Cheniere Energy, Inc. - Quarter Report: 2021 June (Form 10-Q)
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, 2021
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

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)
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 |
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 July 30, 2021, the issuer had 253,606,918 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; 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 |
1
Abbreviated Legal Entity Structure
The following diagram depicts our abbreviated legal entity structure as of June 30, 2021, including our ownership of certain subsidiaries, and the references to these entities used in this quarterly report:

Unless the context requires otherwise, references to “Cheniere,” 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 STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Revenues | |||||||||||||||||||||||
LNG revenues | $ | 2,913 | $ | 2,295 | $ | 5,912 | $ | 4,863 | |||||||||||||||
Regasification revenues | 67 | 68 | 134 | 135 | |||||||||||||||||||
Other revenues | 37 | 39 | 61 | 113 | |||||||||||||||||||
Total revenues | 3,017 | 2,402 | 6,107 | 5,111 | |||||||||||||||||||
Operating costs and expenses | |||||||||||||||||||||||
Cost of sales (excluding items shown separately below) | 2,154 | 803 | 3,540 | 1,527 | |||||||||||||||||||
Operating and maintenance expense | 385 | 355 | 707 | 671 | |||||||||||||||||||
Development expense | 2 | 1 | 3 | 5 | |||||||||||||||||||
Selling, general and administrative expense | 73 | 73 | 154 | 154 | |||||||||||||||||||
Depreciation and amortization expense | 258 | 233 | 494 | 466 | |||||||||||||||||||
Impairment expense and loss (gain) on disposal of assets | (1) | — | (1) | 5 | |||||||||||||||||||
Total operating costs and expenses | 2,871 | 1,465 | 4,897 | 2,828 | |||||||||||||||||||
Income from operations | 146 | 937 | 1,210 | 2,283 | |||||||||||||||||||
Other income (expense) | |||||||||||||||||||||||
Interest expense, net of capitalized interest | (368) | (407) | (724) | (819) | |||||||||||||||||||
Loss on modification or extinguishment of debt | (4) | (43) | (59) | (44) | |||||||||||||||||||
Interest rate derivative loss, net | (2) | (25) | (1) | (233) | |||||||||||||||||||
Other income, net | 4 | 5 | 10 | 14 | |||||||||||||||||||
Total other expense | (370) | (470) | (774) | (1,082) | |||||||||||||||||||
Income (loss) before income taxes and non-controlling interest | (224) | 467 | 436 | 1,201 | |||||||||||||||||||
Less: income tax provision (benefit) | (93) | 63 | (4) | 194 | |||||||||||||||||||
Net income (loss) | (131) | 404 | 440 | 1,007 | |||||||||||||||||||
Less: net income attributable to non-controlling interest | 198 | 207 | 376 | 435 | |||||||||||||||||||
Net income (loss) attributable to common stockholders | $ | (329) | $ | 197 | $ | 64 | $ | 572 | |||||||||||||||
Net income (loss) per share attributable to common stockholders—basic (1) | $ | (1.30) | $ | 0.78 | $ | 0.25 | $ | 2.27 | |||||||||||||||
Net income (loss) per share attributable to common stockholders—diluted (1) | $ | (1.30) | $ | 0.78 | $ | 0.25 | $ | 2.26 | |||||||||||||||
Weighted average number of common shares outstanding—basic | 253.5 | 252.1 | 253.2 | 252.6 | |||||||||||||||||||
Weighted average number of common shares outstanding—diluted | 253.5 | 252.4 | 254.7 | 253.3 |
(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.
3
CHENIERE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (1)
(in millions, except share data)
June 30, | December 31, | ||||||||||
2021 | 2020 | ||||||||||
ASSETS | (unaudited) | ||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | 1,806 | $ | 1,628 | |||||||
Restricted cash | 424 | 449 | |||||||||
Accounts and other receivables, net of current expected credit losses | 613 | 647 | |||||||||
Inventory | 363 | 292 | |||||||||
Current derivative assets | 178 | 32 | |||||||||
Other current assets | 281 | 121 | |||||||||
Total current assets | 3,665 | 3,169 | |||||||||
Property, plant and equipment, net of accumulated depreciation | 30,288 | 30,421 | |||||||||
Operating lease assets | 1,698 | 759 | |||||||||
Derivative assets | 96 | 376 | |||||||||
Goodwill | 77 | 77 | |||||||||
Deferred tax assets | 497 | 489 | |||||||||
Other non-current assets, net | 431 | 406 | |||||||||
Total assets | $ | 36,752 | $ | 35,697 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
Current liabilities | |||||||||||
Accounts payable | $ | 83 | $ | 35 | |||||||
Accrued liabilities | 1,197 | 1,175 | |||||||||
Current debt, net of discount and debt issuance costs | 949 | 372 | |||||||||
Deferred revenue | 105 | 138 | |||||||||
Current operating lease liabilities | 365 | 161 | |||||||||
Current derivative liabilities | 822 | 313 | |||||||||
Other current liabilities | 5 | 2 | |||||||||
Total current liabilities | 3,526 | 2,196 | |||||||||
Long-term debt, net of premium, discount and debt issuance costs | 29,327 | 30,471 | |||||||||
Operating lease liabilities | 1,332 | 597 | |||||||||
Finance lease liabilities | 57 | 57 | |||||||||
Derivative liabilities | 145 | 151 | |||||||||
Other non-current liabilities | 8 | 7 | |||||||||
Stockholders’ equity | |||||||||||
Preferred stock, $0.0001 par value, 5.0 million shares authorized, none issued | — | — | |||||||||
Common stock, $0.003 par value, 480.0 million shares authorized; 275.0 million shares and 273.1 million shares issued at June 30, 2021 and December 31, 2020, respectively | 1 | 1 | |||||||||
Treasury stock: 21.4 million shares and 20.8 million shares at June 30, 2021 and December 31, 2020, respectively, at cost | (915) | (872) | |||||||||
Additional paid-in-capital | 4,337 | 4,273 | |||||||||
Accumulated deficit | (3,529) | (3,593) | |||||||||
Total stockholders' deficit | (106) | (191) | |||||||||
Non-controlling interest | 2,463 | 2,409 | |||||||||
Total equity | 2,357 | 2,218 | |||||||||
Total liabilities and stockholders’ equity | $ | 36,752 | $ | 35,697 |
(1) Amounts presented include balances held by our consolidated variable interest entity (“VIE”), Cheniere Partners, as further discussed in Note 8— Non-controlling Interest and Variable Interest Entity. As of June 30, 2021, total assets and liabilities of Cheniere Partners, which are included in our Consolidated Balance Sheets, were $18.9 billion and $18.5 billion, respectively, including $1.2 billion of cash and cash equivalents and $0.1 billion of restricted cash.
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 and Six Months Ended June 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
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, 2020 | 252.3 | $ | 1 | 20.8 | $ | (872) | $ | 4,273 | $ | (3,593) | $ | 2,409 | $ | 2,218 | |||||||||||||||||||||||||||||||||
Vesting of restricted stock units and performance stock units | 1.8 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | 33 | — | — | 33 | |||||||||||||||||||||||||||||||||||||||
Issued shares withheld from employees related to share-based compensation, at cost | (0.6) | — | 0.6 | (42) | — | — | — | (42) | |||||||||||||||||||||||||||||||||||||||
Net income attributable to non-controlling interest | — | — | — | — | — | — | 178 | 178 | |||||||||||||||||||||||||||||||||||||||
Distributions to non-controlling interest | — | — | — | — | — | — | (160) | (160) | |||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 393 | — | 393 | |||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2021 | 253.5 | 1 | 21.4 | (914) | 4,306 | (3,200) | 2,427 | 2,620 | |||||||||||||||||||||||||||||||||||||||
Vesting of restricted stock units and performance stock units | 0.1 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | 31 | — | — | 31 | |||||||||||||||||||||||||||||||||||||||
Issued shares withheld from employees related to share-based compensation, at cost | — | — | — | (1) | — | — | — | (1) | |||||||||||||||||||||||||||||||||||||||
Net income attributable to non-controlling interest | — | — | — | — | — | — | 198 | 198 | |||||||||||||||||||||||||||||||||||||||
Distributions to non-controlling interest | — | — | — | — | — | — | (162) | (162) | |||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | (329) | — | (329) | |||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | 253.6 | $ | 1 | 21.4 | $ | (915) | $ | 4,337 | $ | (3,529) | $ | 2,463 | $ | 2,357 |
Three and Six Months Ended June 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
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, 2019 | 253.6 | $ | 1 | 17.1 | $ | (674) | $ | 4,167 | $ | (3,508) | $ | 2,449 | $ | 2,435 | |||||||||||||||||||||||||||||||||
Vesting of restricted stock units and performance stock units | 2.1 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | 29 | — | — | 29 | |||||||||||||||||||||||||||||||||||||||
Issued shares withheld from employees related to share-based compensation, at cost | (0.7) | — | 0.7 | (39) | — | — | — | (39) | |||||||||||||||||||||||||||||||||||||||
Shares repurchased, at cost | (2.9) | — | 2.9 | (155) | — | — | — | (155) | |||||||||||||||||||||||||||||||||||||||
Net income attributable to non-controlling interest | — | — | — | — | — | — | 228 | 228 | |||||||||||||||||||||||||||||||||||||||
Distributions to non-controlling interest | — | — | — | — | — | — | (154) | (154) | |||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 375 | — | 375 | |||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2020 | 252.1 | 1 | 20.7 | (868) | 4,196 | (3,133) | 2,523 | 2,719 | |||||||||||||||||||||||||||||||||||||||
Vesting of restricted stock units and performance stock units | 0.1 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | 31 | — | — | 31 | |||||||||||||||||||||||||||||||||||||||
Issued shares withheld from employees related to share-based compensation, at cost | — | — | — | (2) | — | — | — | (2) | |||||||||||||||||||||||||||||||||||||||
Net income attributable to non-controlling interest | — | — | — | — | — | — | 207 | 207 | |||||||||||||||||||||||||||||||||||||||
Distributions and dividends to non-controlling interest | — | — | — | — | — | — | (156) | (156) | |||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 197 | — | 197 | |||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2020 | 252.2 | $ | 1 | 20.7 | $ | (870) | $ | 4,227 | $ | (2,936) | $ | 2,574 | $ | 2,996 | |||||||||||||||||||||||||||||||||
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)
Six Months Ended June 30, | |||||||||||
2021 | 2020 | ||||||||||
Cash flows from operating activities | |||||||||||
Net income | $ | 440 | $ | 1,007 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization expense | 494 | 466 | |||||||||
Share-based compensation expense | 63 | 57 | |||||||||
Non-cash interest expense | 14 | 34 | |||||||||
Amortization of debt issuance costs, premium and discount | 40 | 70 | |||||||||
Reduction of right-of-use assets | 172 | 166 | |||||||||
Loss on modification or extinguishment of debt | 59 | 44 | |||||||||
Total losses (gains) on derivatives, net | 748 | (361) | |||||||||
Net cash provided by (used for) settlement of derivative instruments | (111) | 117 | |||||||||
Impairment expense and loss (gain) on disposal of assets | (1) | 5 | |||||||||
Impairment expense and loss (income) on equity method investments | (8) | 1 | |||||||||
Deferred taxes | (7) | 192 | |||||||||
Repayment of paid-in-kind interest related to repurchase of convertible notes | (190) | — | |||||||||
Changes in operating assets and liabilities: | |||||||||||
Accounts and other receivables, net of current expected credit losses | 33 | (155) | |||||||||
Inventory | (66) | 104 | |||||||||
Other current assets | (163) | (37) | |||||||||
Accounts payable and accrued liabilities | 88 | (369) | |||||||||
Deferred revenue | (33) | (138) | |||||||||
Operating lease liabilities | (173) | (145) | |||||||||
Other, net | (26) | (30) | |||||||||
Net cash provided by operating activities | 1,373 | 1,028 | |||||||||
Cash flows from investing activities | |||||||||||
Property, plant and equipment | (440) | (983) | |||||||||
Proceeds from sale of fixed assets | 68 | — | |||||||||
Investment in equity method investment | — | (100) | |||||||||
Other | (11) | (7) | |||||||||
Net cash used in investing activities | (383) | (1,090) | |||||||||
Cash flows from financing activities | |||||||||||
Proceeds from issuances of debt | 2,184 | 2,597 | |||||||||
Repayments of debt | (2,603) | (2,380) | |||||||||
Debt issuance and other financing costs | (20) | (59) | |||||||||
Debt modification or extinguishment costs | (41) | (40) | |||||||||
Distributions to non-controlling interest | (322) | (310) | |||||||||
Payments related to tax withholdings for share-based compensation | (43) | (41) | |||||||||
Repurchase of common stock | — | (155) | |||||||||
Other | 8 | — | |||||||||
Net cash used in financing activities | (837) | (388) | |||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 153 | (450) | |||||||||
Cash, cash equivalents and restricted cash—beginning of period | 2,077 | 2,994 | |||||||||
Cash, cash equivalents and restricted cash—end of period | $ | 2,230 | $ | 2,544 |
Balances per Consolidated Balance Sheets:
June 30, | |||||
2021 | |||||
Cash and cash equivalents | $ | 1,806 | |||
Restricted cash | 424 | ||||
Total cash, cash equivalents and restricted cash | $ | 2,230 |
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 operate two natural gas liquefaction and export facilities at Sabine Pass and Corpus Christi (respectively, the “Sabine Pass LNG Terminal” and “Corpus Christi LNG Terminal”).
