Company Quick10K Filing
Quick10K
Cheniere Energy
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$64.97 257 $16,720
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-09 Earnings, Exhibits
8-K 2019-02-13 Officers
8-K 2018-12-18 Regulation FD, Exhibits
8-K 2018-12-13 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-11-08 Earnings, Exhibits
8-K 2018-11-07 Enter Agreement, Exhibits
8-K 2018-11-06 Code of Ethics, Exhibits
8-K 2018-09-20 M&A, Regulation FD, Exhibits
8-K 2018-09-06 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-09-06 Regulation FD, Exhibits
8-K 2018-09-06 Regulation FD, Exhibits
8-K 2018-08-27 Regulation FD, Exhibits
8-K 2018-08-09 Earnings, Exhibits
8-K 2018-07-16 Officers
8-K 2018-06-29 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-06-18 Enter Agreement, Regulation FD, Exhibits
8-K 2018-05-25 Other Events, Exhibits
8-K 2018-05-23 Other Events, Exhibits
8-K 2018-05-22 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-05-21 Regulation FD, Exhibits
8-K 2018-05-16 Other Events, Exhibits
8-K 2018-04-27 Sale of Shares
8-K 2018-03-16 Regulation FD, Exhibits
TRV Travelers Companies 37,150
MDP Meredith 2,670
UE Urban Edge Properties 2,140
ADMA ADMA Biologics 240
HFBL Home Federal Bancorp of Louisiana 60
ISDR Issuer Direct 46
EXENT Exent 0
SING Singlepoint 0
NRU National Rural Utilities Cooperative Finance 0
DBRM Daybreak Oil & Gas 0
LNG 2019-03-31
Part I. Financial Information
Item 1. Consolidated Financial Statements
Note 1-Nature of Operations and Basis of Presentation
Note 2-Restricted Cash
Note 3-Accounts and Other Receivables
Note 4-Inventory
Note 5-Property, Plant and Equipment
Note 6-Derivative Instruments
Note 7-Other Non-Current Assets
Note 8-Non-Controlling Interest
Note 9-Accrued Liabilities
Note 10-Debt
Note 11-Leases
Note 12-Revenues From Contracts with Customers
Note 13-Income Taxes
Note 14-Share-Based Compensation
Note 15-Net Income per Share Attributable To Common Stockholders
Note 16-Commitments and Contingencies
Note 17-Customer Concentration
Note 18-Supplemental Cash Flow Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.1 exhibit101cei2019form1.htm
EX-10.2 exhibit102cei2019form1.htm
EX-31.1 exhibit311cei2019form1.htm
EX-31.2 exhibit312cei2019form1.htm
EX-32.1 exhibit321cei2019form1.htm
EX-32.2 exhibit322cei2019form1.htm

Cheniere Energy Earnings 2019-03-31

LNG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
 
FORM 10-Q
 
 
 
 
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  For the quarterly period ended March 31, 2019
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            
Commission file number 001-16383
colorlogoonwhitecmyka30.gif
CHENIERE ENERGY, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
Delaware
95-4352386
(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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  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 Stock, $ 0.003 par value
LNG
NYSE American
As of April 30, 2019, the issuer had 257,414,024 shares of Common Stock outstanding.
 



CHENIERE ENERGY, INC.
TABLE OF CONTENTS



 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


i


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

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


1


Abbreviated Legal Entity Structure

The following diagram depicts our abbreviated legal entity structure as of March 31, 2019, including our ownership of certain subsidiaries, and the references to these entities used in this quarterly report:
orga15.jpg

Unless the context requires otherwise, references to “Cheniere,” the “Company,” “we,” “us” and “our” refer to Cheniere Energy, Inc. and its consolidated subsidiaries, including our publicly traded subsidiary, Cheniere Partners.
Unless the context requires otherwise, references to the “CCH Group” refer to CCH HoldCo II, CCH HoldCo I, CCH, CCL and CCP, collectively.

