Company Quick10K Filing
Quick10K
Sabine Pass Liquefaction
10-Q 2019-06-30 Quarter: 2019-06-30
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 2019-05-29 Regulation FD, Other Events, Exhibits
8-K 2018-12-18 Regulation FD, Exhibits
8-K 2018-11-07 Enter Agreement, Exhibits
8-K 2018-05-29 Regulation FD, Exhibits
8-K 2018-03-16 Regulation FD, Exhibits
EOCC Enel Generacion Chile 168,300
SEII Sharing Economy International 32
DNO United States Short Oil Fund 9
HCGS Highcom Global Security 4
SPS Southwestern Public Service 0
NDRAU Endra Life Sciences 0
SFOR Strikeforce Technologies 0
CMBM Cambium Networks 0
AOIP Apache Offshore Investment Partnership 0
SODA SodaStream 0
SPL 2019-06-30
Part I. Financial Information
Item 1. 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-Accrued Liabilities
Note 9-Debt
Note 10-Revenues From Contracts with Customers
Note 11-Related Party Transactions
Note 12-Customer Concentration
Note 13-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 6. Exhibits
EX-10.1 exhibit101spl2019form1.htm
EX-10.2 exhibit102spl2019form1.htm
EX-10.3 exhibit103spl2019form1.htm
EX-31.1 exhibit311spl2019form1.htm
EX-31.2 exhibit312spl2019form1.htm
EX-32.1 exhibit321spl2019form1.htm
EX-32.2 exhibit322spl2019form1.htm

Sabine Pass Liquefaction Earnings 2019-06-30

SPL 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
 
 
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 333-192373
Sabine Pass Liquefaction, LLC 
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
Delaware
27-3235920
(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
None
None
None
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
Note: The registrant is a voluntary filer not subject to the filing requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934. However, the registrant has filed all reports required pursuant to Sections 13 or 15(d) during the preceding 12 months as if the registrant was subject to such filing requirements.
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 
Indicate the number of shares outstanding of the issuer’s classes of common stock, as of the latest practicable date:    Not applicable
 
 
 
 
 



SABINE PASS LIQUEFACTION, LLC
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
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



Entity Abbreviations 
Cheniere
 
Cheniere Energy, Inc.
Cheniere Investments
 
Cheniere Energy Investments, LLC
Cheniere Marketing
 
Cheniere Marketing, LLC and subsidiaries
Cheniere Partners
 
Cheniere Energy Partners, L.P.
Cheniere Terminals
 
Cheniere LNG Terminals, LLC
CTPL
 
Cheniere Creole Trail Pipeline, L.P.
SPLNG
 
Sabine Pass LNG, L.P.

Unless the context requires otherwise, references to “SPL,” the “Company,” “we,” “us” and “our” refer to Sabine Pass Liquefaction, LLC.


1



PART I.
FINANCIAL INFORMATION 
ITEM 1.
FINANCIAL STATEMENTS 
SABINE PASS LIQUEFACTION, LLC
BALANCE SHEETS
(in millions)





 
 
June 30,
 
December 31,
 
 
2019
 
2018
ASSETS
 
(unaudited)
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$

 
$

Restricted cash
 
596

 
756

Accounts and other receivables
 
240

 
346

Accounts receivable—affiliate
 
166

 
113

Advances to affiliate
 
206

 
210

Inventory
 
91

 
87

Derivative assets
 
17

 
6

Other current assets
 
54

 
18

Other current assets—affiliate
 
21

 
21

Total current assets
 
1,391

 
1,557

 
 
 
 
 
Property, plant and equipment, net
 
13,722

 
13,209

Debt issuance costs, net
 
9

 
12

Non-current derivative assets
 
37

 
31

Other non-current assets, net
 
153

 
158

Total assets
 
$
15,312

 
$
14,967

 
 
 
 
 
LIABILITIES AND MEMBER’S EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
67

 
$
11

Accrued liabilities
 
1,011

 
768

Due to affiliates
 
44

 
48

Deferred revenue
 
101

 
91

Derivative liabilities
 
8

 
66

Total current liabilities
 
1,231

 
984

 
 
 
 
 
Long-term debt, net
 
13,512

 
13,500

Non-current derivative liabilities
 
12

 
14

Other non-current liabilities
 
7

 
3

Other non-current liabilities—affiliate
 
16

 

 
 
 
 
