Exhibit 99.2

CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS OF SUBSIDIARIES INCLUDED
PURSUANT TO RULE 3-16 OF REGULATION S-X

 
 
 
 
 
 


1














Cheniere Energy Investments, LLC
Consolidated Financial Statements
As of March 31, 2018 and December 31, 2017
and for the three months ended March 31, 2018 and 2017














2



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES


DEFINITIONS
As used in these Consolidated Financial Statements, the terms listed below have the following meanings: 

Common Industry and Other Terms
Bcf/d
 
billion cubic feet per day
EPC
 
engineering, procurement and construction
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
SEC
 
U.S. Securities and Exchange Commission
SPA
 
LNG sale and purchase agreement
TBtu
 
trillion British thermal units, an energy unit
Train
 
an industrial facility comprised of a series of refrigerant compressor loops used to cool natural gas into LNG
TUA
 
terminal use agreement


3



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES


Abbreviated Legal Entity Structure

The following diagram depicts our abbreviated legal entity structure as of March 31, 2018, including our ownership of certain subsidiaries, and the references to these entities used in these Consolidated Financial Statements:

orgcharta60.jpg

Unless the context requires otherwise, references to “Cheniere Investments,” “the Company,” “we,” “us” and “our” refer to Cheniere Energy Investments, LLC and its consolidated subsidiaries, including SPLNG, SPL and CTPL


4



Independent Auditors’ Review Report

To the Member of Cheniere Energy Investments, LLC:

Report on the Financial Statements
We have reviewed the consolidated financial statements of Cheniere Energy Investments, LLC and its subsidiaries (the Company), which comprise the consolidated balance sheet as of March 31, 2018, the related consolidated statements of income and cash flows for the three-month periods ended March 31, 2018 and 2017, and the related consolidated statement of member’s equity for the three-month period ended March 31, 2018.

Management’s Responsibility
The Company’s management is responsible for the preparation and fair presentation of the financial information in accordance with U.S. generally accepted accounting principles; this responsibility includes the design, implementation, and maintenance of internal control sufficient to provide a reasonable basis for the preparation and fair presentation of interim financial information in accordance with U.S. generally accepted accounting principles.

Auditors’ Responsibility
Our responsibility is to conduct our reviews in accordance with auditing standards generally accepted in the United States of America applicable to reviews of interim financial information. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial information. Accordingly, we do not express such an opinion.

Conclusion
Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial information referred to above for it to be in accordance with U.S. generally accepted accounting principles.

Report on Consolidated Balance Sheet as of December 31, 2017
We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2017, and the related consolidated statements of operations, member’s equity, and cash flows for the year then ended (not presented herein); and we expressed an unmodified audit opinion on those audited consolidated financial statements in our report dated June 15, 2018. Our report also included an emphasis of matter related to a change in the method of accounting for revenue recognition due to the adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequent amendments thereto. In our opinion, the consolidated balance sheet of the Company as of December 31, 2017 is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived.

/s/ KPMG LLP

Houston, Texas
June 15, 2018


5



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS
(in millions)
 
 
March 31,
 
December 31,
 
 
2018
 
2017
ASSETS
 
(unaudited)
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$

 
$

Restricted cash
 
574

 
557

Accounts and other receivables
 
240

 
190

Accounts receivable—affiliate
 
114

 
163

Advances to affiliate
 
97

 
36

Inventory
 
83

 
95

Other current assets
 
38

 
56

Other current assets—affiliate
 
2

 
1

Total current assets
 
1,148

 
1,098

 
 
 
 
 
Property, plant and equipment, net
 
15,066

 
15,059

Debt issuance costs, net
 
16

 
18

Non-current derivative assets
 
9

 
17

Other non-current assets, net
 
196

 
206

Total assets
 
$
16,435

 
$
16,398

 
 
 
 
 
LIABILITIES AND MEMBER’S EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
11

 
$
12

Accrued liabilities
 
466

 
614

Due to affiliates
 
30

 
68

Deferred revenue
 
95

 
111

Derivative liabilities
 
4

 

Other current liabilities—affiliate
 

 
1

Total current liabilities
 
606

 
806

 
 
 
 
 
Long-term debt, net
 
13,483

 
13,477

Non-current deferred revenue
 

 
1

Non-current derivative liabilities
 
3

 
3

Other non-current liabilities
 
10

 
10

Other non-current liabilities—affiliate
 
25

 
25

 
 
 
 
 
Member’s equity
 
2,308

 
2,076

Total liabilities and member’s equity
 
$
16,435

 
$
16,398




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

6



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME
(in millions)
(unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
Revenues
 
 
 
LNG revenues
$
1,015

 
$
492

LNG revenues—affiliate
503

 
331

Regasification revenues
65

 
65

Other revenues
10

 
2

Other revenues—affiliate

 
1

Total revenues
1,593

 
891

 
 
 
 
Operating costs and expenses
 
 
 
Cost of sales (excluding depreciation and amortization expense shown separately below)
837

 
513

Operating and maintenance expense
95

 
49

Operating and maintenance expense—affiliate
26

 
18

General and administrative expense
3

 
2

General and administrative expense—affiliate
15

 
19

Depreciation and amortization expense
105

 
65

Total operating costs and expenses
1,081

 
666

 
 
 
 
Income from operations
512

 
225

 
 
 
 
Other income (expense)
 
 
 
Interest expense, net of capitalized interest
(151
)
 
(105
)
Loss on early extinguishment of debt

 
(42
)
Derivative loss, net

 
(2
)
Other income
2

 

Total other expense
(149
)
 
(149
)
 
 
 
 
Net income
$
363

 
$
76



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

7



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF MEMBER’S EQUITY
(in millions)
(unaudited)
 
Cheniere Energy Partners, L.P.
 
Total Member’s Equity
Balance at December 31, 2017
$
2,076

 
$
2,076

Net income
363

 
363

Contributions
37

 
37

Distributions
(168
)
 
(168
)
Balance at March 31, 2018
$
2,308

 
$
2,308



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

8



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
Cash flows from operating activities
 
 
 
Net income
$
363

 
$
76

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization expense
105

 
65

Amortization of debt issuance costs, deferred commitment fees, premium and discount
5

 
5

Loss on early extinguishment of debt

 
42

Total losses on derivatives, net
50

 
41

Net cash used for settlement of derivative instruments
(5
)
 
(11
)
Other
1

 

Changes in operating assets and liabilities:
 
 
 
Accounts and other receivables
(49
)
 
(11
)
Accounts receivable—affiliate
48

 
59

Advances to affiliate
(56
)
 
(41
)
Inventory
12

 
17

Accounts payable and accrued liabilities
(89
)
 
(37
)
Due to affiliates
(25
)
 
(42
)
Deferred revenue
(18
)
 
(11
)
Other, net
1

 
2

Other, net—affiliate
(1
)
 
17

Net cash provided by operating activities
342

 
171

 
 
 
 
Cash flows from investing activities
 

 
 

Property, plant and equipment, net
(194
)
 
(525
)
Net cash used in investing activities
(194
)
 
(525
)
 
 
 
 
Cash flows from financing activities
 

 
 

Proceeds from issuances of debt

 
2,314

Repayments of debt

 
(703
)
Debt issuance and deferred financing costs

 
(26
)
Capital contributions
37

 
101

Distributions
(168
)
 
(159
)
Net cash provided by (used in) financing activities
(131
)
 
1,527

 
 
 
 
Net increase in cash, cash equivalents and restricted cash
17

 
1,173

Cash, cash equivalents and restricted cash—beginning of period
557

 
371

Cash, cash equivalents and restricted cash—end of period
$
574

 
$
1,544




Balances per Consolidated Balance Sheet:
 
March 31, 2018
Cash and cash equivalents
$

Restricted cash
574

Total cash, cash equivalents and restricted cash
$
574



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

9



CHENIERE ENERGY INVESTMENTS, LLC 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 4 are operational, Train 5 is under construction and Train 6 is being commercialized and has all necessary regulatory approvals in place. 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.