2




PART I.
FINANCIAL INFORMATION
ITEM 1.
CONSOLIDATED FINANCIAL STATEMENTS
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
 
March 31,
 
December 31,
 
2019
 
2018
ASSETS
(unaudited)
 
 
Current assets
 
 
 
Cash and cash equivalents
$
1,093

 
$
981

Restricted cash
1,918

 
2,175

Accounts and other receivables
390

 
581

Accounts receivable—related party
3

 
4

Inventory
279

 
316

Derivative assets
107

 
63

Other current assets
106

 
114

Total current assets
3,896

 
4,234

 
 
 
 
Property, plant and equipment, net
27,953

 
27,245

Operating lease assets, net
542

 

Debt issuance costs, net
58

 
72

Non-current derivative assets
42

 
54

Goodwill
77

 
77

Other non-current assets, net
317

 
305

Total assets
$
32,885

 
$
31,987

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities
 

 
 

Accounts payable
$
66

 
$
58

Accrued liabilities
1,101

 
1,169

Accrued liabilities—related party
5

 

Current debt

 
239

Deferred revenue
108

 
139

Current operating lease liabilities
325

 

Derivative liabilities
37

 
128

Other current liabilities
17

 
9

Total current liabilities
1,659

 
1,742

 
 
 
 
Long-term debt, net
28,726

 
28,179

Non-current operating lease liabilities
207

 

Non-current finance lease liabilities
58

 
57

Non-current derivative liabilities
39

 
22

Other non-current liabilities
58

 
58

 
 
 
 
Commitments and contingencies (see Note 16)


 


 
 
 
 
Stockholders’ equity
 

 
 

Preferred stock, $0.0001 par value, 5.0 million shares authorized, none issued

 

Common stock, $0.003 par value
 
 
 

Authorized: 480.0 million shares at March 31, 2019 and December 31, 2018
 
 
 
Issued: 270.4 million shares at March 31, 2019 and 269.8 million shares at December 31, 2018


 


Outstanding: 257.4 million shares at March 31, 2019 and 257.0 million shares at December 31, 2018
1

 
1

Treasury stock: 13.0 million shares and 12.8 million shares at March 31, 2019 and December 31, 2018, respectively, at cost
(418
)
 
(406
)
Additional paid-in-capital
4,063

 
4,035

Accumulated deficit
(4,015
)
 
(4,156
)
Total stockholders’ deficit
(369
)
 
(526
)
Non-controlling interest
2,507

 
2,455

Total equity
2,138

 
1,929

Total liabilities and equity
$
32,885

 
$
31,987


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

3



CHENIERE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data) 
(unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Revenues
 
 
 
LNG revenues
$
2,143

 
$
2,166

Regasification revenues
66

 
65

Other revenues
48

 
10

Other—related party
4

 
1

Total revenues
2,261

 
2,242

 
 
 
 
Operating costs and expenses
 
 
 
Cost of sales (excluding depreciation and amortization expense shown separately below)
1,204

 
1,178

Cost of sales—related party
10

 

Operating and maintenance expense
221

 
140

Development expense
1

 
1

Selling, general and administrative expense
73

 
67

Depreciation and amortization expense
144

 
109

Impairment expense and loss on disposal of assets
2

 

Total operating costs and expenses
1,655

 
1,495

 
 
 
 
Income from operations
606

 
747

 
 
 
 
Other income (expense)
 
 
 
Interest expense, net of capitalized interest
(247
)
 
(216
)
Derivative gain (loss), net
(35
)
 
77

Other income
16

 
7

Total other expense
(266
)
 
(132
)
 
 
 
 
Income before income taxes and non-controlling interest
340


615

Income tax provision
(3
)

(15
)
Net income
337


600

Less: net income attributable to non-controlling interest
196


243

Net income attributable to common stockholders
$
141


$
357







Net income per share attributable to common stockholders—basic
$
0.55


$
1.52

Net income per share attributable to common stockholders—diluted (1)
$
0.54

 
$
1.50

 





Weighted average number of common shares outstanding—basic
257.1

 
235.5

Weighted average number of common shares outstanding—diluted
258.5

 
238.0


 
 
 
 
 
(1)
Earnings per share in the table may not recalculate exactly due to rounding because it is calculated based on whole numbers, not the rounded numbers presented.