 
Member’s equity
 
534

 
466

Total liabilities and member’s equity
 
$
15,312

 
$
14,967












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

2


SABINE PASS LIQUEFACTION, LLC

STATEMENTS OF INCOME
(in millions)
(unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Revenues
 
 
 
 
 
 
 
 
LNG revenues
 
$
1,171

 
$
1,155

 
$
2,538

 
$
2,170

LNG revenues—affiliate
 
455

 
178

 
760

 
681

Total revenues
 
1,626

 
1,333

 
3,298

 
2,851

 
 
 
 
 
 
 
 
 
Operating costs and expenses
 
 

 
 

 
 
 
 
Cost of sales (excluding depreciation and amortization expense shown separately below)
 
880

 
695

 
1,759

 
1,533

Cost of sales—affiliate
 
9

 
7

 
18

 
15

Operating and maintenance expense
 
138

 
84

 
248

 
162

Operating and maintenance expense—affiliate
 
115

 
107

 
222

 
210

Development expense
 

 
1

 

 
1

General and administrative expense
 
2

 
1

 
3

 
3

General and administrative expense—affiliate
 
21

 
12

 
36

 
24

Depreciation and amortization expense
 
118

 
87

 
214

 
173

Impairment expense and loss on disposal of assets
 
3

 

 
5

 

Total operating costs and expenses
 
1,286

 
994

 
2,505

 
2,121

 
 
 
 
 
 
 
 
 
Income from operations
 
340

 
339

 
793

 
730

 
 
 
 
 
 
 
 
 
Other income (expense)
 
 

 
 

 
 
 
 
Interest expense, net of capitalized interest
 
(191
)
 
(148
)
 
(341
)
 
(299
)
Other income
 
1

 
2

 
6

 
4

Total other expense
 
(190
)
 
(146
)
 
(335
)
 
(295
)
 
 
 
 
 
 
 
 
 
Net income
 
$
150

 
$
193

 
$
458

 
$
435




















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

3


SABINE PASS LIQUEFACTION, LLC

STATEMENTS OF MEMBER’S EQUITY (DEFICIT)
(in millions)
(unaudited)

Three and Six Months Ended June 30, 2019
 
 
 
 
Sabine Pass LNG-LP, LLC
 
Total Member’s Equity
Balance at December 31, 2018
$
466

 
$
466

Capital contributions
164

 
164

Distributions
(231
)
 
(231
)
Net income
308

 
308

Balance at March 31, 2019
707

 
707

Capital contributions
642

 
642

Distributions
(965
)
 
(965
)
Net income
150

 
150

Balance at June 30, 2019
$
534

 
$
534


Three and Six Months Ended June 30, 2018
 
 
Total Member’s Equity (Deficit)
 
Sabine Pass LNG-LP, LLC
 
Balance at December 31, 2017
$
(38
)
 
$
(38
)
Net income
242

 
242

Balance at March 31, 2018
204

 
204

Capital contributions
25

 
25

Net income
193

 
193

Balance at June 30, 2018
$
422

 
$
422



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

4


SABINE PASS LIQUEFACTION, LLC

STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Six Months Ended June 30,
 
2019
 
2018
Cash flows from operating activities
 
 
 
Net income
$
458

 
$
435

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization expense
214

 
173

Amortization of debt issuance costs, deferred commitment fees, premium and discount
13

 
11

Total losses (gains) on derivatives, net
(84
)
 
52

Net cash provided by (used for) settlement of derivative instruments
7

 
(6
)
Impairment expense and loss on disposal of assets
5

 

Changes in operating assets and liabilities:
 
 
 
Accounts and other receivables
71

 
(47
)
Accounts receivable—affiliate
(53
)
 
142

Advances to affiliate
(29
)
 
(70
)
Inventory
(3
)
 
9

Accounts payable and accrued liabilities
(135
)
 
(62
)
Due to affiliates
3

 
(10
)
Deferred revenue
9

 
(11
)
Other, net
(26
)
 
(12
)
Net cash provided by operating activities
450

 
604

 
 
 
 
Cash flows from investing activities
 

 
 

Property, plant and equipment, net
(567
)
 
(327
)
Other
(1
)
 

Net cash used in investing activities
(568
)
 
(327
)
 
 
 
 
Cash flows from financing activities
 

 
 

Capital contributions
806

 
25

Distributions
(848
)
 

Net cash provided by (used in) financing activities
(42
)
 
