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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
 
FORM 10-Q
 
 
 
 
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to            
Commission file number 001-33366
Cheniere Energy Partners, L.P.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
Delaware
20-5913059
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
700 Milam Street, Suite 1900
Houston, Texas
77002
(Address of principal executive offices)
(Zip Code)
(713) 375-5000
(Registrant’s telephone number, including area code)
 
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x   No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
Accelerated filer                     o 
Non-accelerated filer    o
Smaller reporting company    o 
 
Emerging growth company    o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨    No x
Securities registered pursuant to Section 12(b) of the Act: 
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Units Representing Limited Partner Interests
CQP
NYSE American
As of April 30, 2019, the registrant had 348,625,292 common units and 135,383,831 subordinated units outstanding.
 
 
 
 
 



CHENIERE ENERGY PARTNERS, L.P.
TABLE OF CONTENTS


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





i




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

Common Industry and Other Terms
Bcf
 
billion cubic feet
Bcf/d
 
billion cubic feet per day
Bcf/yr
 
billion cubic feet per year
Bcfe
 
billion cubic feet equivalent
DOE
 
U.S. Department of Energy
EPC
 
engineering, procurement and construction
FERC
 
Federal Energy Regulatory Commission
FTA countries
 
countries with which the United States has a free trade agreement providing for national treatment for trade in natural gas
GAAP
 
generally accepted accounting principles in the United States
Henry Hub
 
the final settlement price (in USD per MMBtu) for the New York Mercantile Exchange’s Henry Hub natural gas futures contract for the month in which a relevant cargo’s delivery window is scheduled to begin
LIBOR
 
London Interbank Offered Rate
LNG
 
liquefied natural gas, a product of natural gas that, through a refrigeration process, has been cooled to a liquid state, which occupies a volume that is approximately 1/600th of its gaseous state
MMBtu
 
million British thermal units, an energy unit
mtpa
 
million tonnes per annum
non-FTA countries
 
countries with which the United States does not have a free trade agreement providing for national treatment for trade in natural gas and with which trade is permitted
SEC
 
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



1




Abbreviated Legal Entity Structure

The following diagram depicts our abbreviated legal entity structure as of March 31, 2019, including our ownership of certain subsidiaries, and the references to these entities used in this quarterly report:
cqpa24.jpg

Unless the context requires otherwise, references to “Cheniere Partners,” “the Partnership,” “we,” “us” and “our” refer to Cheniere Energy Partners, L.P. and its consolidated subsidiaries, including SPLNG, SPL and CTPL

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

2


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




 
 
March 31,
 
December 31,
 
 
2019
 
2018
ASSETS
 
(unaudited)
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$

 
$

Restricted cash
 
1,297

 
1,541

Accounts and other receivables
 
208

 
348

Accounts receivable—affiliate
 
113

 
114

Advances to affiliate
 
316

 
228

Inventory
 
109

 
99

Other current assets
 
46

 
26

Other current assets—affiliate
 
1

 

Total current assets
 
2,090

 
2,356

 
 
 
 
 
Property, plant and equipment, net
 
15,615

 
15,390

Operating lease assets, net
 
93

 

Debt issuance costs, net
 
11

 
13

Non-current derivative assets
 
36

 
31

Other non-current assets, net
 
160

 
184

Total assets
 
$
18,005

 
$
17,974

 
 
 
 
 
LIABILITIES AND PARTNERS’ EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
31

 
$
15

Accrued liabilities
 
725

 
821

Due to affiliates
 
51

 
49

Deferred revenue
 
106

 
116

Deferred revenue—affiliate
 

 
1

Current operating lease liabilities
 
5

 

Derivative liabilities
 
10

 
66

Total current liabilities
 
928

 
1,068

 
 
 
 
 
Long-term debt, net
 
16,073

 
16,066

Non-current operating lease liabilities
 
87

 

Non-current derivative liabilities
 
10

 
14

Other non-current liabilities
 
4

 
4

Other non-current liabilities—affiliate
 
22

 
22

 
 
