UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended June 30, 2020
or
For the transition period from to
Commission file number 001-33366
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(713 ) 375-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
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 ☒ 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 ☒ 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.
☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | |||
Emerging growth company | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 31, 2020, the registrant had 348,632,792 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 June 30, 2020, 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.
2
PART I. | FINANCIAL INFORMATION |
ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS |
CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except unit data)
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
ASSETS | (unaudited) | |||||||
Current assets | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Restricted cash | ||||||||
Accounts and other receivables, net | ||||||||
Accounts receivable—affiliate | ||||||||
Advances to affiliate | ||||||||
Inventory | ||||||||
Derivative assets | ||||||||
Other current assets | ||||||||
Other current assets—affiliate | ||||||||
Total current assets | ||||||||
Property, plant and equipment, net | ||||||||
Operating lease assets, net | ||||||||
Debt issuance costs, net | ||||||||
Non-current derivative assets | ||||||||
Other non-current assets, net | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND PARTNERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | $ | ||||||
Accrued liabilities | ||||||||
Due to affiliates | ||||||||
Deferred revenue | ||||||||
Deferred revenue—affiliate | ||||||||
Current operating lease liabilities | ||||||||
Derivative liabilities | ||||||||
Total current liabilities | ||||||||
Long-term debt, net | ||||||||
Non-current operating lease liabilities | ||||||||
Non-current derivative liabilities | ||||||||
Other non-current liabilities | ||||||||
Other non-current liabilities—affiliate | ||||||||
Partners’ equity | ||||||||
Common unitholders’ interest (348.6 million units issued and outstanding at June 30, 2020 and December 31, 2019) | ||||||||
Subordinated unitholders’ interest (135.4 million units issued and outstanding at June 30, 2020 and December 31, 2019) | ( | ) | ( | ) | ||||
General partner’s interest (2% interest with 9.9 million units issued and outstanding at June 30, 2020 and December 31, 2019) | ( | ) | ( | ) | ||||
Total partners’ equity | ||||||||
Total liabilities and partners’ equity | $ | $ | ||||||
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 June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues | ||||||||||||||||
LNG revenues | $ | $ | $ | $ | ||||||||||||
LNG revenues—affiliate | ||||||||||||||||
Regasification revenues | ||||||||||||||||
Other revenues | ||||||||||||||||
Total revenues | ||||||||||||||||
Operating costs and expenses | ||||||||||||||||
Cost of sales (excluding items shown separately below) | ||||||||||||||||
Cost of sales—affiliate | ||||||||||||||||
Operating and maintenance expense | ||||||||||||||||
Operating and maintenance expense—affiliate | ||||||||||||||||
General and administrative expense | ||||||||||||||||
General and administrative expense—affiliate | ||||||||||||||||
Depreciation and amortization expense | ||||||||||||||||
Impairment expense and loss on disposal of assets | ||||||||||||||||
Total operating costs and expenses | ||||||||||||||||
Income from operations | ||||||||||||||||
Other income (expense) | ||||||||||||||||
Interest expense, net of capitalized interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Loss on modification or extinguishment of debt | ( | ) | ( | ) | ||||||||||||
Other income, net | ||||||||||||||||
Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net income | $ | $ | $ | $ | ||||||||||||
Basic and diluted net income per common unit | $ | $ | $ | $ | ||||||||||||
Weighted average number of common units outstanding used for basic and diluted net income per common unit calculation | ||||||||||||||||
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 and Six Months Ended June 30, 2020 | ||||||||||||||||||||||||
Common Unitholders’ Interest | Subordinated Unitholder’s Interest | General Partner’s Interest | Total Partners’ Equity | |||||||||||||||||||||
Units | Amount | Units | Amount | Units | Amount | |||||||||||||||||||
Balance at December 31, 2019 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
Net income | — | — | — | |||||||||||||||||||||
Distributions | ||||||||||||||||||||||||
Common units, $0.63/unit | — | ( | ) | — | — | — | — | (220 | ) | |||||||||||||||
Subordinated units, $0.63/unit | — | — | — | ( | ) | — | — | (85 | ) | |||||||||||||||
General partner units | — | — | — | — | — | ( | ) | (25 | ) | |||||||||||||||
Balance at March 31, 2020 | ( | ) | ( | ) | ||||||||||||||||||||
Net income | — | — | — | |||||||||||||||||||||