Cheniere Partners owns the Sabine Pass LNG Terminal located in Cameron Parish, Louisiana, which has natural gas liquefaction facilities consisting of five operational natural gas liquefaction Trains and one additional Train under construction that is expected to be substantially completed in the first half of 2022, for a total production capacity of approximately 30 mtpa of LNG (the “SPL 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. Cheniere Partners also owns a 94-mile pipeline that interconnects the Sabine Pass LNG Terminal with a number of large interstate pipelines (the “Creole Trail Pipeline”) through its subsidiary, CTPL. As of June 30, 2021, we owned 100% of the general partner interest and 48.6% of the limited partner interest in Cheniere Partners.
The Corpus Christi LNG Terminal is located near Corpus Christi, Texas. We currently operate three Trains, for a total production capacity of approximately 15 mtpa of LNG. We also own 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 Trains, the “CCL Project”) through our subsidiary CCP, as part of the CCH Group. The CCL Project also contains three LNG storage tanks and two marine berths.
Additionally, separate from the CCH Group, we are developing an expansion of the Corpus Christi LNG Terminal adjacent to the CCL Project (“Corpus Christi Stage 3”) through our subsidiary CCL Stage III, for up to seven midscale Trains with an expected total production capacity of approximately 10 mtpa of LNG. We received approval from FERC in November 2019 to site, construct and operate the expansion project.
We remain focused on operational excellence and customer satisfaction. Increasing demand for LNG has allowed us to expand our liquefaction infrastructure in a financially disciplined manner. We have increased available liquefaction capacity at the SPL Project and the CCL Project (collectively, the “Liquefaction Projects”) as a result of debottlenecking and other optimization projects. We hold significant land positions at both the Sabine Pass LNG Terminal and the Corpus Christi LNG Terminal which provide opportunity for further liquefaction capacity expansion. The development of these sites or other projects, including infrastructure projects in support of natural gas supply and LNG demand, will require, among other things, acceptable commercial and financing arrangements before we make a final investment decision (“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 fiscal year ended December 31, 2020.
Results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2021.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This guidance simplifies the accounting for convertible instruments primarily by eliminating the existing cash conversion and beneficial conversion models within Subtopic 470-20, which will result in fewer embedded conversion options being accounted for separately from the debt host. The guidance also amends and simplifies the calculation of earnings per share relating to convertible instruments. This guidance is effective for annual periods beginning after December 15, 2021, including interim periods within that reporting period, with earlier adoption permitted for fiscal years beginning after December 15, 2020, including interim periods within that reporting period, using either a full or modified retrospective approach. We plan to adopt
7
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
this guidance on January 1, 2022 using the modified retrospective approach. Preliminarily, we anticipate the adoption of ASU 2020-06 will primarily result in the reclassification of the previously bifurcated equity component associated with the 4.25% Convertible Senior Notes due 2045 (the “2045 Cheniere Convertible Senior Notes”) to debt as a result of the elimination of the cash conversion model. We currently estimate that the reclassification of the $194 million equity component will result in an approximate $190 million increase in the carrying value of our 2045 Cheniere Convertible Senior Notes, with the difference primarily impacting retained earnings as of January 1, 2022. We continue to evaluate the impact of the provisions of this guidance on our Consolidated Financial Statements and related disclosures. See Note 10—Debt for further discussion on the 2045 Cheniere Convertible Senior Notes.
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 contracts expected to arise from the market transition from LIBOR to alternative reference rates. We have various credit facilities and interest rate swaps indexed to LIBOR, as further described in Note 6—Derivative Instruments and Note 10—Debt. 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—RESTRICTED CASH
Restricted cash consists of funds that are contractually or legally restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on our Consolidated Balance Sheets. As of June 30, 2021 and December 31, 2020, restricted cash consisted of the following (in millions):
June 30, | December 31, | |||||||||||||
2021 | 2020 | |||||||||||||
Restricted cash | ||||||||||||||
SPL Project | $ | 65 | $ | 97 | ||||||||||
CCL Project | 122 | 70 | ||||||||||||
Cash held by our subsidiaries that is restricted to Cheniere | 237 | 282 | ||||||||||||
Total restricted cash | $ | 424 | $ | 449 | ||||||||||
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 Liquefaction Projects and other restricted payments. The majority of the cash held by our subsidiaries that is restricted to Cheniere relates to advance funding for operation and construction needs of the Liquefaction Projects.
NOTE 3—ACCOUNTS AND OTHER RECEIVABLES, NET OF CURRENT EXPECTED CREDIT LOSSES
As of June 30, 2021 and December 31, 2020, accounts and other receivables, net of current expected credit losses consisted of the following (in millions):
June 30, | December 31, | |||||||||||||
2021 | 2020 | |||||||||||||
Trade receivables | ||||||||||||||
SPL and CCL | $ | 405 | $ | 482 | ||||||||||
Cheniere Marketing | 123 | 113 | ||||||||||||
Other accounts receivable, net of current expected credit losses | 85 | 52 | ||||||||||||
Total accounts and other receivables, net of current expected credit losses | $ | 613 | $ | 647 |
8
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 4—INVENTORY
As of June 30, 2021 and December 31, 2020, inventory consisted of the following (in millions):
June 30, | December 31, | |||||||||||||
2021 | 2020 | |||||||||||||
Materials | $ | 162 | $ | 150 | ||||||||||
LNG in-transit | 102 | 88 | ||||||||||||
LNG | 61 | 27 | ||||||||||||
Natural gas | 36 | 26 | ||||||||||||
Other | 2 | 1 | ||||||||||||
Total inventory | $ | 363 | $ | 292 |
NOTE 5—PROPERTY, PLANT AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
As of June 30, 2021 and December 31, 2020, property, plant and equipment, net of accumulated depreciation consisted of the following (in millions):
June 30, | December 31, | |||||||||||||
2021 | 2020 | |||||||||||||
LNG terminal | ||||||||||||||
LNG terminal and interconnecting pipeline facilities | $ | 30,598 | $ | 27,475 | ||||||||||
LNG site and related costs | 343 | 324 | ||||||||||||
LNG terminal construction-in-process | 2,650 | 5,378 | ||||||||||||
Accumulated depreciation | (3,413) | (2,935) | ||||||||||||
Total LNG terminal, net of accumulated depreciation | 30,178 | 30,242 | ||||||||||||
Fixed assets and other | ||||||||||||||
Computer and office equipment | 27 | 25 | ||||||||||||
Furniture and fixtures | 20 | 19 | ||||||||||||
Computer software | 120 | 117 | ||||||||||||
Leasehold improvements | 45 | 45 | ||||||||||||
Land | 1 | 59 | ||||||||||||
Other | 20 | 25 | ||||||||||||
Accumulated depreciation | (175) | (164) | ||||||||||||
Total fixed assets and other, net of accumulated depreciation | 58 | 126 | ||||||||||||
Assets under finance lease | ||||||||||||||
Tug vessels | 60 | 60 | ||||||||||||
Accumulated depreciation | (8) | (7) | ||||||||||||
Total assets under finance lease, net of accumulated depreciation | 52 | 53 | ||||||||||||
Property, plant and equipment, net of accumulated depreciation | $ | 30,288 | $ | 30,421 |
The following table shows depreciation expense and offsets to LNG terminal costs during the three and six months ended June 30, 2021 and 2020 (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
Depreciation expense | $ | 258 | $ | 231 | $ | 492 | $ | 463 | ||||||||||||||||||
Offsets to LNG terminal costs (1) | 36 | — | 227 | — |
(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 Projects during the testing phase for its construction.
9
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 6—DERIVATIVE INSTRUMENTS
We have entered into the following derivative instruments that are reported at fair value:
•interest rate swaps (“CCH Interest Rate Derivatives”) to hedge the exposure to volatility in a portion of the floating-rate interest payments on CCH’s amended and restated credit facility (the “CCH Credit Facility”) and previously, to hedge against changes in interest rates that could impact anticipated future issuance of debt by CCH (“CCH Interest Rate Forward Start Derivatives” and, collectively with the CCH Interest Rate Derivatives, the “Interest Rate Derivatives”);
•commodity derivatives consisting of natural gas supply contracts for the commissioning and operation of the Liquefaction Projects and potential future development of Corpus Christi Stage 3 (“Physical Liquefaction Supply Derivatives”) and associated economic hedges (“Financial Liquefaction Supply Derivatives,” and collectively with the Physical Liquefaction Supply Derivatives, the “Liquefaction Supply Derivatives”);
•physical derivatives consisting of liquified natural gas contracts in which we have contractual net settlement (“Physical LNG Trading Derivatives”) and financial derivatives to hedge the exposure to the commodity markets in which we have contractual arrangements to purchase or sell physical LNG (collectively, “LNG Trading Derivatives”); and
•foreign currency exchange (“FX”) contracts to hedge exposure to currency risk associated with cash flows denominated in currencies other than United States dollar (“FX Derivatives”), associated with both LNG Trading Derivatives and operations in countries outside of the United States.