 
 
 
Partners’ equity
 
 
 
 
Common unitholders’ interest (348.6 million units issued and outstanding at March 31, 2019 and December 31, 2018)
 
1,872

 
1,806

Subordinated unitholders’ interest (135.4 million units issued and outstanding at March 31, 2019 and December 31, 2018)
 
(965
)
 
(990
)
General partner’s interest (2% interest with 9.9 million units issued and outstanding at March 31, 2019 and December 31, 2018)
 
(26
)
 
(16
)
Total partners’ equity
 
881


800

Total liabilities and partners’ equity
 
$
18,005

 
$
17,974


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

3


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per unit data)
(unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Revenues
 
 
 
LNG revenues
$
1,367

 
$
1,015

LNG revenues—affiliate
305

 
503

Regasification revenues
66

 
65

Other revenues
11

 
10

Total revenues
1,749

 
1,593

 
 
 
 
Operating costs and expenses
 
 
 
Cost of sales (excluding depreciation and amortization expense shown separately below)
879

 
837

Operating and maintenance expense
138

 
95

Operating and maintenance expense—affiliate
29

 
26

General and administrative expense
3

 
4

General and administrative expense—affiliate
21

 
18

Depreciation and amortization expense
114

 
105

Impairment expense and loss on disposal of assets
2

 

Total operating costs and expenses
1,186

 
1,085

 
 
 
 
Income from operations
563

 
508

 
 
 
 
Other income (expense)
 
 
 
Interest expense, net of capitalized interest
(187
)
 
(185
)
Derivative gain, net

 
8

Other income
9

 
4

Total other expense
(178
)
 
(173
)
 
 
 
 
Net income
$
385

 
$
335

 
 
 
 
Basic and diluted net income per common unit
$
0.75

 
$
0.67

 
 
 
 
Weighted average number of common units outstanding used for basic and diluted net income per common unit calculation
348.6

 
348.6






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

4


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF PARTNERS’ EQUITY
(in millions)
(unaudited)
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Unitholders’ Interest
 
Subordinated Unitholder’s Interest
 
General Partner’s Interest
 
Total Partners’ Equity
 
Units
 
Amount
 
Units
 
Amount
 
Units
 
Amount
 
Balance at December 31, 2018
348.6


$
1,806


135.4


$
(990
)

9.9


$
(16
)

$
800

Net income

 
272

 

 
105

 

 
8

 
385

Distributions
 
 
 
 
 
 
 
 
 
 
 
 


Common units, $0.59/unit

 
(206
)
 

 

 

 

 
(206
)
Subordinated units, $0.59/unit

 

 

 
(80
)
 

 

 
(80
)
General partner units

 

 

 

 

 
(18
)
 
(18
)
Balance at March 31, 2019
348.6

 
$
1,872

 
135.4

 
$
(965
)
 
9.9

 
$
(26
)
 
$
881


Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Unitholders’ Interest
 
Subordinated Unitholder’s Interest
 
General Partner’s Interest
 
Total Partners’ Equity
 
Units
 
Amount
 
Units
 
Amount
 
Units
 
Amount
 
Balance at December 31, 2017
348.6

 
$
1,670

 
135.4

 
$
(1,043
)
 
9.9

 
$
12

 
$
639

Net income

 
236

 

 
92

 

 
7

 
335

Distributions
 
 
 
 
 
 
 
 
 
 
 
 


Common units, $0.50/unit

 
(175
)
 

 

 

 

 
(175
)
Subordinated units, $0.50/unit

 

 

 
(68
)
 

 

 
(68
)
General partner units

 

 

 

 

 
(6
)
 
(6
)
Balance at March 31, 2018
348.6

 
$
1,731

 
135.4

 
$
(1,019
)
 
9.9

 
$
13

 
$
725





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

5


CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from operating activities
 
 
 
