EX-99.1 3 exhibit991ceifinancialstat.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1


ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
CHENIERE ENERGY, INC. AND SUBSIDIARIES
 


1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors
Cheniere Energy, Inc.:

Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Cheniere Energy, Inc. and subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 20, 2018 (not included herein) expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for revenue recognition in 2017, 2016 and 2015 due to the adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequent amendments thereto.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.



/s/    KPMG LLP
KPMG LLP
 



We have served as the Company’s auditor since 2014.

Houston, Texas
February 20, 2018, except as to Note 13 which is as of May 23, 2018


2


CHENIERE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(in millions, except share data)

 
December 31,
 
2017
 
2016
ASSETS

 
 
Current assets
 
 
 
Cash and cash equivalents
$
722

 
$
876

Restricted cash
1,880

 
860

Accounts and other receivables
369

 
218

Accounts receivable—related party
2

 

Inventory
243

 
160

Derivative assets
57

 
24

Other current assets
96

 
100

Total current assets
3,369

 
2,238

 
 
 
 
Non-current restricted cash
11

 
91

Property, plant and equipment, net
23,978

 
20,635

Debt issuance costs, net
149

 
277

Non-current derivative assets
34

 
83

Goodwill
77

 
77

Other non-current assets, net
288

 
302

Total assets
$
27,906

 
$
23,703

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities
 

 
 

Accounts payable
$
25

 
$
49

Accrued liabilities
1,078

 
637

Current debt

 
247

Deferred revenue
111

 
73

Derivative liabilities
37

 
71

Total current liabilities
1,251

 
1,077

 
 
 
 
Long-term debt, net
25,336

 
21,688

Non-current deferred revenue
1

 
5

Non-current derivative liabilities
19

 
45

Other non-current liabilities
59

 
49

 
 
 
 
Commitments and contingencies (see Note 20)


 


 
 
 
 
Stockholders’ equity
 

 
 

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

 

Common stock, $0.003 par value
 
 
 

Authorized: 480.0 million shares at December 31, 2017 and 2016
 
 
 
Issued: 250.1 million shares at December 31, 2017 and 2016


 


Outstanding: 237.6 million shares and 238.0 million shares at December 31, 2017 and 2016, respectively
1

 
1

Treasury stock: 12.5 million shares and 12.2 million shares at December 31, 2017 and 2016, respectively, at cost
(386
)
 
(374
)
Additional paid-in-capital
3,248

 
3,211

Accumulated deficit
(4,627
)
 
(4,234
)
Total stockholders’ deficit
(1,764
)
 
(1,396
)
Non-controlling interest
3,004

 
2,235

Total equity
1,240

 
839

Total liabilities and equity
$
27,906

 
$
23,703


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

3



CHENIERE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data) 

 
Year Ended December 31,
 
2017
 
2016
 
2015
Revenues
 
 
 
 
 
LNG revenues
$
5,317

 
$
1,016

 
$

Regasification revenues
260

 
259

 
259

Other revenues
21

 
8

 
12

Other—related party
3

 

 

Total revenues
5,601

 
1,283

 
271

 
 
 
 
 
 
Operating costs and expenses
 
 
 
 
 
Cost (cost recovery) of sales (excluding depreciation and amortization expense shown separately below)
3,120

 
582

 
(15
)
Operating and maintenance expense
446

 
216

 
95

Development expense
10

 
7

 
42

Selling, general and administrative expense
256

 
260

 
363

Depreciation and amortization expense
356

 
174

 
83

Restructuring expense
6

 
61

 
61

Impairment expense and loss on disposal of assets
19

 
13

 
91

Total operating costs and expenses
4,213

 
1,313

 
720

 
 
 
 
 
 
Income (loss) from operations
1,388

 
(30
)
 
(449
)
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
Interest expense, net of capitalized interest
(747
)
 
(488
)
 
(322
)
Loss on early extinguishment of debt
(100
)
 
(135
)
 
