Document

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

¨ 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



	Definitions	1
Part I. Financial Information
Item 1.	Consolidated Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Partners’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40

Item 4.	Controls and Procedures	40

Part II. Other Information
Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 5.	Other Information	41

Item 6.	Exhibits	41

	Signatures	42

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

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:

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.


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.

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.

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			Total Partners’ Equity
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			Total Partners’ Equity
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.

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.

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.

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

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.

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.

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.

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)	Gross Amounts Recognized			Gross Amounts Offset in the Consolidated Balance Sheets			Net Amounts Presented in the Consolidated Balance Sheets
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

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.

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.

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.

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