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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
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)
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 |
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.
| | | | | | | | | | | | | | | | | |
| Large accelerated filer | ☒ | | 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 April 29, 2022, the registrant had 484,027,123 common units outstanding.
CHENIERE ENERGY PARTNERS, L.P.
TABLE OF CONTENTS
DEFINITIONS
As used in this quarterly report, the terms listed below have the following meanings:
Common Industry and Other Terms
| | | | | | | | |
ASU | | Accounting Standards Update |
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 |
FASB | | Financial Accounting Standards Board |
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 |
IPM agreements | | integrated production marketing agreements in which the gas producer sells to us gas on a global LNG index price, less a fixed liquefaction fee, shipping and other costs |
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; one British thermal unit measures the amount of energy required to raise the temperature of one pound of water by one degree Fahrenheit |
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; one British thermal unit measures the amount of energy required to raise the temperature of one pound of water by one degree Fahrenheit |
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, 2022, including our ownership of certain subsidiaries, and the references to these entities used in this quarterly report:
Unless the context requires otherwise, references to “CQP,” “the Partnership,” “we,” “us” and “our” refer to Cheniere Energy Partners, L.P. and its consolidated subsidiaries, including SPLNG, SPL and CTPL.
PART I. FINANCIAL INFORMATION
ITEM 1. 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, |
| | | | | | 2022 | | 2021 | | |
Revenues | | | | | | | | | | |
LNG revenues | | | | | | $ | 2,488 | | | $ | 1,669 | | | |
LNG revenues—affiliate | | | | | | 757 | | | 214 | | | |
| | | | | | | | | | |
Regasification revenues | | | | | | 68 | | | 67 | | | |
| | | | | | | | | | |
Other revenues | | | | | | 15 | | | 13 | | | |
| | | | | | | | | | |
Total revenues | | | | | | 3,328 | | | 1,963 | | | |
| | | | | | | | | | |
Operating costs and expenses | | | | | | | | | | |
Cost of sales (excluding items shown separately below) | | | | | | 2,562 | | | 948 | | | |
Cost of sales—affiliate | | | | | | 5 | | | 42 | | | |
| | | | | | | | | | |
Operating and maintenance expense | | | | | | 170 | | | 149 | | | |
Operating and maintenance expense—affiliate | | | | | | 38 | | | 34 | | | |
Operating and maintenance expense—related party | | | | | | 12 | | | 10 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
General and administrative expense | | | | | | 3 | | | 2 | | | |
General and administrative expense—affiliate | | | | | | 23 | | | 21 | | | |
Depreciation and amortization expense | | | | | | 153 | | | 139 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Total operating costs and expenses | | | | | | 2,966 | | | 1,345 | | | |
| | | | | | | | | | |
Income from operations | | | | | | 362 | | | 618 | | | |
| | | | | | | | | | |
Other expense | | | | | | | | | | |
Interest expense, net of capitalized interest | | | | | | (203) | | | (217) | | | |
Loss on modification or extinguishment of debt | | | | | | — | | | (54) | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Total other expense | | | | | | (203) | | | (271) | | | |
| | | | | | | | | | |
Net income | | | | | | $ | 159 | | | $ | 347 | | | |
| | | | | | | | | | |
Basic and diluted net income (loss) per common unit | | | | | | $ | (0.11) | | | $ | 0.64 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Weighted average number of common units outstanding used for basic and diluted net income (loss) per common unit calculation | | | | | | 484.0 | | | 484.0 | | | |
The accompanying notes are an integral part of these consolidated financial statements.