Basis of Presentation

Our Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and pursuant to the rules and regulations of the SEC. 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 our Consolidated Financial Statements and accompanying notes included in Cheniere Partners’ annual report on Form 10-K for the year ended December 31, 2017. In our opinion, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation, have been included.

On January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequent amendments thereto (“ASC 606”) using the full retrospective method. The adoption of ASC 606 represents a change in accounting principle that will provide financial statement readers with enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The adoption of ASC 606 did not impact our previously reported consolidated financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings.

We are a disregarded entity for federal and state income tax purposes. Our taxable income or loss, which may vary substantially from the net income or loss reported on our Consolidated Statements of Income, is able to be included in the federal income tax return of Cheniere Partners, a publicly traded partnership which directly owns us. Accordingly, no provision or liability for federal or state income taxes is included in the accompanying Consolidated Financial Statements.

Results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2018.

We have evaluated subsequent events through June 15, 2018, the date the Consolidated Financial Statements were available to be issued.

NOTE 2—RESTRICTED CASH
 
Restricted cash consists of funds that are contractually restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on our Consolidated Balance Sheets. As of March 31, 2018 and December 31, 2017, restricted cash consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2018
 
2017
Current restricted cash
 
 
 
 
Liquefaction Project
 
$
561

 
$
544

Cash held by Cheniere Partners’ guarantor subsidiaries, including us
 
13

 
13

Total current restricted cash
 
$
574

 
$
557


Under the terms of the credit and guaranty agreement aggregating $2.8 billion that Cheniere Partners entered into in February 2016 (the “2016 CQP Credit Facilities”), Cheniere Partners’ guarantor subsidiaries are required to establish and maintain certain deposit accounts, which are subject to the control of a collateral agent pursuant to a depositary agreement that was entered into on the closing date of the 2016 CQP Credit Facilities. See Note 14—Guarantees for information regarding Cheniere Partners’ guarantor subsidiaries.


10



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)



NOTE 3—ACCOUNTS AND OTHER RECEIVABLES

As of March 31, 2018 and December 31, 2017, accounts and other receivables consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2018
 
2017
SPL trade receivable
 
$
232

 
$
185

Other accounts receivable
 
8

 
5

Total accounts and other receivables
 
$
240

 
$
190


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 4—INVENTORY

As of March 31, 2018 and December 31, 2017, inventory consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2018
 
2017
Natural gas
 
$
16

 
$
17

LNG
 
14

 
26

Materials and other
 
53

 
52

Total inventory
 
$
83

 
$
95


NOTE 5—PROPERTY, PLANT AND EQUIPMENT
 
Property, plant and equipment, net consists of LNG terminal costs and fixed assets, as follows (in millions):
 
 
March 31,
 
December 31,
 
 
2018
 
2017
LNG terminal costs
 
 
 
 
LNG terminal
 
$
12,650

 
$
12,663

LNG terminal construction-in-process
 
3,391

 
3,269

Accumulated depreciation
 
(981
)
 
(879
)
Total LNG terminal costs, net
 
15,060

 
15,053

Fixed assets
 
 

 
 

Fixed assets
 
21

 
23

Accumulated depreciation
 
(15
)
 
(17
)
Total fixed assets, net
 
6

 
6

Property, plant and equipment, net
 
$
15,066

 
$
15,059

 

Depreciation expense was $102 million and $63 million during the three months ended March 31, 2018 and 2017, respectively.

We realized offsets to LNG terminal costs of $124 million in the three months ended March 31, 2017 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. We did not realize any offsets to LNG terminal costs in the three months ended March 31, 2018.


11



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)



NOTE 6—DERIVATIVE INSTRUMENTS

We have entered into 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”). SPL had previously entered into interest rate swaps to hedge the exposure to volatility in a portion of the floating-rate interest payments under one of its credit facilities (“Interest Rate Derivatives”), which were settled in March 2017.

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

The following table shows the fair value of our derivative instruments that are required to be measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017, which are classified as other current assets, non-current derivative assets, derivative liabilities or non-current derivative liabilities in our Consolidated Balance Sheets (in millions).
 
Fair Value Measurements as of
 
March 31, 2018
 
December 31, 2017
 
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
$

 
$

 
$
10

 
$
10

 
$
2

 
$
10

 
$
43

 
$
55


There have been no changes to our evaluation of and accounting for our derivative positions during the three months ended March 31, 2018. See Note 7—Derivative Instruments of our Notes to Consolidated Financial Statements in our Consolidated Financial Statements for the year ended December 31, 2017 for additional information.

We value our Liquefaction Supply Derivatives using a market based approach incorporating present value techniques, as needed, using observable commodity price curves, when available and other relevant data.

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 completion and placement into service of relevant pipeline infrastructure to accommodate marketable physical gas flow, we recognize a gain or loss based on the fair value of the respective natural gas supply contracts.

We include a portion of our Physical Liquefaction Supply Derivatives as Level 3 within the valuation hierarchy as the fair value is developed through the use of internal models which may be impacted by inputs that are unobservable in the marketplace. The curves used to generate the fair value of our Physical Liquefaction Supply Derivatives are based on basis adjustments applied to forward curves for a liquid trading point. In addition, there may be observable liquid market basis information in the near term, but terms of a Physical Liquefaction Supply Derivatives contract may exceed the period for which such information is available, resulting in a Level 3 classification. In these instances, the fair value of the contract incorporates extrapolation assumptions made in the determination of the market basis price for future delivery periods in which applicable commodity basis prices were either not observable or lacked corroborative market data.