(124
)
Derivative gain (loss), net
7

 
(10
)
 
(204
)
Other income
18

 

 
2

Total other expense
(822
)
 
(633
)
 
(648
)
 
 
 
 
 
 
Income (loss) before income taxes and non-controlling interest
566


(663
)
 
(1,097
)
Income tax provision
(3
)

(2
)
 

Net income (loss)
563


(665
)
 
(1,097
)
Less: net income (loss) attributable to non-controlling interest
956


(55
)
 
(122
)
Net loss attributable to common stockholders
$
(393
)

$
(610
)
 
$
(975
)






 
 
Net loss per share attributable to common stockholders—basic and diluted (1)
$
(1.68
)

$
(2.67
)
 
$
(4.30
)
 





 
 
Weighted average number of common shares outstanding—basic and diluted
233.1


228.8

 
226.9

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



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

4



CHENIERE ENERGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)

 
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, 2014
236.7

 
$
1

 
10.6

 
$
(293
)
 
$
2,777

 
$
(2,649
)
 
$
2,666

 
$
2,502

Exercise of stock options
0.1

 

 

 

 
2

 

 

 
2

Forfeitures of restricted stock
(0.2
)
 

 

 

 

 

 

 

Share-based compensation

 

 

 

 
90

 

 

 
90

Shares repurchased related to share-based compensation
(1.0
)
 

 
1.0

 
(61
)
 

 

 

 
(61
)
Excess tax benefit from share-based compensation

 

 

 

 
2

 

 

 
2

Loss attributable to non-controlling interest

 

 

 

 

 

 
(122
)
 
(122
)
Equity portion of convertible notes, net

 

 

 

 
205

 

 

 
205

Distributions to non-controlling interest

 

 

 

 

 

 
(80
)
 
(80
)
Net loss

 

 

 

 

 
(975
)
 

 
(975
)
Balance at December 31, 2015
235.6

 
1

 
11.6

 
(354
)
 
3,076

 
(3,624
)
 
2,464

 
1,563

Issuances of restricted stock
0.4

 

 

 

 

 

 

 

Issuance of stock to acquire additional interest in Cheniere Holdings
3.0

 

 

 

 
94

 

 
(94
)
 

Forfeitures of restricted stock
(0.4
)
 

 

 

 

 

 

 

Share-based compensation

 

 

 

 
40

 

 

 
40

Shares repurchased related to share-based compensation
(0.6
)
 

 
0.6

 
(20
)
 

 

 

 
(20
)
Loss attributable to non-controlling interest

 

 

 

 

 

 
(55
)
 
(55
)
Equity portion of convertible notes, net

 

 

 

 
1

 

 

 
1

Distributions to non-controlling interest

 

 

 

 

 

 
(80
)
 
(80
)
Net loss

 

 

 

 

 
(610
)
 

 
(610
)
Balance at December 31, 2016
238.0

 
1

 
12.2

 
(374
)
 
3,211

 
(4,234
)
 
2,235

 
839

Issuances of restricted stock
0.1

 

 

 

 

 

 

 

Issuance of stock to acquire additional interest in Cheniere Holdings

 

 

 

 
2

 

 
(2
)
 

Forfeitures of restricted stock
(0.2
)
 

 

 

 

 

 

 

Share-based compensation

 

 

 

 
34

 

 

 
34

Shares repurchased related to share-based compensation
(0.3
)
 

 
0.3

 
(12
)
 

 

 

 
(12
)
Net income attributable to non-controlling interest

 

 

 

 

 

 
956

 
956

Equity portion of convertible notes, net

 

 

 

 
1

 

 

 
1

Distributions to non-controlling interest

 

 

 

 

 

 
(185
)
 
(185
)
Net loss

 

 

 

 

 
(393
)
 

 
(393
)
Balance at December 31, 2017
237.6

 
$
1

 
12.5

 
$
(386
)
 
$
3,248

 
$
(4,627
)
 
