Annual report pursuant to Section 13 and 15(d)

Leases (Notes)

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Leases (Notes)
 12 Months Ended
Dec. 31, 2014
Leases [Abstract]  
Leases
LEASES

During the years ended December 31, 2014, 2013 and 2012, we recognized rental expense for all operating leases of $10.5 million, $10.0 million and $10.0 million, respectively.

Future annual minimum lease payments, excluding inflationary adjustments, are as follows (in thousands):
Year ending December 31,
 
Lease Payments (2)
2015
 
$
10,261

2016
 
10,340

2017
 
10,401

2018
 
2,988

2019
 
2,318

Thereafter (1)
 
172,437

Total
 
$
208,745

 
(1)
Includes certain lease option renewals as they are reasonably assured.
(2)
Lease payments for Sabine Pass LNG’s tug boat lease represent its lease payment obligation and do not take into account the $24.4 million of sublease payments Sabine Pass LNG will receive from its customers that effectively offset these lease payment obligations, as discussed below.
  
Land Leases

We recognized $2.2 million, $2.2 million and $2.3 million of site lease expense on our Consolidated Statements of Operations in 2014, 2013 and 2012, respectively, under the following LNG site leases:

In January 2005, Sabine Pass LNG exercised its options and entered into three land leases for the site of the Sabine Pass LNG terminal. The leases have an initial term of 30 years, with options to renew for six 10-year extensions with similar terms as the initial term. In February 2005, two of the three leases were amended, thereby increasing the total acreage under lease to 853 acres.  In July 2012, Sabine Pass LNG entered into an additional land lease, thereby increasing the total acreage under lease to 883 acres.  The annual lease payments are adjusted for inflation every 5 years based on a consumer price index, as defined in the lease agreements.

In November 2011, Sabine Pass Liquefaction entered into a land lease of 80.7 acres to be used as the laydown area during the construction of the Liquefaction Project. The lease has an initial term of 5 years, with options to renew for five 1-year extensions with similar terms as the initial term.

In December 2011, Sabine Pass Liquefaction entered into a land lease of 80.6 acres to be used for the site of the Liquefaction Project. The lease has an initial term of 30 years, with options to renew for six 10-year extensions with similar terms as the initial term. The annual lease payment is adjusted for inflation every 5 years based on a consumer price index, as defined in the lease agreement.

Tug Boat Lease

In the second quarter of 2009, Sabine Pass LNG acquired a lease (the “Tug Agreement”) for the use of tug boats and marine services for the Sabine Pass LNG terminal.  The term of the Tug Agreement commenced in January 2008 for a period of 10 years, with an option to renew two additional, consecutive terms of 5 years each.  We have determined that the Tug Agreement contains a lease for the tugs specified in the Tug Agreement.  In addition, we have concluded that the tug lease contained in the Tug Agreement is an operating lease, and as such, the equipment component of the Tug Agreement will be charged to expense over the term of the Tug Agreement as it becomes payable.

In connection with this lease acquisition, Tug Services entered into a tug sharing agreement (the “Tug Sharing Agreement”) with Total Gas & Power North America, Inc. (“Total”), Chevron U.S.A. Inc. (“Chevron”) and a wholly owned subsidiary of Cheniere to provide their LNG cargo vessels with tug boat and marine services at the Sabine Pass LNG terminal and effectively offset the cost of the Tug Agreement. The Tug Sharing Agreement provides for each of our customers to pay Tug Services an annual service fee.