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 June 30, 2017
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to            

Cheniere Energy Partners, L.P.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
Delaware
001-33366
20-5913059
(State or other jurisdiction of incorporation or organization)
(Commission File Number)
(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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
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 o    No x
As of August 3, 2017, the issuer had 348,614,790 common units and 135,383,831 subordinated units outstanding.
 
 
 
 
 




CHENIERE ENERGY PARTNERS, L.P.
TABLE OF CONTENTS


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


i




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
 
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



1




Abbreviated Organizational Structure

The following diagram depicts our abbreviated organizational structure as of June 30, 2017, including our ownership of certain subsidiaries, and the references to these entities used in this quarterly report:
orgcharta46.jpg
       
Unless the context requires otherwise, references to “Cheniere Partners,” “the Partnership,” “we,” “us” and “our” refer to Cheniere Energy Partners, L.P. (NYSE American: CQP) and its consolidated subsidiaries, including SPLNG, SPL and CTPL

References to “Blackstone Group” refer to The Blackstone Group, L.P. References to “Blackstone CQP Holdco” refer to Blackstone CQP Holdco LP. References to “Blackstone” refer to Blackstone Group and Blackstone CQP Holdco.

2


PART I.
FINANCIAL INFORMATION 
ITEM 1.
CONSOLIDATED FINANCIAL STATEMENTS 
CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except unit data)




 
 
June 30,
 
December 31,
 
 
2017
 
2016
ASSETS
 
(unaudited)
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$

 
$

Restricted cash
 
865

 
605

Accounts and other receivables
 
138

 
90

Accounts receivable—affiliate
 
41

 
99

Advances to affiliate
 
40

 
38

Inventory
 
93

 
97

Other current assets
 
39

 
29

Total current assets
 
1,216

 
958

 
 
 
 
 
Non-current restricted cash
 
698

 

Property, plant and equipment, net
 
14,922

 
14,158

Debt issuance costs, net
 
73

 
121

Non-current derivative assets
 
43

 
83

Other non-current assets, net
 
211

 
222

Total assets
 
$
17,163

 
$
15,542

 
 
 
 
 
LIABILITIES AND PARTNERS’ EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
44

 
$
27

Accrued liabilities
 
467

 
418

Current debt
 

 
224

Due to affiliates
 
44

 
99

Deferred revenue
 
65

 
73

Deferred revenue—affiliate
 
1

 
1

Derivative liabilities
 
2

 
14

Total current liabilities
 
623

 
856

 
 
 
 
 
Long-term debt, net
 
16,025

 
14,209

Non-current deferred revenue
 
3

 
5

Non-current derivative liabilities
 
1

 
2

Other non-current liabilities—affiliate
 
25

 
27

 
 
 
 
 
Partners’ equity
 
 
 
 
Common unitholders’ interest (57.1 million units issued and outstanding at June 30, 2017 and December 31, 2016)
 
(198
)
 
130

Class B unitholders’ interest (145.3 million units issued and outstanding at June 30, 2017 and December 31, 2016)
 
1,092

 
62

Subordinated unitholders’ interest (135.4 million units issued and outstanding at June 30, 2017 and December 31, 2016)
 
(420
)
 
240

General partner’s interest (2% interest with 6.9 million units issued and outstanding at June 30, 2017 and December 31, 2016)
 
12

 
11

Total partners’ equity
 
486


443

Total liabilities and partners’ equity
 
$
17,163

 
$
15,542


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

3


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per unit data)
(unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Revenues
 

 

 
 
 
 
LNG revenues
 
$
503

 
$
85

 
$
995

 
$
85

LNG revenues—affiliate
 
422

 

 
753

 

Regasification revenues
 
65

 
65

 
130

 
130

Other revenues
 
2

 
1

 
4

 
1

Other revenues—affiliate
 

 

 
1

 
2

Total revenues
 
992

 
151

 
1,883

 
218

 
 
 
 
 
 
 
 
 
Operating costs and expenses
 
 

 
 
 
 
 
 
Cost of sales (excluding depreciation and amortization expense shown separately below)
 
577

 
49

 
1,090

 
53

Operating and maintenance expense
 
82

 
24

 
132

 
42

Operating and maintenance expense—affiliate
 
21

 
11

 
39

 
22

Development expense
 
1

 

 
1

 

General and administrative expense
 
2

 
4

 
5

 
7

General and administrative expense—affiliate
 
23

 
21

 
45

 
43

Depreciation and amortization expense
 
86

 
29

 
152

 
48

Total operating costs and expenses
 
792

 
138

 
1,464

 
215

 
 
 
 
 
 
 
 
 
Income from operations
 
200

 
13

 
419

 
3

 
 
 
 
 
 
 
 
 
Other income (expense)
 
 

 
 
 
 
 
 
Interest expense, net of capitalized interest
 
(154
)
 
(72
)
 
(284
)
 
(115
)
Loss on early extinguishment of debt
 

 
(27
)
 
(42
)
 
(28
)
Derivative loss, net
 
(3
)
 
(15
)
 
(3
)
 
(36
)
Other income
 
3

 
1

 
3

 
1

Total other expense
 
(154
)
 
(113
)
 
(326
)
 
(178
)
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
46

 
$
(100
)
 
$
93

 
$
(175
)
 
 
 
 
 
 
 
 
 
Basic and diluted net loss per common unit
 
$
(3.71
)
 
$
(0.21
)
 
$
(4.50
)
 
$
(0.29
)
 
 
 
 
 
 
 
 
 
Weighted average number of common units outstanding used for basic and diluted net loss per common unit calculation
 
57.1

 
57.1

 
57.1

 
57.1





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

4


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF PARTNERS’ EQUITY
(in millions)
(unaudited)
 
Common Unitholders’ Interest
 
Class B Unitholders’ Interest
 
Subordinated Unitholder’s Interest
 
General Partner’s Interest
 
Total Partners’ Equity
 
Units
 
Amount
 
Units
 
Amount
 
Units
 
Amount
 
Units
 
Amount
 
Balance at December 31, 2016
57.1

 
$
130

 
145.3

 
$
62

 
135.4

 
$
240

 
6.9

 
$
11

 
$
443

Net income

 
27

 

 

 

 
64

 

 
2

 
93

Distributions

 
(49
)
 

 

 

 

 

 
(1
)
 
(50
)
Amortization of beneficial conversion feature of Class B units

 
(306
)
 

 
1,030

 

 
(724
)
 

 

 

Balance at June 30, 2017
57.1

 
$
(198
)
 
145.3

 
$
1,092

 
135.4

 
$
(420
)
 
6.9

 
$
12

 
$
486




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

5


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Six Months Ended June 30,
 
2017
 
2016
Cash flows from operating activities
 
 
 
Net income (loss)
$
93

 
$
(175
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization expense
152

 
48

Amortization of debt issuance costs, deferred commitment fees, premium and discount
19

 
11

Loss on early extinguishment of debt
42

 
28

Total losses on derivatives, net
43

 
48

Net cash used for settlement of derivative instruments
(16
)
 
(4
)
Changes in operating assets and liabilities:
 
 
 
Accounts and other receivables
(47
)
 
(71
)
Accounts receivable—affiliate
59

 
1

Advances to affiliate
(19
)
 
1

Inventory
12

 
(17
)
Accounts payable and accrued liabilities
68

 
47

Due to affiliates
(57
)
 
(3
)
Deferred revenue
(10
)
 
(2
)
Other, net
(13
)
 
(9
)
Other, net—affiliate
(2
)
 
(1
)
Net cash provided by (used in) operating activities
324

 
(98
)
 
 
 
 
Cash flows from investing activities
 

 
 

Property, plant and equipment, net
(898
)
 
(1,224
)
Other

 
(39
)
Net cash used in investing activities
(898
)
 
(1,263
)
 
 
 
 
Cash flows from financing activities
 

 
 

Proceeds from issuances of debt
2,314

 
3,365

Repayments of debt
(703
)
 
(1,842
)
Debt issuance and deferred financing costs
(29
)
 
(70
)
Distributions to owners
(50
)
 
(50
)
Net cash provided by financing activities
1,532

 
1,403

 
 
 
 
Net increase in cash, cash equivalents and restricted cash
958

 
42

Cash, cash equivalents and restricted cash—beginning of period
605

 
434

Cash, cash equivalents and restricted cash—end of period
$
1,563

 
$
476



Balances per Consolidated Balance Sheet:
 
June 30, 2017
Cash and cash equivalents
$

Restricted cash
865

Non-current restricted cash
698

Total cash, cash equivalents and restricted cash
$
1,563




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

6


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



 
NOTE 1—NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Through SPL, we are developing, constructing and operating natural gas liquefaction facilities (the “Liquefaction Project”) at the Sabine Pass LNG terminal located in Cameron Parish, Louisiana, on the Sabine-Neches Waterway less than four miles from the Gulf Coast. We plan to construct up to six Trains, which are in various stages of development, construction and operations. Trains 1 through 3 are operational, Train 4 is undergoing commissioning, Train 5 is under construction and Train 6 is being commercialized and has all necessary regulatory approvals in place. In the second quarter of 2016, we started production at the Liquefaction Project and began recognizing LNG revenues, which include fees that are received pursuant to our long-term SPAs and other related revenues.