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 Operations 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 as of June 30, 2021 and December 31, 2020 (in millions):
Fair Value Measurements as of | |||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
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 liability | $ | — | $ | (91) | $ | — | $ | (91) | $ | — | $ | (140) | $ | — | $ | (140) | |||||||||||||||||||||||||||||||
Liquefaction Supply Derivatives asset (liability) | (7) | 4 | (194) | (197) | 5 | (6) | 241 | 240 | |||||||||||||||||||||||||||||||||||||||
LNG Trading Derivatives asset (liability) | 20 | (226) | (195) | (401) | (3) | (131) | — | (134) | |||||||||||||||||||||||||||||||||||||||
FX Derivatives liability | — | (4) | — | (4) | — | (22) | — | (22) | |||||||||||||||||||||||||||||||||||||||
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 or option-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 and LNG Trading Derivatives are predominantly driven by observable and unobservable market commodity prices and, as applicable to our natural gas supply contracts, our assessment of the associated events deriving fair value, including evaluating whether the respective market is available as pipeline infrastructure is developed. The fair value of our Physical Liquefaction Supply Derivatives incorporates risk premiums related to the satisfaction of conditions precedent, such as completion and placement into service of relevant pipeline infrastructure to accommodate marketable physical gas flow. As of June 30, 2021 and December 31, 2020, some of our Physical Liquefaction
10
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Supply Derivatives existed within markets for which the pipeline infrastructure was under development to accommodate marketable physical gas flow.
We include our Physical LNG Trading Derivatives and a portion of our Physical Liquefaction Supply Derivatives as Level 3 within the valuation hierarchy as the fair value is developed through the use of internal models which incorporate significant unobservable inputs. In instances where observable data is unavailable, consideration is given to the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks, such as future prices of energy units for unobservable periods, liquidity, volatility and contract duration.
The Level 3 fair value measurements of our Physical LNG Trading Derivatives and the 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 and Physical LNG Trading Derivatives as of June 30, 2021:
Net Fair Value Liability (in millions) | Valuation Approach | Significant Unobservable Input | Range of Significant Unobservable Inputs / Weighted Average (1) | |||||||||||||||||||||||
Physical Liquefaction Supply Derivatives | $(194) | Market approach incorporating present value techniques | Henry Hub basis spread | $(0.573) - $0.385 / $(0.009) | ||||||||||||||||||||||
Option pricing model | International LNG pricing spread, relative to Henry Hub (2) | 137% - 297% / 175% | ||||||||||||||||||||||||
Physical LNG Trading Derivatives | $(195) | Market approach incorporating present value techniques | International LNG pricing spread, relative to Henry Hub or TTF, as applicable (2) | $(3.108) - $7.078 / $5.161 |
(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 LNG Trading Derivatives and our Physical Liquefaction Supply Derivatives.
The following table shows the changes in the fair value of our Level 3 Physical LNG Trading Derivatives and Physical Liquefaction Supply Derivatives during the three and six months ended June 30, 2021 and 2020 (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
Balance, beginning of period | $ | 131 | $ | 674 | $ | 241 | $ | 138 | ||||||||||||||||||
Realized and mark-to-market gains (losses): | ||||||||||||||||||||||||||
Included in cost of sales | (464) | (84) | (471) | 452 | ||||||||||||||||||||||
Purchases and settlements: | ||||||||||||||||||||||||||
Purchases | (58) | (4) | (187) | (3) | ||||||||||||||||||||||
Settlements | 2 | 1 | 28 | (1) | ||||||||||||||||||||||
Transfers into Level 3, net (1) | — | 3 | — | 4 | ||||||||||||||||||||||
Balance, end of period | $ | (389) | $ | 590 | $ | (389) | $ | 590 | ||||||||||||||||||
Change in unrealized gains (losses) relating to instruments still held at end of period | $ | (464) | $ | (84) | $ | (471) | $ | 452 |
(1)Transferred into Level 3 as a result of unobservable market for the underlying natural gas purchase agreements.
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
11
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
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.
Interest Rate Derivatives
CCH has entered into interest rate swaps to protect against volatility of future cash flows and hedge a portion of the variable interest payments on the CCH Credit Facility. CCH previously also had interest rate swaps to hedge against changes in interest rates that could impact the anticipated future issuance of debt. In August 2020, we settled the outstanding CCH Interest Rate Forward Start Derivatives.
As of June 30, 2021, we had the following Interest Rate Derivatives outstanding:
Notional Amounts | ||||||||||||||||||||||||||||||||
June 30, 2021 | December 31, 2020 | Latest Maturity Date | Weighted Average Fixed Interest Rate Paid | Variable Interest Rate Received | ||||||||||||||||||||||||||||
CCH Interest Rate Derivatives | $4.6 billion | $4.6 billion | May 31, 2022 | 2.30% | One-month LIBOR | |||||||||||||||||||||||||||
The following table shows the gain (loss) from changes in the fair value and settlements of our Interest Rate Derivatives recorded in interest rate derivative loss, net on our Consolidated Statements of Operations during the three and six months ended June 30, 2021 and 2020 (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
CCH Interest Rate Derivatives | $ | (2) | $ | (15) | $ | (1) | $ | (138) | ||||||||||||||||||
CCH Interest Rate Forward Start Derivatives | — | (10) | — | (95) | ||||||||||||||||||||||
Commodity Derivatives
SPL, CCL and CCL Stage III have entered into physical natural gas supply contracts and associated economic hedges, including those associated with our integrated production marketing (“IPM”) transactions, to purchase natural gas for the commissioning and operation of the Liquefaction Projects and potential future development of Corpus Christi Stage 3, respectively, which are primarily indexed to the natural gas market and international LNG indices. The remaining terms of the index-based physical natural gas supply contracts range up to approximately 15 years, some of which commence upon the satisfaction of certain events or states of affairs. The terms of the Financial Liquefaction Supply Derivatives range up to approximately three years.
Commencing in first quarter of 2021, we have entered into physical LNG transactions that provide for contractual net settlement. Such transactions are accounted for as LNG Trading Derivatives, and are designed to economically hedge exposure to the commodity markets in which we sell LNG. We have entered into, and may from time to time enter into, financial LNG Trading Derivatives in the form of swaps, forwards, options or futures. The terms of LNG Trading Derivatives range up to approximately two years.
The following table shows the notional amounts of our Liquefaction Supply Derivatives and LNG Trading Derivatives (collectively, “Commodity Derivatives”):
June 30, 2021 | December 31, 2020 | ||||||||||||||||||||||
Liquefaction Supply Derivatives | LNG Trading Derivatives | Liquefaction Supply Derivatives | LNG Trading Derivatives | ||||||||||||||||||||
Notional amount, net (in TBtu) (1) | 10,631 | 14 | 10,483 | 20 | |||||||||||||||||||
(1) Includes notional amounts for natural gas supply contracts that SPL and CCL have with related parties. See Note 13—Related Party Transactions.
12
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table shows the gain (loss) from changes in the fair value, settlements and location of our Commodity Derivatives recorded on our Consolidated Statements of Operations during the three and six months ended June 30, 2021 and 2020 (in millions):
Consolidated Statements of Operations Location (1) | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||
LNG Trading Derivatives | LNG revenues | $ | (379) | $ | (34) | $ | (441) | $ | 106 | ||||||||||||||||||||
LNG Trading Derivatives | Cost of sales | 53 | 34 | 81 | — | ||||||||||||||||||||||||
Liquefaction Supply Derivatives (2) | LNG revenues | — | (13) | 1 | (14) | ||||||||||||||||||||||||
Liquefaction Supply Derivatives (2) | Cost of sales | (341) | (62) | (404) | 475 | ||||||||||||||||||||||||
(1) 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.
(2) Does not include the realized value associated with derivative instruments that settle through physical delivery.
FX Derivatives
Cheniere Marketing has entered into FX Derivatives to protect against the volatility in future cash flows attributable to changes in international currency exchange rates. The FX Derivatives economically hedge the foreign currency exposure arising from cash flows expended for both physical and financial LNG transactions that are denominated in a currency other than the United States dollar. The terms of FX Derivatives range up to approximately one year.
The total notional amount of our FX Derivatives was $267 million and $786 million as of June 30, 2021 and December 31, 2020, respectively.
The following table shows the gain (loss) from changes in the fair value, settlements and location of our FX Derivatives recorded on our Consolidated Statements of Operations during the three and six months ended June 30, 2021 and 2020 (in millions):
Consolidated Statements of Operations Location | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||
FX Derivatives | LNG revenues | $ | (5) | $ | 2 | $ | 16 | $ | 27 | ||||||||||||||||||||
13
CHENIERE ENERGY, INC. 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 derivative instruments on our Consolidated Balance Sheets (in millions):
June 30, 2021 | |||||||||||||||||||||||||||||
CCH Interest Rate Derivatives | Liquefaction Supply Derivatives (1) | LNG Trading Derivatives (2) | FX Derivatives | Total | |||||||||||||||||||||||||
Consolidated Balance Sheets Location | |||||||||||||||||||||||||||||
Current derivative assets | $ | — | $ | 53 | $ | 119 | $ | 6 | $ | 178 | |||||||||||||||||||
Derivative assets | — | 96 | — | — | 96 | ||||||||||||||||||||||||
Total derivative assets | — | 149 | 119 | 6 | 274 | ||||||||||||||||||||||||
Current derivative liabilities | (91) | (201) | (520) | (10) | (822) | ||||||||||||||||||||||||
Derivative liabilities | — | (145) | — | — | (145) | ||||||||||||||||||||||||
Total derivative liabilities | (91) | (346) | (520) | (10) | (967) | ||||||||||||||||||||||||
Derivative liability, net | $ | (91) | $ | (197) | $ | (401) | $ | (4) | $ | (693) | |||||||||||||||||||
December 31, 2020 | |||||||||||||||||||||||||||||
CCH Interest Rate Derivatives | Liquefaction Supply Derivatives (1) | LNG Trading Derivatives (2) | FX Derivatives | Total | |||||||||||||||||||||||||
Consolidated Balance Sheets Location | |||||||||||||||||||||||||||||
Current derivative assets | $ | — | $ | 27 | $ | — | $ | 5 | $ | 32 | |||||||||||||||||||
Derivative assets | — | 376 | — | — | 376 | ||||||||||||||||||||||||
Total derivative assets | — | 403 | — | 5 | 408 | ||||||||||||||||||||||||
Current derivative liabilities | (100) | (54) | (134) | (25) | (313) | ||||||||||||||||||||||||
Derivative liabilities | (40) | (109) | — | (2) | (151) | ||||||||||||||||||||||||
Total derivative liabilities | (140) | (163) | (134) | (27) | (464) | ||||||||||||||||||||||||
Derivative asset (liability), net | $ | (140) | $ | 240 | $ | (134) | $ | (22) | $ | (56) |
(1) Does not include collateral posted with counterparties by us of $22 million and $9 million, which are included in other current assets in our Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020, respectively. Includes derivative assets for natural gas supply contracts that SPL and CCL have with related parties. See Note 13—Related Party Transactions.
