease to 1,015 acres and increasing the annual lease payments by $0.4 million. The annual lease payments will be adjusted for inflation based on a consumer price index, as defined in the lease agreements, every five years. We recognized $1.8 million, $1.7 million and $1.5 million of site lease expense on our Consolidated Statements of Operations in 2011, 2010 and 2009, respectively.