25

 
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash
(160
)
 
302

Cash, cash equivalents and restricted cash—beginning of period
756

 
544

Cash, cash equivalents and restricted cash—end of period
$
596

 
$
846


Balances per Balance Sheet:
 
June 30, 2019
Cash and cash equivalents
$

Restricted cash
596

Total cash, cash equivalents and restricted cash
$
596



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

5


SABINE PASS LIQUEFACTION, LLC
NOTES TO FINANCIAL STATEMENTS
(unaudited)


 
NOTE 1—NATURE OF OPERATIONS AND BASIS OF PRESENTATION

We are in various stages of constructing and operating six natural gas liquefaction facilities (the “Liquefaction Project”) at the Sabine Pass LNG terminal adjacent to the existing regasification facilities owned and operated by SPLNG. Our Liquefaction Project is being constructed and operated at the Sabine Pass LNG terminal, which is located on the Sabine-Neches Waterway less than four miles from the Gulf Coast. Trains 1 through 5 are operational and Train 6 is under construction.

Basis of Presentation

The accompanying unaudited Financial Statements of SPL 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 Financial Statements and accompanying notes included in our annual report on Form 10-K for the year ended December 31, 2018.

Results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2019.

We are a disregarded entity for federal and state income tax purposes. Our taxable income or loss, which may vary substantially from the net income reported on our Statements of Income, is able to be included in the federal income tax return of Cheniere Partners, a publicly traded partnership which indirectly owns us. Accordingly, no provision or liability for federal or state income taxes is included in the accompanying Financial Statements.

Recent Accounting Standards

We adopted ASU 2016-02, Leases (Topic 842), and subsequent amendments thereto 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. This standard requires a lessee to recognize leases on its balance sheet by recording a lease liability representing the obligation to make future lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term. The adoption of the standard did not materially impact our Financial Statements. Upon adoption of the standard we recorded right-of-use assets of $20 million in other non-current assets, net, and lease liabilities of $4 million in other non-current liabilities and $16 million in other non-current liabilities—affiliate.

NOTE 2—RESTRICTED CASH

Restricted cash consists of funds that are contractually and legally restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on our Balance Sheets. As of June 30, 2019 and December 31, 2018, restricted cash consisted of the following (in millions):
 
 
June 30,
 
December 31,
 
 
2019
 
2018
Current restricted cash
 
 
 
 
Liquefaction Project
 
$
596

 
$
756


Pursuant to the accounts agreement entered into with the collateral trustee for the benefit of our debt holders, we are 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.


6


SABINE PASS LIQUEFACTION, LLC
NOTES TO FINANCIAL STATEMENTS—CONTINUED
(unaudited)

NOTE 3—ACCOUNTS AND OTHER RECEIVABLES

As of June 30, 2019 and December 31, 2018, accounts and other receivables consisted of the following (in millions):
 
 
June 30,
 
December 31,
 
 
2019
 
2018
Trade receivable
 
$
234

 
$
330

Other accounts receivable
 
6

 
16

Total accounts and other receivables
 
$
240

 
$
346



NOTE 4—INVENTORY

As of June 30, 2019 and December 31, 2018, inventory consisted of the following (in millions):
 
 
June 30,
 
December 31,
 
 
2019
 
2018
Natural gas
 
$
15

 
$
28

LNG
 
9

 
6

Materials and other
 
67

 
53

Total inventory
 
$
91

 
$
87



NOTE 5—PROPERTY, PLANT AND EQUIPMENT
 
As of June 30, 2019 and December 31, 2018, property, plant and equipment, net consisted of the following (in millions):
 
 
June 30,
 
December 31,
 
 
2019
 
2018
LNG terminal costs
 
 
 
 
LNG terminal
 
$
13,644

 
$
10,004

LNG terminal construction-in-process
 
947

 
3,866

Accumulated depreciation
 
(875
)
 
(667
)
Total LNG terminal costs, net
 
13,716

 
13,203

Fixed assets
 
 

 
 

Fixed assets
 
16

 
14

Accumulated depreciation
 
(10
)
 
(8
)
Total fixed assets, net
 
6

 
6

Property, plant and equipment, net
 
$
13,722

 
$
13,209



Depreciation expense was $118 million and $85 million during the three months ended June 30, 2019 and 2018, respectively, and $212 million and $169 million during the six months ended June 30, 2019 and 2018, 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 not realize any offsets to LNG terminal costs during the three months ended June 30, 2019 and the three and six months ended June 30, 2018.