Distributions | ||||||||||||||||||||||||
Common units, $0.64/unit | — | ( | ) | — | — | — | — | (223 | ) | |||||||||||||||
Subordinated units, $0.64/unit | — | — | — | ( | ) | — | — | (86 | ) | |||||||||||||||
General partner units | — | — | — | — | — | ( | ) | (29 | ) | |||||||||||||||
Balance at June 30, 2020 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
Three and Six Months Ended June 30, 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 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
Net income | — | — | — | |||||||||||||||||||||
Distributions | ||||||||||||||||||||||||
Common units, $0.59/unit | — | ( | ) | — | — | — | — | (206 | ) | |||||||||||||||
Subordinated units, $0.59/unit | — | — | — | ( | ) | — | — | (80 | ) | |||||||||||||||
General partner units | — | — | — | — | — | ( | ) | (18 | ) | |||||||||||||||
Balance at March 31, 2019 | ( | ) | ( | ) | ||||||||||||||||||||
Net income | — | — | — | |||||||||||||||||||||
Distributions | ||||||||||||||||||||||||
Common units, $0.60/unit | — | ( | ) | — | — | — | — | (209 | ) | |||||||||||||||
Subordinated units, $0.60/unit | — | — | — | ( | ) | — | — | (81 | ) | |||||||||||||||
General partner units | — | — | — | — | — | ( | ) | (22 | ) | |||||||||||||||
Balance at June 30, 2019 | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Six Months Ended June 30, | |||||||
2020 | 2019 | ||||||
Cash flows from operating activities | |||||||
Net income | $ | $ | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization expense | |||||||
Amortization of debt issuance costs, premium and discount | |||||||
Loss on modification or extinguishment of debt | |||||||
Total gains on derivatives, net | ( | ) | ( | ) | |||
Net cash provided by settlement of derivative instruments | |||||||
Impairment expense and loss on disposal of assets | |||||||
Other | |||||||
Changes in operating assets and liabilities: | |||||||
Accounts and other receivables, net | |||||||
Accounts receivable—affiliate | ( | ) | |||||
Advances to affiliate | ( | ) | |||||
Inventory | ( | ) | |||||
Accounts payable and accrued liabilities | ( | ) | ( | ) | |||
Due to affiliates | ( | ) | ( | ) | |||
Deferred revenue | ( | ) | |||||
Other, net | ( | ) | ( | ) | |||
Other, net—affiliate | ( | ) | ( | ) | |||
Net cash provided by operating activities | |||||||
Cash flows from investing activities | |||||||
Property, plant and equipment, net | ( | ) | ( | ) | |||
Other | ( | ) | |||||
Net cash used in investing activities | ( | ) | ( | ) | |||
Cash flows from financing activities | |||||||
Proceeds from issuances of debt | |||||||
Repayments of debt | ( | ) | |||||
Debt issuance and other financing costs | ( | ) | ( | ) | |||
Debt extinguishment costs | ( | ) | |||||
Distributions to owners | ( | ) | ( | ) | |||
Other | ( | ||||||
Net cash provided by (used in) financing activities | ( | ) | |||||
Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ) | |||||
Cash, cash equivalents and restricted cash—beginning of period | |||||||
Cash, cash equivalents and restricted cash—end of period | $ | $ | |||||
Balances per Consolidated Balance Sheet:
June 30, | |||
2020 | |||
Cash and cash equivalents | $ | ||
Restricted cash | |||
Total cash, cash equivalents and restricted cash | $ | ||
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
The Sabine Pass LNG terminal is located in Cameron Parish, Louisiana, on the Sabine-Neches Waterway less than four miles from the Gulf Coast. Through our subsidiary, SPL, we are currently operating five natural gas liquefaction Trains and are constructing one additional Train for a total production capacity of approximately 30 mtpa of LNG (the “Liquefaction Project”) at the Sabine Pass LNG terminal. Through our subsidiary, SPLNG, we own and operate regasification facilities at the Sabine Pass LNG terminal, which includes pre-existing infrastructure of five LNG storage tanks, two marine berths and vaporizers and an additional marine berth that is under construction. We also own a 94 -mile pipeline through our subsidiary, CTPL, that interconnects the Sabine Pass LNG terminal with a number of large interstate pipelines (the “Creole Trail Pipeline”).
Basis of Presentation
Results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2020.
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
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance primarily provides temporary optional expedients which simplify the accounting for contract modifications to existing debt agreements expected to arise from the market transition from LIBOR to alternative reference rates. The optional expedients were available to be used upon issuance of this guidance but we have not yet applied the guidance because we have not yet modified any of our existing contracts for reference rate reform. Once we apply an optional expedient to a modified contract and adopt this standard, the guidance will be applied to all subsequent applicable contract modifications until December 31, 2022, at which time the optional expedients are no longer available.