Net income
$
385

 
$
335

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization expense
114

 
105

Amortization of debt issuance costs, deferred commitment fees, premium and discount
6

 
8

Total losses (gains) on derivatives, net
(77
)
 
42

Net cash provided by (used for) settlement of derivative instruments
5

 
(3
)
Impairment expense and loss on disposal of assets
2

 

Other
2

 
2

Changes in operating assets and liabilities:
 
 
 
Accounts and other receivables
105

 
(50
)
Accounts receivable—affiliate
1

 
48

Advances to affiliate
(26
)
 
(56
)
Inventory
(9
)
 
12

Accounts payable and accrued liabilities
(131
)
 
(69
)
Due to affiliates
(14
)
 
(25
)
Deferred revenue
(10
)
 
(18
)
Other, net
(7
)
 

Other, net—affiliate
(2
)
 

Net cash provided by operating activities
344

 
331

 
 
 
 
Cash flows from investing activities
 

 
 

Property, plant and equipment, net
(283
)
 
(194
)
Other
(1
)
 

Net cash used in investing activities
(284
)
 
(194
)
 
 
 
 
Cash flows from financing activities
 

 
 

Distributions to owners
(304
)
 
(249
)
Net cash used in financing activities
(304
)
 
(249
)
 
 
 
 
Net decrease in cash, cash equivalents and restricted cash
(244
)
 
(112
)
Cash, cash equivalents and restricted cash—beginning of period
1,541

 
1,589

Cash, cash equivalents and restricted cash—end of period
$
1,297

 
$
1,477



Balances per Consolidated Balance Sheet:
 
March 31,
 
2019
Cash and cash equivalents
$

Restricted cash
1,297

Total cash, cash equivalents and restricted cash
$
1,297




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

6


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



 
NOTE 1—NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Through SPL, we are developing, constructing and operating natural gas liquefaction facilities (the “Liquefaction Project”) at the Sabine Pass LNG terminal located in Cameron Parish, Louisiana, on the Sabine-Neches Waterway less than four miles from the Gulf Coast. We plan to construct up to six Trains, which are in various stages of development, construction and operations. Trains 1 through 5 are operational and early works have begun for Train 6 under limited notices to proceed ahead of an anticipated positive final investment decision. The Sabine Pass LNG terminal has operational regasification facilities owned by SPLNG and a 94-mile pipeline that interconnects the Sabine Pass LNG terminal with a number of large interstate pipelines through our wholly owned subsidiary, CTPL.

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements of Cheniere Partners have been prepared in accordance with GAAP for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our annual report on Form 10-K for the year ended December 31, 2018.

Results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2019.

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

Recent Accounting Standards

We adopted ASU 2016-02, Leases (Topic 842), and subsequent amendments thereto (“ASC 842”) on January 1, 2019 using the optional transition approach to apply the standard at the beginning of the first quarter of 2019 with no retrospective adjustments to prior periods. The adoption of the standard resulted in the recognition of right-of-use assets and lease liabilities for operating leases of approximately $100 million on our Consolidated Balance Sheets, with no material impact on our Consolidated Statements of Income or Consolidated Statements of Cash Flows. We have elected the practical expedients to (1) carryforward prior conclusions related to lease identification and classification for existing leases, (2) combine lease and non-lease components of an arrangement for all classes of leased assets, (3) omit short-term leases with a term of 12 months or less from recognition on the balance sheet and (4) carryforward our existing accounting for land easements not previously accounted for as leases. See Note 11—Leases for additional information on our leases following the adoption of this standard.

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

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


7


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

The general partner interest is entitled to at least 2% of all distributions made by us. In addition, the general partner holds incentive distribution rights (“IDRs”), which allow the general partner to receive a higher percentage of quarterly distributions of available cash from operating surplus after the initial quarterly distributions have been achieved and as additional target levels are met, but may transfer these rights separately from its general partner interest. The higher percentages range from 15% to 50%, inclusive of the general partner interest.
 