NOTE 6—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 hedging instruments, and changes in fair value are recorded within our Statements of Income to the extent not utilized for the commissioning process.


7


SABINE PASS LIQUEFACTION, LLC
NOTES TO 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 June 30, 2019 and December 31, 2018, which are classified as derivative assets, non-current derivative assets, derivative liabilities or non-current derivative liabilities in our Balance Sheets (in millions):
 
Fair Value Measurements as of
 
June 30, 2019
 
December 31, 2018
 
Quoted Prices in Active Markets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total
 
Quoted Prices in Active Markets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total
Liquefaction Supply Derivatives asset (liability)
$
1

 
$
(1
)
 
$
34

 
$
34

 
$
5

 
$
(23
)
 
$
(25
)
 
$
(43
)


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 conditions precedent, 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. As of June 30, 2019 and December 31, 2018, 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 may be impacted by inputs that are unobservable in the marketplace. The curves used to generate the fair value of our Physical Liquefaction Supply Derivatives are based on basis adjustments applied to forward curves for a liquid trading point. In addition, there may be observable liquid market basis information in the near term, but terms of a Physical Liquefaction Supply Derivatives contract may exceed the period for which such information is available, resulting in a Level 3 classification. In these instances, the fair value of the contract incorporates extrapolation assumptions made in the determination of the market basis price for future delivery periods in which applicable commodity basis prices were either not observable or lacked corroborative market data.

The Level 3 fair value measurements of 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 June 30, 2019:
 
 
Net Fair Value Asset
(in millions)
 
Valuation Approach
 
Significant Unobservable Input
 
Significant Unobservable Inputs Range
Physical Liquefaction Supply Derivatives
 
$34
 
Market approach incorporating present value techniques
 
Henry Hub Basis Spread
 
$(0.350) - $0.056



8


SABINE PASS LIQUEFACTION, LLC
NOTES TO 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 and six months ended June 30, 2019 and 2018 (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Balance, beginning of period
 
$
29

 
$
10

 
$
(25
)
 
$
43

Realized and mark-to-market gains (losses):
 
 
 
 
 
 
 
 
Included in cost of sales
 
3

 
(1
)
 
16

 
(13
)
Purchases and settlements:
 
 
 
 
 
 
 
 
Purchases
 
1

 
6

 

 
6

Settlements
 
1

 
(4
)
 
43

 
(25
)
Balance, end of period
 
$
34

 
$
11

 
$
34

 
$
11

Change in unrealized gains (losses) relating to instruments still held at end of period
 
$
3

 
$
(1
)
 
$
16

 
$
(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 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 netting and any applicable credit enhancements, such as collateral postings, set-off rights and guarantees.
Liquefaction Supply Derivatives

We have entered into primarily index-based physical natural gas supply contracts and associated economic hedges to purchase natural gas for the commissioning and operation of the Liquefaction Project.  The terms of the physical natural gas supply contracts range up to five years, some of which commence upon the satisfaction of certain conditions precedent.

We had secured up to approximately 3,437 TBtu and 3,464 TBtu of natural gas feedstock through natural gas supply contracts as of June 30, 2019 and December 31, 2018, respectively. The notional natural gas position of our Liquefaction Supply Derivatives was approximately 3,122 TBtu and 2,978 TBtu as of June 30, 2019 and December 31, 2018, respectively.

The following table shows the fair value and location of our Liquefaction Supply Derivatives on our Balance Sheets (in millions):
 
 
Fair Value Measurements as of (1)
Balance Sheet Location
 
June 30, 2019
 
December 31, 2018
Derivative assets
 
$
17

 
$
6

Non-current derivative assets
 
37

 
31

Total derivative assets
 
54

 
37

 
 
 
 
 
Derivative liabilities
 
(8
)
 
(66
)
Non-current derivative liabilities
 
(12
)
 
(14
)
Total derivative liabilities
 
(20
)
 
(80
)
 
 
 
 
 
Derivative asset (liability), net
 
$
34

 
$
(43
)
 
(1)
Does not include collateral calls of $2 million and $1 million for such contracts, which are included in other current assets in our Balance Sheets as of June 30, 2019 and December 31, 2018, respectively.