(2) Does not include collateral posted with counterparties by us of $1 million and $7 million, which are included in other current assets in our Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020, respectively.
14
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
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):
CCH Interest Rate Derivatives | Liquefaction Supply Derivatives | LNG Trading Derivatives | FX Derivatives | |||||||||||||||||||||||
As of June 30, 2021 | ||||||||||||||||||||||||||
Gross assets | $ | — | $ | 203 | $ | 131 | $ | 9 | ||||||||||||||||||
Offsetting amounts | — | (54) | (12) | (3) | ||||||||||||||||||||||
Net assets | $ | — | $ | 149 | $ | 119 | $ | 6 | ||||||||||||||||||
Gross liabilities | $ | (91) | $ | (401) | $ | (614) | $ | (37) | ||||||||||||||||||
Offsetting amounts | — | 55 | 94 | 27 | ||||||||||||||||||||||
Net liabilities | $ | (91) | $ | (346) | $ | (520) | $ | (10) | ||||||||||||||||||
As of December 31, 2020 | ||||||||||||||||||||||||||
Gross assets | $ | — | $ | 452 | $ | — | $ | 6 | ||||||||||||||||||
Offsetting amounts | — | (49) | — | (1) | ||||||||||||||||||||||
Net assets | $ | — | $ | 403 | $ | — | $ | 5 | ||||||||||||||||||
Gross liabilities | $ | (140) | $ | (184) | $ | (163) | $ | (62) | ||||||||||||||||||
Offsetting amounts | — | 21 | 29 | 35 | ||||||||||||||||||||||
Net liabilities | $ | (140) | $ | (163) | $ | (134) | $ | (27) | ||||||||||||||||||
NOTE 7—OTHER NON-CURRENT ASSETS, NET
As of June 30, 2021 and December 31, 2020, other non-current assets, net consisted of the following (in millions):
June 30, | December 31, | |||||||||||||
2021 | 2020 | |||||||||||||
Contract assets, net of current expected credit losses | $ | 105 | $ | 80 | ||||||||||
Advances made to municipalities for water system enhancements | 82 | 84 | ||||||||||||
Equity method investments | 88 | 81 | ||||||||||||
Advances and other asset conveyances to third parties to support LNG terminals | 69 | 60 | ||||||||||||
Debt issuance costs and debt discount, net of accumulated amortization | 30 | 42 | ||||||||||||
Advances made under EPC and non-EPC contracts | 2 | 9 | ||||||||||||
Advance tax-related payments and receivables | 18 | 20 | ||||||||||||
Other | 37 | 30 | ||||||||||||
Total other non-current assets, net | $ | 431 | $ | 406 |
Equity Method Investments
As of June 30, 2021, our equity method investment consists of our interest in Midship Holdings, LLC (“Midship Holdings”), which manages the business and affairs of Midship Pipeline Company, LLC (“Midship Pipeline”). Midship Pipeline is currently operating an approximately 200-mile natural gas pipeline project (the “Midship Project”) that connects production in the Anadarko Basin to Gulf Coast markets. The Midship Project commenced operations in April 2020.
Our investment in Midship Holdings, net of impairment losses, was $88 million and $80 million as of June 30, 2021 and December 31, 2020, respectively.
15
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 8—NON-CONTROLLING INTEREST AND VARIABLE INTEREST ENTITY
We own a 48.6% limited partner interest in Cheniere Partners in the form of 239.9 million common units, with the remaining non-controlling limited partner interest held by The Blackstone Group Inc., Brookfield Asset Management Inc. and the public. We also own 100% of the general partner interest and the incentive distribution rights in Cheniere Partners. Cheniere Partners is accounted for as a consolidated VIE. See Note 9—Non-Controlling Interest and Variable Interest Entity of our Notes to Consolidated Financial Statements in our annual report on Form 10-K for the fiscal year ended December 31, 2020 for further information.
The following table presents the summarized assets and liabilities (in millions) of Cheniere Partners, our consolidated VIE, which are included in our Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020. The assets in the table below may only be used to settle obligations of Cheniere Partners. In addition, there is no recourse to us for the consolidated VIE’s liabilities. The assets and liabilities in the table below include third-party assets and liabilities of Cheniere Partners only and exclude intercompany balances that eliminate in consolidation.
June 30, | December 31, | |||||||||||||
2021 | 2020 | |||||||||||||
ASSETS | ||||||||||||||
Current assets | ||||||||||||||
Cash and cash equivalents | $ | 1,239 | $ | 1,210 | ||||||||||
Restricted cash | 65 | 97 | ||||||||||||
Accounts and other receivables, net of current expected credit losses | 285 | 318 | ||||||||||||
Other current assets | 236 | 182 | ||||||||||||
Total current assets | 1,825 | 1,807 | ||||||||||||
Property, plant and equipment, net of accumulated depreciation | 16,789 | 16,723 | ||||||||||||
Other non-current assets, net | 289 | 287 | ||||||||||||
Total assets | $ | 18,903 | $ | 18,817 | ||||||||||
LIABILITIES | ||||||||||||||
Current liabilities | ||||||||||||||
Accrued liabilities | $ | 649 | $ | 658 | ||||||||||
Current debt, net of premium, discount and debt issuance costs | 654 | — | ||||||||||||
Other current liabilities | 154 | 171 | ||||||||||||
Total current liabilities | 1,457 | 829 | ||||||||||||
Long-term debt, net of premium, discount and debt issuance costs | 16,935 | 17,580 | ||||||||||||
Other non-current liabilities | 95 | 126 | ||||||||||||
Total liabilities | $ | 18,487 | $ | 18,535 | ||||||||||
NOTE 9—ACCRUED LIABILITIES
As of June 30, 2021 and December 31, 2020, accrued liabilities consisted of the following (in millions):
June 30, | December 31, | |||||||||||||
2021 | 2020 | |||||||||||||
Interest costs and related debt fees | $ | 236 | $ | 245 | ||||||||||
Accrued natural gas purchases | 559 | 576 | ||||||||||||
LNG terminals and related pipeline costs | 169 | 147 | ||||||||||||
Compensation and benefits | 69 | 123 | ||||||||||||
Accrued LNG inventory | 49 | 4 | ||||||||||||
Other accrued liabilities | 115 | 80 | ||||||||||||
Total accrued liabilities | $ | 1,197 | $ | 1,175 |
16
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 10—DEBT
As of June 30, 2021 and December 31, 2020, our debt consisted of the following (in millions):
June 30, | December 31, | |||||||||||||
2021 | 2020 | |||||||||||||
Long-term debt: | ||||||||||||||
SPL — 4.200% to 6.25% senior secured notes due between March 2022 and September 2037 and working capital facility (“2020 SPL Working Capital Facility”) | $ | 12,994 | $ | 13,650 | ||||||||||
Cheniere Partners — 4.000% to 5.625% senior notes due between October 2025 and March 2031 and credit facilities (“2019 CQP Credit Facilities”) | 4,100 | 4,100 | ||||||||||||
CCH — 3.52% to 7.000% senior secured notes due between June 2024 and December 2039 and CCH Credit Facility | 10,216 | 10,217 | ||||||||||||
Cheniere — 4.625% senior secured notes due October 2028 (the “2028 Cheniere Senior Notes”), convertible notes, revolving credit facility (“Cheniere Revolving Credit Facility”) and term loan facility (“Cheniere Term Loan Facility”) | 2,625 | 3,145 | ||||||||||||
Unamortized premium, discount and debt issuance costs, net of accumulated amortization | (608) | (641) | ||||||||||||
Total long-term debt, net of premium, discount and debt issuance costs | 29,327 | 30,471 | ||||||||||||
Current debt: | ||||||||||||||
SPL — current portion of 6.25% senior secured notes due March 2022 (“2022 SPL Senior Notes”) (1) | 656 | — | ||||||||||||
CCH — $1.2 billion CCH working capital facility (“CCH Working Capital Facility”) and current portion of CCH Credit Facility | 132 | 271 | ||||||||||||
Cheniere Marketing — trade finance facilities and letter of credit facility | 30 | — | ||||||||||||
Cheniere — current portion of the 4.875% convertible unsecured notes due May 2021 (“2021 Cheniere Convertible Notes”) and Cheniere Revolving Credit Facility (2) | 134 | 104 | ||||||||||||
Unamortized discount and debt issuance costs, net of accumulated amortization | (3) | (3) | ||||||||||||
Total current debt, net of discount and debt issuance costs | 949 | 372 | ||||||||||||
Total debt, net of premium, discount and debt issuance costs | $ | 30,276 | $ | 30,843 |
(1)A portion of the 2022 SPL Senior Notes is categorized as long-term debt because the proceeds from the expected series of sales of approximately $347 million aggregate principal amount of senior secured notes due 2037, expected to be issued in the second half of 2021, subject to customary closing conditions, will be used to strategically refinance a portion of 2022 SPL Senior Notes and pay related fees, costs and expenses.
(2) The outstanding balance under the Cheniere Revolving Credit Facility as of June 30, 2021 was repaid in July 2021 and is categorized as short-term debt.
17
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Issuances, Redemptions and Repayments
The following table shows the issuances, redemptions and repayments of long-term debt during the six months ended June 30, 2021 (in millions):
Issuances | Principal Amount Issued | |||||||
Three Months Ended March 31, 2021 | ||||||||
Cheniere Partners — 4.000% Senior Notes due 2031 (the “2031 CQP Senior Notes”) (1) | $ | 1,500 | ||||||
Three Months Ended June 30, 2021 | ||||||||
Cheniere — Cheniere Term Loan Facility (2) | 220 | |||||||
Cheniere — Cheniere Revolving Credit Facility | 134 | |||||||
Six Months Ended June 30, 2021 total | $ | 1,854 | ||||||
Redemptions and Repayments | Principal Amount Redeemed/Repaid | |||||||
Three Months Ended March 31, 2021 | ||||||||
Cheniere Partners — 5.250% Senior Notes due 2025 (the “2025 CQP Senior Notes”) (1) | $ | 1,500 | ||||||
Cheniere — Cheniere Term Loan Facility (3) | 148 | |||||||
Three Months Ended June 30, 2021 | ||||||||
Cheniere — 2021 Cheniere Convertible Notes (2) | 476 | |||||||
Cheniere — Cheniere Term Loan Facility (3) | 220 | |||||||
Six Months Ended June 30, 2021 total | $ | 2,344 |
(1)Proceeds of the 2031 CQP Senior Notes, together with cash on hand, were used to redeem all of CQP’s outstanding 2025 CQP Senior Notes, resulting in the recognition of debt extinguishment costs of $54 million for the six months ended June 30, 2021 relating to the payment of early redemption fees and write off of unamortized debt premium and issuance costs.