The Level 3 fair value measurements of our Physical Liquefaction Supply Derivatives could be materially impacted by a significant change in certain natural gas market basis spreads due to the contractual notional amount represented by our Level 3 positions, which is a substantial portion of our overall Physical Liquefaction Supply portfolio. The following table includes quantitative information for the unobservable inputs for our Level 3 Physical Liquefaction Supply Derivatives as of March 31, 2018:
 
 
Net Fair Value Asset
(in millions)
 
Valuation Approach
 
Significant Unobservable Input
 
Significant Unobservable Inputs Range
Physical Liquefaction Supply Derivatives
 
$10
 
Market approach incorporating present value techniques
 
Basis Spread
 
$(0.515) - $0.095

12



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)




The following table shows the changes in the fair value of our Level 3 Physical Liquefaction Supply Derivatives during the three months ended March 31, 2018 and 2017 (in millions):
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Balance, beginning of period
 
$
43

 
$
79

Realized and mark-to-market losses:
 
 
 
 
Included in cost of sales
 
(13
)
 
(41
)
Purchases and settlements:
 
 
 
 
Purchases
 
3

 
4

Settlements
 
(23
)
 
(1
)
Balance, end of period
 
$
10

 
$
41

Change in unrealized gains relating to instruments still held at end of period
 
$
(13
)
 
$
(41
)

Derivative assets and liabilities arising from our derivative contracts with the same counterparty are reported on a net basis, as all counterparty derivative contracts provide for net settlement. The use of derivative instruments exposes us to counterparty credit risk, or the risk that a counterparty will be unable to meet its commitments in instances when our derivative instruments are in an asset position.  Additionally, we evaluate our own ability to meet our commitments in instances where our derivative instruments are in a liability position. Our derivative instruments are subject to contractual provisions which provide for the unconditional right of set-off for all derivative assets and liabilities with a given counterparty in the event of default.

Interest Rate Derivatives

SPL had entered into 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”), based on a portion of the expected outstanding borrowings over the term of the 2015 SPL Credit Facilities. In March 2017, SPL settled the 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.

The following table shows the changes in the fair value and settlements of our Interest Rate Derivatives recorded in derivative loss, net on our Consolidated Statements of Income during the three months ended March 31, 2018 and 2017 (in millions):
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Interest Rate Derivatives loss
 
$

 
$
(2
)

Liquefaction Supply Derivatives

SPL had secured up to approximately 2,179 TBtu and 2,214 TBtu of natural gas feedstock through natural gas supply contracts as of March 31, 2018 and December 31, 2017, respectively. The notional natural gas position of our Liquefaction Supply Derivatives was approximately 1,521 TBtu and 1,520 TBtu as of March 31, 2018 and December 31, 2017, respectively.

13



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)




The following table shows the fair value and location of our Liquefaction Supply Derivatives on our Consolidated Balance Sheets (in millions):
 
 
Fair Value Measurements as of (1)
Consolidated Balance Sheet Location
 
March 31, 2018
 
December 31, 2017
Other current assets
 
$
8

 
$
41

Non-current derivative assets
 
9

 
17

Total derivative assets
 
17

 
58

 
 
 
 
 
Derivative liabilities
 
(4
)
 

Non-current derivative liabilities
 
(3
)
 
(3
)
Total derivative liabilities
 
(7
)
 
(3
)
 
 
 
 
 
Derivative asset, net
 
$
10

 
$
55

 
(1)
Does not include a collateral call of $1 million for such contracts, which is included in other current assets in our Consolidated Balance Sheets as of both March 31, 2018 and December 31, 2017.

The following table shows the changes in the fair value, settlements and location of our Liquefaction Supply Derivatives recorded on our Consolidated Statements of Income during the three months ended March 31, 2018 and 2017 (in millions):
 
 
 
Three Months Ended March 31,
 
Consolidated Statement of Income Location (1)
 
2018
 
2017
Liquefaction Supply Derivatives loss (2)
Cost of sales
 
$
50

 
$
39

 
(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.

Consolidated Balance Sheet Presentation

Our derivative instruments are presented on a net basis on our Consolidated Balance Sheets as described above. The following table shows the fair value of our derivatives outstanding on a gross and net basis (in millions):
 
 
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 March 31, 2018
 
 
 
 
 
 
Liquefaction Supply Derivatives
 
$
25

 
$
(8
)
 
$
17

Liquefaction Supply Derivatives
 
(9
)
 
2

 
(7
)
As of December 31, 2017
 
 
 
 
 
 
Liquefaction Supply Derivatives
 
$
64

 
$
(6
)
 
$
58

Liquefaction Supply Derivatives
 
(3
)
 

 
(3
)


14



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)



NOTE 7—OTHER NON-CURRENT ASSETS

As of March 31, 2018 and December 31, 2017, other non-current assets, net consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2018
 
2017
Advances made under EPC and non-EPC contracts
 
$
18

 
$
26

Advances made to municipalities for water system enhancements
 
93

 
93

Advances and other asset conveyances to third parties to support LNG terminals
 
29

 
30

Tax-related payments and receivables
 
25

 
25

Information technology service assets
 
23

 
24

Other
 
8

 
8

Total other non-current assets, net
 
$
196

 
$
206


NOTE 8—ACCRUED LIABILITIES
 
As of March 31, 2018 and December 31, 2017, accrued liabilities consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2018
 
2017
Interest costs and related debt fees
 
$
143

 
$
229

Sabine Pass LNG terminal and related pipeline costs
 
319

 
384

Other accrued liabilities
 
4

 

Total accrued liabilities
 
$
466

 
$
614


NOTE 9—DEBT
 
As of March 31, 2018 and December 31, 2017, our debt consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2018
 
2017
Long-term debt:
 
 
 
 
5.625% Senior Secured Notes due 2021 (“2021 SPL Senior Notes”), net of unamortized premium of $5 and $6
 
$
2,005

 
$
2,006

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 $5
 
1,505

 
1,505

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 $1
 
1,349

 
1,349

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

 
800

Unamortized debt issuance costs
 
(176
)
 
(183
)
Total long-term debt, net
 
13,483

 
13,477

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

 

 
 
 
 
 
Total debt, net
 
$
13,483

 
$
13,477



15



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)



SPL Working Capital Facility

Below is a summary of the SPL Working Capital Facility as of March 31, 2018 (in millions):
 
 
SPL Working Capital Facility
Original facility size
 
$
1,200

Less:
 
 
Outstanding balance
 

Letters of credit issued
 
706

Available commitment
 
$
494

 
 
 
Interest rate
 
LIBOR plus 1.75% or base rate plus 0.75%
Maturity date
 
December 31, 2020, with various terms for underlying loans

Restrictive Debt Covenants

As of March 31, 2018, SPL was in compliance with all covenants related to its debt agreements.

Interest Expense

Total interest expense consisted of the following (in millions):
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Total interest cost
 
$
198

 
$
186

Capitalized interest
 
(47
)
 
(81
)
Total interest expense, net
 
$
151

 
$
105


Fair Value Disclosures

The following table shows the carrying amount and estimated fair value of our debt (in millions):
 
 
March 31, 2018
 
December 31, 2017
 
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
Senior notes, net of premium or discount (1)
 
$
12,859

 
$
13,631

 
$
12,860

 
$
13,955

2037 SPL Senior Notes (2)
 
800

 
838

 
800

 
871

 
(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 interest rates based on debt issued by parties with comparable credit ratings to us and inputs that are not observable in the market. 


16



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)



NOTE 10—REVENUES FROM CONTRACTS WITH CUSTOMERS

The following table represents a disaggregation of revenue earned from contracts with customers during the three months ended March 31, 2018 and 2017 (in millions):
 
 
Three Months Ended March 31,
 
 
2018
 
2017
LNG revenues
 
$
996

 
$
485

LNG revenues—affiliate
 
503

 
331

Regasification revenues
 
65

 
65

Other revenues
 
10

 
2

Other revenues—affiliate
 

 
1

Total revenues from customers
 
1,574

 
884

Revenues from derivative instruments (1)
 
19

 
7

Total revenues
 
$
1,593

 
$
891

 
(1)
Relates to the realized value associated with a portion of derivative instruments that settle through physical delivery.