3
CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except unit data)
| | | | | | | | | | | | | | |
| | |
| | March 31, | | December 31, |
| | 2022 | | 2021 |
ASSETS | | (unaudited) | | |
Current assets | | | | |
Cash and cash equivalents | | $ | 1,156 | | | $ | 876 | |
Restricted cash and cash equivalents | | 136 | | | 98 | |
Trade and other receivables, net of current expected credit losses | | 434 | | | 580 | |
Accounts receivable—affiliate | | 290 | | | 232 | |
Accounts receivable—related party | | — | | | 1 | |
Advances to affiliate | | 150 | | | 141 | |
Inventory | | 149 | | | 176 | |
Current derivative assets | | 24 | | | 21 | |
Other current assets | | 93 | | | 87 | |
Other current assets—affiliate | | 2 | | | — | |
Total current assets | | 2,434 | | | 2,212 | |
| | | | |
| | | | |
Property, plant and equipment, net of accumulated depreciation | | 16,915 | | | 16,830 | |
Operating lease assets | | 96 | | | 98 | |
Debt issuance costs, net of accumulated amortization | | 11 | | | 12 | |
Derivative assets | | 30 | | | 33 | |
Other non-current assets, net | | 172 | | | 173 | |
| | | | |
Total assets | | $ | 19,658 | | | $ | 19,358 | |
| | | | |
LIABILITIES AND PARTNERS' EQUITY (DEFICIT) | | | | |
Current liabilities | | | | |
Accounts payable | | $ | 24 | | | $ | 21 | |
Accrued liabilities | | 1,159 | | | 1,073 | |
Accrued liabilities—related party | | 5 | | | 4 | |
| | | | |
Due to affiliates | | 32 | | | 67 | |
Deferred revenue | | 116 | | | 155 | |
Deferred revenue—affiliate | | — | | | 1 | |
Current operating lease liabilities | | 8 | | | 8 | |
Current derivative liabilities | | 256 | | | 16 | |
| | | | |
Total current liabilities | | 1,600 | | | 1,345 | |
| | | | |
Long-term debt, net of premium, discount and debt issuance costs | | 17,184 | | | 17,177 | |
| | | | |
Operating lease liabilities | | 87 | | | 89 | |
Derivative liabilities | | 2,999 | | | 11 | |
| | | | |
Other non-current liabilities—affiliate | | 18 | | | 18 | |
| | | | |
| | | | |
| | | | |
Partners' equity (deficit) | | | | |
Common unitholders’ interest (484.0 million units issued and outstanding at both March 31, 2022 and December 31, 2021) | | (1,870) | | | 1,024 | |
| | | | |
General partner’s interest (2% interest with 9.9 million units issued and outstanding at March 31, 2022 and December 31, 2021) | | (360) | | | (306) | |
Total partners' equity (deficit) | | (2,230) | | | 718 | |
Total liabilities and partners' equity (deficit) | | $ | 19,658 | | | $ | 19,358 | |
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 (DEFICIT)
(in millions)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2022 |
| Common Unitholders’ Interest | | | | | | General Partner’s Interest | | Total Partners’ Deficit |
| Units | | Amount | | | | | | | | | | Units | | Amount | |
| | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | 484.0 | | | $ | 1,024 | | | | | | | | | | | 9.9 | | | $ | (306) | | | $ | 718 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net income | — | | | 157 | | | | | | | | | | | — | | | 2 | | | 159 | |
Non-cash distribution (see Note 14) | — | | | (2,712) | | | | | | | | | | | — | | | — | | | (2,712) | |
Distributions | | | | | | | | | | | | | | | | | |
Common units, $0.700/unit | — | | | (339) | | | | | | | | | | | — | | | — | | | (339) | |
| | | | | | | | | | | | | | | | | |
General partner units | — | | | — | | | | | | | | | | | — | | | (56) | | | (56) | |
| | | | | | | | | | | | | | | | | |
Balance at March 31, 2022 | 484.0 | | | $ | (1,870) | | | | | | | | | | | 9.9 | | | $ | (360) | | | $ | (2,230) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2021 |
| Common Unitholders’ Interest | | | | | | General Partner’s Interest | | Total Partners’ Equity |
| Units | | Amount | | | | | | | | | | Units | | Amount | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | |
Balance at December 31, 2020 | 484.0 | | | $ | 714 | | | | | | | | | | | 9.9 | | | $ | (175) | | | $ | 539 | |
Net income | — | | | 340 | | | | | | | | | | | — | | | 7 | | | 347 | |
Distributions | | | | | | | | | | | | | | | | | |
Common units, $0.655/unit | — | | | (316) | | | | | | | | | | | — | | | — | | | (316) | |
General partner units | — | | | — | | | | | | | | | | | — | | | (35) | | | (35) | |
Balance at March 31, 2021 | 484.0 | | | $ | 738 | | | | | | | | | | | 9.9 | | | $ | (203) | | | $ | 535 | |
| | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | |
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, |
| 2022 | | 2021 | | |
Cash flows from operating activities | | | | | |
Net income | $ | 159 | | | $ | 347 | | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization expense | 153 | | | 139 | | | |
Amortization of debt issuance costs, premium and discount | 7 | | | 8 | | | |
Loss on modification or extinguishment of debt | — | | | 54 | | | |
Total losses on derivative instruments, net | 525 | | | 2 | | | |
| | | | | |
Net cash provided by (used for) settlement of derivative instruments | (9) | | | 20 | | | |
| | | | | |
Other | 4 | | | 3 | | | |
| | | | | |
Changes in operating assets and liabilities: | | | | | |
Trade and other receivables, net of current expected credit losses | 88 | | | (56) | | | |
Accounts receivable—affiliate | (74) | | | 86 | | | |
| | | | | |
Advances to affiliate | (8) | | | 18 | | | |
Inventory | 25 | | | 4 | | | |
Accounts payable and accrued liabilities | 13 | | | 24 | | | |
Accrued liabilities—related party | 1 | | | (1) | | | |
Due to affiliates | (20) | | | (20) | | | |
Deferred revenue | (39) | | | (36) | | | |
Other, net | (24) | | | (6) | | | |
Other, net—affiliate | (1) | | | 2 | | | |
Net cash provided by operating activities | 800 | | | 588 | | | |
| | | | | |
Cash flows from investing activities | | | | | |
Property, plant and equipment | (87) | | | (146) | | | |
| | | | | |
Net cash used in investing activities | (87) | | | (146) | | | |
| | | | | |
Cash flows from financing activities | | | | | |
Proceeds from issuances of debt | — | | | 1,500 | | | |
Redemptions and repayments of debt | — | | | (1,500) | | | |
Debt issuance and other financing costs | — | | | (19) | | | |
Debt extinguishment costs | — | | | (40) | | | |
| | | | | |
Distributions to owners | (395) | | | (351) | | | |
Other | — | | | 3 | | | |
Net cash used in financing activities | (395) | | | (407) | | | |
| | | | | |
Net increase in cash, cash equivalents and restricted cash and cash equivalents | 318 | | | 35 | | | |
Cash, cash equivalents and restricted cash and cash equivalents—beginning of period | 974 | | | 1,307 | | | |
Cash, cash equivalents and restricted cash and cash equivalents—end of period | $ | 1,292 | | | $ | 1,342 | | | |
Balances per Consolidated Balance Sheet:
| | | | | | | |
| March 31, |
| 2022 | | |
Cash and cash equivalents | $ | 1,156 | | | |
Restricted cash and cash equivalents | 136 | | | |
| | | |
Total cash, cash equivalents and restricted cash and cash equivalents | $ | 1,292 | | | |
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
We own the natural gas liquefaction and export facility in Cameron Parish, Louisiana at Sabine Pass (the “Sabine Pass LNG Terminal”) which has six operational Trains, with Train 6 achieving substantial completion on February 4, 2022, for a total production capacity of approximately 30 mtpa of LNG (the “Liquefaction Project”). The Sabine Pass LNG Terminal also has operational regasification facilities that include five LNG storage tanks, vaporizers and two marine berths, with 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”).
As of March 31, 2022, Cheniere owned 48.6% of our limited partner interest in the form of 239.9 million of our common units. Cheniere also owns 100% of our general partner interest and our incentive distribution rights (“IDRs”).