9


SABINE PASS LIQUEFACTION, LLC
NOTES TO FINANCIAL STATEMENTS—CONTINUED
(unaudited)

The following table shows the changes in the fair value, settlements and location of our Liquefaction Supply Derivatives on our Statements of Income during the three and six months ended June 30, 2019 and 2018 (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Statement of Income Location (1)
2019
 
2018
 
2019
 
2018
Liquefaction Supply Derivatives gain
LNG revenues
$

 
$

 
$
1

 
$

Liquefaction Supply Derivatives gain (loss)
Cost of sales
7

 
(2
)
 
83

 
(52
)
 
(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.

Balance Sheet Presentation

Our derivative instruments are presented on a net basis on our 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 Balance Sheets
 
Net Amounts Presented in the Balance Sheets
Offsetting Derivative Assets (Liabilities)
 
 
 
As of June 30, 2019
 
 
 
 
 
 
Liquefaction Supply Derivatives
 
$
56

 
$
(2
)
 
$
54

Liquefaction Supply Derivatives
 
(21
)
 
1

 
(20
)
As of December 31, 2018
 
 
 
 
 
 
Liquefaction Supply Derivatives
 
$
63

 
$
(26
)
 
$
37

Liquefaction Supply Derivatives
 
(92
)
 
12

 
(80
)

NOTE 7—OTHER NON-CURRENT ASSETS

As of June 30, 2019 and December 31, 2018, other non-current assets, net consisted of the following (in millions):
 
 
June 30,
 
December 31,
 
 
2019
 
2018
Advances made to municipalities for water system enhancements
 
$
89

 
$
90

Advances and other asset conveyances to third parties to support LNG terminals
 
36

 
36

Operating lease assets
 
21

 

Information technology service assets
 
7

 
16

Advances made under EPC and non-EPC contracts
 

 
14

Other
 

 
2

Total other non-current assets, net
 
$
153

 
$
158



NOTE 8—ACCRUED LIABILITIES
 
As of June 30, 2019 and December 31, 2018, accrued liabilities consisted of the following (in millions):
 
 
June 30,
 
December 31,
 
 
2019
 
2018
Interest costs and related debt fees
 
$
230

 
$
186

Accrued natural gas purchases
 
310

 
518

Liquefaction Project costs
 
469

 
64

Other accrued liabilities
 
2

 

Total accrued liabilities
 
$
1,011

 
$
768




10


SABINE PASS LIQUEFACTION, LLC
NOTES TO FINANCIAL STATEMENTS—CONTINUED
(unaudited)

NOTE 9—DEBT
 
As of June 30, 2019 and December 31, 2018, our debt consisted of the following (in millions):
 
 
June 30,
 
December 31,
 
 
2019
 
2018
Long-term debt
 
 
 
 
5.625% Senior Secured Notes due 2021 (“2021 Senior Notes”)
 
$
2,000

 
$
2,000

6.25% Senior Secured Notes due 2022 (“2022 Senior Notes”)
 
1,000

 
1,000

5.625% Senior Secured Notes due 2023 (“2023 Senior Notes”)
 
1,500

 
1,500

5.75% Senior Secured Notes due 2024 (“2024 Senior Notes”)
 
2,000

 
2,000

5.625% Senior Secured Notes due 2025 (“2025 Senior Notes”)
 
2,000

 
2,000

5.875% Senior Secured Notes due 2026 (“2026 Senior Notes”)
 
1,500

 
1,500

5.00% Senior Secured Notes due 2027 (“2027 Senior Notes”)
 
1,500

 
1,500

4.200% Senior Secured Notes due 2028 (“2028 Senior Notes”)
 
1,350

 
1,350

5.00% Senior Secured Notes due 2037 (“2037 Senior Notes”)
 
800

 
800

Unamortized discount, premium and debt issuance costs, net
 
(138
)
 
(150
)
Total long-term debt, net
 
13,512

 
13,500

 
 
 
 
 
Current debt
 
 
 
 
$1.2 billion Working Capital Facility (“Working Capital Facility”)
 

 

Total debt, net
 
$
13,512


$
13,500



Working Capital Facility

Below is a summary of our Working Capital Facility as of June 30, 2019 (in millions):
 
Working Capital Facility (1)
Original facility size
$
1,200

Less:
 
Outstanding balance

Letters of credit issued
415

Available commitment
$
785

 
 
Interest rate on outstanding balance
LIBOR plus 1.75% or base rate plus 0.75%
Maturity date
December 31, 2020

 
(1)
The Working Capital Facility was amended in May 2019 in connection with commercialization and financing of Train 6 of the Liquefaction Project. All terms of the Working Capital Facility substantially remained unchanged.