LNG Revenues

We have entered into numerous SPAs with third party customers for the sale of LNG on a Free on Board (“FOB”) (delivered to the customer at the Sabine Pass LNG terminal) basis. Our customers generally purchase LNG for a price consisting of a fixed fee per MMBtu of LNG (a portion of which is subject to annual adjustment for inflation) plus a variable fee per MMBtu of LNG equal to approximately 115% of Henry Hub. The fixed fee component is the amount payable to us regardless of a cancellation or suspension of LNG cargo deliveries by the customers. The variable fee component is the amount generally payable to us only upon delivery of LNG plus all future adjustments to the fixed fee for inflation. The SPAs and contracted volumes to be made available under the SPAs are not tied to a specific Train; however, the term of each SPA generally commences upon the date of first commercial delivery of a specified Train.

Revenues from the sale of LNG are recognized at a point in time when the LNG is delivered to the customer, at the Sabine Pass LNG terminal, which is the point legal title, physical possession and the risks and rewards of ownership transfer to the customer. Each individual molecule of LNG is viewed as a separate performance obligation. The stated contract price (including both fixed and variable fees) per MMBtu in each LNG sales arrangement is representative of the stand-alone selling price for LNG at the time the sale was negotiated. We have concluded that the variable fees meet the optional exception for allocating variable consideration. As such, the variable consideration for these contracts is allocated to each distinct molecule of LNG and recognized when that distinct molecule of LNG is delivered to the customer. Because of the use of the optional exception, variable consideration related to the sale of LNG is also not included in the transaction price.

Fees received pursuant to SPAs are recognized as LNG revenues only after substantial completion of the respective Train. Prior to substantial completion, sales generated during the commissioning phase are offset against the cost of construction for the respective Train, as the production and removal of LNG from storage is necessary to test the facility and bring the asset to the condition necessary for its intended use.

Regasification Revenues

The Sabine Pass LNG terminal has operational regasification capacity of approximately 4.0 Bcf/d. Approximately 2.0 Bcf/d of the regasification capacity at the Sabine Pass LNG terminal has been reserved under two long-term TUAs with unaffiliated third-party customers, under which they are required to pay fixed monthly fees regardless of their use of the LNG terminal. Each of the customers has reserved approximately 1.0 Bcf/d of regasification capacity. The customers are each obligated to make monthly capacity payments to SPLNG aggregating approximately $125 million annually for 20 years that commenced in 2009, which is representative of fixed consideration in the contract. A portion of this fee is adjusted annually for inflation which is considered variable consideration. The remaining capacity of the Sabine Pass LNG terminal has been reserved by SPL, for which the associated revenues are eliminated in consolidation.


17



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)



Because SPLNG is continuously available to provide regasification service on a daily basis with the same pattern of transfer, we have concluded that SPLNG provides a single performance obligation to its customers on a continuous basis over time. We have determined that an output method of recognition based on elapsed time best reflects the benefits of this service to the customer and accordingly, LNG regasification capacity reservation fees are recognized as regasification revenues on a straight-line basis over the term of the respective TUAs. We have concluded that the inflation element within the contract meets the optional exception for allocating variable consideration and accordingly the inflation adjustment is not included in the transaction price and will be recognized over the year in which the inflation adjustment relates on a straight-line basis.

In 2012, SPL entered into a partial TUA assignment agreement with Total Gas & Power North America, Inc. (“Total”), whereby SPL would progressively gain access to Total’s capacity and other services provided under its TUA with SPLNG. This agreement provides SPL with additional berthing and storage capacity at the Sabine Pass LNG terminal that may be used to provide increased flexibility in managing LNG cargo loading and unloading activity, permit SPL to more flexibly manage its LNG storage capacity and accommodate the development of Trains 5 and 6.

Upon substantial completion of Train 3, which was in June 2017, SPL gained access to a portion of Total’s capacity and other services provided under Total’s TUA with SPLNG. Upon substantial completion of Train 5, SPL will gain access to substantially all of Total’s capacity. Notwithstanding any arrangements between Total and SPL, payments required to be made by Total to SPLNG will continue to be made by Total to SPLNG in accordance with its TUA and we continue to recognize the payments received from Total as revenue. During the three months ended March 31, 2018 and 2017, SPL recorded $8 million and zero as operating and maintenance expense under this partial TUA assignment agreement.

Deferred Revenue Reconciliation

The following table reflects the changes in our contract liabilities, which we classify as “Deferred revenue” on our Consolidated Balance Sheets (in millions):
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Deferred revenues, beginning of period
 
$
111

 
$
73

Cash received but not yet recognized
 
95

 
61

Revenue recognized from prior period deferral
 
(111
)
 
(71
)
Deferred revenues, end of period
 
$
95

 
$
63


We record deferred revenue when we receive consideration, or such consideration is unconditionally due from a customer, prior to transferring goods or services to the customer under the terms of a sales contract. Changes in deferred revenue during the three months ended March 31, 2018 and 2017 are primarily attributable to differences between the timing of revenue recognition and the receipt of advance payments related to delivery of LNG under certain SPAs.

Transaction Price Allocated to Future Performance Obligations

Because many of our sales contracts have long-term durations, we are contractually entitled to significant future consideration which we have not yet recognized as revenue. The following table discloses the aggregate amount of the transaction price that is allocated to performance obligations that have not yet been satisfied as of March 31, 2018:
 
 
Unsatisfied
Transaction Price
(in billions)
 
Weighted Average Recognition Timing (years) (1)
LNG revenues
 
$
55.2

 
10.0
Regasification revenues
 
2.8

 
5.6
Total revenues
 
$
58.0

 
 
 
    
(1)
The weighted average recognition timing represents an estimate of the number of years during which we shall have recognized half of the unsatisfied transaction price.


18



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)



We have elected the following optional exemptions which omit certain potential future sources of revenue from the table above:
(1)
We omit from the table above all performance obligations that are part of a contract that has an original expected duration of one year or less.
(2)
We omit from the table above all variable consideration that is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation when that performance obligation qualifies as a series. The table above excludes all variable consideration under our SPAs and TUAs. The amount of revenue from variable fees that is not included in the transaction price will vary based on the future prices of Henry Hub throughout the contract terms, to the extent customers elect to take delivery of their LNG, and adjustments to the consumer price index. During the three months ended March 31, 2018, approximately 56% of our LNG revenues, 100% of our LNG revenues—affiliate and approximately 3% of our Regasification revenues were related to variable consideration received from customers.

We have entered into contracts to sell LNG that are conditioned upon one or both of the parties achieving certain milestones such as reaching a final investment decision on a certain liquefaction Train, obtaining financing or achieving substantial completion of a Train and any related facilities. These contracts are considered completed contracts for revenue recognition purposes and are included in the transaction price above when the conditions are considered probable of being met.

We have elected the practical expedient to omit the disclosure of the transaction price allocated to future performance obligations and an explanation of when the entity expects to recognize the amount as revenue as of March 31, 2017.