$
3,004

 
$
1,240


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)

 
Year Ended December 31,
 
2017
 
2016
 
2015
Cash flows from operating activities
 
 
 
 
 
Net income (loss)
$
563

 
$
(665
)
 
$
(1,097
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
 
 
Non-cash LNG inventory write-downs

 

 
18

Depreciation and amortization expense
356

 
174

 
83

Share-based compensation expense
91

 
101

 
172

Non-cash interest expense
75

 
77

 
59

Amortization of debt issuance costs, deferred commitment fees, premium and discount
69

 
62

 
48

Loss on early extinguishment of debt
100

 
135

 
124

Total losses (gains) on derivatives, net
62

 
(28
)
 
168

Net cash used for settlement of derivative instruments
(106
)
 
(45
)
 
(100
)
Impairment expense and loss on disposal of assets
19

 
13

 
91

Other
(4
)
 
4

 
1

Changes in operating assets and liabilities:
 
 
 
 
 
Accounts and other receivables
(139
)
 
(207
)
 
(1
)
Accounts receivable—related party
(2
)
 

 

Inventory
(73
)
 
(119
)
 
(28
)
Accounts payable and accrued liabilities
225

 
64

 
2

Deferred revenue
34

 
42

 
(4
)
Other, net
(39
)
 
(12
)
 
(19
)
Net cash provided by (used in) operating activities
1,231

 
(404
)
 
(483
)
 
 
 
 
 
 
Cash flows from investing activities
 
 
 
 
 
Property, plant and equipment, net
(3,357
)
 
(4,356
)
 
(6,853
)
Investment in equity method investment
(41
)
 

 

Other
17

 
(57
)
 
(131
)
Net cash used in investing activities
(3,381
)
 
(4,413
)
 
(6,984
)
 
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
 
Proceeds from issuances of debt
6,854

 
12,865

 
7,073

Repayments of debt
(3,632
)
 
(7,671
)
 

Debt issuance and deferred financing costs
(89
)
 
(172
)
 
(513
)
Debt extinguishment costs

 
(14
)
 

Distributions and dividends to non-controlling interest
(185
)
 
(80
)
 
(80
)
Proceeds from exercise of stock options

 

 
2

Payments related to tax withholdings for share-based compensation
(12
)
 
(20
)
 
(61
)
Other

 

 
2

Net cash provided by financing activities
2,936

 
4,908

 
6,423

 
 
 
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash
786

 
91

 
(1,044
)
Cash, cash equivalents and restricted cash—beginning of period
1,827

 
1,736

 
2,780

Cash, cash equivalents and restricted cash—end of period
$
2,613

 
$
1,827

 
$
1,736


Balances per Consolidated Balance Sheets:
 
December 31,
 
2017
 
2016
Cash and cash equivalents
$
722

 
$
876

Restricted cash
1,880

 
860

Non-current restricted cash
11

 
91

Total cash, cash equivalents and restricted cash
$
2,613

 
$
1,827



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

6


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




NOTE 1—ORGANIZATION AND NATURE OF OPERATIONS

Cheniere, a Delaware corporation, is a Houston-based energy company primarily engaged in LNG-related businesses. We own and operate the Sabine Pass LNG terminal in Louisiana through our ownership interest in and management agreements with Cheniere Partners, which is a publicly traded limited partnership that we created in 2007. We own 100% of the general partner interest in Cheniere Partners and 82.7% of Cheniere Holdings, which is a publicly traded limited liability company formed in 2013 that owns a 48.6% limited partner interest in Cheniere Partners. We are currently developing and constructing two natural gas liquefaction and export facilities.