Restrictive Debt Covenants

As of June 30, 2019, we were in compliance with all covenants related to our debt agreements.

Interest Expense

Total interest expense consisted of the following (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Total interest cost
 
$
198

 
$
198

 
$
395

 
$
396

Capitalized interest
 
(7
)
 
(50
)
 
(54
)
 
(97
)
Total interest expense, net
 
$
191

 
$
148

 
$
341

 
$
299




11


SABINE PASS LIQUEFACTION, LLC
NOTES TO FINANCIAL STATEMENTS—CONTINUED
(unaudited)

Fair Value Disclosures

The following table shows the carrying amount, which is net of unamortized premium, discount and debt issuance costs, and estimated fair value of our debt (in millions):
 
 
June 30, 2019
 
December 31, 2018
 
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
Senior notes (1)
 
$
12,721

 
$
14,041

 
$
12,709

 
$
13,235

2037 Senior Notes (2)
 
791

 
912

 
791

 
817

 
(1)
Includes 2021 Senior Notes, 2022 Senior Notes, 2023 Senior Notes, 2024 Senior Notes, 2025 Senior Notes, 2026 Senior Notes, 2027 Senior Notes and 2028 Senior Notes. The Level 2 estimated fair value was based on quotes obtained from broker-dealers or market makers of these senior notes and other similar instruments.
(2)
The Level 3 estimated fair value was calculated based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including interest rates based on debt issued by parties with comparable credit ratings to us and inputs that are not observable in the market. 

NOTE 10—REVENUES FROM CONTRACTS WITH CUSTOMERS

The following table represents a disaggregation of revenue earned from contracts with customers during the three and six months ended June 30, 2019 and 2018 (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
LNG revenues
 
$
1,171

 
$
1,155

 
$
2,537

 
$
2,170

LNG revenues—affiliate
 
455

 
178

 
760

 
681

Total revenues from customers
 
1,626

 
1,333

 
3,297

 
2,851

Net derivative gains (1)
 

 

 
1

 

Total revenues
 
$
1,626

 
$
1,333

 
$
3,298

 
$
2,851

 
(1)
See Note 6—Derivative Instruments for additional information about our derivatives.

Deferred Revenue Reconciliation

The following table reflects the changes in our contract liabilities, which we classify as deferred revenues on our Balance Sheets (in millions):
 
 
Six Months Ended June 30, 2019
Deferred revenues, beginning of period
 
$
91

Cash received but not yet recognized
 
101

Revenue recognized from prior period deferral
 
(91
)
Deferred revenues, end of period
 
$
101




12


SABINE PASS LIQUEFACTION, LLC
NOTES TO FINANCIAL STATEMENTS—CONTINUED
(unaudited)

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 as of June 30, 2019 and December 31, 2018:
 
 
June 30, 2019
 
December 31, 2018
 
 
Unsatisfied
Transaction Price
(in billions)
 
Weighted Average Recognition Timing (years) (1)
 
Unsatisfied
Transaction Price
(in billions)
 
Weighted Average Recognition Timing (years) (1)
LNG revenues (2)
 
$
56.3

 
10
 
$
53.6

 
10
 
    
(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.
(2)
Includes future consideration from agreement anticipated to be assigned to SPL from Cheniere Marketing.

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)
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 table above excludes substantially all variable consideration under our SPAs. 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. Approximately 53% and 55% of our LNG revenues during the three months ended June 30, 2019 and 2018, respectively, and approximately 55% of our LNG revenues during each of the six months ended June 30, 2019 and 2018, were related to variable consideration received from customers. All of our LNG revenues—affiliate were related to variable consideration received from customers during each of the three and six months ended June 30, 2019 and 2018.

We have entered 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.