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

4



CHENIERE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
(unaudited)
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Stockholders’ Equity
 
 
 
 
Common Stock
 
Treasury Stock
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Non-controlling Interest
 
Total
Equity
 
Shares
 
Par Value Amount
 
Shares
 
Amount
 
 
 
 
Balance at December 31, 2018
257.0


$
1


12.8


$
(406
)

$
4,035


$
(4,156
)

$
2,455


$
1,929

Vesting of restricted stock units
0.6

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 
28

 

 

 
28

Shares repurchased related to share-based compensation
(0.2
)
 

 
0.2

 
(12
)
 

 

 

 
(12
)
Net income attributable to non-controlling interest

 

 

 

 

 

 
196

 
196

Distributions and dividends to non-controlling interest

 

 

 

 

 

 
(144
)
 
(144
)
Net income

 

 

 

 

 
141

 

 
141

Balance at March 31, 2019
257.4

 
$
1

 
13.0

 
$
(418
)
 
$
4,063

 
$
(4,015
)
 
$
2,507

 
$
2,138


Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Stockholders’ Equity
 
 
 
 
Common Stock
 
Treasury Stock
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Non-controlling Interest
 
Total
Equity
 
Shares
 
Par Value Amount
 
Shares
 
Amount
 
 
 
 
Balance at December 31, 2017
237.6

 
$
1

 
12.5

 
$
(386
)
 
$
3,248

 
$
(4,627
)
 
$
3,004

 
$
1,240

Vesting of restricted stock units
0.3

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 
16

 

 

 
16

Shares repurchased related to share-based compensation

 

 
0.1

 
(6
)
 

 

 

 
(6
)
Net income attributable to non-controlling interest

 

 

 

 

 

 
243

 
243

Distributions and dividends to non-controlling interest

 

 

 

 

 

 
(143
)
 
(143
)
Net income

 

 

 

 

 
357

 

 
357

Balance at March 31, 2018
237.9

 
$
1

 
12.6

 
$
(392
)
 
$
3,264

 
$
(4,270
)
 
$
3,104

 
$
1,707



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

5



CHENIERE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from operating activities
 
 
 
Net income
$
337

 
$
600

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization expense
144

 
109

Share-based compensation expense
28

 
28

Non-cash interest expense
33

 
15

Amortization of debt issuance costs, deferred commitment fees, premium and discount
18

 
17

Amortization of operating lease assets
79

 

Total gains on derivatives, net
(122
)
 
(31
)
Net cash provided by (used for) settlement of derivative instruments
16

 
(4
)
Impairment expense and loss on disposal of assets
2

 

Other

 
(10
)
Changes in operating assets and liabilities:
 
 
 
Accounts and other receivables
98

 
(237
)
Accounts receivable—related party
1

 

Inventory
44

 
120

Accounts payable and accrued liabilities
(151
)
 
(156
)
Accrued liabilities—related party
5

 

Deferred revenue
(31
)
 
8

Operating lease liabilities
(85
)
 

Finance lease liabilities
1

 

Other, net
(5
)
 
10

Net cash provided by operating activities
412

 
469

 
 
 
 
Cash flows from investing activities
 
 
 
Property, plant and equipment, net
(625
)
 
(776
)
Investment in equity method investment
(24
)
 

Other
(2
)
 

Net cash used in investing activities
(651
)
 
(776
)
 
 
 
 
Cash flows from financing activities
 
 
 
Proceeds from issuances of debt
692

 
266

Repayments of debt
(441
)
 

Debt issuance and deferred financing costs

 
(1
)
Distributions and dividends to non-controlling interest
(144
)
 
(143
)
Payments related to tax withholdings for share-based compensation
(12
)
 
(6
)
Other
(1
)
 

Net cash provided by financing activities
94

 
116

 
 
 
 
Net decrease in cash, cash equivalents and restricted cash
(145
)
 
(191
)
Cash, cash equivalents and restricted cash—beginning of period
3,156

 
2,613

Cash, cash equivalents and restricted cash—end of period
$
3,011

 
$
2,422

Balances per Consolidated Balance Sheet:
 
March 31,
 
2019
Cash and cash equivalents
$
1,093

Restricted cash
1,918

Total cash, cash equivalents and restricted cash
$
3,011


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

6


  
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


NOTE 1—NATURE OF OPERATIONS AND BASIS OF PRESENTATION

We are currently developing and constructing two natural gas liquefaction and export facilities. The Sabine Pass LNG terminal is located in Cameron Parish, Louisiana, on the Sabine-Neches Waterway less than four miles from the Gulf Coast. Cheniere Partners is developing, constructing and operating natural gas liquefaction facilities (the “SPL Project”) at the Sabine Pass LNG terminal adjacent to the existing regasification facilities (described below) through a wholly owned subsidiary, SPL. Cheniere Partners plans 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 (“FID”). The Sabine Pass LNG terminal has operational regasification facilities owned by Cheniere Partners’ wholly owned subsidiary, SPLNG, and a 94-mile pipeline that interconnects the Sabine Pass LNG terminal with a number of large interstate pipelines owned by Cheniere Partners’ wholly owned subsidiary, CTPL.