The Sabine Pass LNG terminal is located in Cameron Parish, Louisiana, on the Sabine-Neches Waterway less than four miles from the Gulf Coast. Cheniere Partners is developing, constructing and operating natural gas liquefaction facilities (the “SPL Project”) at the Sabine Pass LNG terminal adjacent to the existing regasification facilities (described below) through a wholly owned subsidiary, SPL. Cheniere Partners plans to construct up to six Trains, which are in various stages of development, construction and operations. Trains 1 through 4 are operational, Train 5 is under construction and Train 6 is being commercialized and has all necessary regulatory approvals in place. Each Train is expected to have a nominal production capacity, which is prior to adjusting for planned maintenance, production reliability and potential overdesign, of approximately 4.5 mtpa and an adjusted nominal production capacity of approximately 4.3 to 4.6 mtpa of LNG. The Sabine Pass LNG terminal has operational regasification facilities owned by Cheniere Partners’ wholly owned subsidiary, SPLNG, that include pre-existing infrastructure of five LNG storage tanks with aggregate capacity of approximately 16.9 Bcfe, two marine berths that can each accommodate vessels with nominal capacity of up to 266,000 cubic meters and vaporizers with regasification capacity of approximately 4.0 Bcf/d. 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 a wholly owned subsidiary, CTPL.

We are developing and constructing a second natural gas liquefaction and export facility at the Corpus Christi LNG terminal, which is on nearly 2,000 acres of land that we own or control near Corpus Christi, Texas, and a pipeline facility (collectively, the “CCL Project”) through wholly owned subsidiaries CCL and CCP, respectively. The CCL Project is being developed for up to three Trains, with expected aggregate nominal production capacity, which is prior to adjusting for planned maintenance, production reliability and potential overdesign, of approximately 13.5 mtpa of LNG, three LNG storage tanks with aggregate capacity of approximately 10.1 Bcfe and two marine berths that can each accommodate vessels with nominal capacity of up to 266,000 cubic meters. The CCL Project is being developed in stages. The first stage includes Trains 1 and 2, two LNG storage tanks, one complete marine berth and a second partial berth and all of the CCL Project’s necessary infrastructure facilities (“Stage 1”). The second stage includes Train 3, one LNG storage tank and the completion of the second partial berth (“Stage 2”). The CCL Project also includes a 23-mile natural gas supply pipeline that will interconnect the Corpus Christi LNG terminal with several interstate and intrastate natural gas pipelines (the “Corpus Christi Pipeline”), which is being constructed concurrently with the first stage. Trains 1 and 2 are currently under construction, and Train 3 is being commercialized and has all necessary regulatory approvals in place. The construction of the Corpus Christi Pipeline is nearing completion.

Additionally, we are developing an expansion of the Corpus Christi LNG terminal adjacent to the CCL Project and recently amended our regulatory filings with FERC to incorporate a project design change, from two Trains with an expected aggregate nominal production capacity of approximately 9.0 mtpa to up to seven midscale Trains with an expected aggregate nominal production capacity of approximately 9.5 mtpa. We remain focused on leveraging infrastructure through the expansion of our existing sites. We are also in various stages of developing other projects, including infrastructure projects in support of natural gas supply and LNG demand, which, among other things, will require acceptable commercial and financing arrangements before we make a final investment decision (“FID”).

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Our Consolidated Financial Statements have been prepared in accordance with GAAP. The Consolidated Financial Statements include the accounts of Cheniere, its majority owned subsidiaries and entities in which it holds a controlling interest, including the accounts of Cheniere Holdings and Cheniere Partners and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in non-controlled entities, over which Cheniere has the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. In

7


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



applying the equity method of accounting, the investments are initially recognized at cost, and subsequently adjusted for our proportionate share of earnings, losses and distributions. Investments in non-controlled entities, over which Cheniere does not have the ability to exercise significant influence, are accounted for using the cost method. Under the cost method the investments are initially recognized at cost and dividends received from the accumulated earnings of an investee are recorded as income. Dividends received in excess of the accumulated earnings of an investee are recorded as a reduction in the investment. We periodically assess our cost method investments for indicators of impairment. An impairment is recorded if an indicator is identified, the carrying value of our investment exceeds its fair value, and the impairment is considered to be other than temporary. Investments accounted for using the equity method and cost method are reported as a component of other assets.