13


SABINE PASS LIQUEFACTION, LLC
NOTES TO FINANCIAL STATEMENTS—CONTINUED
(unaudited)

NOTE 11—RELATED PARTY TRANSACTIONS
 
Below is a summary of our related party transactions as reported on our Statements of Income for the three and six months ended June 30, 2019 and 2018 (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
LNG revenues—affiliate
Cheniere Marketing Agreements
$
455

 
$
178

 
$
760

 
$
681

 
Cost of sales—affiliate
Cargo loading fees under TUA
9

 
7

 
18

 
15

 
Operating and maintenance expense—affiliate
TUA
67

 
64

 
131

 
128

Natural Gas Transportation Agreement
21

 
21

 
40

 
41

Services Agreements
27

 
22

 
51

 
41

Total operating and maintenance expense—affiliate
115


107

 
222


210

 
General and administrative expense—affiliate
Services Agreements
21

 
12

 
36

 
24



As of June 30, 2019 and December 31, 2018, we had $166 million and $113 million of accounts receivable—affiliate, respectively, under the agreements described below.

Terminal Use Agreement

We have a TUA with SPLNG to provide berthing for LNG vessels and for the unloading, loading, storage and regasification of LNG. We have reserved approximately 2.0 Bcf/d of regasification capacity and we are obligated to make monthly capacity payments to SPLNG aggregating approximately $250 million per year (the “TUA Fees”), continuing until at least May 2036.

Cheniere Partners has guaranteed our obligations under our TUA. Cargo loading fees incurred under the TUA are recorded as cost of sales—affiliate, except for the portion related to commissioning activities which is capitalized as LNG terminal construction-in-process.

In connection with our TUA, we are required to pay for a portion of the cost to maintain the cryogenic readiness of the regasification facilities at the Sabine Pass LNG terminal, which is based on our share of the commercial LNG storage capacity at the Sabine Pass LNG terminal.

Cheniere Marketing Agreements

Cheniere Marketing SPA

Cheniere Marketing has an SPA (“Base SPA”) with us to purchase, at Cheniere Marketing’s option, any LNG produced by us in excess of that required for other customers at a price of 115% of Henry Hub plus $3.00 per MMBtu of LNG.

In May 2019, we and Cheniere Marketing entered into an amendment to the Base SPA to remove certain conditions related to the sale of LNG from Trains 5 and 6 of the Liquefaction Project and provide that cargoes rejected by Cheniere Marketing under the Base SPA can be sold by us to Cheniere Marketing at a contract price equal to a portion of the estimated net profits from the sale of such cargo.

Cheniere Marketing Master SPA

We have an agreement with Cheniere Marketing that allows us to sell and purchase LNG with Cheniere Marketing by executing and delivering confirmations under this agreement. We executed a confirmation with Cheniere Marketing that obligated

14


SABINE PASS LIQUEFACTION, LLC
NOTES TO FINANCIAL STATEMENTS—CONTINUED
(unaudited)

Cheniere Marketing in certain circumstances to buy LNG cargoes produced during the period while Bechtel Oil, Gas and Chemicals, Inc. had control of, and was commissioning, Train 5 of the Liquefaction Project.

Cheniere Marketing Letter Agreement

In May 2019, we and Cheniere Marketing entered into a letter agreement for the sale of up to 20 cargoes totaling approximately 70 million MMBtu scheduled for delivery between May 3 and December 31, 2019 at a price of 115% of Henry Hub plus $2.00 per MMBtu.

Natural Gas Transportation Agreements

To ensure we are able to transport adequate natural gas feedstock to the Sabine Pass LNG terminal, we have a transportation precedent agreement and a negotiated rate agreement to secure firm pipeline transportation capacity with CTPL, a wholly owned subsidiary of Cheniere Partners, and third-party pipeline companies. These agreements have a primary term of 20 years from commercial operation of Train 2 and thereafter continue in effect from year to year until terminated by either party upon written notice of one year or the term of the agreements, whichever is less. In addition, we have the right to elect to extend the term of the agreements for up to two consecutive terms of 10 years. Maximum rates, charges and fees shall be applicable for the entitlements and quantities delivered pursuant to the agreements unless CTPL has advised us that it has agreed otherwise.

Services Agreements

As of June 30, 2019 and December 31, 2018, we had $206 million and $210 million of advances to affiliates, respectively, under the services agreements described below. The non-reimbursement amounts incurred under these agreements are recorded in general and administrative expense—affiliate.