Basis of Presentation
The accompanying unaudited Consolidated Financial Statements of CQP have been prepared in accordance with GAAP for interim financial information and in accordance 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 fiscal year ended December 31, 2021. Reclassifications that are not material to our Consolidated Financial Statements, if any, are made to prior period financial information to conform to the current year presentation.
Results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2022.
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
ASU 2020-04
In March 2020, the FASB issued 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 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.
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 IDRs, which allow the general partner to receive a higher percentage of quarterly distributions of available cash from
CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
operating surplus 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, 2022, our total securities beneficially owned in the form of common units were held 48.6% by Cheniere, 41.4% by CQP Target Holdco L.L.C. (“CQP Target Holdco”) and other affiliates of Blackstone Inc. (“Blackstone”) and Brookfield Asset Management Inc. (“Brookfield”) and 8.0% by the public. All of our 2% general partner interest was held by Cheniere. CQP Target Holdco’s equity interests are 50.00% owned by BIP Chinook Holdco L.L.C., an affiliate of Blackstone and 50.00% owned by BIF IV Cypress Aggregator (Delaware) LLC, an affiliate of Brookfield. The ownership of CQP Target Holdco, Blackstone and Brookfield are based on their most recent filings with the SEC.
NOTE 3—RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash and cash equivalents consist 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 March 31, 2022 and December 31, 2021, we had $136 million and $98 million of restricted cash and cash equivalents, respectively.
Pursuant to the accounts agreement entered into with the collateral trustee for the benefit of SPL’s debt holders, SPL is required to deposit all cash received into reserve accounts controlled by the collateral trustee. The usage or withdrawal of such cash is restricted to the payment of liabilities related to the Liquefaction Project and other restricted payments.
NOTE 4—TRADE AND OTHER RECEIVABLES, NET OF CURRENT EXPECTED CREDIT LOSSES
Trade and other receivables, net of current expected credit losses consisted of the following (in millions):
| | | | | | | | | | | | | | |
| | |
| | March 31, | | December 31, |
| | 2022 | | 2021 |
SPL trade receivables | | $ | 411 | | | $ | 546 | |
Other receivables | | 23 | | | 34 | |
Total trade and other receivables, net of current expected credit losses | | $ | 434 | | | $ | 580 | |
NOTE 5—INVENTORY
Inventory consisted of the following (in millions):
| | | | | | | | | | | | | | |
| | |
| | March 31, | | December 31, |
| | 2022 | | 2021 |
Materials | | $ | 89 | | | $ | 86 | |
LNG | | 33 | | | 45 | |
Natural gas | | 25 | | | 43 | |
Other | | 2 | | | 2 | |
Total inventory | | $ | 149 | | | $ | 176 | |
NOTE 6—PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
Property, plant and equipment, net of accumulated depreciation consisted of the following (in millions):
| | | | | | | | | | | | | | |
| | |
| | March 31, | | December 31, |
| | 2022 | | 2021 |
LNG terminal | | | | |
LNG terminal and interconnecting pipeline facilities | | $ | 19,432 | | | $ | 16,973 | |
| | | | |
LNG terminal construction-in-process | | 524 | | | 2,746 | |
Accumulated depreciation | | (3,044) | | | (2,893) | |
Total LNG terminal, net of accumulated depreciation | | 16,912 | | | 16,826 | |
Fixed assets | | | | |
Fixed assets | | 28 | | | 29 | |
Accumulated depreciation | | (25) | | | (25) | |
Total fixed assets, net of accumulated depreciation | | 3 | | | 4 | |
Property, plant and equipment, net of accumulated depreciation | | $ | 16,915 | | | $ | 16,830 | |
CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table shows depreciation expense and offsets to LNG terminal costs (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2022 | | 2021 | | |
Depreciation expense | | | | | | $ | 152 | | | $ | 138 | | | |
Offsets to LNG terminal costs (1) | | | | | | 148 | | | — | | | |
(1)We recognize offsets to LNG terminal costs 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.