As of March 31, 2019, Cheniere, Blackstone CQP Holdco and the public owned a 48.6%, 40.3% and 9.1% interest in us, respectively. Cheniere’s ownership percentage includes its subordinated units and Blackstone CQP Holdco’s ownership percentage excludes any common units that may be deemed to be beneficially owned by Blackstone Group, an affiliate of Blackstone CQP Holdco.

NOTE 3—RESTRICTED CASH
 
Restricted cash consists of funds that are contractually restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on our Consolidated Balance Sheets. As of March 31, 2019 and December 31, 2018, restricted cash consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
Current restricted cash
 
 
 
 
Liquefaction Project
 
$
621

 
$
756

Cash held by us and our guarantor subsidiaries
 
676

 
785

Total current restricted cash
 
$
1,297

 
$
1,541



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.

Under our credit facilities (the “CQP Credit Facilities”), we and each of our subsidiaries other than (1) SPL and (2) certain of our subsidiaries owning other development projects, as well as certain other specified subsidiaries and members of the foregoing entities, as our guarantor subsidiaries, are subject to limitations on the use of cash under the terms of the CQP Credit Facilities and the related depositary agreement governing the extension of credit to us. Specifically, we may only withdraw funds from collateral accounts held at a designated depositary bank on a limited basis and for specific purposes, including for the payment of our operating expenses and the operating expenses of our guarantor subsidiaries. In addition, distributions and capital expenditures may only be made quarterly and are subject to certain restrictions.

NOTE 4—ACCOUNTS AND OTHER RECEIVABLES

As of March 31, 2019 and December 31, 2018, accounts and other receivables consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
SPL trade receivable
 
$
187

 
$
330

Other accounts receivable
 
21

 
18

Total accounts and other receivables
 
$
208

 
$
348



NOTE 5—INVENTORY

As of March 31, 2019 and December 31, 2018, inventory consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
Natural gas
 
$
10

 
$
28

LNG
 
25

 
6

Materials and other
 
74

 
65

Total inventory
 
$
109

 
$
99




8


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

NOTE 6—PROPERTY, PLANT AND EQUIPMENT
 
As of March 31, 2019 and December 31, 2018, property, plant and equipment, net consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
LNG terminal costs
 
 
 
 
LNG terminal and interconnecting pipeline facilities
 
$
16,747

 
$
12,760

LNG terminal construction-in-process
 
263

 
3,913

Accumulated depreciation
 
(1,402
)
 
(1,290
)
Total LNG terminal costs, net
 
15,608

 
15,383

Fixed assets
 
 

 
 

Fixed assets
 
27

 
26

Accumulated depreciation
 
(20
)
 
(19
)
Total fixed assets, net
 
7

 
7

Property, plant and equipment, net
 
$
15,615

 
$
15,390

 

Depreciation expense was $113 million and $102 million during the three months ended March 31, 2019 and 2018, respectively.

We realized offsets to LNG terminal costs of $48 million in the three months ended March 31, 2019 that were related to the sale of commissioning cargoes because these amounts were earned or loaded prior to the start of commercial operations of Train 5 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 7—DERIVATIVE INSTRUMENTS

We have entered into the following derivative instruments that are reported at fair value:
interest rate swaps to hedge the exposure to volatility in a portion of the floating-rate interest payments under certain credit facilities (“Interest Rate Derivatives”) and
commodity derivatives consisting of natural gas supply contracts for the commissioning and operation of the Liquefaction Project (“Physical Liquefaction Supply Derivatives”) and associated economic hedges (collectively, the “Liquefaction Supply Derivatives”).
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, 2019 and December 31, 2018, 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, 2019
 
December 31, 2018
 
Quoted Prices in Active Markets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total
 
Quoted Prices in Active Markets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total
Liquefaction Supply Derivatives asset (liability)
$
2

 
$
(2
)
 
$
29

 
$
29

 
$
5

 
$
(23
)
 
$
(25
)
 
$
(43
)


There have been no changes to our evaluation of and accounting for our derivative positions during the three months ended March 31, 2019. See Note 8—Derivative Instruments of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the year ended December 31, 2018 for additional information.