We make a determination at the inception of each arrangement whether an entity in which we have made an investment or in which we have other variable interests is considered a variable interest entity (“VIE”).  Generally, a VIE is an entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties, whose equity investors lack any characteristics of a controlling financial interest or which was established with non-substantive voting. We consolidate VIEs when we are deemed to be the primary beneficiary. The primary beneficiary of a VIE is the party that both: (1) has the power to make decisions that most significantly affect the economic performance of the VIE and (2) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. If we are not deemed to be the primary beneficiary of a VIE, we account for the investment or other variable interests in a VIE in accordance with applicable GAAP.

Certain reclassifications have been made to conform prior period information to the current presentation.  The reclassifications did not have a material effect on our consolidated financial position, results of operations or cash flows.

On January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequent amendments thereto (“ASC 606”) using the full retrospective method. We have elected to adopt the new accounting standard retrospectively and have recast the accompanying consolidated financial statements to reflect the adoption of ASC 606 for all periods presented. The adoption of ASC 606 did not impact our previously reported consolidated financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings.

Use of Estimates

The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the accompanying notes. Management evaluates its estimates and related assumptions regularly, including those related to the value of property, plant and equipment, goodwill, derivative instruments, asset retirement obligations (“AROs”), income taxes including valuation allowances for deferred tax assets, share-based compensation and fair value measurements. Changes in facts and circumstances or additional information may result in revised estimates, and actual results may differ from these estimates.

Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Hierarchy Levels 1, 2 and 3 are terms for the priority of inputs to valuation approaches used to measure fair value. Hierarchy Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Hierarchy Level 2 inputs are inputs other than quoted prices included within Level 1 that are directly or indirectly observable for the asset or liability. Hierarchy Level 3 inputs are inputs that are not observable in the market.

In determining fair value, we use observable market data when available, or models that incorporate observable market data. In addition to market information, we incorporate transaction-specific details that, in management’s judgment, market participants would take into account in measuring fair value. We maximize the use of observable inputs and minimize our use of unobservable inputs in arriving at fair value estimates.

Recurring fair-value measurements are performed for derivative instruments as disclosed in Note 7—Derivative Instruments. The carrying amount of cash and cash equivalents, restricted cash, accounts receivable and accounts payable reported on the Consolidated Balance Sheets approximates fair value. The fair value of debt is the estimated amount we would have to pay to repurchase our debt in the open market, including any premium or discount attributable to the difference between the stated interest rate and market interest rate at each balance sheet date. Debt fair values, as disclosed in Note 12—Debt, are based on quoted market prices for identical instruments, if available, or based on valuations of similar debt instruments using observable or

8


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



unobservable inputs. Non-financial assets and liabilities initially measured at fair value include certain assets and liabilities acquired in a business combination, intangible assets, goodwill and AROs.

Revenue Recognition

We recognize revenues when we transfer control of promised goods or services to our customers in an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods or services. Revenues from the sale of LNG are recognized as LNG revenues, including LNG revenues generated by our integrated marketing function which are reported on a gross or net basis based on an assessment of whether it is acting as the principal or the agent in the transaction. LNG regasification capacity payments are recognized as regasification revenues. See Note 13—Revenues from Contracts with Customers for further discussion of revenues.

Cash and Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Restricted Cash

Restricted cash consists of funds that are contractually restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on our Consolidated Balance Sheets.

Accounts and Notes Receivable

Accounts and notes receivable are reported net of allowances for doubtful accounts. Notes receivable that are not classified as trade receivables are recorded within other current assets in our Consolidated Balance Sheets. Impaired receivables are specifically identified and evaluated for expected losses.  The expected loss on impaired receivables is primarily determined based on the debtor’s ability to pay and the estimated value of any collateral.  We did not recognize any impairment expense related to accounts and notes receivable during the years ended December 31, 2017 and 2016. During the year ended December 31, 2015, we recognized bad debt expense of $36 million which was primarily attributable to a reserve against funds loaned to Parallax Enterprises, LLC, as further discussed in Note 20—Commitments and Contingencies. This charge was recorded as impairment expense on our Consolidated Statements of Operations.