NOTE 7—DERIVATIVE INSTRUMENTS
We have entered into commodity derivatives consisting of natural gas supply contracts, including those under SPL’s IPM agreement, for the commissioning and operation of the Liquefaction Project (“Physical Liquefaction Supply Derivatives”) and associated economic hedges (“Financial Liquefaction Supply Derivatives,” and collectively with the Physical Liquefaction Supply Derivatives, 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, in which case it is capitalized.
The following table shows the fair value of our derivative instruments that are required to be measured at fair value on a recurring basis (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of |
| March 31, 2022 | | December 31, 2021 |
| 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) | $ | (26) | | | $ | (13) | | | $ | (3,162) | | | $ | (3,201) | | | $ | 2 | | | $ | (13) | | | $ | 38 | | | $ | 27 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
We value our Liquefaction Supply Derivatives using a market-based approach or option-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, but not limited to, evaluation of whether the respective market exists from the perspective of market participants as infrastructure is developed.
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 and volatility.
CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
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 and international LNG prices. The following table includes quantitative information for the unobservable inputs for our Level 3 Physical Liquefaction Supply Derivatives as of March 31, 2022:
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| | Net Fair Value Liability (in millions) | | Valuation Approach | | Significant Unobservable Input | | Range of Significant Unobservable Inputs / Weighted Average (1) |
Physical Liquefaction Supply Derivatives | | $(3,162) | | Market approach incorporating present value techniques | | Henry Hub basis spread | | $(1.578) - $0.215 / $(0.004) |
| | | | Option pricing model | | International LNG pricing spread, relative to Henry Hub (2) | | 104% - 459% / 206% |
(1)Unobservable inputs were weighted by the relative fair value of the instruments.
(2)Spread contemplates U.S. dollar-denominated pricing.
Increases or decreases in basis or pricing spreads, 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 (in millions):
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| | | | Three Months Ended March 31, |
| | | | | | 2022 | | 2021 | | |
Balance, beginning of period | | | | | | $ | 38 | | | $ | (21) | | | |
Realized and mark-to-market losses: | | | | | | | | | | |
Included in cost of sales | | | | | | (53) | | | (12) | | | |
Purchases and settlements: | | | | | | | | | | |
Purchases (1) | | | | | | (3,141) | | | 1 | | | |
Settlements | | | | | | (6) | | | (4) | | | |
| | | | | | | | | | |
Balance, end of period | | | | | | $ | (3,162) | | | $ | (36) | | | |
Change in unrealized losses relating to instruments still held at end of period | | | | | | $ | (53) | | | $ | (12) | | | |
(1)Includes any assignments during the period.
All counterparty derivative contracts provide for the unconditional right of set-off in the event of default. We have elected to report derivative assets and liabilities arising from our derivative contracts with the same counterparty on a net basis. 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.
Liquefaction Supply Derivatives
SPL has entered into primarily index-based Liquefaction Supply Derivatives. The remaining minimum terms of the physical natural gas supply contracts range up to 15 years, some of which commence upon the satisfaction of certain conditions precedent. The terms of the Financial Liquefaction Supply Derivatives range up to approximately two years.
The forward notional amount for our Liquefaction Supply Derivatives was approximately 5,550 TBtu and 5,194 TBtu as of March 31, 2022 and December 31, 2021, respectively, excluding notional amounts associated with extension options that were uncertain to be taken as of March 31, 2022.
CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Fair Value and Location of Derivative Assets and Liabilities on the Consolidated Balance Sheets
The following table shows the fair value and location of our Liquefaction Supply Derivatives on our Consolidated Balance Sheets (in millions):
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| | Fair Value Measurements as of (1) | | | | |
Consolidated Balance Sheets Location | | March 31, 2022 | | | | | | December 31, 2021 | | | | |
Current derivative assets | | $ | 24 | | | | | | | $ | 21 | | | | | |
Derivative assets | | 30 | | | | | | | 33 | | | | | |
Total derivative assets | | 54 | | | | | | | 54 | | | | | |
| | | | | | | | | | | | |
Current derivative liabilities | | (256) | | | | | | | (16) | | | | | |
Derivative liabilities | | (2,999) | | | | | | | (11) | | | | | |
Total derivative liabilities | | (3,255) | | | | | | | (27) | | | | | |
| | | | | | | | | | | | |
Derivative asset (liability), net | | $ | (3,201) | | | | | | | $ | 27 | | | | | |
(1)Does not include collateral posted with counterparties by us of $32 million and $7 million, which are included in other current assets in our Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021, respectively.