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 accumulated 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. In July 2020, the board of directors of our general partner confirmed and approved that, following the distribution with respect to the three months ended June 30, 2020, the financial tests required for conversion of our subordinated units will be met under the terms of the partnership agreement. Accordingly, effective August 17, 2020, the first business day following the payment of the distribution, all of our subordinated units will be automatically converted into common units on a one-for-one basis and the subordination period will be terminated.
7
CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Although common unitholders are not obligated to fund losses of the Partnership, its capital account, which would be considered in allocating the net assets of the Partnership were it to be liquidated, continues to share in losses.
The general partner interest is entitled to at least 2 % of all distributions made by us. In addition, the general partner holds incentive distribution rights (“IDRs”), which allow the general partner to receive a higher percentage of quarterly distributions of available cash from operating surplus after the initial quarterly distributions have been achieved and as additional target levels are met, 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.
NOTE 3—RESTRICTED CASH
Restricted cash consists of funds that are contractually or legally restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on our Consolidated Balance Sheets. As of June 30, 2020 and December 31, 2019, we had $167 million and $181 million of current restricted cash, respectively.
NOTE 4—ACCOUNTS AND OTHER RECEIVABLES
As of June 30, 2020 and December 31, 2019, accounts and other receivables, net consisted of the following (in millions):
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
SPL trade receivable | $ | $ | ||||||
Other accounts receivable | ||||||||
Total accounts and other receivables, net | $ | $ | ||||||
NOTE 5—INVENTORY
As of June 30, 2020 and December 31, 2019, inventory consisted of the following (in millions):
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
Natural gas | $ | $ | ||||||
LNG | ||||||||
Materials and other | ||||||||
Total inventory | $ | $ | ||||||
8
CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 6—PROPERTY, PLANT AND EQUIPMENT
As of June 30, 2020 and December 31, 2019, property, plant and equipment, net consisted of the following (in millions):
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
LNG terminal costs | ||||||||
LNG terminal and interconnecting pipeline facilities | $ | $ | ||||||
LNG terminal construction-in-process | ||||||||
Accumulated depreciation | ( | ) | ( | ) | ||||
Total LNG terminal costs, net | ||||||||
Fixed assets | ||||||||
Fixed assets | ||||||||
Accumulated depreciation | ( | ) | ( | ) | ||||
Total fixed assets, net | ||||||||
Property, plant and equipment, net | $ | $ | ||||||
Depreciation expense was $137 million during both the three months ended June 30, 2020 and 2019 and $274 million and $250 million during the six months ended June 30, 2020 and 2019, respectively.
We realized offsets to LNG terminal costs of $48 million during the six months ended June 30, 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 the respective Trains of the Liquefaction Project, during the testing phase for its construction. We did no t realize any offsets to LNG terminal costs during the three and six months ended June 30, 2020 and the three months ended June 30, 2019.
NOTE 7—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”).
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 or fair value 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 June 30, 2020 and December 31, 2019, which are classified as derivative assets, non-current derivative assets, derivative liabilities or non-current derivative liabilities in our Consolidated Balance Sheets (in millions).
Fair Value Measurements as of | |||||||||||||||||||||||||||||||
June 30, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||
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) | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||
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 observable and unobservable market commodity prices and, as applicable to our natural gas supply contracts, our assessment of the associated events deriving fair value, including evaluating whether the respective market is available as pipeline infrastructure is developed. The fair value of our Physical Liquefaction Supply Derivatives incorporates risk premiums related to the satisfaction of conditions precedent, such as completion and placement into service of relevant pipeline infrastructure to accommodate marketable physical gas flow.
9
CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
As of June 30, 2020 and December 31, 2019, some of our Physical Liquefaction Supply Derivatives existed within markets for which the pipeline infrastructure was under development to accommodate marketable physical gas flow.
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 incorporate significant unobservable inputs. In instances where observable data is unavailable, consideration is given to the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks, such as future prices of energy units for unobservable periods, liquidity, volatility and contract duration.
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 prices. The following table includes quantitative information for the unobservable inputs for our Level 3 Physical Liquefaction Supply Derivatives as of June 30, 2020:
Net Fair Value Asset (in millions) | Valuation Approach | Significant Unobservable Input | Range of Significant Unobservable Inputs / Weighted Average (1) | |||||
Physical Liquefaction Supply Derivatives | $ | Market approach incorporating present value techniques | Henry Hub basis spread | $(0.350) - $0.172 / $0.008 | ||||
(1) | Unobservable inputs were weighted by the relative fair value of the instruments. |
Increases or decreases in basis, in isolation, would decrease or increase, respectively, the fair value of our Physical Liquefaction Supply Derivatives.