9


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

We value our Interest Rate Derivatives using an income-based approach, utilizing observable inputs to the valuation model including interest rate curves, risk adjusted discount rates, credit spreads and other relevant data. We value our 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 natural gas positions within 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 Derivatives portfolio. The following table includes quantitative information for the unobservable inputs for our Level 3 Physical Liquefaction Supply Derivatives as of March 31, 2019:
 
 
Net Fair Value Asset
(in millions)
 
Valuation Approach
 
Significant Unobservable Input
 
Significant Unobservable Inputs Range
Physical Liquefaction Supply Derivatives
 
$29
 
Market approach incorporating present value techniques
 
Basis Spread
 
$(0.350) - $0.082

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, 2019 and 2018 (in millions):
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Balance, beginning of period
 
$
(25
)
 
$
43

Realized and mark-to-market gains (losses):
 
 
 
 
Included in cost of sales
 
9

 
(13
)
Purchases and settlements:
 
 
 
 
Purchases
 

 
3

Settlements
 
45

 
(23
)
Balance, end of period
 
$
29

 
$
10

Change in unrealized gains (losses) relating to instruments still held at end of period
 
$
9

 
$
(13
)


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.


10


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

Interest Rate Derivatives

We previously had interest rate swaps (“CQP Interest Rate Derivatives”) to hedge a portion of the variable interest payments on the CQP Credit Facilities, which were terminated in October 2018.

The following table shows the changes in the fair value and settlements of our Interest Rate Derivatives recorded in derivative gain, net on our Consolidated Statements of Income during the three months ended March 31, 2019 and 2018 (in millions):
 
 
Three Months Ended March 31,
 
 
2019
 
2018
CQP Interest Rate Derivatives gain
 
$

 
$
8



Liquefaction Supply Derivatives

SPL has entered into primarily index-based physical natural gas supply contracts and associated economic hedges to purchase natural gas for the commissioning and operation of the Liquefaction Project. The terms of the physical natural gas supply contracts range up to five years, some of which commence upon the satisfaction of certain conditions precedent.

SPL had secured up to approximately 3,542 TBtu and 3,464 TBtu of natural gas feedstock through natural gas supply contracts as of March 31, 2019 and December 31, 2018, respectively. The notional natural gas position of our Liquefaction Supply Derivatives was approximately 3,087 TBtu and 2,978 TBtu as of March 31, 2019 and December 31, 2018, 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, 2019
 
December 31, 2018
Other current assets
 
$
13

 
$
6

Non-current derivative assets
 
36

 
31

Total derivative assets
 
49

 
37

 
 
 
 
 
Derivative liabilities
 
(10
)
 
(66
)
Non-current derivative liabilities
 
(10
)
 
(14
)
Total derivative liabilities
 
(20
)
 
(80
)
 
 
 
 
 
Derivative asset (liability), net
 
$
29

 
$
(43
)
 
(1)
Does not include collateral calls of $1 million for such contracts, which are included in other current assets in our Consolidated Balance Sheets as of both March 31, 2019 and December 31, 2018.

The following table shows the changes in the fair value, settlements and location of our Liquefaction Supply Derivatives on our Consolidated Statements of Income during the three months ended March 31, 2019 and 2018 (in millions):
 
 
 
Three Months Ended March 31,
 
Statement of Income Location (1)
 
2019
 
2018
Liquefaction Supply Derivatives gain
LNG revenues
 
$
1

 
$

Liquefaction Supply Derivatives gain (loss)
Cost of sales
 
76

 
(50
)

 

(1)
Does not include the realized value associated with derivative instruments that settle through physical delivery. 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.