The following table shows the effect and location of our Liquefaction Supply Derivatives recorded on our Consolidated Statements of Income (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | | | Loss Recognized in Consolidated Statements of Income |
Consolidated Statements of Income Location (1) | | | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 | | |
| | | | | | | | | | |
Cost of sales | | | | | | $ | (525) | | | $ | (2) | | | |
| | | | | | | | | | |
| | | | | | | | | | |
(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):
| | | | | | | | |
| | Liquefaction Supply Derivatives |
As of March 31, 2022 | | |
Gross assets | | $ | 74 | |
Offsetting amounts | | (20) | |
Net assets | | $ | 54 | |
| | |
Gross liabilities | | $ | (3,266) | |
Offsetting amounts | | 11 | |
Net liabilities | | $ | (3,255) | |
| | |
As of December 31, 2021 | | |
Gross assets | | $ | 79 | |
Offsetting amounts | | (25) | |
Net assets | | $ | 54 | |
| | |
Gross liabilities | | $ | (33) | |
Offsetting amounts | | 6 | |
Net liabilities | | $ | (27) | |
CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 8—ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in millions):
| | | | | | | | | | | | | | |
| | |
| | March 31, | | December 31, |
| | 2022 | | 2021 |
Accrued natural gas purchases | | $ | 692 | | | $ | 786 | |
Interest costs and related debt fees | | 215 | | | 180 | |
LNG terminal and related pipeline costs | | 240 | | | 101 | |
Other accrued liabilities | | 12 | | | 6 | |
Total accrued liabilities | | $ | 1,159 | | | $ | 1,073 | |
NOTE 9—DEBT
Debt consisted of the following (in millions):
| | | | | | | | | | | | | | |
| | |
| | March 31, | | December 31, |
| | 2022 | | 2021 |
SPL: | | | | |
Senior Secured Notes: | | | | |
| | | | |
5.625% due 2023 | | $ | 1,500 | | | $ | 1,500 | |
5.75% due 2024 | | 2,000 | | | 2,000 | |
5.625% due 2025 | | 2,000 | | | 2,000 | |
5.875% due 2026 | | 1,500 | | | 1,500 | |
5.00% due 2027 | | 1,500 | | | 1,500 | |
4.200% due 2028 | | 1,350 | | | 1,350 | |
4.500% due 2030 | | 2,000 | | | 2,000 | |
4.27% weighted average rate due 2037 | | 1,282 | | | 1,282 | |
Total SPL Senior Secured Notes | | 13,132 | | | 13,132 | |
$1.2 billion Working Capital Revolving Credit and Letter of Credit Reimbursement Agreement (“2020 SPL Working Capital Facility”) | | — | | | — | |
Total debt - SPL | | 13,132 | | | 13,132 | |
| | | | |
CQP: | | | | |
Senior Notes: | | | | |
| | | | |
| | | | |
4.500% due 2029 | | 1,500 | | | 1,500 | |
4.000% due 2031 | | 1,500 | | | 1,500 | |
3.25% due 2032 | | 1,200 | | | 1,200 | |
Total CQP Senior Notes | | 4,200 | | | 4,200 | |
CQP Credit Facilities executed in 2019 (“2019 CQP Credit Facilities”) | | — | | | — | |
Total debt - CQP | | 4,200 | | | 4,200 | |
Total debt | | 17,332 | | | 17,332 | |
| | | | |
| | | | |
| | | | |
Unamortized premium, discount and debt issuance costs, net | | (148) | | | (155) | |
Total long-term debt, net of premium, discount and debt issuance costs | | $ | 17,184 | | | $ | 17,177 | |
CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Credit Facilities