We also own and operate regasification facilities at the Sabine Pass LNG terminal through SPLNG and own a 94-mile pipeline that interconnects the Sabine Pass LNG terminal with a number of large interstate pipelines (the “Creole Trail Pipeline”) through CTPL. Regasification revenues include LNG regasification capacity reservation fees that are received from our two long-term TUA customers. We also recognize tug services fees, which were historically included in regasification revenues but are now included within other revenues on our Consolidated Statements of Operations, that are received by Sabine Pass Tug Services, LLC (“Tug Services”), a wholly owned subsidiary of SPLNG.

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements of Cheniere Partners 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, 2016. In our opinion, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation, have been included. Certain reclassifications have been made to conform prior period information to the current presentation.  The reclassifications had no effect on our overall consolidated financial position, results of operations or cash flows.

Results of operations for the three and six months ended June 30, 2017 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2017.

We are not subject to either federal or state income tax, as our partners are taxed individually on their allocable share of our taxable income.

NOTE 2—UNITHOLDERS’ EQUITY
 
The common units, Class B units and subordinated units represent limited partner interests in us. The holders of the units are entitled to participate in partnership distributions and exercise the rights and privileges available to limited partners under our partnership agreement. Our partnership agreement requires that, within 45 days after the end of each quarter, we distribute all of our available cash (as defined in our partnership agreement). Generally, our available cash is our cash on hand at the end of a quarter less the amount of any reserves established by our general partner. All distributions paid to date have been made from operating surplus as defined in the partnership agreement.

The holders of common units have the right to receive initial quarterly distributions of $0.425 per common unit, plus any arrearages thereon, before any distribution is made to the holders of the subordinated units. The holders of subordinated units will receive distributions only to the extent we have available cash above the initial quarterly distribution requirement for our common unitholders and general partner and certain reserves.  Subordinated units will convert into common units on a one-for-one basis when we meet financial tests specified in the partnership agreement. Although common and subordinated unitholders are not obligated to fund losses of the Partnership, their capital accounts, which would be considered in allocating the net assets of the Partnership were it to be liquidated, continue to share in losses.

The general partner interest is entitled to at least 2% of all distributions made by us. In addition, the general partner holds incentive distribution rights (“IDRs”), which allow the general partner to receive a higher percentage of quarterly distributions of available cash from operating surplus after the initial quarterly distributions have been achieved and as additional target levels are met. The higher percentages range from 15% to 50%.

7


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)


 
During 2012, Blackstone CQP Holdco and Cheniere completed their purchases of a new class of equity interests representing limited partner interests in us (“Class B units”) for total consideration of $1.5 billion and $500 million, respectively. Proceeds from the financings were used to fund a portion of the costs of developing, constructing and placing into service the first two Trains of the Liquefaction Project. In May 2013, Cheniere purchased an additional 12.0 million Class B units for consideration of $180 million in connection with our acquisition of CTPL and Cheniere Pipeline GP Interests, LLC.  In 2013, Cheniere formed Cheniere Holdings to hold its limited partner interests in us. The Class B units are subject to conversion, mandatorily or at the option of the Class B unitholders under specified circumstances, into a number of common units based on the then-applicable conversion value of the Class B units. The Class B units are not entitled to cash distributions except in the event of our liquidation or a merger, consolidation or other combination of us with another person or the sale of all or substantially all of our assets. On a quarterly basis beginning on the date of the initial purchase date of the Class B units, the conversion value of the Class B units increases at a compounded rate of 3.5% per quarter, subject to additional upward adjustment for certain equity and debt financings. The accreted conversion ratio of the Class B units owned by Cheniere Holdings and Blackstone CQP Holdco was 2.04 and 1.99, respectively, as of June 30, 2017. See Note 16—Subsequent Events for information regarding the subsequent conversion of the Class B units into common units.

NOTE 3—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 June 30, 2017 and December 31, 2016, restricted cash consisted of the following (in millions):
 
 
June 30,
 
December 31,
 
 
2017
 
2016
Current restricted cash
 
 
 
 
Liquefaction Project
 
$
579

 
$
358

CQP and cash held by guarantor subsidiaries
 
286

 
247

Total current restricted cash
 
$
865

 
$
605

 
 
 
 
 
Non-current restricted cash
 
 
 
 
Liquefaction Project
 
$
698

 
$


NOTE 4—ACCOUNTS AND OTHER RECEIVABLES

As of June 30, 2017 and December 31, 2016, accounts and other receivables consisted of the following (in millions):
 
 
June 30,
 
December 31,
 
 
2017
 
2016
SPL trade receivable
 
$
123

 
$
88

Other accounts receivable
 
15

 
2

Total accounts and other receivables
 
$
138

 
$
90


Pursuant to the accounts agreement entered into with the collateral trustee for the benefit of SPL’s debt holders, SPL is required to deposit all cash received into reserve accounts controlled by the collateral trustee.  The usage or withdrawal of such cash is restricted to the payment of liabilities related to the Liquefaction Project and other restricted payments.

NOTE 5—INVENTORY

As of June 30, 2017 and December 31, 2016, inventory consisted of the following (in millions):
 
 
June 30,
 
December 31,
 
 
2017
 
2016
Natural gas
 
$
17

 
$
15

LNG
 
29

 
45

Materials and other
 
47

 
37

Total inventory
 
$
93

 
$
97



8


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)


NOTE 6—PROPERTY, PLANT AND EQUIPMENT
 
Property, plant and equipment, net consists of LNG terminal costs and fixed assets, as follows (in millions):
 
 
June 30,
 
December 31,
 
 
2017
 
2016
LNG terminal costs
 
 
 
 
LNG terminal
 
$
10,442

 
$
7,976

LNG terminal construction-in-process
 
5,173

 
6,728

Accumulated depreciation
 
(699
)
 
(553
)
Total LNG terminal costs, net
 
14,916

 
14,151

Fixed assets
 
 

 
 

Fixed assets
 
21

 
20

Accumulated depreciation
 
(15
)
 
(13
)
Total fixed assets, net
 
6

 
7

Property, plant and equipment, net
 
$
14,922

 
$
14,158

 

Depreciation expense was $84 million and $26 million in the three months ended June 30, 2017 and 2016, respectively, and $148 million and $44 million in the six months ended June 30, 2017 and 2016, respectively.

We realized offsets to LNG terminal costs of $39 million and $128 million in the three months ended June 30, 2017 and 2016, respectively, and $163 million and $142 million in the six months ended June 30, 2017 and 2016, respectively, that were related to the sale of commissioning cargoes because these amounts were earned or loaded prior to the start of commercial operations of the respective Train of the Liquefaction Project, during the testing phase for its construction.

NOTE 7—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”) and
commodity derivatives consisting of natural gas supply contracts for the commissioning and operation of the Liquefaction Project (“Physical Liquefaction Supply Derivatives”) and associated economic hedges (collectively, the “Liquefaction Supply Derivatives”).

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.