NOTE 11—RELATED PARTY TRANSACTIONS
 
Below is a summary of our related party transactions as reported on our Consolidated Statements of Income for the three months ended March 31, 2018 and 2017 (in millions):
 
Three Months Ended March 31,
 
2018
 
2017
LNG revenues—affiliate
Cheniere Marketing SPA and Cheniere Marketing Master SPA
$
503

 
$
331

 
 
 
 
Other revenues—affiliate
Terminal Marine Services Agreement

 
1

 
Operating and maintenance expense—affiliate
Services Agreements
26

 
18

 
General and administrative expense—affiliate
Services Agreements
15

 
19


LNG Terminal Capacity Agreements

Terminal Use Agreements

SPL obtained approximately 2.0 Bcf/d of regasification capacity and other liquefaction support services 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 May 2016.

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 Income.

Cheniere Investments, SPL and SPLNG entered into the terminal use rights assignment and agreement (the “TURA”) pursuant to which Cheniere Investments had the right to use SPL’s reserved capacity under the TUA and had the obligation to pay

19



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)



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. Cheniere Partners has 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, LLC (“Cheniere Marketing US”) has entered into an amended and restated variable capacity rights agreement with Cheniere Investments (the “Amended and Restated VCRA”) pursuant to which Cheniere Marketing US is obligated to pay Cheniere Investments 80% of the expected gross margin of each cargo of LNG that Cheniere Marketing US arranges for delivery to the Sabine Pass LNG terminal. Cheniere Investments recorded no revenues—affiliate from Cheniere Marketing US during the three months ended March 31, 2018 and 2017 related to the Amended and Restated VCRA.

Cheniere Marketing SPA

Cheniere Marketing has 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.

Cheniere Marketing Master SPA

SPL has 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 executed a confirmation with Cheniere Marketing that obligates Cheniere Marketing in certain circumstances to buy LNG cargoes produced during the period while Bechtel Oil, Gas and Chemicals, Inc. has control of, and is commissioning, Train 5 of the Liquefaction Project.

Services Agreements
As of March 31, 2018 and December 31, 2017, we had $97 million and $36 million of advances to affiliates, respectively, under the services agreements described below. The non-reimbursement amounts incurred under these agreements are recorded in general and administrative expense—affiliate.

Information Technology Services Agreement

Cheniere Investments has an information technology services agreement with Cheniere. On a quarterly basis, our subsidiaries 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 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 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 provided for under the SPLNG O&M Agreement. SPLNG pays a monthly fixed fee of $520,000 (indexed for inflation) under the SPLNG MSA.

20



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)



SPL O&M Agreement

SPL has 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 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 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 Cheniere Investments 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.
 
Agreement to Fund SPLNG’s Cooperative Endeavor Agreements
 
SPLNG has executed Cooperative Endeavor Agreements (“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. In exchange for SPLNG’s advance payments of annual ad valorem taxes, Cameron Parish will grant SPLNG a dollar-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 March 31, 2018 and December 31, 2017, we had $25 million of both other non-current assets resulting from SPLNG’s ad valorem tax payments and other non-current liabilities—affiliate resulting from these payments received from Cheniere Marketing.
 

21



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)



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 US. Under these agreements, SPLNG purchases natural gas or LNG from Cheniere Marketing US at a sales price equal to the actual purchase price paid by Cheniere Marketing US to suppliers of the natural gas or LNG, plus any third-party costs incurred by Cheniere Marketing US 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 US have an LNG Terminal Export Agreement that provides Cheniere Marketing US the ability to export LNG from the Sabine Pass LNG terminal.  SPLNG did not record any revenues associated with this agreement during the three months ended March 31, 2018 and 2017.

State Tax Sharing Agreements

SPLNG has 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 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 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.


22



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)



NOTE 12—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 Third-Party Revenues
 
Percentage of Accounts Receivable from Third Parties
 
 
Three Months Ended March 31,
 
March 31,
 
December 31,
 
 
2018
 
2017
 
2018
 
2017
Customer A
 
31%
 
54%
 
33%
 
39%
Customer B
 
25%
 
29%
 
19%
 
32%
Customer C
 
25%
 
—%
 
19%
 
26%
Customer D
 
*
 
—%
 
26%
 
—%
 
* Less than 10%

NOTE 13—SUPPLEMENTAL CASH FLOW INFORMATION
 
The following table provides supplemental disclosure of cash flow information (in millions):
 
Three Months Ended March 31,
 
2018
 
2017
Cash paid during the period for interest, net of amounts capitalized
$
230

 
$
154


The balance in property, plant and equipment, net funded with accounts payable and accrued liabilities (including affiliate) was $198 million and $314 million, as of March 31, 2018 and 2017, respectively.

NOTE 14—GUARANTEES

In February 2016, Cheniere Partners entered into the 2016 CQP Credit Facilities, which included an approximately $2.1 billion SPLNG tranche term loan and a $450.0 million CTPL tranche term loan that were used to satisfy our subsidiaries’ outstanding debt obligations in 2016. The 2016 CQP Credit Facilities will mature on February 25, 2020 and are unconditionally guaranteed by each of Cheniere Partners’ subsidiaries other than SPL (collectively the “CQP Guarantors”), including us. The 2016 CQP Credit Facilities contain customary affirmative and negative covenants, including restrictions of our ability to incur additional indebtedness or liens, engage in asset sales, enter into hedging arrangements (other than permitted hedging agreements) and engage in transactions with affiliates. Cheniere Partners and the CQP Guarantors are also required to establish and maintain certain deposit accounts, which are subject to the control of a collateral agent pursuant to a depositary agreement that was entered into on the closing date of the 2016 CQP Credit Facilities.

In September 2017, Cheniere Partners issued an aggregate principal amount of $1.5 billion of 5.250% Senior Notes due 2025 (the “2025 CQP Senior Notes”). The 2025 CQP Senior Notes are jointly and severally guaranteed by the CQP Guarantors, with Sabine Pass LP subject to certain conditions that will govern the release of its guarantee. Net proceeds of the offering of approximately $1.5 billion, after deducting the initial purchasers’ commissions and estimated fees and expenses, were used to prepay a portion of the outstanding indebtedness under the 2016 CQP Credit Facilities. The 2025 CQP Senior Notes are governed by an indenture, which contains customary terms and events of default and certain covenants that, among other things, limit the ability of Cheniere Partners and the CQP Guarantors to incur liens and sell assets, enter into transactions with affiliates, enter into sale-leaseback transactions and consolidate, merge or sell, lease or otherwise dispose of all or substantially all of the applicable entity’s properties or assets.

As of March 31, 2018, there was no liability that was recorded related to these guarantees.

Additionally, Cheniere Partners’ debt obligations are secured by a first priority lien on substantially all of the existing and future tangible and intangible assets and rights of Cheniere Partners and the CQP Guarantors, including us but not including our non-guarantor subsidiary’s assets and rights, and our real property (except for certain excluded properties). As of March 31, 2018, the collateralized net assets of the CQP Guarantors was $2.3 billion.