(2)In May 2021, the 2021 Cheniere Convertible Notes were repaid using a combination of borrowings under the Cheniere Term Loan Facility and cash on hand upon the maturity date at par value.
(3)As of June 30, 2021, the remaining commitments under the Cheniere Term Loan Facility were terminated in accordance with the credit agreement, resulting in $4 million of loss on extinguishment of debt.
18
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Credit Facilities
Below is a summary of our credit facilities outstanding as of June 30, 2021 (in millions):
2020 SPL Working Capital Facility (1) | 2019 CQP Credit Facilities | CCH Credit Facility | CCH Working Capital Facility | Cheniere Revolving Credit Facility | ||||||||||||||||||||||||||||
Original facility size | $ | 1,200 | $ | 1,500 | $ | 8,404 | $ | 350 | $ | 750 | ||||||||||||||||||||||
Incremental commitments | — | — | 1,566 | 850 | 500 | |||||||||||||||||||||||||||
Less: | ||||||||||||||||||||||||||||||||
Outstanding balance | — | — | 2,627 | — | 134 | |||||||||||||||||||||||||||
Commitments prepaid or terminated | — | 750 | 7,343 | — | — | |||||||||||||||||||||||||||
Letters of credit issued | 396 | — | — | 293 | — | |||||||||||||||||||||||||||
Available commitment | $ | 804 | $ | 750 | $ | — | $ | 907 | $ | 1,116 | ||||||||||||||||||||||
Priority ranking | Senior secured | Senior secured | Senior secured | 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% | LIBOR plus 1.75% or base rate plus 0.75% | LIBOR plus 1.25% - 1.75% or base rate plus 0.25% - 0.75% | LIBOR plus 1.75% - 2.50% or base rate plus 0.75% - 1.50% | |||||||||||||||||||||||||||
Weighted average interest rate of outstanding balance | n/a | n/a | 1.85% | n/a | 1.82% | |||||||||||||||||||||||||||
Maturity date | March 19, 2025 | May 29, 2024 | June 30, 2024 | June 29, 2023 | December 13, 2022 |
(1)The 2020 SPL Working Capital Facility contains customary conditions precedent for extensions of credit, as well as customary affirmative and negative covenants. SPL pays a commitment fee equal to an annual rate of 0.1% to 0.3% (depending on the then-current rating of SPL), which accrues on the daily amount of the total commitment less the sum of (1) the outstanding principal amount of loans, (2) letters of credit issued and (3) the outstanding principal amount of swing line loans.
Convertible Notes
Below is a summary of our convertible notes outstanding as of June 30, 2021 (in millions):
2045 Cheniere Convertible Senior Notes | ||||||||
Aggregate original principal | $ | 625 | ||||||
Debt component, net of discount and debt issuance costs | $ | 319 | ||||||
Equity component | $ | 194 | ||||||
Interest payment method | Cash | |||||||
Conversion by us (1) | (2) | |||||||
Conversion by holders (1) | (3) | |||||||
Conversion basis | Cash and/or stock | |||||||
Conversion value in excess of principal | $ | — | ||||||
Maturity date | March 15, 2045 | |||||||
Contractual interest rate | 4.25 | % | ||||||
Effective interest rate (4) | 9.4 | % | ||||||
Remaining debt discount and debt issuance costs amortization period (5) | 23.7 years |
(1)Conversion is subject to various limitations and conditions, which have not been met as of the balance sheet date.
(2)Redeemable at any time at a redemption price payable in cash equal to the accreted amount of the $625 million aggregate principal amount of the 2045 Cheniere Convertible Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to such redemption date.
(3)Prior to December 15, 2044, convertible only under certain circumstances as specified in the indenture; thereafter, holders may convert their notes regardless of these circumstances. The conversion rate will initially equal 7.2265 shares of our common stock per $1,000 principal amount of the 2045 Cheniere Convertible Senior Notes,
19
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
which corresponds to an initial conversion price of approximately $138.38 per share of our common stock (subject to adjustment upon the occurrence of certain specified events).
(4)Rate to accrete the discounted carrying value of the convertible notes to the face value over the remaining amortization period.
(5)We amortize any debt discount and debt issuance costs using the effective interest over the period through contractual maturity.
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, our subsidiaries’ and its restricted subsidiaries’ ability to make certain investments or pay dividends or distributions.
As of June 30, 2021, each of our issuers was in compliance with all covenants related to their respective debt agreements.
Interest Expense
Total interest expense, net of capitalized interest, including interest expense related to our convertible notes, consisted of the following (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
Interest cost on convertible notes: | ||||||||||||||||||||||||||
Interest per contractual rate | $ | 11 | $ | 57 | $ | 23 | $ | 120 | ||||||||||||||||||
Amortization of debt discount | 3 | 20 | 8 | 34 | ||||||||||||||||||||||
Amortization of debt issuance costs | — | 4 | — | 7 | ||||||||||||||||||||||
Total interest cost related to convertible notes | 14 | 81 | 31 | 161 | ||||||||||||||||||||||
Interest cost on debt and finance leases excluding convertible notes | 387 | 388 | 787 | 779 | ||||||||||||||||||||||
Total interest cost | 401 | 469 | 818 | 940 | ||||||||||||||||||||||
Capitalized interest | (33) | (62) | (94) | (121) | ||||||||||||||||||||||
Total interest expense, net of capitalized interest | $ | 368 | $ | 407 | $ | 724 | $ | 819 |
Fair Value Disclosures
The following table shows the carrying amount and estimated fair value of our debt (in millions):
June 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||
Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||||||||||||
Senior notes — Level 2 (1) | $ | 24,700 | $ | 27,503 | $ | 24,700 | $ | 27,897 | ||||||||||||||||||
Senior notes — Level 3 (2) | 2,771 | 3,350 | 2,771 | 3,423 | ||||||||||||||||||||||
Credit facilities — Level 3 (3) | 2,791 | 2,791 | 2,915 | 2,915 | ||||||||||||||||||||||
2021 Cheniere Convertible Notes — Level 3 (2) | — | — | 476 | 480 | ||||||||||||||||||||||
2045 Cheniere Convertible Senior Notes — Level 1 (4) | 625 | 527 | 625 | 496 |
(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 our stock price and interest rates based on debt issued by parties with comparable credit ratings to us and inputs that are not observable in the market.
(3)The Level 3 estimated fair value approximates the principal amount 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.
(4)The Level 1 estimated fair value was based on unadjusted quoted prices in active markets for identical liabilities that we had the ability to access at the measurement date.
20
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 11—LEASES
Our leased assets consist primarily of LNG vessel time charters (“vessel charters”) and additionally include tug vessels, office space and facilities and land sites. All of our leases are classified as operating leases except for our tug vessels supporting the Corpus Christi LNG Terminal, which are classified as finance leases.
The following table shows the classification and location of our right-of-use assets and lease liabilities on our Consolidated Balance Sheets (in millions):
June 30, | December 31, | ||||||||||||||||
Consolidated Balance Sheets Location | 2021 | 2020 | |||||||||||||||
Right-of-use assets—Operating | Operating lease assets | $ | 1,698 | $ | 759 | ||||||||||||
Right-of-use assets—Financing | Property, plant and equipment, net of accumulated depreciation | 52 | 53 | ||||||||||||||
Total right-of-use assets | $ | 1,750 | $ | 812 | |||||||||||||
Current operating lease liabilities | Current operating lease liabilities | $ | 365 | $ | 161 | ||||||||||||
Current finance lease liabilities | Other current liabilities | 2 | 2 | ||||||||||||||
Non-current operating lease liabilities | Operating lease liabilities | 1,332 | 597 | ||||||||||||||
Non-current finance lease liabilities | Finance lease liabilities | 57 | 57 | ||||||||||||||
Total lease liabilities | $ | 1,756 | $ | 817 |
The following table shows the classification and location of our lease costs on our Consolidated Statements of Operations (in millions):
Consolidated Statements of Operations Location | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||
Operating lease cost (a) | Operating costs and expenses (1) | $ | 145 | $ | 98 | $ | 296 | $ | 239 | ||||||||||||||||||||
Finance lease cost: | |||||||||||||||||||||||||||||
Amortization of right-of-use assets | Depreciation and amortization expense | 1 | 1 | 2 | 2 | ||||||||||||||||||||||||
Interest on lease liabilities | Interest expense, net of capitalized interest | 3 | 3 | 5 | 5 | ||||||||||||||||||||||||
Total lease cost | $ | 149 | $ | 102 | $ | 303 | $ | 246 | |||||||||||||||||||||
(a) Included in operating lease cost: | |||||||||||||||||||||||||||||
Short-term lease costs | $ | 30 | $ | 16 | $ | 81 | $ | 51 | |||||||||||||||||||||
Variable lease costs | 11 | 4 | 13 | 9 |
(1) Presented in cost of sales, operating and maintenance expense or selling, general and administrative expense consistent with the nature of the asset under lease.
21
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Future annual minimum lease payments for operating and finance leases as of June 30, 2021 are as follows (in millions):
Years Ending December 31, | Operating Leases (1) | Finance Leases | |||||||||
2021 | $ | 227 | $ | 5 | |||||||
2022 | 397 | 10 | |||||||||
2023 | 358 | 10 | |||||||||
2024 | 313 | 10 | |||||||||
2025 | 213 | 10 | |||||||||
Thereafter | 448 | 127 | |||||||||
Total lease payments | 1,956 | 172 | |||||||||
Less: Interest | (259) | (113) | |||||||||
Present value of lease liabilities | $ | 1,697 | $ | 59 |
(1) Does not include $984 million of legally binding minimum lease payments primarily for vessel charters which were executed as of June 30, 2021 but will commence in future periods primarily in the next year and have fixed minimum lease terms of up to seven years.
The following table shows the weighted-average remaining lease term and the weighted-average discount rate for our operating leases and finance leases:
June 30, 2021 | December 31, 2020 | ||||||||||||||||||||||
Operating Leases | Finance Leases | Operating Leases | Finance Leases | ||||||||||||||||||||
Weighted-average remaining lease term (in years) | 6.4 | 17.2 | 8.2 | 17.7 | |||||||||||||||||||
Weighted-average discount rate (1) | 4.1% | 16.2% | 5.4% | 16.2% |
(1)The finance leases commenced prior to the adoption of the current leasing standard under GAAP. In accordance with previous accounting guidance, the implied rate is based on the fair value of the underlying assets.