The following table (in millions) shows the fair value of our derivative instruments that are required to be measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016, which are classified as other current assets, non-current derivative assets, derivative liabilities or non-current derivative liabilities in our Consolidated Balance Sheets.
 
Fair Value Measurements as of
 
June 30, 2017
 
December 31, 2016
 
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
SPL Interest Rate Derivatives liability
$

 
$

 
$

 
$

 
$

 
$
(6
)
 
$

 
$
(6
)
CQP Interest Rate Derivatives asset

 
13

 

 
13

 

 
13

 

 
13

Liquefaction Supply Derivatives asset (liability)
2

 

 
40

 
42

 
(4
)
 
(2
)
 
79

 
73



9


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)


There have been no changes to our evaluation of and accounting for our derivative positions during the six months ended June 30, 2017. See Note 8—Derivative Instruments of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended December 31, 2016 for additional information.

We value our Interest Rate Derivatives using valuations based on the initial trade prices. Using an income-based approach, subsequent valuations are based on observable inputs to the valuation model including interest rate curves, risk adjusted discount rates, credit spreads and other relevant data.

The fair value of our Physical Liquefaction Supply Derivatives is predominantly driven by market commodity basis prices and our assessment of the associated conditions precedent, including evaluating whether the respective market is available as pipeline infrastructure is developed. Upon the satisfaction of conditions precedent, including the 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 as of the reporting date.

The fair value of substantially all of our Physical Liquefaction Supply Derivatives is developed through the use of internal models which are impacted by inputs that are unobservable in the marketplace. As a result, the fair value of our Physical Liquefaction Supply Derivatives is designated as Level 3 within the valuation hierarchy. 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. Internal fair value models include conditions precedent to the respective long-term natural gas supply contracts. As of June 30, 2017 and December 31, 2016, 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 following table includes quantitative information for the unobservable inputs for our Level 3 Physical Liquefaction Supply Derivatives as of June 30, 2017:
 
 
Net Fair Value Asset
(in millions)
 
Valuation Technique
 
Significant Unobservable Input
 
Significant Unobservable Inputs Range
Physical Liquefaction Supply Derivatives
 
$40
 
Income Approach
 
Basis Spread
 
$(0.338) - $0.080

The following table (in millions) shows the changes in the fair value of our Level 3 Physical Liquefaction Supply Derivatives during the six months ended June 30, 2017 and 2016:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Balance, beginning of period
 
$
41

 
$
30

 
$
79

 
$
32

Realized and mark-to-market losses:
 
 
 
 
 
 
 
 
Included in cost of sales (1)
 
(1
)
 
(8
)
 
(40
)
 
(10
)
Purchases and settlements:
 
 
 
 
 
 
 
 
Purchases
 
2

 

 
5

 

Settlements (1)
 
(2
)
 

 
(4
)
 

Balance, end of period
 
$
40

 
$
22

 
$
40

 
$
22

Change in unrealized gains relating to instruments still held at end of period
 
$
(1
)
 
$
(8
)
 
$
(40
)
 
$
(9
)
 
    
(1)
Does not include the decrease in fair value of $1 million related to the realized gains capitalized during the six months ended June 30, 2016.

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.  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.

10


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)



Interest Rate Derivatives

SPL had entered into interest rate swaps (“SPL Interest Rate Derivatives”) to protect against volatility of future cash flows and hedge a portion of the variable interest payments on the credit facilities it entered into in June 2015 (the “2015 SPL Credit Facilities”). In March 2017, SPL settled the SPL Interest Rate Derivatives and recognized a derivative loss of $7 million in conjunction with the termination of approximately $1.6 billion of commitments under the 2015 SPL Credit Facilities, as discussed in Note 10—Debt.

During the six months ended June 30, 2017, there were no changes to the terms of our interest rate swaps (“CQP Interest Rate Derivatives”) entered into to hedge a portion of the variable interest payments on the credit facilities we entered into in February 2016 (the “2016 CQP Credit Facilities”). See Note 8—Derivative Instruments of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended December 31, 2016 for additional information.

As of June 30, 2017, we had the following Interest Rate Derivatives outstanding:
 
 
Initial Notional Amount
 
Maximum Notional Amount
 
Effective Date
 
Maturity Date
 
Weighted Average Fixed Interest Rate Paid
 
Variable Interest Rate Received
CQP Interest Rate Derivatives
 
$225 million
 
$1.3 billion
 
March 22, 2016
 
February 29, 2020
 
1.19%
 
One-month LIBOR

The following table (in millions) shows the fair value and location of our Interest Rate Derivatives on our Consolidated Balance Sheets:
 
 
June 30, 2017
 
December 31, 2016
 
 
SPL Interest Rate Derivatives
 
CQP Interest Rate Derivatives
 
Total
 
SPL Interest Rate Derivatives
 
CQP Interest Rate Derivatives
 
Total
Balance Sheet Location
 
 
 
 
 
 
 
 
 
 
 
 
Other current assets
 
$

 
$
2

 
$
2

 
$

 
$

 
$

Non-current derivative assets
 

 
11

 
11

 

 
16

 
16

Total derivative assets
 

 
13

 
13

 

 
16

 
16

 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
 

 

 

 
(4
)
 
(3
)
 
(7
)
Non-current derivative liabilities
 

 

 

 
(2
)
 

 
(2
)
Total derivative liabilities
 

 

 

 
(6
)
 
(3
)
 
(9
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative asset (liability), net
 
$

 
$
13

 
$
13

 
$
(6
)
 
$
13

 
$
7


The following table (in millions) shows the changes in the fair value and settlements of our Interest Rate Derivatives recorded in derivative loss, net on our Consolidated Statements of Operations during the three and six months ended June 30, 2017 and 2016:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
SPL Interest Rate Derivatives loss
 
$

 
$
(5
)
 
$
(2
)
 
$
(16
)
CQP Interest Rate Derivatives loss
 
(3
)
 
(10
)
 
(1
)
 
(20
)


11


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)


Liquefaction Supply Derivatives

The following table (in millions) shows the fair value and location of our Liquefaction Supply Derivatives on our Consolidated Balance Sheets:
 
 
 
Fair Value Measurements as of (1)
 
Balance Sheet Location
 
June 30, 2017
 
December 31, 2016
Liquefaction Supply Derivatives
Other current assets
 
$
13

 
$
13

Liquefaction Supply Derivatives
Non-current derivative assets
 
32

 
67

Liquefaction Supply Derivatives
Derivative liabilities
 
(2
)
 
(7
)
Liquefaction Supply Derivatives
Non-current derivative liabilities
 
(1
)
 

 
(1)
Does not include collateral of $6 million deposited for such contracts, which is included in other current assets in our Consolidated Balance Sheet as of December 31, 2016.

SPL had secured up to approximately 2,220 TBtu and 1,994 TBtu of natural gas feedstock through natural gas supply contracts as of June 30, 2017 and December 31, 2016, respectively. The notional natural gas position of our Liquefaction Supply Derivatives was approximately 1,424 TBtu and 1,117 TBtu as of June 30, 2017 and December 31, 2016, respectively.

The following table (in millions) shows the changes in the fair value, settlements and location of our Liquefaction Supply Derivatives recorded on our Consolidated Statements of Operations during the three and six months ended June 30, 2017 and 2016:
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Statement of Operations Location (1)
 
2017
 
2016
 
2017
 
2016
Liquefaction Supply Derivatives loss (2)
Cost of sales
 
$
1

 
$
8

 
$
40

 
$
12

 
(1)
Fair value fluctuations associated with commodity derivative activities are classified and presented consistently with the item economically hedged and the nature and intent of the derivative instrument.
(2)
Does not include the realized value associated with derivative instruments that settle through physical delivery.