11


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

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, 2019
 
 
 
 
 
 
Liquefaction Supply Derivatives
 
$
51

 
$
(2
)
 
$
49

Liquefaction Supply Derivatives
 
(22
)
 
2

 
(20
)
As of December 31, 2018
 
 
 
 
 
 
Liquefaction Supply Derivatives
 
$
63

 
$
(26
)
 
$
37

Liquefaction Supply Derivatives
 
(92
)
 
12

 
(80
)


NOTE 8—OTHER NON-CURRENT ASSETS

As of March 31, 2019 and December 31, 2018, other non-current assets, net consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
Advances made to municipalities for water system enhancements
 
$
90

 
$
90

Advances and other asset conveyances to third parties to support LNG terminals
 
36

 
36

Tax-related payments and receivables
 
17

 
17

Information technology service assets
 
10

 
20

Advances made under EPC and non-EPC contracts
 
1

 
14

Other
 
6

 
7

Total other non-current assets, net
 
$
160

 
$
184



NOTE 9—ACCRUED LIABILITIES
 
As of March 31, 2019 and December 31, 2018, accrued liabilities consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
Interest costs and related debt fees
 
$
217

 
$
224

Accrued natural gas purchases
 
325

 
518

LNG terminal and related pipeline costs
 
175

 
79

Other accrued liabilities
 
8

 

Total accrued liabilities
 
$
725

 
$
821




12


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

NOTE 10—DEBT
 
As of March 31, 2019 and December 31, 2018, our debt consisted of the following (in millions):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
Long-term debt:
 
 
 
 
SPL
 
 
 
 
5.625% Senior Secured Notes due 2021 (“2021 SPL Senior Notes”)
 
$
2,000

 
$
2,000

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”)
 
1,500

 
1,500

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”)
 
1,350

 
1,350

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

 
800

Cheniere Partners
 
 
 
 
5.250% Senior Notes due 2025 (“2025 CQP Senior Notes”)
 
1,500

 
1,500

5.625% Senior Notes due 2026 (“2026 CQP Senior Notes”)
 
1,100

 
1,100

CQP Credit Facilities
 

 

Unamortized premium, discount and debt issuance costs, net
 
(177
)
 
(184
)
Total long-term debt, net
 
16,073

 
16,066

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

 

 
 
 
 
 
Total debt, net
 
$
16,073

 
$
16,066



Credit Facilities

Below is a summary of our credit facilities outstanding as of March 31, 2019 (in millions):
 
 
SPL Working Capital Facility
 
CQP Credit Facilities
Original facility size
 
$
1,200

 
$
2,800

Less:
 
 
 
 
Outstanding balance
 

 

Commitments prepaid or terminated
 

 
2,685

Letters of credit issued
 
421

 

Available commitment
 
$
779


$
115

 
 
 
 
 
Interest rate
 
LIBOR plus 1.75% or base rate plus 0.75%
 
LIBOR plus 2.25% or base rate plus 1.25%, with 0.50% step-up as of February 25, 2019
Maturity date
 
December 31, 2020
 
February 25, 2020


Restrictive Debt Covenants

As of March 31, 2019, we and SPL were in compliance with all covenants related to our respective debt agreements.

13


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


Interest Expense

Total interest expense consisted of the following (in millions):
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Total interest cost
 
$
235

 
$
232

Capitalized interest
 
(48
)
 
(47
)
Total interest expense, net
 
$
187

 
$
185



Fair Value Disclosures

The following table shows the carrying amount, which is net of unamortized premium, discount and debt issuance costs, and estimated fair value of our debt (in millions):
 
 
March 31, 2019
 
December 31, 2018
 
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
Senior notes (1)
 
$
15,282

 
$
16,418

 
$
15,275

 
$
15,672

2037 SPL Senior Notes (2)
 
791

 
858

 
791

 
817

 

(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, 2028 SPL Senior Notes, 2025 CQP Senior Notes and 2026 CQP Senior Notes. The Level 2 estimated fair value was based on quotes obtained from broker-dealers or market makers of these senior notes and other similar instruments.
(2)
The Level 3 estimated fair value was calculated based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including our stock price and interest rates based on debt issued by parties with comparable credit ratings to us and inputs that are not observable in the market. 