The following table includes other quantitative information for our operating and finance leases (in millions):
Six Months Ended June 30, | |||||||||||
2021 | 2020 | ||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
Operating cash flows used in operating leases | $ | 201 | $ | 157 | |||||||
Operating cash flows used in finance leases | 5 | 5 | |||||||||
Right-of-use assets obtained in exchange for operating lease liabilities | 1,112 | 246 |
LNG Vessel Subcharters
From time to time, we sublease certain LNG vessels under charter to third parties while retaining our existing obligation to the original lessor. As of June 30, 2021 and December 31, 2020, we had $4 million and zero, respectively, in future minimum sublease payments to be received from LNG vessel subcharters. The following table shows the sublease income recognized in other revenues on our Consolidated Statements of Operations (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
Fixed income | $ | 8 | $ | 15 | $ | 11 | $ | 52 | ||||||||||||||||||
Variable income | 5 | 8 | 6 | 23 | ||||||||||||||||||||||
Total sublease income | $ | 13 | $ | 23 | $ | 17 | $ | 75 |
22
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 12—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, 2021 and 2020 (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
LNG revenues (1) | $ | 3,297 | $ | 2,340 | $ | 6,336 | $ | 4,744 | ||||||||||||||||||
Regasification revenues | 67 | 68 | 134 | 135 | ||||||||||||||||||||||
Other revenues | 24 | 16 | 44 | 38 | ||||||||||||||||||||||
Total revenues from customers | 3,388 | 2,424 | 6,514 | 4,917 | ||||||||||||||||||||||
Net derivative gain (loss) (2) | (384) | (45) | (424) | 119 | ||||||||||||||||||||||
Other (3) | 13 | 23 | 17 | 75 | ||||||||||||||||||||||
Total revenues | $ | 3,017 | $ | 2,402 | $ | 6,107 | $ | 5,111 |
(1) LNG revenues include revenues for LNG cargoes in which our customers exercised their contractual right to not take delivery but remained obligated to pay fixed fees irrespective of such election. During the three and six months ended June 30, 2020, we recognized $708 million and $761 million, respectively, in LNG revenues associated with LNG cargoes for which customers notified us that they would not take delivery, of which $458 million would have been recognized subsequent to June 30, 2020 had the cargoes been lifted pursuant to the delivery schedules with the customers. LNG revenues during the three months ended June 30, 2020 and six months ended June 30, 2021 excluded $53 million and $38 million, respectively, that would have otherwise been recognized during the quarter if the cargoes were lifted pursuant to the delivery schedules with the customers. We did not have revenues associated with LNG cargoes for which customers notified us that they would not take delivery during the three and six months ended June 30, 2021. Revenue is generally recognized upon receipt of irrevocable notice that a customer will not take delivery because our customers have no contractual right to take delivery of such LNG cargo in future periods and our performance obligations with respect to such LNG cargo have been satisfied.
(3) Includes revenues from LNG vessel subcharters. See Note 11—Leases for additional information about our subleases.
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):
June 30, | December 31, | |||||||||||||
2021 | 2020 | |||||||||||||
Contract assets, net of current expected credit losses | $ | 109 | $ | 80 |
Contract assets represent our right to consideration for transferring goods or services to the customer under the terms of a sales contract when the associated consideration is not yet due. Changes in contract assets during the six months ended June 30, 2021 were primarily attributable to revenue recognized due to the delivery of LNG under certain SPAs for which the associated consideration was not yet due.
The following table reflects the changes in our contract liabilities, which we classify as deferred revenue on our Consolidated Balance Sheets (in millions):
Six Months Ended June 30, 2021 | ||||||||
Deferred revenue, beginning of period | $ | 138 | ||||||
Cash received but not yet recognized in revenue | 105 | |||||||
Revenue recognized from prior period deferral | (138) | |||||||
Deferred revenue, end of period | $ | 105 |
23
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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, 2021 and December 31, 2020:
June 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||
Unsatisfied Transaction Price (in billions) | Weighted Average Recognition Timing (years) (1) | Unsatisfied Transaction Price (in billions) | Weighted Average Recognition Timing (years) (1) | |||||||||||||||||||||||
LNG revenues | $ | 101.1 | 10 | $ | 102.3 | 10 | ||||||||||||||||||||
Regasification revenues | 2.0 | 4 | 2.1 | 5 | ||||||||||||||||||||||
Total revenues | $ | 103.1 | $ | 104.4 |
(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.
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 53% and 26% of our LNG revenues from contracts included in the table above during the three months ended June 30, 2021 and 2020, respectively, and approximately 52% and 34% of our LNG revenues from contracts included in the table above during the six months ended June 30, 2021 and 2020, respectively, were related to variable consideration received from customers. During each of the three and six months ended June 30, 2021, approximately 5% of our regasification revenues were related to variable consideration received from customers and during each of the three and six months ended June 30, 2020, approximately 6% 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 FID 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 13—RELATED PARTY TRANSACTIONS
Natural Gas Supply Agreements
SPL and CCL are party to natural gas supply agreements with related parties in the ordinary course of business, to obtain a fixed minimum daily volume of feed gas for the operation of the Liquefaction Projects. These related parties are partially owned by The Blackstone Group Inc., who also partially owns Cheniere Partners’ limited partner interests.
24
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
SPL Natural Gas Supply Agreement
The term of the SPL agreement is for five years, which can commence no earlier than November 1, 2021 and no later than November 1, 2022, following the achievement of contractually-defined conditions precedent. As of both June 30, 2021 and December 31, 2020, the notional amount for this agreement was 91 TBtu and had a fair value of zero.
CCL Natural Gas Supply Agreement
The term of the CCL agreement extends through March 2022. Under this agreement, CCL recorded $13 million in accrued liabilities, as of both June 30, 2021 and December 31, 2020.
The Liquefaction Supply Derivatives related to this agreement are recorded on our Consolidated Balance Sheets as follows (in millions, except notional amount):
June 30, | December 31, | ||||||||||
2021 | 2020 | ||||||||||
Current derivative assets | $ | 4 | $ | 3 | |||||||
Derivative assets | 7 | 1 | |||||||||
Notional amount (in TBtu) | 132 | 60 |
We recorded the following amounts on our Consolidated Statements of Operations during the three and six months ended June 30, 2021 and 2020 related to this agreement (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Cost of sales (a) | $ | 36 | $ | 25 | $ | 71 | $ | 48 | |||||||||||||||
(a) Included in costs of sales: | |||||||||||||||||||||||
Liquefaction Supply Derivative gain | $ | 6 | $ | 1 | $ | 7 | $ | 2 |
Natural Gas Transportation and Storage Agreements
SPL is party to various natural gas transportation and storage agreements and CTPL is party to an operational balancing agreement with a related party in the ordinary course of business for the operation of the SPL Project, with initial primary terms of up to 10 years with extension rights. This related party is partially owned by Brookfield Asset Management, Inc., who indirectly acquired a portion of Cheniere Partners’ limited partner interests in September 2020. We recorded operating and maintenance expense of $12 million and $22 million and cost of sales of $1 million and $1 million during the three and six months ended June 30, 2021, respectively, and accrued liabilities of $4 million as of both June 30, 2021 and December 31, 2020 with this related party.
Operation and Maintenance Service Agreements
Cheniere LNG O&M Services, LLC (“O&M Services”), our wholly owned subsidiary, provides the development, construction, operation and maintenance services to Midship Pipeline pursuant to agreements in which O&M Services receives an agreed upon fee and reimbursement of costs incurred. O&M Services recorded $1 million and $3 million in the three months ended June 30, 2021 and 2020, respectively, and $3 million and $6 million in the six months ended June 30, 2021 and 2020, respectively, of other revenues and $1 million and $2 million of accounts receivable as of June 30, 2021 and December 31, 2020, respectively, for services provided to Midship Pipeline under these agreements.
NOTE 14—INCOME TAXES
We recorded an income tax benefit of $93 million and $4 million during the three and six months ended June 30, 2021, respectively, and an income tax provision of $63 million and $194 million during the three and six months ended June 30, 2020, respectively. The effective tax rates for the three and six months ended June 30, 2021 were 41.5% and (0.9)%, respectively, and do not bear a customary relationship to statutory income tax rates due to a combination of factors including income
25
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
allocated to non-controlling interest that is not taxable to Cheniere and a $58 million discrete tax benefit related to releasing a portion of our valuation allowance caused by a change in tax law allowing for indefinite Louisiana net operating loss (“NOL”) carryover. The effective tax rates for the three and six months ended June 30, 2020 were 13.5% and 16.2%, respectively, which were lower than the 21% federal statutory tax rate primarily due to income allocated to non-controlling interest that is not taxable to Cheniere, partially offset by a $38 million discrete tax expense related to an internal restructuring.
NOTE 15—SHARE-BASED COMPENSATION
We have granted restricted stock shares, restricted stock units, performance stock units and phantom units to employees and non-employee directors under the 2011 Incentive Plan, as amended (the “2011 Plan”) and the 2020 Incentive Plan. For the six months ended June 30, 2021, we granted 1.5 million restricted stock units and 0.3 million performance stock units at target performance under the 2020 Plan to certain employees. Additionally, 0.2 million incremental shares of our common stock were issued based on performance results from previously-granted performance stock unit awards.
Restricted stock units are stock awards that vest over a service period of three years and entitle the holder to receive shares of our common stock upon vesting, subject to restrictions on transfer and to a risk of forfeiture if the recipient terminates employment with us prior to the lapse of the restrictions. Performance stock units provide for cliff vesting after a period of three years with payouts based on metrics dependent upon market and performance achieved over the defined performance period compared to pre-established performance targets. The settlement amounts of the awards are based on market and performance metrics which include cumulative distributable cash flow per share, and in certain circumstances, absolute total shareholder return (“ATSR”) of our common stock. Where applicable, the compensation for performance stock units is based on fair value assigned to the market metric of ATSR using a Monte Carlo model upon grant, which remains constant through the vesting period, and a performance metric, which will vary due to changing estimates regarding the expected achievement of the performance metric of cumulative distributable cash flow per share. The number of shares that may be earned at the end of the vesting period ranges from 0% up to 300% of the target award amount. Both restricted stock units and performance stock units will be settled in Cheniere common stock (on a one-for-one basis) and are classified as equity awards, however, a portion of the performance stock units granted in 2021 will partially settle in cash, subject to individual limits. The portion of performance stock units expected to settle in Cheniere common stock (on a one-for-one basis) are classified as equity awards and the portion of performance stock units expected to settle in cash are classified as liability awards.
Total share-based compensation consisted of the following (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
Share-based compensation costs, pre-tax: | ||||||||||||||||||||||||||
Equity awards | $ | 31 | $ | 31 | $ | 64 | $ | 60 | ||||||||||||||||||
Liability awards | 1 | 1 | 2 | 1 | ||||||||||||||||||||||
Total share-based compensation | 32 | 32 | 66 | 61 | ||||||||||||||||||||||
Capitalized share-based compensation | (1) | (3) | (3) | (4) | ||||||||||||||||||||||
Total share-based compensation expense | $ | 31 | $ | 29 | $ | 63 | $ | 57 | ||||||||||||||||||
Tax benefit associated with share-based compensation expense | $ | 1 | $ | 1 | $ | 27 | $ | 19 |
NOTE 16—NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
Basic net income (loss) per share attributable to common stockholders (“EPS”) excludes dilution and is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS reflects potential dilution and is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period increased by the number of additional common shares that would have been outstanding if the potential common shares had been issued. The dilutive effect of unvested stock is calculated using the treasury-stock method and the dilutive effect of convertible securities is calculated using the if-converted method.