Balance Sheet Presentation

Our derivative instruments are presented on a net basis on our Consolidated Balance Sheets as described above. The following table (in millions) shows the fair value of our derivatives outstanding on a gross and net basis:
 
 
Gross Amounts Recognized
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Amounts Presented in the Consolidated Balance Sheets
Offsetting Derivative Assets (Liabilities)
 
 
 
As of June 30, 2017
 
 
 
 
 
 
CQP Interest Rate Derivatives
 
$
13

 
$

 
$
13

Liquefaction Supply Derivatives
 
49

 
(4
)
 
45

Liquefaction Supply Derivatives
 
(4
)
 
1

 
(3
)
As of December 31, 2016
 
 
 
 
 
 
SPL Interest Rate Derivatives
 
$
(6
)
 
$

 
$
(6
)
CQP Interest Rate Derivatives
 
16

 

 
16

CQP Interest Rate Derivatives
 
(3
)
 

 
(3
)
Liquefaction Supply Derivatives
 
82

 
(2
)
 
80

Liquefaction Supply Derivatives
 
(11
)
 
4

 
(7
)


12


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)


NOTE 8—OTHER NON-CURRENT ASSETS

As of June 30, 2017 and December 31, 2016, other non-current assets consisted of the following (in millions):
 
 
June 30,
 
December 31,
 
 
2017
 
2016
Advances made under EPC and non-EPC contracts
 
$
19

 
$
23

Advances made to municipalities for water system enhancements
 
95

 
95

Advances and other asset conveyances to third parties to support LNG terminals
 
30

 
31

Tax-related payments and receivables
 
33

 
28

Information technology service assets
 
25

 
27

Other
 
9

 
18

Total other non-current assets, net
 
$
211

 
$
222


NOTE 9—ACCRUED LIABILITIES
 
As of June 30, 2017 and December 31, 2016, accrued liabilities consisted of the following (in millions):
 
 
June 30,
 
December 31,
 
 
2017
 
2016
Interest costs and related debt fees
 
$
190

 
$
205

Sabine Pass LNG terminal and related pipeline costs
 
272

 
211

Other accrued liabilities
 
5

 
2

Total accrued liabilities
 
$
467

 
$
418


NOTE 10—DEBT
 
As of June 30, 2017 and December 31, 2016, our debt consisted of the following (in millions):
 
 
June 30,
 
December 31,
 
 
2017
 
2016
Long-term debt:
 
 
 
 
SPL
 
 
 
 
5.625% Senior Secured Notes due 2021 (“2021 SPL Senior Notes”), net of unamortized premium of $6 and $7
 
$
2,006

 
$
2,007

6.25% Senior Secured Notes due 2022 (“2022 SPL Senior Notes”)
 
1,000

 
1,000

5.625% Senior Secured Notes due 2023 (“2023 SPL Senior Notes”), net of unamortized premium of $5 and $6
 
1,505

 
1,506

5.75% Senior Secured Notes due 2024 (“2024 SPL Senior Notes”)
 
2,000

 
2,000

5.625% Senior Secured Notes due 2025 (“2025 SPL Senior Notes”)
 
2,000

 
2,000

5.875% Senior Secured Notes due 2026 (“2026 SPL Senior Notes”)
 
1,500

 
1,500

5.00% Senior Secured Notes due 2027 (“2027 SPL Senior Notes”)
 
1,500

 
1,500

4.200% Senior Secured Notes due 2028 (“2028 SPL Senior Notes”), net of unamortized discount of $1 and zero
 
1,349

 

5.00% Senior Secured Notes due 2037 (“2037 SPL Senior Notes”)
 
800

 

2015 SPL Credit Facilities
 

 
314

Cheniere Partners
 
 
 
 
2016 CQP Credit Facilities
 
2,560

 
2,560

Unamortized debt issuance costs
 
(195
)
 
(178
)
Total long-term debt, net
 
16,025

 
14,209

 
 
 
 
 
Current debt:
 
 
 
 
$1.2 billion SPL Working Capital Facility (“SPL Working Capital Facility”)
 

 
224

 
 
 
 
 
Total debt, net
 
$
16,025

 
$
14,433



13


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)


2017 Debt Issuances and Redemptions

Senior Notes

In February 2017, SPL issued an aggregate principal amount of $800 million of the 2037 SPL Senior Notes on a private placement basis in reliance on the exemption from registration provided for under Section 4(a)(2) of the Securities Act of 1933, as amended. In March 2017, SPL issued an aggregate principal amount of $1.35 billion, before discount, of the 2028 SPL Senior Notes. Net proceeds of the offerings of the 2037 SPL Senior Notes and the 2028 SPL Senior Notes were $789 million and $1.33 billion, respectively, after deducting the initial purchasers’ commissions (for the 2028 SPL Senior Notes) and estimated fees and expenses. The net proceeds of the 2037 SPL Senior Notes, after provisioning for incremental interest required during construction, were used to repay the then outstanding borrowings of $369 million under the 2015 SPL Credit Facilities and, along with the net proceeds of the 2028 SPL Senior Notes, the remainder is being used to pay a portion of the capital costs in connection with the construction of Trains 1 through 5 of the Liquefaction Project in lieu of the terminated portion of the commitments under the 2015 SPL Credit Facilities.
  
In connection with the issuance of the 2037 SPL Senior Notes and the 2028 SPL Senior Notes, SPL terminated the remaining available balance of $1.6 billion under the 2015 SPL Credit Facilities, resulting in a write-off of debt issuance costs associated with the 2015 SPL Credit Facilities of $42 million during the six months ended June 30, 2017.

The 2037 SPL Senior Notes and the 2028 SPL Senior Notes accrue interest at fixed rates of 5.00% and 4.200%, respectively, and interest is payable semi-annually in arrears. The terms of the 2037 SPL Senior Notes are governed by an indenture which contains customary terms and events of default and certain covenants that, among other things, limit SPL’s ability and the ability of SPL’s restricted subsidiaries to incur additional indebtedness or issue preferred stock, make certain investments or pay dividends or distributions on capital stock or subordinated indebtedness or purchase, redeem or retire capital stock, sell or transfer assets, including capital stock of SPL’s restricted subsidiaries, restrict dividends or other payments by restricted subsidiaries, incur liens, enter into transactions with affiliates, dissolve, liquidate, consolidate, merge, sell or lease all or substantially all of SPL’s assets and enter into certain LNG sales contracts. The 2028 SPL Senior Notes are governed by the same common indenture as the senior notes of SPL other than the 2037 SPL Senior Notes, which also contains customary terms and events of default, covenants and redemption terms.

At any time prior to six months before the respective dates of maturity of the 2037 SPL Senior Notes and the 2028 SPL Senior Notes, SPL may redeem all or part of such notes at a redemption price equal to the “optional redemption” price for the 2037 SPL Senior Notes or the “make-whole” price for the 2028 SPL Senior Notes, as set forth in the respective indentures governing the notes, plus accrued and unpaid interest, if any, to the date of redemption. SPL may also, at any time within six months of the respective maturity dates for the 2037 SPL Senior Notes and the 2028 SPL Senior Notes, redeem all or part of such notes at a redemption price equal to 100% of the principal amount of such notes to be redeemed, plus accrued and unpaid interest, if any, to the date of redemption.

Credit Facilities

Below is a summary (in millions) of our credit facilities outstanding as of June 30, 2017:
 
 
SPL Working Capital Facility
 
2016 CQP Credit Facilities
Original facility size
 
$
1,200

 
$
2,800

Outstanding balance
 

 
2,560

Letters of credit issued
 
366

 
50

Available commitment
 
$
834

 
$
190

 
 
 
 
 
Interest rate
 
LIBOR plus 1.75% or base rate plus 0.75%
 
LIBOR plus 2.25% or base rate plus 1.25% (1)
Maturity date
 
December 31, 2020, with various terms for underlying loans
 
February 25, 2020, with principals due quarterly commencing on February 19, 2019
 
(1)
There is a 0.50% step-up for both LIBOR and base rate loans beginning on February 25, 2019.