We are developing and constructing a second natural gas liquefaction and export facility at the Corpus Christi LNG terminal near Corpus Christi, Texas, and operate a 23-mile natural gas supply pipeline that interconnects the Corpus Christi LNG terminal with several interstate and intrastate natural gas pipelines (the “Corpus Christi Pipeline” and together with the liquefaction facilities, the “CCL Project”) through our wholly owned subsidiaries CCL and CCP, respectively. The CCL Project is being developed in stages with the first phase being three Trains (“Phase 1”). The first stage includes Trains 1 and 2, two LNG storage tanks, one complete marine berth and a second partial berth and all of the CCL Project’s necessary infrastructure facilities (“Stage 1”). The second stage includes Train 3, one LNG storage tank and the completion of the second partial berth (“Stage 2”). Train 1 is operational, Train 2 is undergoing commissioning and Train 3 is under construction.

Additionally, separate from the CCH Group, we are developing an expansion of the Corpus Christi LNG terminal adjacent to the CCL Project and filed an application with FERC in June 2018 for seven midscale Trains with an expected aggregate nominal production capacity of approximately 9.5 mtpa and one LNG storage tank.

We remain focused on expansion of our existing sites by leveraging existing infrastructure. We continue to consider development of other projects, including infrastructure projects in support of natural gas supply and LNG demand, which, among other things, will require acceptable commercial and financing arrangements before we make an FID.

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements of Cheniere 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. In our opinion, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation, have been included.

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.

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 $550 million on our Consolidated Balance Sheets, with no material impact on our Consolidated Statements of Operations 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.


7


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

NOTE 2—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
 
 
 
 
SPL Project
 
$
621

 
$
756

Cheniere Partners and cash held by guarantor subsidiaries
 
676

 
785

CCL Project
 
218

 
289

Cash held by our subsidiaries restricted to Cheniere
 
403

 
345

Total current restricted cash
 
$
1,918

 
$
2,175



Pursuant to the accounts agreements entered into with the collateral trustees for the benefit of SPL’s debt holders and CCH’s debt holders, SPL and CCH are required to deposit all cash received into reserve accounts controlled by the collateral trustees.  The usage or withdrawal of such cash is restricted to the payment of liabilities related to the SPL Project and the CCL Project and other restricted payments.

Under Cheniere Partners’ credit facilities (the “CQP Credit Facilities”), Cheniere Partners and each of its subsidiaries other than (1) SPL and (2) certain subsidiaries of Cheniere Partners owning other development projects, as well as certain other specified subsidiaries and members of the foregoing entities, as 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 Cheniere Partners. Specifically, Cheniere Partners 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 operating expenses of Cheniere Partners and its guarantor subsidiaries. In addition, distributions and capital expenditures may only be made quarterly and are subject to certain restrictions.

NOTE 3—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
Trade receivables
 
 
 
 
SPL
 
$
187

 
$
330

Cheniere Marketing
 
152

 
205

Other accounts receivable
 
51

 
46

Total accounts and other receivables
 
$
390

 
$
581



NOTE 4—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

 
$
30

LNG
 
67

 
24

LNG in-transit
 
81

 
173

Materials and other
 
121

 
89

Total inventory
 
$
279

 
$
316




8


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

NOTE 5—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
 
$
23,626

 
$
13,386

LNG site and related costs
 
319

 
86

LNG terminal construction-in-process
 
5,239

 
14,864

Accumulated depreciation
 
(1,433
)
 
(1,299
)
Total LNG terminal costs, net
 
27,751

 
27,037

Fixed assets and other
 
 

 
 

Computer and office equipment
 
18

 
17

Furniture and fixtures
 
22

 
22

Computer software
 
101

 
100

Leasehold improvements
 
41

 
41

Land
 
59

 
59

Other
 
22

 
21

Accumulated depreciation
 
(119
)
 
(111
)
Total fixed assets and other, net
 
144

 
149

Assets under finance lease
 
 
 
 
Tug vessels
 
60

 
60

Accumulated depreciation
 
(2
)
 
(1
)
Total assets under finance lease, net
 
58

 
59

Property, plant and equipment, net
 
$
27,953

 
$
27,245



Depreciation expense was $143 million and $108 million during the three months ended March 31, 2019 and 2018, respectively.