Below is a summary of our credit facilities outstanding as of March 31, 2022 (in millions):
| | | | | | | | | | | | | | | | | |
| | | | 2020 SPL Working Capital Facility | | 2019 CQP Credit Facilities | |
Total facility size | | | | $ | 1,200 | | | $ | 750 | | |
Less: | | | | | | | |
Outstanding balance | | | | — | | | — | | |
| | | | | | | |
Letters of credit issued | | | | 368 | | | — | | |
Available commitment | | | | $ | 832 | | | $ | 750 | | |
| | | | | | | |
Priority ranking | | | | Senior secured | | Senior secured | |
Interest rate on available balance | | | | LIBOR plus 1.125% - 1.750% or base rate plus 0.125% - 0.750% | | LIBOR plus 1.25% - 2.125% or base rate plus 0.25% - 1.125% | |
Weighted average interest rate of outstanding balance | | | | n/a | | n/a | |
Commitment fees on undrawn balance | | | | 0.20% | | 0.49% | |
Maturity date | | | | March 19, 2025 | | May 29, 2024 | |
Restrictive Debt Covenants
The indentures governing our senior notes and other agreements underlying our debt contain customary terms and events of default and certain covenants that, among other things, may limit us and our restricted subsidiaries’ ability to make certain investments or pay dividends or distributions. We and SPL are restricted from making distributions under agreements governing our and SPL’s indebtedness generally until, among other requirements, deposits are made into any required debt service reserve accounts and a historical debt service coverage ratio and projected debt service coverage ratio of at least 1.25:1.00 is satisfied.
As of March 31, 2022, we and SPL were in compliance with all covenants related to our respective debt agreements.
Interest Expense
Total interest expense, net of capitalized interest consisted of the following (in millions):
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2022 | | 2021 | | |
Total interest cost | | | | | | $ | 224 | | | $ | 247 | | | |
Capitalized interest | | | | | | (21) | | | (30) | | | |
Total interest expense, net of capitalized interest | | | | | | $ | 203 | | | $ | 217 | | | |
Fair Value Disclosures
The following table shows the carrying amount and estimated fair value of our debt (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value |
Senior notes — Level 2 (1) | | $ | 16,050 | | | $ | 16,507 | | | $ | 16,050 | | | $ | 17,496 | |
Senior notes — Level 3 (2) | | 1,282 | | | 1,297 | | | 1,282 | | | 1,466 | |
| | | | | | | | |
(1)The Level 2 estimated fair value was based on quotes obtained from broker-dealers or market makers of these senior notes and other similar instruments.
(2)The Level 3 estimated fair value was calculated based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including interest rates based on debt issued by parties with comparable credit ratings to us and inputs that are not observable in the market.
The estimated fair value of our credit facilities approximates the principal amount outstanding because the interest rates are variable and reflective of market rates and the debt may be repaid, in full or in part, at any time without penalty.
CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 10—REVENUES FROM CONTRACTS WITH CUSTOMERS
The following table represents a disaggregation of revenue earned from contracts with customers (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2022 | | 2021 | | |
LNG revenues | | | | | | $ | 2,488 | | | $ | 1,669 | | | |
LNG revenues—affiliate | | | | | | 757 | | | 214 | | | |
| | | | | | | | | | |
Regasification revenues | | | | | | 68 | | | 67 | | | |
Other revenues | | | | | | 15 | | | 13 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
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Total revenues | | | | | | $ | 3,328 | | | $ | 1,963 | | | |
Contract Assets and Liabilities
The following table shows our contract assets, net of current expected credit losses, which are classified as other current assets and other non-current assets, net on our Consolidated Balance Sheets (in millions):
| | | | | | | | | | | | | | |
| | |
| | March 31, | | December 31, |
| | 2022 | | 2021 |
Contract assets, net of current expected credit losses | | $ | 1 | | | $ | 1 | |
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, 2022 |
| | |
Deferred revenue, beginning of period | | $ | 155 | |
Cash received but not yet recognized in revenue | | 116 | |
Revenue recognized from prior period deferral | | (155) | |
Deferred revenue, end of period | | $ | 116 | |
The following table reflects the changes in our contract liabilities to affiliate, which we classify as deferred revenue—affiliate and other non-current liabilities—affiliate on our Consolidated Balance Sheets (in millions):
| | | | | | | | |
| | Three Months Ended March 31, 2022 |
| | |
Deferred revenue—affiliate, beginning of period | | $ | 3 | |
Cash received but not yet recognized in revenue | | 3 | |
Revenue recognized from prior period deferral | | (3) | |
Deferred revenue—affiliate, end of period | | $ | 3 | |
Transaction Price Allocated to Future Performance Obligations
Because many of our sales contracts have long-term durations, we are contractually entitled to significant future consideration which we have not yet recognized as revenue. The following table discloses the aggregate amount of the transaction price that is allocated to performance obligations that have not yet been satisfied:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | Unsatisfied Transaction Price (in billions) | | Weighted Average Recognition Timing (years) (1) | | Unsatisfied Transaction Price (in billions) | | Weighted Average Recognition Timing (years) (1) |
LNG revenues | | $ | 51.2 | | | 8 | | $ | 49.3 | | | 9 |
LNG revenues—affiliate | | 2.0 | | | 3 | | 2.1 | | | 3 |
Regasification revenues | | 1.8 | | | 4 | | 1.9 | | | 4 |
Total revenues | | $ | 55.0 | | | | | $ | 53.3 | | | |
(1)The weighted average recognition timing represents an estimate of the number of years during which we shall have recognized half of the unsatisfied transaction price.
CHENIERE ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
We have elected the following exemptions which omit certain potential future sources of revenue from the table above:
(1)We omit from the table above all performance obligations that are part of a contract that has an original expected duration of one year or less.
(2)The table above excludes substantially all variable consideration under our SPAs and TUAs. We omit from the table above all variable consideration that is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation when that performance obligation qualifies as a series. The amount of revenue from variable fees that is not included in the transaction price will vary based on the future prices of Henry Hub throughout the contract terms, to the extent customers elect to take delivery of their LNG, and adjustments to the consumer price index. Certain of our contracts contain additional variable consideration based on the outcome of contingent events and the movement of various indexes. We have not included such variable consideration in the transaction price to the extent the consideration is considered constrained due to the uncertainty of ultimate pricing and receipt. Approximately 67% and 51% of our LNG revenues from contracts included in the table above during the three months ended March 31, 2022 and 2021, respectively, were related to variable consideration received from customers. 100% of our LNG revenues—affiliate from contracts included in the table above during both the three months ended March 31, 2022 and 2021 were related to variable consideration received from customers. During the three months ended March 31, 2022 and 2021, approximately 6% and 3%, respectively, of our regasification revenues were related to variable consideration received from customers.
We may enter into contracts to sell LNG that are conditioned upon one or both of the parties achieving certain milestones such as reaching a final investment decision on a certain liquefaction Train, obtaining financing or achieving substantial completion of a Train and any related facilities. These contracts are considered completed contracts for revenue recognition purposes and are included in the transaction price above when the conditions are considered probable of being met.
NOTE 11—RELATED PARTY TRANSACTIONS
Below is a summary of our related party transactions as reported on our Consolidated Statements of Income (in millions):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 | | |
LNG revenues—affiliate | | | | | | | | | |
Cheniere Marketing Agreements | | | | | $ | 745 | | | $ | 210 | | | |
Contracts for Sale and Purchase of Natural Gas and LNG | | | | | 12 | | | 4 | | | |
Total LNG revenues—affiliate | | | | | 757 | | | 214 | | | |
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Cost of sales—affiliate | | | | | | | | | |
Cheniere Marketing Agreements | | | | | — | | | 34 | | | |
Contracts for Sale and Purchase of Natural Gas and LNG | | | | | 5 | | | 8 | | | |
Total cost of sales—affiliate | | | | | 5 | | | 42 | | | |
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