14


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)


Interest Expense

Total interest expense consisted of the following (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Total interest cost
 
$
224

 
$
205

 
$
435

 
$
397

Capitalized interest
 
(70
)
 
(133
)
 
(151
)
 
(282
)
Total interest expense, net
 
$
154

 
$
72

 
$
284

 
$
115


Fair Value Disclosures

The following table (in millions) shows the carrying amount and estimated fair value of our debt:
 
 
June 30, 2017
 
December 31, 2016
 
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
Senior notes, net of premium or discount (1)
 
$
12,860

 
$
14,040

 
$
11,513

 
$
12,309

2037 SPL Senior Notes (2)
 
800

 
860

 

 

Credit facilities (3)
 
2,560

 
2,560

 
3,098

 
3,098

 
(1)
Includes 2021 SPL Senior Notes, 2022 SPL Senior Notes, 2023 SPL Senior Notes, 2024 SPL Senior Notes, 2025 SPL Senior Notes, 2026 SPL Senior Notes, 2027 SPL Senior Notes and 2028 SPL Senior Notes. The Level 2 estimated fair value was based on quotes obtained from broker-dealers or market makers of these senior notes and other similar instruments.
(2)
The Level 3 estimated fair value was calculated based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including our stock price and interest rates based on debt issued by parties with comparable credit ratings to us and inputs that are not observable in the market. 
(3)
Includes 2015 SPL Credit Facilities, SPL Working Capital Facility and 2016 CQP Credit Facilities. The Level 3 estimated fair value approximates the principal amount because the interest rates are variable and reflective of market rates and the debt may be repaid, in full or in part, at any time without penalty. 


15


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)


NOTE 11—RELATED PARTY TRANSACTIONS
 
Below is a summary (in millions) of our related party transactions as reported on our Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
LNG revenues—affiliate
Cheniere Marketing SPA and Cheniere Marketing Master SPA
$
422

 
$

 
$
753

 
$

 
 
 
 
 
 
 
 
Other revenues—affiliate
Contracts for Sale and Purchase of Natural Gas and LNG

 

 

 
1

Terminal Marine Services Agreement

 

 
1

 
1

Total other revenues—affiliate




1


2

 
Operating and maintenance expense—affiliate
Contracts for Sale and Purchase of Natural Gas and LNG

 

 

 
1

Services Agreements
21

 
11

 
39

 
21

Total operating and maintenance expense—affiliate
21


11


39


22

 
General and administrative expense—affiliate
Services Agreements
23

 
21

 
45

 
43


LNG Terminal Capacity Agreements

Terminal Use Agreements

SPL obtained approximately 2.0 Bcf/d of regasification capacity under a TUA with SPLNG as a result of an assignment in July 2012 by Cheniere Investments of its rights, title and interest under its TUA with SPLNG. SPL is obligated to make monthly capacity payments to SPLNG aggregating approximately $250 million per year (the “TUA Fees”), continuing until at least 20 years after SPL delivers its first commercial cargo at the Liquefaction Project.

In connection with this TUA, SPL is required to pay for a portion of the cost (primarily LNG inventory) to maintain the cryogenic readiness of the regasification facilities at the Sabine Pass LNG terminal, which is recorded as operating and maintenance expense on our Consolidated Statements of Operations.

Cheniere Investments, SPL and SPLNG entered into the terminal use rights assignment and agreement (the “TURA”) pursuant to which Cheniere Investments has the right to use SPL’s reserved capacity under the TUA and has the obligation to pay the TUA Fees required by the TUA to SPLNG. However, the revenue earned by SPLNG from the TUA Fees and the loss incurred by Cheniere Investments under the TURA are eliminated upon consolidation of our Consolidated Financial Statements. We have guaranteed the obligations of SPL under its TUA and the obligations of Cheniere Investments under the TURA.

In an effort to utilize Cheniere Investments’ reserved capacity under the TURA during construction of the Liquefaction Project, Cheniere Marketing has entered into an amended and restated variable capacity rights agreement with Cheniere Investments (the “Amended and Restated VCRA”) pursuant to which Cheniere Marketing is obligated to pay Cheniere Investments 80% of the expected gross margin of each cargo of LNG that Cheniere Marketing arranges for delivery to the Sabine Pass LNG terminal. Cheniere Investments recorded no revenues—affiliate from Cheniere Marketing during the three and six months ended June 30, 2017 and 2016, respectively, related to the Amended and Restated VCRA.

Cheniere Marketing SPA

Cheniere Marketing has entered into an SPA with SPL to purchase, at Cheniere Marketing’s option, any LNG produced by SPL in excess of that required for other customers at a price of 115% of Henry Hub plus $3.00 per MMBtu of LNG.

16


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)



Cheniere Marketing Master SPA

SPL has entered into an agreement with Cheniere Marketing that allows the parties to sell and purchase LNG with each other by executing and delivering confirmations under this agreement.

Commissioning Confirmation

Under the Cheniere Marketing Master SPA, SPL has executed a confirmation with Cheniere Marketing that obligates Cheniere Marketing in certain circumstances to buy LNG cargoes produced during the periods while Bechtel Oil, Gas and Chemicals, Inc. has control of, and is commissioning, the first four Trains of the Liquefaction Project.

Pre-commercial LNG Marketing Agreement

SPL has entered into an agreement with Cheniere Marketing that authorizes Cheniere Marketing to act on SPL’s behalf to market and sell certain quantities of pre-commercial LNG that has not been accepted by BG Gulf Coast LNG, LLC, one of SPL’s SPA customers. SPL pays a fee to Cheniere Marketing for marketing and transportation, which is based on volume sold under this agreement.

Services Agreements
As of June 30, 2017 and December 31, 2016, we had $40 million and $38 million of advances to affiliates, respectively, under the services agreements described below. The non-reimbursement amounts incurred under the services agreements described below are recorded in general and administrative expense—affiliate.

Cheniere Partners Services Agreement

We have entered into a services agreement with Cheniere Terminals, a wholly owned subsidiary of Cheniere, pursuant to which Cheniere Terminals is entitled to a quarterly non-accountable overhead reimbursement charge of $3 million (adjusted for inflation) for the provision of various general and administrative services for our benefit. In addition, Cheniere Terminals is entitled to reimbursement for all audit, tax, legal and finance fees incurred by Cheniere Terminals that are necessary to perform the services under the agreement.

Cheniere Investments Information Technology Services Agreement

Cheniere Investments has entered into an information technology services agreement with Cheniere, pursuant to which Cheniere Investments’ subsidiaries receive certain information technology services. On a quarterly basis, the various entities receiving the benefit are invoiced by Cheniere according to the cost allocation percentages set forth in the agreement. In addition, Cheniere is entitled to reimbursement for all costs incurred by Cheniere that are necessary to perform the services under the agreement.

SPLNG O&M Agreement

SPLNG has entered into a long-term operation and maintenance agreement (the “SPLNG O&M Agreement”) with Cheniere Investments pursuant to which SPLNG receives all necessary services required to operate and maintain the Sabine Pass LNG receiving terminal. SPLNG pays a fixed monthly fee of $130,000 (indexed for inflation) under the SPLNG O&M Agreement and the cost of a bonus equal to 50% of the salary component of labor costs in certain circumstances to be agreed upon between SPLNG and Cheniere Investments at the beginning of each operating year. In addition, SPLNG is required to reimburse Cheniere Investments for its operating expenses, which consist primarily of labor expenses. Cheniere Investments provides the services required under the SPLNG O&M Agreement pursuant to a secondment agreement with a wholly owned subsidiary of Cheniere. All payments received by Cheniere Investments under the SPLNG O&M Agreement are required to be remitted to such subsidiary.
 
SPLNG MSA

SPLNG has entered into a long-term management services agreement (the “SPLNG MSA”) with Cheniere Terminals, pursuant to which Cheniere Terminals manages the operation of the Sabine Pass LNG receiving terminal, excluding those matters

17


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)


provided for under the SPLNG O&M Agreement. SPLNG pays a monthly fixed fee of $520,000 (indexed for inflation) under the SPLNG MSA.