NOTE 11—LEASES

Our leased assets consist primarily of tug vessels and land sites, all of which are classified as operating leases.

ASC 842 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. As our leases generally do not provide an implicit rate, in order to calculate the lease liability, we discounted our expected future lease payments using our relevant subsidiary’s incremental borrowing rate at the later of January 1, 2019 or the commencement date of the lease. The incremental borrowing rate is an estimate of the rate of interest that a given subsidiary would have to pay to borrow on a collateralized basis over a similar term to that of the lease term.

Many of our leases contain renewal options exercisable at our sole discretion. Options to renew a lease are included in the lease term and recognized as part of the right-of-use asset and lease liability only to the extent they are reasonably certain to be exercised, such as when necessary to satisfy obligations that existed at the execution of the lease or when the non-renewal would otherwise result in an economic penalty.

We have elected the practical expedient to omit leases with an initial term of 12 months or less (“short-term lease”) from recognition on the balance sheet. We recognize short-term lease payments on a straight-line basis over the lease term and variable payments under short-term leases in the period in which the obligation is incurred.

Certain of our leases contain non-lease components which are not separated from the lease components when calculating the right-of-use asset and lease liability per our use of the practical expedient to combine both components of an arrangement for all classes of leased assets.


14


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

Certain of our leases also contain variable payments, such as inflation, that are not included when calculating the right-of-use asset and lease liability unless the payments are in-substance fixed. We recognize lease expense for operating leases on a straight-line basis over the lease term.

The following table shows the classification and location of our right-of-use assets and lease liabilities on our Consolidated Balance Sheets (in millions):
 
Consolidated Balance Sheet Location
 
March 31, 2019
Right-of-use assets—Operating
Operating lease assets, net
 
$
93

Current operating lease liabilities
Current operating lease liabilities
 
5

Non-current operating lease liabilities
Non-current operating lease liabilities
 
87



The following table shows the classification and location of our lease cost on our Consolidated Statements of Income (in millions):
 
Consolidated Statement of Income Location
 
Three Months Ended March 31, 2019
Operating lease cost (1)
Operating costs and expenses (2)
 
$
2

 
(1)
Includes short-term and variable lease costs.
(2)
Presented in cost of sales, operating and maintenance expense or selling, general and administrative expense consistent with the nature of the asset under lease.

Future annual minimum lease payments for operating leases as of March 31, 2019 are as follows (in millions): 
Years Ending December 31,
Operating Leases
2019
$
7

2020
10

2021
10

2022
10

2023
10

Thereafter
124

Total lease payments
171

Less: Interest
(80
)
Present value of lease liabilities
$
91


Future annual minimum lease payments for operating leases as of December 31, 2018, prepared in accordance with accounting standards prior to the adoption of ASC 842, were as follows (in millions):
Years Ending December 31,
Operating Leases (1)
2019
$
10

2020
10

2021
10

2022
10

2023
10

Thereafter
124

Total
$
174

 
(1)
Includes certain lease option renewals that are reasonably assured and payments for certain non-lease components.



15


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

The following table shows the weighted-average remaining lease term (in years) and the weighted-average discount rate for our operating leases:
 
March 31, 2019
Weighted-average remaining lease term (in years)
26.3

Weighted-average discount rate
4.8
%

The following table includes other quantitative information for our operating leases (in millions):
 
Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows for operating leases
$
2



NOTE 12—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, 2019 and 2018 (in millions):
 
 
Three Months Ended March 31,
 
 
2019
 
2018
LNG revenues
 
$
1,366

 
$
1,015

LNG revenues—affiliate
 
305

 
503

Regasification revenues
 
66

 
65

Other revenues
 
11

 
10

Total revenues from customers
 
1,748

 
1,593

Gains from derivative instruments
 
1

 

Total revenues
 
$
1,749

 
$
1,593



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, 2019