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CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
The following table reconciles basic and diluted weighted average common shares outstanding for the three and six months ended June 30, 2021 and 2020 (in millions, except per share data):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
Net income (loss) attributable to common stockholders | $ | (329) | $ | 197 | $ | 64 | $ | 572 | ||||||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||||
Basic | 253.5 | 252.1 | 253.2 | 252.6 | ||||||||||||||||||||||
Dilutive unvested stock | — | 0.3 | 1.5 | 0.7 | ||||||||||||||||||||||
Diluted | 253.5 | 252.4 | 254.7 | 253.3 | ||||||||||||||||||||||
Net income (loss) per share attributable to common stockholders—basic (1) | $ | (1.30) | $ | 0.78 | $ | 0.25 | $ | 2.27 | ||||||||||||||||||
Net income (loss) per share attributable to common stockholders—diluted (1) | $ | (1.30) | $ | 0.78 | $ | 0.25 | $ | 2.26 |
(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.
Potentially dilutive securities that were not included in the diluted net income (loss) per share computations because their effects would have been anti-dilutive were as follows (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
Unvested stock (1) | 1.5 | 2.8 | — | 2.5 | ||||||||||||||||||||||
2045 Cheniere Convertible Senior Notes | 4.5 | 4.5 | 4.5 | 4.5 | ||||||||||||||||||||||
Total potentially dilutive common shares | 6.0 | 7.3 | 4.5 | 7.0 |
(1)Includes the impact of unvested shares containing performance conditions to the extent that the underlying performance conditions are satisfied based on actual results as of the respective dates.
NOTE 17—CUSTOMER CONCENTRATION
The following table shows external customers with revenues of 10% or greater of total revenues from external customers and external customers with accounts receivable, net of current expected credit losses and contract assets, net of current expected credit losses balances of 10% or greater of total accounts receivable, net of current expected credit losses and contract assets, net of current expected credit losses from external customers:
Percentage of Total Revenues from External Customers | Percentage of Accounts Receivable, Net and Contract Assets, Net from External Customers | |||||||||||||||||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | June 30, | December 31, | |||||||||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||
Customer A | 14% | 15% | 15% | 15% | * | 14% | ||||||||||||||||||||||||||||||||
Customer B | 12% | 12% | 12% | 10% | * | 12% | ||||||||||||||||||||||||||||||||
Customer C | * | 10% | 11% | * | * | * | ||||||||||||||||||||||||||||||||
* Less than 10%
27
CHENIERE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 18—SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides supplemental disclosure of cash flow information (in millions):
Six Months Ended June 30, | ||||||||||||||
2021 | 2020 | |||||||||||||
Cash paid during the period for interest on debt, net of amounts capitalized | $ | 675 | $ | 750 | ||||||||||
Cash paid for income taxes, net of refunds | 1 | 1 | ||||||||||||
The balance in property, plant and equipment, net of accumulated depreciation funded with accounts payable and accrued liabilities was $264 million and $222 million as of June 30, 2021 and 2020, respectively.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information Regarding Forward-Looking Statements
This quarterly report contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical or present facts or conditions, included herein or incorporated herein by reference are “forward-looking statements.” Included among “forward-looking statements” are, among other things:
•statements that we expect to commence or complete construction of our proposed LNG terminals, liquefaction facilities, pipeline facilities or other projects, or any expansions or portions thereof, by certain dates, or at all;
•statements regarding future levels of domestic and international natural gas production, supply or consumption or future levels of LNG imports into or exports from North America and other countries worldwide or purchases of natural gas, regardless of the source of such information, or the transportation or other infrastructure or demand for and prices related to natural gas, LNG or other hydrocarbon products;
•statements regarding any financing transactions or arrangements, or our ability to enter into such transactions;
•statements regarding the amount and timing of share repurchases;
•statements relating to the construction of our Trains and pipelines, including statements concerning the engagement of any EPC contractor or other contractor and the anticipated terms and provisions of any agreement with any EPC or other contractor, and anticipated costs related thereto;
•statements regarding any SPA or other agreement to be entered into or performed substantially in the future, including any revenues anticipated to be received and the anticipated timing thereof, and statements regarding the amounts of total LNG regasification, natural gas liquefaction or storage capacities that are, or may become, subject to contracts;
•statements regarding counterparties to our commercial contracts, construction contracts and other contracts;
•statements regarding our planned development and construction of additional Trains or pipelines, including the financing of such Trains or pipelines;
•statements that our Trains, when completed, will have certain characteristics, including amounts of liquefaction capacities;
•statements regarding our business strategy, our strengths, our business and operation plans or any other plans, forecasts, projections, or objectives, including anticipated revenues, capital expenditures, maintenance and operating costs and cash flows, any or all of which are subject to change;
•statements regarding legislative, governmental, regulatory, administrative or other public body actions, approvals, requirements, permits, applications, filings, investigations, proceedings or decisions;
•statements regarding our anticipated LNG and natural gas marketing activities;
•statements regarding the outbreak of COVID-19 and its impact on our business and operating results, including any customers not taking delivery of LNG cargoes, the ongoing credit worthiness of our contractual counterparties, any disruptions in our operations or construction of our Trains and the health and safety of our employees, and on our customers, the global economy and the demand for LNG; and
•any other statements that relate to non-historical or future information.
All of these types of statements, other than statements of historical or present facts or conditions, are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “achieve,” “anticipate,” “believe,” “contemplate,” “continue,” “estimate,” “expect,” “intend,” “plan,” “potential,” “predict,” “project,” “pursue,” “target,” the negative of such terms or other comparable terminology. The forward-looking statements contained in this quarterly report are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe that such estimates are reasonable, they are inherently uncertain and involve
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a number of risks and uncertainties beyond our control. In addition, assumptions may prove to be inaccurate. We caution that the forward-looking statements contained in this quarterly report are not guarantees of future performance and that such statements may not be realized or the forward-looking statements or events may not occur. Actual results may differ materially from those anticipated or implied in forward-looking statements as a result of a variety of factors described in this quarterly report and in the other reports and other information that we file with the SEC, including those discussed under “Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2020. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these risk factors. These forward-looking statements speak only as of the date made, and other than as required by law, we undertake no obligation to update or revise any forward-looking statement or provide reasons why actual results may differ, whether as a result of new information, future events or otherwise.
Introduction
The following discussion and analysis presents management’s view of our business, financial condition and overall performance and should be read in conjunction with our Consolidated Financial Statements and the accompanying notes. This information is intended to provide investors with an understanding of our past performance, current financial condition and outlook for the future. Our discussion and analysis includes the following subjects:
Overview of Business
Cheniere, a Delaware corporation, is a Houston-based energy infrastructure company primarily engaged in LNG-related businesses. We provide clean, secure and affordable LNG to integrated energy companies, utilities and energy trading companies around the world. We aspire to conduct our business in a safe and responsible manner, delivering a reliable, competitive and integrated source of LNG to our customers. We own and operate the Sabine Pass LNG terminal in Louisiana, one of the largest LNG production facilities in the world, through our ownership interest in and management agreements with Cheniere Partners, which is a publicly traded limited partnership that we created in 2007. As of June 30, 2021, we owned 100% of the general partner interest and 48.6% of the limited partner interest in Cheniere Partners. We also own and operate the Corpus Christi LNG terminal in Texas, which is wholly owned by us.
Cheniere Partners owns the Sabine Pass LNG terminal located in Cameron Parish, Louisiana, which has natural gas liquefaction facilities consisting of five operational natural gas liquefaction Trains and one additional Train under construction that is expected to be substantially completed in the first half of 2022, for a total production capacity of approximately 30 mtpa of LNG (the “SPL Project”). The Sabine Pass LNG terminal also has operational regasification facilities that include five LNG storage tanks with aggregate capacity of approximately 17 Bcfe, two existing marine berths and one under construction that can each accommodate vessels with nominal capacity of up to 266,000 cubic meters and vaporizers with regasification capacity of approximately 4 Bcf/d. Cheniere Partners also owns a 94-mile pipeline through its subsidiary, CTPL, that interconnects the Sabine Pass LNG terminal with a number of large interstate pipelines.
We also own the Corpus Christi LNG terminal near Corpus Christi, Texas, and currently operate three Trains for a total production capacity of approximately 15 mtpa of LNG. Additionally, we 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 Trains, the “CCL Project”) through our subsidiaries CCL and CCP, respectively, as part of the CCH Group. The CCL Project also contains three LNG storage tanks with aggregate capacity of approximately 10 Bcfe and two marine berths that can each accommodate vessels with nominal capacity of up to 266,000 cubic meters.
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We have contracted approximately 85% of the total production capacity from the SPL Project and the CCL Project (collectively, the “Liquefaction Projects”) on a term basis, with approximately 17 years of weighted average remaining life as of June 30, 2021. This includes volumes contracted under SPAs in which the customers are required to pay a fixed fee with respect to the contracted volumes irrespective of their election to cancel or suspend deliveries of LNG cargoes, as well as a portion of volumes contracted under integrated production marketing (“IPM”) gas supply agreements.
Additionally, separate from the CCH Group, we are developing an expansion of the Corpus Christi LNG terminal adjacent to the CCL Project (“Corpus Christi Stage 3”) through our subsidiary CCL Stage III for up to seven midscale Trains with an expected total production capacity of approximately 10 mtpa of LNG. We received approval from FERC in November 2019 to site, construct and operate the expansion project. CCL Stage III has entered into various IPM gas supply agreements.
We remain focused on operational excellence and customer satisfaction. Increasing demand for LNG has allowed us to expand our liquefaction infrastructure in a financially disciplined manner. We have increased available liquefaction capacity at our Liquefaction Projects as a result of debottlenecking and other optimization projects. We hold significant land positions at both the Sabine Pass LNG terminal and the Corpus Christi LNG terminal which provide opportunity for further liquefaction capacity expansion. The development of these sites or other projects, including infrastructure projects in support of natural gas supply and LNG demand, will require, among other things, acceptable commercial and financing arrangements before we can make a final investment decision (“FID”).
Additionally, we are committed to the responsible and proactive management of our most important environmental, social and governance (“ESG”) impacts, risks and opportunities. We published our 2020 Corporate Responsibility (“CR”) report, which details our strategy and progress on ESG issues, as well as our efforts on integrating climate considerations into our business strategy and taking a leadership position on increased environmental transparency, including conducting a climate scenario analysis and our plan to provide LNG customers with Cargo Emission Tags. Our CR report is available at cheniere.com/IMPACT.
Overview of Significant Events
Our significant events since January 1, 2021 and through the filing date of this Form 10-Q include the following:
Strategic
•In July 2021, CCL Stage III entered into an IPM gas supply agreement with Tourmaline Oil Marketing Corp. to purchase 140,000 MMBtu per day of natural gas at a price based on the Platts Japan Korea Marker (“JKM”), for a term of approximately 15 years beginning in early 2023.