The following table shows the changes in the fair value of our Level 3 Physical Liquefaction Supply Derivatives during the three and six months ended June 30, 2020 and 2019 (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Balance, beginning of period | $ | $ | $ | $ | ( | ) | ||||||||||
Realized and mark-to-market gains: | ||||||||||||||||
Included in cost of sales | ||||||||||||||||
Purchases and settlements: | ||||||||||||||||
Purchases | ( | ) | ||||||||||||||
Settlements | ( | ) | ( | ) | ||||||||||||
Transfers out of Level 3 (1) | ||||||||||||||||
Balance, end of period | $ | $ | $ | $ | ||||||||||||
Change in unrealized gains relating to instruments still held at end of period | $ | $ | $ | $ | ||||||||||||
(1) | Transferred to Level 2 as a result of observable market for the underlying natural gas purchase agreements. |
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 the unconditional right of set-off in the event of default. 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, counterparties are at risk that we will be unable to meet our commitments in instances where our derivative instruments are in a liability position. We incorporate both our own nonperformance risk and the respective counterparty’s nonperformance risk in fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of any applicable credit enhancements, such as collateral postings, set-off rights and guarantees.
10
CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
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 remaining terms of the physical natural gas supply contracts range up to 9 years, some of which commence upon the satisfaction of certain events or states of affairs.
The notional natural gas position of our Liquefaction Supply Derivatives was approximately 4,808 TBtu and 3,663 TBtu as of June 30, 2020 and December 31, 2019, respectively, of which 91 TBtu and zero TBtu, respectively, were for a natural gas supply contract that SPL has with a related party.
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 Sheets Location | June 30, 2020 | December 31, 2019 | ||||||
Derivative assets | $ | $ | ||||||
Non-current derivative assets | ||||||||
Total derivative assets | ||||||||
Derivative liabilities | ( | ) | ( | ) | ||||
Non-current derivative liabilities | ( | ) | ( | ) | ||||
Total derivative liabilities | ( | ) | ( | ) | ||||
Derivative asset, net | $ | $ | ||||||
(1) | Does not include collateral posted with counterparties by us of $ |
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 and six months ended June 30, 2020 and 2019 (in millions):
Consolidated Statements of Income Location (1) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||||
Liquefaction Supply Derivatives gain (loss) | LNG revenues | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
Liquefaction Supply Derivatives gain | Cost of sales | ||||||||||||||||
(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. |
Consolidated Balance Sheets 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 June 30, 2020 | ||||||||||||
Liquefaction Supply Derivatives | $ | $ | ( | ) | $ | |||||||
Liquefaction Supply Derivatives | ( | ) | ( | ) | ||||||||
As of December 31, 2019 | ||||||||||||
Liquefaction Supply Derivatives | $ | $ | ( | ) | $ | |||||||
Liquefaction Supply Derivatives | ( | ) | ( | ) | ||||||||
11
CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 8—OTHER NON-CURRENT ASSETS
As of June 30, 2020 and December 31, 2019, other non-current assets, net consisted of the following (in millions):
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
Advances made to municipalities for water system enhancements | $ | $ | ||||||
Advances and other asset conveyances to third parties to support LNG terminal | ||||||||
Tax-related prepayments and receivables | ||||||||
Information technology service prepayments | ||||||||
Advances made under EPC and non-EPC contracts | ||||||||
Other | ||||||||
Total other non-current assets, net | $ | $ | ||||||
NOTE 9—ACCRUED LIABILITIES
As of June 30, 2020 and December 31, 2019, accrued liabilities consisted of the following (in millions):
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
Interest costs and related debt fees | $ | $ | ||||||
Accrued natural gas purchases | ||||||||
LNG terminal and related pipeline costs | ||||||||
Other accrued liabilities | ||||||||
Total accrued liabilities | $ | $ | ||||||
12
CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 10—DEBT
As of June 30, 2020 and December 31, 2019, our debt consisted of the following (in millions):
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
Long-term debt: | ||||||||
SPL | ||||||||
5.625% Senior Secured Notes due 2021 (“2021 SPL Senior Notes”) | $ | $ | ||||||
6.25% Senior Secured Notes due 2022 (“2022 SPL Senior Notes”) | ||||||||
5.625% Senior Secured Notes due 2023 (“2023 SPL Senior Notes”) | ||||||||