Liquefaction O&M Agreement

We have an operation and maintenance agreement (the “Liquefaction O&M Agreement”) with Cheniere Investments, a wholly owned subsidiary of Cheniere Partners, pursuant to which we receive all of the necessary services required to construct, operate and maintain the Liquefaction Project. Before each Train of the Liquefaction Project is operational, the services to be provided include, among other services, obtaining governmental approvals on our behalf, preparing an operating plan for certain periods, obtaining insurance, preparing staffing plans and preparing status reports. After each Train is operational, the services include all necessary services required to operate and maintain the Train. Prior to the substantial completion of each Train of the Liquefaction Project, in addition to reimbursement of operating expenses, we are required to pay a monthly fee equal to 0.6% of the capital expenditures incurred in the previous month. After substantial completion of each Train, for services performed while the Train is operational, we will pay, in addition to the reimbursement of operating expenses, a fixed monthly fee of $83,333 (indexed for inflation) for services with respect to the Train.

Liquefaction MSA

We have a management services agreement (the “Liquefaction MSA”) with Cheniere Terminals pursuant to which Cheniere Terminals manages the construction and operation of the Liquefaction Project, excluding those matters provided for under the Liquefaction O&M Agreement. The services include, among other services, exercising the day-to-day management of our affairs and business, managing our regulatory matters, managing bank and brokerage accounts and financial books and records of our business and operations, entering into financial derivatives on our behalf and providing contract administration services for all contracts associated with the Liquefaction Project. Prior to the substantial completion of each Train of the Liquefaction Project, we pay a monthly fee equal to 2.4% of the capital expenditures incurred in the previous month. After substantial completion of each Train, we will pay a fixed monthly fee of $541,667 (indexed for inflation) for services with respect to such Train.

Cheniere Investments Information Technology Services Agreement

Cheniere Investments has an information technology services agreement with Cheniere, pursuant to which Cheniere Investment’s subsidiaries, including us, receive certain information technology services. On a quarterly basis, the various entities receiving the benefit are invoiced by Cheniere Investments according to the cost allocation percentages set forth in the agreement.

15


SABINE PASS LIQUEFACTION, LLC
NOTES TO FINANCIAL STATEMENTS—CONTINUED
(unaudited)

In addition, Cheniere is entitled to reimbursement for all costs incurred by Cheniere that are necessary to perform the services under the agreement.

LNG Site Sublease Agreement

We have agreements with SPLNG to sublease a portion of the Sabine Pass LNG terminal site for the Liquefaction Project. The aggregate annual sublease payment is $1 million. The initial terms of the subleases expire on December 31, 2034, with options to renew for multiple periods of 10 years with similar terms as the initial terms. The annual sublease payments will be adjusted for inflation every five years based on a consumer price index, as defined in the sublease agreements.

Cooperation Agreement
We have a cooperation agreement with SPLNG that allows us to retain and acquire certain rights to access the property and facilities that are owned by SPLNG for the purpose of constructing, modifying and operating the Liquefaction Project. In consideration for access given to us, we have agreed to transfer to SPLNG title of certain facilities, equipment and modifications, which SPLNG is obligated to operate and maintain. The term of this agreement is consistent with our TUA described above. We conveyed $348 million in assets to SPLNG under this agreement during the three and six months ended June 30, 2019. We did not convey any assets to SPLNG under this agreement during the three and six months ended June 30, 2018.

Contracts for Sale and Purchase of Natural Gas and LNG

We have agreements with SPLNG that allow us to sell and purchase natural gas and LNG with SPLNG. Natural gas and LNG purchased under these agreements are recorded as inventory, except for purchases related to commissioning activities which are capitalized as LNG terminal construction-in-process.

State Tax Sharing Agreement
We have a state tax sharing agreement with Cheniere. Under this agreement, Cheniere has agreed to prepare and file all state and local tax returns which we and Cheniere are required to file on a combined basis and to timely pay the combined state and local tax liability. If Cheniere, in its sole discretion, demands payment, we will pay to Cheniere an amount equal to the state and local tax that we would be required to pay if our state and local tax liability were calculated on a separate company basis. There have been no state and local taxes paid by Cheniere for which Cheniere could have demanded payment from us under this agreement; therefore, Cheniere has not demanded any such payments from us. The agreement is effective for tax returns due on or after August 2012.

NOTE 12—CUSTOMER CONCENTRATION
  
The following table shows customers with revenues of 10% or greater of total revenues from external customers and customers with accounts receivable balances of 10% or greater of total accounts receivable from external customers:
 
 
Percentage of Total Revenues from External Customers
 
Percentage of Accounts Receivable from External Customers
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
June 30,
 
December 31,
 
 
2019
 
2018
 
2019