Inventory

LNG and natural gas inventory are recorded at the lower of weighted average cost and net realizable value. Materials and other inventory are recorded at the lower of cost and net realizable value and subsequently charged to expense when issued. During the year ended December 31, 2015, we recognized $18 million as operating and maintenance expense as a result of write-down for LNG inventory purchased to maintain the cryogenic readiness of the regasification facilities at the Sabine Pass LNG terminal. We did not recognize any operating and maintenance expense related to inventory write-downs during the years ended December 31, 2017 and 2016.

Accounting for LNG Activities

Generally, we begin capitalizing the costs of our LNG terminals and related pipelines once the individual project meets the following criteria: (1) regulatory approval has been received, (2) financing for the project is available and (3) management has committed to commence construction. Prior to meeting these criteria, most of the costs associated with a project are expensed as incurred. These costs primarily include professional fees associated with front-end engineering and design work, costs of securing necessary regulatory approvals and other preliminary investigation and development activities related to our LNG terminals and related pipelines.

Generally, costs that are capitalized prior to a project meeting the criteria otherwise necessary for capitalization include: land and lease option costs that are capitalized as property, plant and equipment and certain permits that are capitalized as other non-current assets. The costs of lease options are amortized over the life of the lease once obtained. If no lease is obtained, the costs are expensed.


9


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



We capitalize interest and other related debt costs during the construction period of our LNG terminals and related pipelines. Upon commencement of operations, capitalized interest, as a component of the total cost, is amortized over the estimated useful life of the asset.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Expenditures for construction and commissioning activities, major renewals and betterments that extend the useful life of an asset are capitalized, while expenditures for maintenance and repairs (including those for planned major maintenance projects) to maintain property, plant and equipment in operating condition are generally expensed as incurred. Interest costs incurred on debt obtained for the construction of property, plant and equipment are capitalized as construction-in-process over the construction period or related debt term, whichever is shorter. We depreciate our property, plant and equipment using the straight-line depreciation method. Upon retirement or other disposition of property, plant and equipment, the cost and related accumulated depreciation are removed from the account, and the resulting gains or losses are recorded in other operating costs and expenses.

Management tests property, plant and equipment for impairment whenever events or changes in circumstances have indicated that the carrying amount of property, plant and equipment might not be recoverable. Assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets for purposes of assessing recoverability. Recoverability generally is determined by comparing the carrying value of the asset to the expected undiscounted future cash flows of the asset. If the carrying value of the asset is not recoverable, the amount of impairment loss is measured as the excess, if any, of the carrying value of the asset over its estimated fair value.

During the year ended December 31, 2017, we recognized $6 million of impairment expense related to damaged infrastructure as an effect of Hurricane Harvey and $6 million of impairment expense related to write down of assets used in non-core operations outside of our liquefaction activities.

During the year ended December 31, 2016, we recorded $10 million of impairment expense related to a corporate airplane that was written down to fair value based on market-based appraisals, which was ultimately sold by the end of the year. The impairment was recognized due to the potential disposition of the airplane in connection with the Company having initiated organizational changes and the associated operational focus for financially disciplined investment.

During the year ended December 31, 2015, we recorded, primarily in relation to a liquid hydrocarbon export project in Texas along the Gulf Coast, $55 million of impairment expense as a result of our strategic focus to complete construction and commence operation of the first five Trains of the SPL Project and the first two Trains of the CCL Project.