We realize offsets to LNG terminal costs for sales of commissioning cargoes that were earned or loaded prior to the start of commercial operations of the respective Train during the testing phase for its construction. We realized offsets to LNG terminal costs of $202 million in the three months ended March 31, 2019 for sales of commissioning cargoes from Train 5 of the SPL Project and Train 1 of the CCL Project. We did not realize any offsets to LNG terminal costs in the three months ended March 31, 2018.

NOTE 6—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”);
commodity derivatives consisting of natural gas supply contracts for the commissioning and operation of the SPL Project and the CCL Project (“Physical Liquefaction Supply Derivatives”) and associated economic hedges (collectively, the “Liquefaction Supply Derivatives”);
financial derivatives to hedge the exposure to the commodity markets in which we have contractual arrangements to purchase or sell physical LNG (“LNG Trading Derivatives”); and
foreign currency exchange (“FX”) contracts to hedge exposure to currency risk associated with both LNG Trading Derivatives and operations in countries outside of the United States (“FX 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 Operations to the extent not utilized for the commissioning process.

9


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


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 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
 
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
CCH Interest Rate Derivatives asset (liability)
$

 
$
(19
)
 
$

 
$
(19
)
 
$

 
$
18

 
$

 
$
18

Liquefaction Supply Derivatives asset (liability)
1

 
3

 
31

 
35

 
6

 
(19
)
 
(29
)
 
(42
)
LNG Trading Derivatives asset (liability)
(17
)
 
51

 

 
34

 
1

 
(25
)
 

 
(24
)
FX Derivatives asset

 
23

 

 
23

 

 
15

 

 
15



There have been no changes to our evaluation of and accounting for our derivative positions during the three months ended March 31, 2019.

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 LNG Trading Derivatives and 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. We value our FX Derivatives with a market approach using observable FX rates and other relevant data.

The fair value of our Physical Liquefaction Supply Derivatives is predominantly driven by market commodity basis prices and, as applicable to our natural gas supply contracts, 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. As of March 31, 2019 and December 31, 2018, some of our Physical Liquefaction Supply Derivatives existed within markets for which the pipeline infrastructure is under development to accommodate marketable physical gas flow.

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
 
$31
 
Market approach incorporating present value techniques
 
Basis Spread
 
$(0.703) - $0.082



10


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

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
 
$
(29
)
 
$
43

Realized and mark-to-market gains (losses):
 
 
 
 
Included in cost of sales
 
12

 
(13
)
Purchases and settlements:
 
 
 
 
Purchases
 
1

 
3

Settlements
 
47

 
(23
)
Balance, end of period
 
$
31

 
$
10

Change in unrealized gains (losses) relating to instruments still held at end of period
 
$
12

 
$
(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.

Interest Rate Derivatives

During the three months ended March 31, 2019, there were no changes to the terms of the interest rate swaps (“CCH Interest Rate Derivatives”) entered into by CCH to protect against volatility of future cash flows and hedge a portion of the variable interest payments on its credit facility (the “CCH Credit Facility”).

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

As of March 31, 2019, we had the following Interest Rate Derivatives outstanding:
 
 
Initial Notional Amount
 
Maximum Notional Amount
 
Effective Date
 
Maturity Date
 
Weighted Average Fixed Interest Rate Paid
 
Variable Interest Rate Received
CCH Interest Rate Derivatives
 
$29 million
 
$4.7 billion
 
May 20, 2015
 
May 31, 2022
 
2.30%
 
One-month LIBOR


The following table shows the fair value and location of the CCH Interest Rate Derivatives on our Consolidated Balance Sheets (in millions):
 
 
March 31,
 
December 31,
 
 
2019
 
2018
Consolidated Balance Sheet Location
 
 
 
 
Derivative assets
 
$
4

 
$
10

Non-current derivative assets
 

 
8

Total derivative assets
 
4

 
18

 
 
 
 
 
Non-current derivative liabilities
 
(23
)
 

 
 
 
 
 
Derivative asset (liability), net