SPL O&M Agreement

SPL has entered into an operation and maintenance agreement (the “SPL O&M Agreement”) with Cheniere Investments pursuant to which SPL receives all of the necessary services required to construct, operate and maintain the Liquefaction Project. Before each Train of the Liquefaction Project is operational, the services to be provided include, among other services, obtaining governmental approvals on behalf of SPL, preparing an operating plan for certain periods, obtaining insurance, preparing staffing plans and preparing status reports. After each Train is operational, the services include all necessary services required to operate and maintain the Train. Prior to the substantial completion of each Train of the Liquefaction Project, in addition to reimbursement of operating expenses, SPL is required to pay a monthly fee equal to 0.6% of the capital expenditures incurred in the previous month. After substantial completion of each Train, for services performed while the Train is operational, SPL will pay, in addition to the reimbursement of operating expenses, a fixed monthly fee of $83,333 (indexed for inflation) for services with respect to the Train. Cheniere Investments provides the services required under the SPL O&M Agreement pursuant to a secondment agreement with a wholly owned subsidiary of Cheniere. All payments received by Cheniere Investments under the SPL O&M Agreement are required to be remitted to such subsidiary.
SPL MSA

SPL has entered into a management services agreement (the “SPL MSA”) with Cheniere Terminals pursuant to which Cheniere Terminals manages the construction and operation of the Liquefaction Project, excluding those matters provided for under the SPL O&M Agreement. The services include, among other services, exercising the day-to-day management of SPL’s affairs and business, managing SPL’s regulatory matters, managing bank and brokerage accounts and financial books and records of SPL’s business and operations, entering into financial derivatives on SPL’s behalf and providing contract administration services for all contracts associated with the Liquefaction Project. Prior to the substantial completion of each Train of the Liquefaction Project, SPL pays a monthly fee equal to 2.4% of the capital expenditures incurred in the previous month. After substantial completion of each Train, SPL will pay a fixed monthly fee of $541,667 (indexed for inflation) for services with respect to such Train.

CTPL O&M Agreement

CTPL has entered into an amended long-term operation and maintenance agreement (the “CTPL O&M Agreement”) with Cheniere Investments pursuant to which CTPL receives all necessary services required to operate and maintain the Creole Trail Pipeline. CTPL is required to reimburse the counterparty for its operating expenses, which consist primarily of labor expenses. Cheniere Investments provides the services required under the CTPL O&M Agreement pursuant to a secondment agreement with a wholly owned subsidiary of Cheniere. All payments received by Cheniere Investments under the CTPL O&M Agreement are required to be remitted to such subsidiary.
 
CTPL MSA

CTPL has entered into a management services agreement (the “CTPL MSA”) with Cheniere Terminals pursuant to which Cheniere Terminals manages the modification and operation of the Creole Trail Pipeline, excluding those matters provided for under the CTPL O&M Agreement. The services include, among other services, exercising the day-to-day management of CTPL’s affairs and business, managing CTPL’s regulatory matters, managing bank and brokerage accounts and financial books and records of CTPL’s business and operations and providing contract administration services for all contracts associated with the pipeline facilities. Under the CTPL MSA, CTPL pays a monthly fee equal to 3.0% of the capital expenditures to enable bi-directional natural gas flow on the Creole Trail Pipeline incurred in the previous month.

Agreement to Fund SPLNG’s Cooperative Endeavor Agreements (“CEAs”)
 
SPLNG has executed CEAs with various Cameron Parish, Louisiana taxing authorities that allowed them to collect certain annual property tax payments from SPLNG from 2007 through 2016. This ten-year initiative represented an aggregate commitment of $25 million in order to aid in their reconstruction efforts following Hurricane Rita, which SPLNG fulfilled in the first quarter of 2016. In exchange for SPLNG’s advance payments of annual ad valorem taxes, Cameron Parish will grant SPLNG a dollar-

18


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)


for-dollar credit against future ad valorem taxes to be levied against the Sabine Pass LNG terminal starting in 2019. Beginning in September 2007, SPLNG entered into various agreements with Cheniere Marketing, pursuant to which Cheniere Marketing would pay SPLNG additional TUA revenues equal to any and all amounts payable by SPLNG to the Cameron Parish taxing authorities under the CEAs. In exchange for such amounts received as TUA revenues from Cheniere Marketing, SPLNG will make payments to Cheniere Marketing equal to, and in the year the Cameron Parish dollar-for-dollar credit is applied against, ad valorem tax levied on our LNG terminal.

On a consolidated basis, these advance tax payments were recorded to other non-current assets, and payments from Cheniere Marketing that SPLNG utilized to make the ad valorem tax payments were recorded as a long-term obligation. As of both June 30, 2017 and December 31, 2016, we had $25 million of both other non-current assets resulting from SPLNG’s ad valorem tax payments and non-current liabilities—affiliate resulting from these payments received from Cheniere Marketing.
 
Contracts for Sale and Purchase of Natural Gas and LNG
 
SPLNG is able to sell and purchase natural gas and LNG under agreements with Cheniere Marketing. Under these agreements, SPLNG purchases natural gas or LNG from Cheniere Marketing at a sales price equal to the actual purchase price paid by Cheniere Marketing to suppliers of the natural gas or LNG, plus any third-party costs incurred by Cheniere Marketing with respect to the receipt, purchase and delivery of natural gas or LNG to the Sabine Pass LNG terminal.

Terminal Marine Services Agreement

In connection with its tug boat lease, Tug Services entered into an agreement with a wholly owned subsidiary of Cheniere to provide its LNG cargo vessels with tug boat and marine services at the Sabine Pass LNG terminal.

LNG Terminal Export Agreement

SPLNG and Cheniere Marketing have entered into an LNG Terminal Export Agreement that provides Cheniere Marketing the ability to export LNG from the Sabine Pass LNG terminal.  SPLNG did not record any revenues associated with this agreement during the three and six months ended June 30, 2017 and 2016.

State Tax Sharing Agreements

SPLNG has entered into a state tax sharing agreement with Cheniere.  Under this agreement, Cheniere has agreed to prepare and file all state and local tax returns which SPLNG and Cheniere are required to file on a combined basis and to timely pay the combined state and local tax liability. If Cheniere, in its sole discretion, demands payment, SPLNG will pay to Cheniere an amount equal to the state and local tax that SPLNG would be required to pay if its state and local tax liability were calculated on a separate company basis. There have been no state and local taxes paid by Cheniere for which Cheniere could have demanded payment from SPLNG under this agreement; therefore, Cheniere has not demanded any such payments from SPLNG. The agreement is effective for tax returns due on or after January 1, 2008.

SPL has entered into a state tax sharing agreement with Cheniere. Under this agreement, Cheniere has agreed to prepare and file all state and local tax returns which SPL and Cheniere are required to file on a combined basis and to timely pay the combined state and local tax liability. If Cheniere, in its sole discretion, demands payment, SPL will pay to Cheniere an amount equal to the state and local tax that SPL would be required to pay if SPL’s state and local tax liability were calculated on a separate company basis. There have been no state and local taxes paid by Cheniere for which Cheniere could have demanded payment from SPL under this agreement; therefore, Cheniere has not demanded any such payments from SPL. The agreement is effective for tax returns due on or after August 2012.

CTPL has entered into a state tax sharing agreement with Cheniere. Under this agreement, Cheniere has agreed to prepare and file all state and local tax returns which CTPL and Cheniere are required to file on a combined basis and to timely pay the combined state and local tax liability. If Cheniere, in its sole discretion, demands payment, CTPL will pay to Cheniere an amount equal to the state and local tax that CTPL would be required to pay if CTPL’s state and local tax liability were calculated on a separate company basis. There have been no state and local taxes paid by Cheniere for which Cheniere could have demanded payment from CTPL under this agreement; therefore, Cheniere has not demanded any such payments from CTPL. The agreement is effective for tax returns due on or after May 2013.

19


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)



NOTE 12—NET LOSS PER COMMON UNIT
 
Net loss per common unit for a given period is based on the distributions that will be made to the unitholders with respect to the period plus an allocation of undistributed net loss based on provisions of the partnership agreement, divided by the weighted average number of common units outstanding. Distributions paid by us are presented on the Consolidated Statement of Partners’ Equity. On July 21, 2017, we declared a $0.425 distribution per common unit and the related distribution to our general partner to be paid on August 11, 2017 to unitholders of record as of August 1, 2017 for the period from April 1, 2017 to June 30, 2017.