23



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)



NOTE 15—RECENT ACCOUNTING STANDARDS

The following table provides a brief description of a recent accounting standard that had not been adopted by us as of March 31, 2018:
Standard
 
Description
 
Expected Date of Adoption
 
Effect on our Consolidated Financial Statements or Other Significant Matters
ASU 2016-02, Leases (Topic 842), and subsequent amendments thereto
 
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. This evaluation process includes reviewing all forms of leases, performing a completeness assessment over the lease population, analyzing the practical expedients and assessing opportunities to make certain changes to our lease accounting information technology system in order to determine the best implementation strategy. Preliminarily, we anticipate a material impact from the requirement to recognize all leases on 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. We expect to elect the package of practical expedients permitted under the transition guidance which, among other things, allows the carryforward of prior conclusions related to lease identification and classification. We also expect to elect the practical expedient to retain our existing accounting for land easements which were not previously accounted for as leases. We have not yet determined whether we will elect any other practical expedients upon transition.

24



CHENIERE ENERGY INVESTMENTS, LLC AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)




Additionally, the following table provides a brief description of recent accounting standards that were adopted by us during the reporting period:
Standard
 
Description
 
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 adopted this guidance on January 1, 2018, using the full retrospective method. The adoption of this guidance represents a change in accounting principle that will provide financial statement readers with enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The adoption of this guidance did not impact our previously reported consolidated financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings. See Note 10—Revenues from Contracts with Customers for additional disclosures.


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

 
The adoption of this guidance did not have an impact on our Consolidated Financial Statements or related disclosures.


25














Sabine Pass LNG-LP, LLC
Consolidated Financial Statements
As of March 31, 2018 and December 31, 2017
and for the three months ended March 31, 2018 and 2017



26



SABINE PASS LNG-LP, LLC AND SUBSIDIARIES


DEFINITIONS

As used in these Consolidated Financial Statements, the terms listed below have the following meanings: 

Common Industry and Other Terms
Bcf/d
 
billion cubic feet per day
EPC
 
engineering, procurement and construction
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
SEC
 
U.S. Securities and Exchange Commission
SPA
 
LNG sale and purchase agreement
TBtu
 
trillion British thermal units, an energy unit
Train
 
an industrial facility comprised of a series of refrigerant compressor loops used to cool natural gas into LNG
TUA
 
terminal use agreement



27



SABINE PASS LNG-LP, LLC AND SUBSIDIARIES


Abbreviated Legal Entity Structure

The following diagram depicts our abbreviated legal entity structure as of March 31, 2018, including our ownership of certain subsidiaries, and the references to these entities used in these Consolidated Financial Statements:

orgcharta60.jpg

Unless the context requires otherwise, references to “Sabine Pass LP,” “the Company,” “we,” “us” and “our” refer to Sabine Pass LNG-LP, LLC and its consolidated subsidiaries, including SPL, SPLNG and Tug Services.


28



Independent Auditors’ Review Report
To the Member of Sabine Pass LNG-LP, LLC:

Report on the Financial Statements
We have reviewed the consolidated financial statements of Sabine Pass LNG-LP, LLC, and its subsidiaries (the Company), which comprise the consolidated balance sheet as of March 31, 2018, the related consolidated statements of income and cash flows for the three‑month periods ended March 31, 2018 and 2017, and the related consolidated statement of member’s equity for the three-month period ended March 31, 2018.
Management’s Responsibility
The Company’s management is responsible for the preparation and fair presentation of the financial information in accordance with U.S. generally accepted accounting principles; this responsibility includes the design, implementation, and maintenance of internal control sufficient to provide a reasonable basis for the preparation and fair presentation of interim financial information in accordance with U.S. generally accepted accounting principles.
Auditors’ Responsibility
Our responsibility is to conduct our reviews in accordance with auditing standards generally accepted in the United States of America applicable to reviews of interim financial information. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial information. Accordingly, we do not express such an opinion.
Conclusion
Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial information referred to above for it to be in accordance with U.S. generally accepted accounting principles.
Report on Consolidated Balance Sheet as of December 31, 2017
We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2017, and the related consolidated statements of operations, member’s equity, and cash flows for the year then ended (not presented herein); and we expressed an unmodified audit opinion on those audited consolidated financial statements in our report dated June 15, 2018. Our report also included an emphasis of matter related to a change in the method of accounting for revenue recognition due to the adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequent amendments thereto. In our opinion, the consolidated balance sheet of the Company as of December 31, 2017 is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived.
/s/ KPMG LLP

Houston, Texas
June 15, 2018



29



SABINE PASS LNG-LP, LLC AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS
(in millions)
 
 
March 31,
 
December 31,
 
 
2018
 
2017
ASSETS
 
(unaudited)
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$

 
$

Restricted cash
 
573

 
556

Accounts and other receivables
 
239

 
190

Accounts receivable—affiliate
 
114

 
163

Advances to affiliate
 
95

 
32

Inventory
 
82

 
94

Other current assets
 
38

 
55

Other current assets—affiliate
 
2

 
1

Total current assets
 
1,143

 
1,091

 
 
 
 
 
Property, plant and equipment, net
 
14,529

 
14,518

Debt issuance costs, net
 
16

 
18

Non-current derivative assets
 
9

 
17

Other non-current assets, net
 
187

 
197

Total assets
 
$
15,884

 
$
15,841

 
 
 
 
 
LIABILITIES AND MEMBER’S EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
10

 
$
11

Accrued liabilities
 
462

 
613

Due to affiliates
 
35

 
72

Deferred revenue
 
95

 
111

Deferred revenue—affiliate
 

 
1

Derivative liabilities
 
4

 

Total current liabilities
 
606

 
808

 
 
 
 
 
Long-term debt, net
 
13,483

 
13,477

Non-current deferred revenue
 

 
1

Non-current derivative liabilities
 
3

 
3

Other non-current liabilities
 
10

 
10

Other non-current liabilities—affiliate
 
25

 
25

 
 
 
 
 
Member’s equity
 
1,757

 
1,517

Total liabilities and member’s equity
 
$
15,884

 
$
15,841












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

30



SABINE PASS LNG-LP, LLC AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME
(in millions)
(unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
Revenues
 
 
 
LNG revenues
$
1,015

 
$
492

LNG revenues—affiliate
503

 
331

Regasification revenues
65

 
65

Regasification revenues—affiliate

 
31

Other revenues
10

 
1

Other revenues—affiliate

 
1

Total revenues
1,593

 
921

 
 
 
 
Operating costs and expenses
 
 
 
Cost of sales (excluding depreciation and amortization expense shown separately below)
838

 
510

Operating and maintenance expense
90

 
48

Operating and maintenance expense—affiliate
45

 
31

General and administrative expense
2

 
1

General and administrative expense—affiliate
14

 
19

Depreciation and amortization expense
100

 
61

Total operating costs and expenses
1,089

 
670

 
 
 
 
Income from operations
504

 
251

 
 
 
 
Other income (expense)
 
 
 
Interest expense, net of capitalized interest
(151
)
 
(105
)
Loss on early extinguishment of debt

 
(42
)
Derivative loss, net

 
(2
)
Other income
2

 

Total other expense
(149
)
 
(149
)
 
 
 