•On July 1, 2021, the board of directors of the Company (the “Board”) appointed Mses. Patricia K. Collawn and Lorraine Mitchelmore to serve as members of the Board. Ms. Collawn was appointed to the Audit Committee and the Compensation Committee of the Board, and Ms. Mitchelmore was appointed to the Audit Committee and the Governance and Nominating Committee of the Board.
•Our subsidiaries entered into SPAs with multiple counterparties for portfolio volumes aggregating approximately 12 million tonnes of LNG to be delivered between 2021 and 2032.
Operational
•As of July 31, 2021, approximately 1,675 cumulative LNG cargoes totaling approximately 115 million tonnes of LNG have been produced, loaded and exported from the Liquefaction Projects.
•On March 26, 2021, substantial completion of Train 3 of the CCL Project was achieved.
Financial
•We completed the following financing transactions:
◦During 2021, SPL entered into a series of note purchase agreements for the sale of approximately $347 million aggregate principal amount of Senior Secured Notes due 2037 (the “2037 SPL Private Placement Senior Secured Notes”) on a private placement basis. The 2037 SPL Private Placement Senior Secured Notes are expected to be issued in the second half of 2021, subject to customary closing conditions, and the net proceeds will be used to strategically refinance a portion of SPL’s outstanding 6.25% SPL Senior Secured
31
Notes due 2022 and pay related fees, costs and expenses. The 2037 SPL Private Placement Senior Secured Notes will be fully amortizing, with a weighted average life of over 10 years.
◦In March 2021, Cheniere Partners issued an aggregate principal amount of approximately $1.5 billion of 4.000% Senior Notes due 2031 (the “2031 CQP Senior Notes”). The net proceeds of the 2031 CQP Senior Notes, along with cash on hand, were used to refinance the 5.250% Senior Notes due 2025 (the “2025 CQP Senior Notes”) and to pay fees and expenses in connection with the refinancing.
•During the six months ended June 30, 2021, in line with our previously announced capital allocation priorities, we fully repaid the $624 million of total outstanding indebtedness under Cheniere’s term loan facility (“Cheniere Term Loan Facility”) and Cheniere’s 4.875% convertible notes due May 2021 (“2021 Cheniere Convertible Notes”) with $500 million of available cash and the remainder from borrowings under the Cheniere Revolving Credit Facility.
•In January 2021, the term commenced on Cheniere Marketing International LLP’s 25 year SPA with CPC Corporation, Taiwan.
•In February 2021, Fitch Ratings (“Fitch”) changed the outlook of SPL’s senior secured notes rating to positive from stable and the outlook of Cheniere Partners’ long-term issuer default rating and senior unsecured notes rating to positive from stable.
•In April 2021, S&P Global Ratings changed the outlook of Cheniere and Cheniere Partners’ ratings to positive from negative.
Results of Operations
The following charts summarize the total revenues and total LNG volumes loaded from our Liquefaction Projects (including both operational and commissioning volumes) during the six months ended June 30, 2021 and 2020:


The following table summarizes the volumes of operational and commissioning LNG cargoes that were loaded from the Liquefaction Projects, which were recognized on our Consolidated Financial Statements during the three and six months ended June 30, 2021:
Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | ||||||||||||||||||||||
(in TBtu) | Operational | Commissioning | Operational | Commissioning | |||||||||||||||||||
Volumes loaded during the current period | 499 | — | 947 | 28 | |||||||||||||||||||
Volumes loaded during the prior period but recognized during the current period | 32 | 6 | 26 | 3 | |||||||||||||||||||
Less: volumes loaded during the current period and in transit at the end of the period | (23) | — | (23) | — | |||||||||||||||||||
Total volumes recognized in the current period | 508 | 6 | 950 | 31 |
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Net income attributable to common stockholders
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
(in millions, except per share data) | 2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||||||||||||||||||||||
Net income (loss) attributable to common stockholders | $ | (329) | $ | 197 | $ | (526) | $ | 64 | $ | 572 | $ | (508) | |||||||||||||||||||||||
Net income (loss) per share attributable to common stockholders—basic | (1.30) | 0.78 | (2.08) | 0.25 | 2.27 | (2.02) | |||||||||||||||||||||||||||||
Net income (loss) per share attributable to common stockholders—diluted | (1.30) | 0.78 | (2.08) | 0.25 | 2.26 | (2.01) |
Net income attributable to common stockholders decreased by $526 million and $508 million during the three and six months ended June 30, 2021, respectively, from the comparable periods in 2020, primarily as a result of a $472 million and $886 million increase in derivative-related after-tax losses attributable to common stockholders for the three and six months ended June 30, 2021, respectively. The derivative-related losses in the three and six months ended June 30, 2021 were mainly the result of $674 million and $748 million, respectively, of pre-tax derivative losses, primarily on our commodity derivatives as a result of unfavorable shifts in international forward commodity curves. Additionally, during the three months ended June 30, 2021 compared to the comparable period in 2020, margins declined due to the non-recurrence, during the three months ended June 30, 2021, of accelerated revenues recognized from LNG cargoes for which customers notified us that they would not take delivery, which were partially offset by increased revenue on increased volume of LNG delivered. During the six months ended June 30, 2021, the decrease in net income attributable to common stockholders due to losses in derivatives was partially offset by increased commodity margins per MMBtu on volumes delivered, due to both increased revenue per MMBtu and volumes delivered, as well as higher than normal contributions from LNG and natural gas portfolio optimization activities due to significant volatility in LNG and natural gas markets during the six months ended June 30, 2021. This was partially offset by the non-recurrence, during the six months ended June 30, 2021, of accelerated revenues recognized from LNG cargoes for which customers notified us that they would not take delivery.
We enter into derivative instruments to manage our exposure to (1) changing interest rates, (2) commodity-related marketing and price risks, including those associated with our IPM transactions, and (3) foreign exchange volatility. Derivative instruments are reported at fair value on our Consolidated Financial Statements. In some cases, the underlying transactions being economically hedged are accounted for under the accrual method of accounting, whereby revenues and expenses are recognized only upon delivery, receipt or realization of the underlying transaction. Because the recognition of derivative instruments at fair value has the effect of recognizing gains or losses relating to future period exposure, use of derivative instruments may increase the volatility of our results of operations based on changes in market pricing, counterparty credit risk and other relevant factors.
Revenues
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
(in millions) | 2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||||||||||||||||||||||
LNG revenues | $ | 2,913 | $ | 2,295 | $ | 618 | $ | 5,912 | $ | 4,863 | $ | 1,049 | |||||||||||||||||||||||
Regasification revenues | 67 | 68 | (1) | 134 | 135 | (1) | |||||||||||||||||||||||||||||
Other revenues | 37 | 39 | (2) | 61 | 113 | (52) | |||||||||||||||||||||||||||||
Total revenues | $ | 3,017 | $ | 2,402 | $ | 615 | $ | 6,107 | $ | 5,111 | $ | 996 |
Total revenues increased during the three and six months ended June 30, 2021 from the comparable periods in 2020, primarily as a result of increased revenues per MMBtu and higher volume of LNG delivered between the periods due to the non-recurrence of notification by our customers to not take delivery of scheduled LNG during the three and six months ended June 30, 2021. Revenues per MMBtu of LNG was higher due to improved market prices recognized by our integrated marketing function and as a result of variable fees that are received in addition to fixed fees when the customers take delivery of the cargo as opposed to exercising their contractual right to not take delivery. During the three and six months ended June 30, 2020, we recognized $708 million and $761 million, respectively, in LNG revenues associated with LNG cargoes for which customers notified us that they would not take delivery, of which $458 million would have been recognized subsequent to June 30, 2020 had the cargoes been lifted pursuant to the delivery schedules with the customers. LNG revenues during the three months ended June 30, 2020 and six months ended June 30, 2021 excluded $53 million and $38 million, respectively, that would have otherwise been recognized during the quarter if the cargoes were lifted pursuant to the delivery schedules with the
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customers. We did not have revenues associated with LNG cargoes for which customers notified us that they would not take delivery during the three and six months ended June 30, 2021.
Prior to substantial completion of a Train, amounts received from the sale of commissioning cargoes from that Train are offset against LNG terminal construction-in-process, because these amounts are earned or loaded during the testing phase for the construction of that Train. During the three and six months ended June 30, 2021, we realized offsets to LNG terminal costs of $36 million and $227 million, corresponding to 6 and 31 TBtu, respectively, that were related to the sale of commissioning cargoes from the Liquefaction Projects. We did not realize any offsets to LNG terminal costs during the three and six months ended June 30, 2020.
Also included in LNG revenues are sales of certain unutilized natural gas procured for the liquefaction process and gains and losses from derivative instruments, which include the realized value associated with a portion of derivative instruments that settle through physical delivery. We recognized revenues (offsets to revenues) of $(340) million and $61 million during the three months ended June 30, 2021 and 2020, respectively, and $(276) million and $273 million during the six months ended June 30, 2021 and 2020, respectively, related to these transactions.
We expect our LNG revenues to increase in the future with Train 3 of the CCL Project now fully operational and upon Train 6 of the SPL Project becoming operational.
The following table presents the components of LNG revenues and the corresponding LNG volumes sold:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
LNG revenues (in millions): | |||||||||||||||||||||||
LNG from the Liquefaction Projects sold under third party long-term agreements (1) | $ | 2,482 | $ | 1,244 | $ | 4,801 | $ | 3,151 | |||||||||||||||
LNG from the Liquefaction Projects sold by our integrated marketing function under short-term agreements | 683 | 150 | 1,202 | 475 | |||||||||||||||||||
LNG procured from third parties | 88 | 132 | 185 | 203 | |||||||||||||||||||
LNG revenues associated with cargoes not delivered per customer notification (2) | — | 708 | — | 761 | |||||||||||||||||||
Other revenues and net derivative gains (losses) | (340) | 61 | (276) | 273 | |||||||||||||||||||
Total LNG revenues | $ | 2,913 | $ | 2,295 | $ | 5,912 | $ | 4,863 | |||||||||||||||
Volumes delivered as LNG revenues (in TBtu): | |||||||||||||||||||||||
LNG from the Liquefaction Projects sold under third party long-term agreements (1) | 403 | 253 | 784 | 619 | |||||||||||||||||||
LNG from the Liquefaction Projects sold by our integrated marketing function under short-term agreements | 105 | 52 | 166 | 145 | |||||||||||||||||||
LNG procured from third parties | 14 | 34 | 28 | 48 | |||||||||||||||||||
Total volumes delivered as LNG revenues | 522 | 339 | 978 | 812 | |||||||||||||||||||
(1) Long-term agreements include agreements with an initial tenure of 12 months or more.
(2) LNG revenues include revenues with no corresponding volumes due to revenues attributable to LNG cargoes for which customers notified us that they would not take delivery.
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Operating costs and expenses
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
(in millions) | 2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||||||||||||||||||||||
Cost of sales | $ | 2,154 | $ | 803 | $ | 1,351 | $ | 3,540 | $ | 1,527 | $ | 2,013 | |||||||||||||||||||||||
Operating and maintenance expense | 385 | 355 |