The two-class method dictates that net income (loss) for a period be reduced by the amount of available cash that will be distributed with respect to that period and that any residual amount representing undistributed net income be allocated to common unitholders and other participating unitholders to the extent that each unit may share in net income as if all of the net income for the period had been distributed in accordance with the partnership agreement. Undistributed income is allocated to participating securities based on the distribution waterfall for available cash specified in the partnership agreement. Undistributed losses (including those resulting from distributions in excess of net income) are allocated to common units and other participating securities on a pro rata basis based on provisions of the partnership agreement. Historical income (loss) attributable to a company that was purchased from an entity under common control is allocated to the predecessor owner in accordance with the terms of the partnership agreement. Distributions are treated as distributed earnings in the computation of earnings per common unit even though cash distributions are not necessarily derived from current or prior period earnings.

The Class B units were issued at a discount to the market price of the common units into which they are convertible.  This discount, totaling $2,130 million, represents a beneficial conversion feature and is reflected as an increase in common and subordinated unitholders’ equity and a decrease in Class B unitholders’ equity to reflect the fair value of the Class B units at issuance on our Consolidated Statement of Partners’ Equity.  The beneficial conversion feature is considered a dividend that will be distributed ratably with respect to any Class B unit from its issuance date through its conversion date, resulting in an increase in Class B unitholders’ equity and a decrease in common and subordinated unitholders’ equity. We amortize the beneficial conversion feature through the mandatory conversion date of August 2017 for Cheniere Holdings’ and Blackstone CQP Holdco’s Class B units. We are amortizing using the effective yield method with a weighted average effective yield of 888.7% per year and 966.1% per year for Cheniere Holdings’ and Blackstone CQP Holdco’s Class B units, respectively. The impact of the beneficial conversion feature is also included in earnings per unit for the three and six months ended June 30, 2017 and 2016. See Note 16—Subsequent Events for information regarding the subsequent conversion of the Class B units into common units.

Based on the capital structure as of June 30, 2017, the anticipated impact to the capital accounts in connection with the amortization of the beneficial conversion feature is as follows in 2017 (in millions):
Common Units
 
Class B Units
 
Subordinated Units
$(594)
 
$2,004
 
$(1,410)


20


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)


Under our partnership agreement, the IDRs participate in net income (loss) only to the extent of the amount of cash distributions actually declared, thereby excluding the IDRs from participating in undistributed net income (loss). We did not allocate earnings or losses for IDRs for the purpose of the two-class method earnings per unit calculation for any of the periods presented. The following table (in millions, except per unit data) provides a reconciliation of net income (loss) and the allocation of net income (loss) to the common units, the subordinated units and the general partner units for purposes of computing net loss per unit.
 
 
 
 
Limited Partner Units
 
 
 
 
Total
 
Common Units
 
Class B Units
 
Subordinated Units
 
General Partner Units
Three Months Ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
Net income
 
$
46

 
 
 
 
 
 
 
 
Declared distributions
 
25

 
25

 

 

 

Amortization of beneficial conversion feature of Class B units
 

 
(237
)
 
796

 
(559
)
 

Assumed allocation of undistributed net income
 
$
21

 

 

 
21

 

Assumed allocation of net income (loss)
 
 
 
$
(212
)
 
$
796

 
$
(538
)
 
$

 
 
 
 
 
 
 
 
 
 
 
Weighted average units outstanding
 
 
 
57.1

 
145.3

 
135.4

 
 
Net loss per unit
 
 
 
$
(3.71
)
 


 
$
(3.97
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(100
)
 
 
 
 
 
 
 
 
Declared distributions
 
25

 
25

 

 

 

Assumed allocation of undistributed net loss
 
$
(125
)
 
(37
)
 

 
(86
)
 
(2
)
Assumed allocation of net loss
 
 
 
$
(12
)
 
$

 
$
(86
)
 
$
(2
)
 
 
 
 
 
 
 
 
 
 
 
Weighted average units outstanding
 
 
 
57.1

 
145.3

 
135.4

 
 
Net loss per unit
 
 
 
$
(0.21
)
 


 
$
(0.64
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
Net income
 
$
93

 
 
 
 
 
 
 
 
Declared distributions
 
50

 
49

 

 

 
1

Amortization of beneficial conversion feature of Class B units
 

 
(306
)
 
1,030

 
(724
)
 

Assumed allocation of undistributed net income
 
$
43

 

 

 
43

 

Assumed allocation of net income (loss)
 
 
 
$
(257
)
 
$
1,030

 
$
(681
)
 
$
1

 
 
 
 
 
 
 
 
 
 
 
Weighted average units outstanding
 
 
 
57.1

 
145.3

 
135.4

 
 
Net loss per unit
 
 
 
$
(4.50
)
 


 
$
(5.03
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(175
)
 
 
 
 
 
 
 
 
Declared distributions
 
50

 
49

 

 

 
1

Assumed allocation of undistributed net loss
 
$
(225
)
 
(66
)
 

 
(155
)
 
(4
)
Assumed allocation of net loss
 
 
 
$
(17
)
 
$

 
$
(155
)
 
$
(3
)
 
 
 
 
 
 
 
 
 
 
 
Weighted average units outstanding
 
 
 
57.1

 
145.3

 
135.4

 
 
Net loss per unit
 
 
 
$
(0.29
)
 


 
$
(1.14
)
 
 


21


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)


NOTE 13—CUSTOMER CONCENTRATION
  
The following table shows customers with revenues of 10% or greater of total third-party revenues and customers with accounts receivable balances of 10% or greater of total accounts receivable from third parties:
 
 
Percentage of Total Revenues
 
Percentage of Accounts Receivable
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
June 30,
 
December 31,
 
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Customer A
 
46%
 
54%
 
50%
 
38%
 
38%
 
47%
Customer B
 
27%
 
—%
 
28%
 
—%
 
35%
 
50%
Customer C
 
13%
 
—%
 
*
 
—%
 
17%
 
—%
 
* Less than 10%

NOTE 14—SUPPLEMENTAL CASH FLOW INFORMATION
 
The following table (in millions) provides supplemental disclosure of cash flow information:
 
Six Months Ended June 30,
 
2017
 
2016
Cash paid during the period for interest, net of amounts capitalized
$
273

 
$
100


The balance in property, plant and equipment, net funded with accounts payable and accrued liabilities (including affiliate) was $266 million and $315 million as of June 30, 2017 and 2016, respectively.


22


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)


NOTE 15—RECENT ACCOUNTING STANDARDS

The following table provides a brief description of recent accounting standards that had not been adopted by the Partnership as of June 30, 2017:
Standard
 
Description
 
Expected Date of Adoption
 
Effect on our Consolidated Financial Statements or Other Significant Matters
ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequent amendments thereto

 
This standard provides a single, comprehensive revenue recognition model which replaces and supersedes most existing revenue recognition guidance and requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard requires that the costs to obtain and fulfill contracts with customers should be recognized as assets and amortized to match the pattern of transfer of goods or services to the customer if expected to be recoverable. The standard also requires enhanced disclosures. This guidance may be adopted either retrospectively to each prior reporting period presented subject to allowable practical expedients (“full retrospective approach”) or as a cumulative-effect adjustment as of the date of adoption (“modified retrospective approach”).
 
January 1, 2018
 
We continue to evaluate the effect of this standard on our Consolidated Financial Statements. Preliminarily, we plan to adopt this standard using the full retrospective approach and we do not currently anticipate that the adoption will have a material impact upon our revenues. The Financial Accounting Standards Board has issued and may issue in the future amendments and interpretive guidance which may cause our evaluation to change. Furthermore, we routinely enter into new contracts and we cannot predict with certainty whether the accounting for any future contract under the new standard would result in a significant change from existing guidance. Because this assessment is preliminary and the accounting for revenue recognition is subject to significant judgment, this conclusion could change as we finalize our assessment. We have not yet determined the impact that recognizing fulfillment costs as assets will have on our Consolidated Financial Statements.
ASU 2016-02, Leases (Topic 842)
 
This standard requires a lessee to recognize leases on its balance sheet by recording a lease liability representing the obligation to make future lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term. A lessee is permitted to make an election not to recognize lease assets and liabilities for leases with a term of 12 months or less. The standard also modifies the definition of a lease and requires expanded disclosures. This guidance may be early adopted, and must be adopted using a modified retrospective approach with certain available practical expedients.
 