 
Net income
$
355

 
$
102




















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

31



SABINE PASS LNG-LP, LLC AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF MEMBER’S EQUITY
(in millions)
(unaudited)

 
Cheniere Energy Investments, LLC
 
Total Member’s Equity
Balance at December 31, 2017
$
1,517

 
$
1,517

Contributions
32

 
32

Distributions
(147
)
 
(147
)
Net income
355

 
355

Balance at March 31, 2018
$
1,757

 
$
1,757














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

32



SABINE PASS LNG-LP, LLC AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Three Months Ended March 31,
 
2018
 
2017
Cash flows from operating activities
 
 
 
Net income
$
355

 
$
102

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization expense
100

 
61

Amortization of debt issuance costs, deferred commitment fees, premium and discount
5

 
5

Loss on early extinguishment of debt

 
42

Total losses on derivatives, net
50

 
41

Net cash used for settlement of derivative instruments
(5
)
 
(11
)
Other
1

 
2

Changes in operating assets and liabilities:
 
 
 
Accounts and other receivables
(49
)
 
(11
)
Accounts receivable—affiliate
48

 
56

Advances to affiliate
(58
)
 
(40
)
Inventory
12

 
17

Accounts payable and accrued liabilities
(93
)
 
(40
)
Due to affiliates
(22
)
 
7

Deferred revenue
(18
)
 
(11
)
Other, net
1

 
5

Other, net—affiliate
(1
)
 
12

Net cash provided by operating activities
326

 
237

 
 
 
 
Cash flows from investing activities
 

 
 

Property, plant and equipment, net
(194
)
 
(527
)
Net cash used in investing activities
(194
)
 
(527
)
 
 
 
 
Cash flows from financing activities
 

 
 

Proceeds from issuances of debt

 
2,314

Repayments of debt

 
(703
)
Debt issuance and deferred financing costs

 
(26
)
Capital contributions
32

 
17

Distributions
(147
)
 
(139
)
Net cash provided by (used in) financing activities
(115
)
 
1,463

 
 
 
 
Net increase in cash, cash equivalents and restricted cash
17

 
1,173

Cash, cash equivalents and restricted cash—beginning of period
556

 
359

Cash, cash equivalents and restricted cash—end of period
$
573

 
$
1,532


Balances per Consolidated Balance Sheet:
 
March 31, 2018
Cash and cash equivalents
$

Restricted cash
573

Total cash, cash equivalents and restricted cash
$
573



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

33



SABINE PASS LNG-LP, LLC 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 4 are operational, Train 5 is under construction and Train 6 is being commercialized and has all necessary regulatory approvals in place. We also own and operate regasification facilities at the Sabine Pass LNG terminal through SPLNG.

Basis of Presentation

Our Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and pursuant to the rules and regulations of the SEC. 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 our Consolidated Financial Statements and accompanying notes included in Cheniere Partners’ annual report on Form 10-K for the year ended December 31, 2017. In our opinion, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation, have been included.

On January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequent amendments thereto (“ASC 606”) using the full retrospective method. The adoption of ASC 606 represents a change in accounting principle that will provide financial statement readers with enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The adoption of ASC 606 did not impact our previously reported consolidated financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings.

We are a disregarded entity for federal and state income tax purposes. Our taxable income or loss, which may vary substantially from the net income or loss reported on our Consolidated Statements of Income, is able to be included in the federal income tax return of Cheniere Partners, a publicly traded partnership which indirectly owns us. Accordingly, no provision or liability for federal or state income taxes is included in the accompanying Consolidated Financial Statements.

Results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2018.

We have evaluated subsequent events through June 15, 2018, the date the Consolidated Financial Statements were available to be issued.

NOTE 2—RESTRICTED CASH

Restricted cash consists of funds that are contractually restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on our Consolidated Balance Sheets. As of March 31, 2018 and December 31, 2017, restricted cash consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2018
 
2017
Current restricted cash
 
 
 
 
Liquefaction Project
 
$
561

 
$
544

Cash held by Cheniere Partners’ guarantor subsidiaries, including us
 
12

 
12

Total current restricted cash
 
$
573

 
$
556


Under the terms of the credit and guaranty agreement aggregating $2.8 billion that Cheniere Partners entered into in February 2016 (the “2016 CQP Credit Facilities”), Cheniere Partners’ guarantor subsidiaries are required to establish and maintain certain deposit accounts, which are subject to the control of a collateral agent pursuant to a depositary agreement that was entered into on the closing date of the 2016 CQP Credit Facilities. See Note 14—Guarantees for information regarding Cheniere Partners’ guarantor subsidiaries.


34



SABINE PASS LNG-LP, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)


NOTE 3—ACCOUNTS AND OTHER RECEIVABLES

As of March 31, 2018 and December 31, 2017, accounts and other receivables consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2018
 
2017
SPL trade receivable
 
$
232

 
$
185

Other accounts receivable
 
7

 
5

Total accounts and other receivables
 
$
239

 
$
190


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 4—INVENTORY

As of March 31, 2018 and December 31, 2017, inventory consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2018
 
2017
Natural gas
 
$
16

 
$
17

LNG
 
14

 
26

Materials and other
 
52

 
51

Total inventory
 
$
82

 
$
94


NOTE 5—PROPERTY, PLANT AND EQUIPMENT
 
Property, plant and equipment, net consists of LNG terminal costs and fixed assets, as follows (in millions):
 
 
March 31,
 
December 31,
 
 
2018
 
2017
LNG terminal costs
 
 
 
 
LNG terminal
 
$
11,943

 
$
11,956

LNG terminal construction-in-process
 
3,410

 
3,289

Accumulated depreciation
 
(829
)
 
(732
)
Total LNG terminal costs, net
 
14,524

 
14,513

Fixed assets
 
 

 
 

Fixed assets
 
14

 
14

Accumulated depreciation
 
(9
)
 
(9
)
Total fixed assets, net
 
5

 
5

Property, plant and equipment, net
 
$
14,529

 
$
14,518


Depreciation expense was $97 million and $59 million during the three months ended March 31, 2018 and 2017, respectively.

We realized offsets to LNG terminal costs of $124 million in the three months ended March 31, 2017 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. We did not realize any offsets to LNG terminal costs in the three months ended March 31, 2018.

NOTE 6—DERIVATIVE INSTRUMENTS

We have entered into 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”). SPL had previously entered into interest rate swaps to hedge the exposure to volatility in a portion of the floating-rate interest payments under one of its credit facilities (“Interest Rate Derivatives”), which were settled in March 2017.

35



SABINE PASS LNG-LP, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)



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

The following table shows the fair value of our derivative instruments that are required to be measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017, which are classified as other current assets, non-current derivative assets, derivative liabilities or non-current derivative liabilities in our Consolidated Balance Sheets (in millions).
 
Fair Value Measurements as of
 
March 31, 2018
 
December 31, 2017
 
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
$

 
$

 
$
10

 
$
10

 
$
2

 
$
10

 
$
43

 
$
55


There have been no changes to our evaluation of and accounting for our derivative positions during the three months ended March 31, 2018. See Note 7—Derivative Instruments of our Notes to Consolidated Financial Statements in our Consolidated Financial Statements for the year ended December 31, 2017 for additional information.