January 1, 2019

 
We continue to evaluate the effect of this standard on our Consolidated Financial Statements. Preliminarily, we anticipate a material impact from the requirement to recognize all leases upon our Consolidated Balance Sheets. Because this assessment is preliminary and the accounting for leases is subject to significant judgment, this conclusion could change as we finalize our assessment. We have not yet determined the impact of the adoption of this standard upon our results of operations or cash flows, whether we will elect to early adopt this standard or which, if any, practical expedients we will elect upon transition.
ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
 
This standard requires the immediate recognition of the tax consequences of intercompany asset transfers other than inventory. This guidance may be early adopted, but only at the beginning of an annual period, and must be adopted using a modified retrospective approach.
 
January 1, 2018

 
We are currently evaluating the impact of the provisions of this guidance on our Consolidated Financial Statements and related disclosures.

23


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)



Additionally, the following table provides a brief description of a recent accounting standard that was adopted by the Partnership during the reporting period:
Standard
 
Description
 
Date of Adoption
 
Effect on our Consolidated Financial Statements or Other Significant Matters
ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory

 
This standard requires inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This guidance may be early adopted and must be adopted prospectively.
 
January 1, 2017
 
The adoption of this guidance did not have a material impact on our Consolidated Financial Statements or related disclosures.


NOTE 16—SUBSEQUENT EVENTS

As of June 30, 2017, Cheniere Holdings and Blackstone CQP Holdco owned 45.3 million and 100.0 million, respectively, of our Class B units. On August 2, 2017, the Class B units held by Cheniere Holdings and Blackstone CQP Holdco mandatorily converted into our common units in accordance with the terms of our partnership agreement. Upon conversion of the Class B units, Cheniere Holdings, Blackstone CQP Holdco and the public owned a 48.6%, 40.3% and 9.1% interest in us, respectively. Cheniere Holdings’ ownership is based on approximately 92.5 million converted common units, 135.4 million subordinated units and 12.0 million common units, and Blackstone CQP Holdco’s ownership is based on approximately 199.0 million converted common units, but excludes any common units that may be deemed to be beneficially owned by Blackstone Group, an affiliate of Blackstone CQP Holdco.


24


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Information Regarding Forward-Looking Statements
This quarterly report contains certain statements that are, or may be deemed to be, “forward-looking statements.” All statements, other than statements of historical or present facts or conditions, included herein or incorporated herein by reference are “forward-looking statements.” Included among “forward-looking statements” are, among other things:
statements regarding our ability to pay distributions to our unitholders; 
statements regarding our expected receipt of cash distributions from SPLNG, SPL or CTPL; 
statements that we expect to commence or complete construction of our proposed LNG terminals, liquefaction facilities, pipeline facilities or other projects, or any expansions or portions thereof, by certain dates, or at all;
statements regarding future levels of domestic and international natural gas production, supply or consumption or future levels of LNG imports into or exports from North America and other countries worldwide or purchases of natural gas, regardless of the source of such information, or the transportation or other infrastructure or demand for and prices related to natural gas, LNG or other hydrocarbon products;
statements regarding any financing transactions or arrangements, or our ability to enter into such transactions;
statements relating to the construction of our Trains, including statements concerning the engagement of any EPC contractor or other contractor and the anticipated terms and provisions of any agreement with any such EPC or other contractor, and anticipated costs related thereto;
statements regarding any SPA or other agreement to be entered into or performed substantially in the future, including any revenues anticipated to be received and the anticipated timing thereof, and statements regarding the amounts of total LNG regasification, natural gas liquefaction or storage capacities that are, or may become, subject to contracts;
statements regarding counterparties to our commercial contracts, construction contracts and other contracts;
statements regarding our planned development and construction of additional Trains, including the financing of such Trains;
statements that our Trains, when completed, will have certain characteristics, including amounts of liquefaction capacities;
statements regarding our business strategy, our strengths, our business and operation plans or any other plans, forecasts, projections, or objectives, including anticipated revenues, capital expenditures, maintenance and operating costs and cash flows, any or all of which are subject to change;
statements regarding legislative, governmental, regulatory, administrative or other public body actions, approvals, requirements, permits, applications, filings, investigations, proceedings or decisions; and
any other statements that relate to non-historical or future information.
All of these types of statements, other than statements of historical or present facts or conditions, are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology. The forward-looking statements contained in this quarterly report are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe that such estimates are reasonable, they are inherently uncertain and involve a number of risks and uncertainties beyond our control. In addition, assumptions may prove to be inaccurate. We caution that the forward-looking statements contained in this quarterly report are not guarantees of future performance and that such statements may not be realized or the forward-looking statements or events may not occur. Actual results may differ materially from those anticipated or implied in forward-looking statements as a result of a variety of factors described in this quarterly report and in the other reports and other information that we file with the SEC, including those discussed under “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2016. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these risk factors. These forward-looking statements speak only as of the date made, and other than as required by law, we undertake

25


CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS


no obligation to update or revise any forward-looking statement or provide reasons why actual results may differ, whether as a result of new information, future events or otherwise.

Introduction
 
The following discussion and analysis presents management’s view of our business, financial condition and overall performance and should be read in conjunction with our Consolidated Financial Statements and the accompanying notes. This information is intended to provide investors with an understanding of our past performance, current financial condition and outlook for the future. Our discussion and analysis includes the following subjects: 
Overview of Business 
Overview of Significant Events
Liquidity and Capital Resources 
Results of Operations 
Off-Balance Sheet Arrangements 
Summary of Critical Accounting Estimates
Recent Accounting Standards
 
Overview of Business
 
We are a publicly traded Delaware limited partnership formed by Cheniere. Our vision is to be recognized as the premier global LNG company and provide a reliable, competitive and integrated source of LNG to our customers while creating a safe, productive and rewarding work environment for our employees. The liquefaction of natural gas into LNG allows it to be shipped economically from areas of the world where natural gas is abundant and inexpensive to produce to other areas where natural gas demand and infrastructure exist to economically justify the use of LNG. Through our wholly owned subsidiary, SPL, we are developing, constructing and operating natural gas liquefaction facilities (the “Liquefaction Project”) at the Sabine Pass LNG terminal located in Cameron Parish, Louisiana, on the Sabine-Neches Waterway less than four miles from the Gulf Coast. We plan to construct up to six Trains, which are in various stages of development, construction and operations. Trains 1 through 3 are operational, Train 4 is undergoing commissioning, Train 5 is under construction and Train 6 is being commercialized and has all necessary regulatory approvals in place. Each Train is expected to have a nominal production capacity, which is prior to adjusting for planned maintenance, production reliability and potential overdesign, of approximately 4.5 mtpa of LNG. Through our wholly owned subsidiary, SPLNG, we own and operate regasification facilities at the Sabine Pass LNG terminal, which includes existing infrastructure of five LNG storage tanks with capacity of approximately 16.9 Bcfe, two marine berths that can accommodate vessels with nominal capacity of up to 266,000 cubic meters and vaporizers with regasification capacity of approximately 4.0 Bcf/d. We also own a 94-mile pipeline that interconnects the Sabine Pass LNG terminal with a number of large interstate pipelines through our wholly owned subsidiary, CTPL.

Overview of Significant Events

Our significant accomplishments since January 1, 2017 and through the filing date of this Form 10-Q include the following:  
Strategic
Year to date, LNG from the Liquefaction Project has been delivered to 10 new countries. As of July 2017, LNG from the Liquefaction Project had reached 24 of the 40 LNG importing countries around the world.
Operational
SPL commenced production and shipment of LNG commissioning cargoes from Train 3 of the Liquefaction Project in January 2017 and achieved substantial completion and commenced operating activities in March 2017.
Commissioning activities for Train 4 of the Liquefaction Project began in March 2017, and first LNG was achieved in July 2017.
In April 2017, we reached the milestone of 100 cumulative LNG cargoes exported from the Liquefaction Project. As of July 2017, more than 160 cumulative LNG cargoes had been exported from the Liquefaction Project.

26