We value our Liquefaction Supply Derivatives using a market based approach incorporating present value techniques, as needed, using observable commodity price curves, when available and other relevant data.

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 completion and placement into service of relevant pipeline infrastructure to accommodate marketable physical gas flow, we recognize a gain or loss based on the fair value of the respective natural gas supply contracts.

We include a portion of our Physical Liquefaction Supply Derivatives as Level 3 within the valuation hierarchy as the fair value is developed through the use of internal models which may be impacted by inputs that are unobservable in the marketplace. The curves used to generate the fair value of our Physical Liquefaction Supply Derivatives are based on basis adjustments applied to forward curves for a liquid trading point. In addition, there may be observable liquid market basis information in the near term, but terms of a Physical Liquefaction Supply Derivatives contract may exceed the period for which such information is available, resulting in a Level 3 classification. In these instances, the fair value of the contract incorporates extrapolation assumptions made in the determination of the market basis price for future delivery periods in which applicable commodity basis prices were either not observable or lacked corroborative market data.

The Level 3 fair value measurements of our Physical Liquefaction Supply Derivatives could be materially impacted by a significant change in certain natural gas market basis spreads due to the contractual notional amount represented by our Level 3 positions, which is a substantial portion of our overall Physical Liquefaction Supply portfolio. The following table includes quantitative information for the unobservable inputs for our Level 3 Physical Liquefaction Supply Derivatives as of March 31, 2018:
 
 
Net Fair Value Asset
(in millions)
 
Valuation Approach
 
Significant Unobservable Input
 
Significant Unobservable Inputs Range
Physical Liquefaction Supply Derivatives
 
$10
 
Market approach incorporating present value techniques
 
Basis Spread
 
$(0.515) - $0.095


36



SABINE PASS LNG-LP, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)


The following table shows the changes in the fair value of our Level 3 Physical Liquefaction Supply Derivatives during the three months ended March 31, 2018 and 2017 (in millions):
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Balance, beginning of period
 
$
43

 
$
79

Realized and mark-to-market losses:
 
 
 
 
Included in cost of sales
 
(13
)
 
(41
)
Purchases and settlements:
 
 
 
 
Purchases
 
3

 
4

Settlements
 
(23
)
 
(1
)
Balance, end of period
 
$
10

 
$
41

Change in unrealized gains relating to instruments still held at end of period
 
$
(13
)
 
$
(41
)

Derivative assets and liabilities arising from our derivative contracts with the same counterparty are reported on a net basis, as all counterparty derivative contracts provide for net settlement. The use of derivative instruments exposes us to counterparty credit risk, or the risk that a counterparty will be unable to meet its commitments in instances when our derivative instruments are in an asset position. Additionally, we evaluate our own ability to meet our commitments in instances where our derivative instruments are in a liability position. Our derivative instruments are subject to contractual provisions which provide for the unconditional right of set-off for all derivative assets and liabilities with a given counterparty in the event of default.
 
Interest Rate Derivatives

SPL had entered into 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”), based on a portion of the expected outstanding borrowings over the term of the 2015 SPL Credit Facilities. In March 2017, SPL settled the 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.

The following table shows the changes in the fair value and settlements of our Interest Rate Derivatives recorded in derivative loss, net on our Consolidated Statements of Income during the three months ended March 31, 2018 and 2017 (in millions):
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Interest Rate Derivatives loss
 
$

 
$
(2
)

Liquefaction Supply Derivatives

SPL had secured up to approximately 2,179 TBtu and 2,214 TBtu of natural gas feedstock through natural gas supply contracts as of March 31, 2018 and December 31, 2017, respectively. The notional natural gas position of our Liquefaction Supply Derivatives was approximately 1,521 TBtu and 1,520 TBtu as of March 31, 2018 and December 31, 2017, respectively.

The following table shows the fair value and location of our Liquefaction Supply Derivatives on our Consolidated Balance Sheets (in millions):
 
 
Fair Value Measurements as of (1)
Consolidated Balance Sheet Location
 
March 31, 2018
 
December 31, 2017
Other current assets
 
$
8

 
$
41

Non-current derivative assets
 
9

 
17

Total derivative assets
 
17

 
58

 
 
 
 
 
Derivative liabilities
 
(4
)
 

Non-current derivative liabilities
 
(3
)
 
(3
)
Total derivative liabilities
 
(7
)
 
(3
)
 
 
 
 
 
Derivative asset, net
 
$
10

 
$
55

 

37



SABINE PASS LNG-LP, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)


(1)
Does not include a collateral call of $1 million for such contracts, which is included in other current assets in our Consolidated Balance Sheets as of both March 31, 2018 and December 31, 2017.

The following table shows the changes in the fair value, settlements and location of our Liquefaction Supply Derivatives recorded on our Consolidated Statements of Income during the three months ended March 31, 2018 and 2017 (in millions):
 
 
 
Three Months Ended March 31,
 
Consolidated Statement of Income Location (1)
 
2018
 
2017
Liquefaction Supply Derivatives loss (2)
Cost of sales
 
$
50

 
$
39

 
(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.

Consolidated Balance Sheet Presentation

Our derivative instruments are presented on a net basis on our Consolidated Balance Sheets as described above. The following table shows the fair value of our derivatives outstanding on a gross and net basis (in millions):
 
 
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 March 31, 2018
 
 
 
 
 
 
Liquefaction Supply Derivatives
 
$
25

 
$
(8
)
 
$
17

Liquefaction Supply Derivatives
 
(9
)
 
2

 
(7
)
As of December 31, 2017
 
 
 
 
 
 
Liquefaction Supply Derivatives
 
$
64

 
$
(6
)
 
$
58

Liquefaction Supply Derivatives
 
(3
)
 

 
(3
)
 
NOTE 7—OTHER NON-CURRENT ASSETS

As of March 31, 2018 and December 31, 2017, other non-current assets, net consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2018
 
2017
Advances made under EPC and non-EPC contracts
 
$
18

 
$
26

Advances made to municipalities for water system enhancements
 
93

 
93

Advances and other asset conveyances to third parties to support LNG terminals
 
29

 
30

Tax-related payments and receivables
 
25

 
25

Information technology service assets
 
21

 
22

Other
 
1

 
1

Total other non-current assets, net
 
$
187

 
$
197


NOTE 8—ACCRUED LIABILITIES
 
As of March 31, 2018 and December 31, 2017, accrued liabilities consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2018
 
2017
Interest costs and related debt fees
 
$
143

 
$
229

Sabine Pass LNG terminal costs
 
319

 
384

Total accrued liabilities
 
$
462

 
$
613



38



SABINE PASS LNG-LP, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)


NOTE 9—DEBT
 
As of March 31, 2018 and December 31, 2017, our debt consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2018
 
2017
Long-term debt:
 
 
 
 
5.625% Senior Secured Notes due 2021 (“2021 SPL Senior Notes”), net of unamortized premium of $5 and $6
 
$
2,005

 
$
2,006

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 $5
 
1,505

 
1,505

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 $1
 
1,349

 
1,349

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

 
800

Unamortized debt issuance costs
 
(176
)
 
(183
)
Total long-term debt, net
 
13,483

 
13,477

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