Regulated Natural Gas Pipelines

The Creole Trail Pipeline and Corpus Christi Pipeline are subject to the jurisdiction of the FERC in accordance with the Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978. The economic effects of regulation can result in a regulated company recording as assets those costs that have been or are expected to be approved for recovery from customers, or recording as liabilities those amounts that are expected to be required to be returned to customers, in a rate-setting process in a period different from the period in which the amounts would be recorded by an unregulated enterprise. Accordingly, we record assets and liabilities that result from the regulated rate-making process that may not be recorded under GAAP for non-regulated entities. We continually assess whether regulatory assets are probable of future recovery by considering factors such as applicable regulatory changes and recent rate orders applicable to other regulated entities. Based on this continual assessment, we believe the existing regulatory assets are probable of recovery. These regulatory assets and liabilities are primarily classified in our Consolidated Balance Sheets as other assets and other liabilities. We periodically evaluate their applicability under GAAP and consider factors such as regulatory changes and the effect of competition. If cost-based regulation ends or competition increases, we may have to reduce our asset balances to reflect a market basis less than cost and write off the associated regulatory assets and liabilities. 

Items that may influence our assessment are:
inability to recover cost increases due to rate caps and rate case moratoriums;  
inability to recover capitalized costs, including an adequate return on those costs through the rate-making process and the FERC proceedings;  
excess capacity;  

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



increased competition and discounting in the markets we serve; and  
impacts of ongoing regulatory initiatives in the natural gas industry.
Natural gas pipeline costs include amounts capitalized as an Allowance for Funds Used During Construction (“AFUDC”). The rates used in the calculation of AFUDC are determined in accordance with guidelines established by the FERC. AFUDC represents the cost of debt and equity funds used to finance our natural gas pipeline additions during construction. AFUDC is capitalized as a part of the cost of our natural gas pipelines. Under regulatory rate practices, we generally are permitted to recover AFUDC, and a fair return thereon, through our rate base after our natural gas pipelines are placed in service.

Derivative Instruments

We use derivative instruments to hedge our exposure to cash flow variability from interest rate, commodity price and foreign currency exchange (“FX”) rate risk. Derivative instruments are recorded at fair value and included in our Consolidated Balance Sheets as assets or liabilities depending on the derivative position and the expected timing of settlement, unless they satisfy criteria for and we elect the normal purchases and sales exception. When we have the contractual right and intend to net settle, derivative assets and liabilities are reported on a net basis.

Changes in the fair value of our derivative instruments are recorded in earnings, unless we elect to apply hedge accounting and meet specified criteria, including completing contemporaneous hedge documentation. We did not have any derivative instruments designated as cash flow hedges during the years ended December 31, 2017, 2016 and 2015. See Note 7—Derivative Instruments for additional details about our derivative instruments.

Concentration of Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk consist principally of cash and cash equivalents and restricted cash. We maintain cash balances at financial institutions, which may at times be in excess of federally insured levels. We have not incurred losses related to these balances to date.

The use of derivative instruments exposes us to counterparty credit risk, or the risk that a counterparty will be unable to meet its commitments. Certain of our commodity derivative transactions are executed through over-the-counter contracts which are subject to nominal credit risk as these transactions are settled on a daily margin basis with investment grade financial institutions. Collateral deposited for such contracts is recorded as other current asset. Our interest rate and FX derivative instruments are placed with investment grade financial institutions whom we believe are acceptable credit risks. We monitor counterparty creditworthiness on an ongoing basis; however, we cannot predict sudden changes in counterparties’ creditworthiness. In addition, even if such changes are not sudden, we may be limited in our ability to mitigate an increase in counterparty credit risk. Should one of these counterparties not perform, we may not realize the benefit of some of our derivative instruments.

SPL has entered into six fixed price SPAs with terms of at least 20 years with six unaffiliated third parties. CCL has entered into eight fixed price SPAs with terms of at least 20 years with seven unaffiliated third parties. SPL and CCL are dependent on the respective customers’ creditworthiness and their willingness to perform under their respective SPAs. See Note 21—Customer Concentration for additional details about our customer concentration.

SPLNG has entered into two long-term TUAs with unaffiliated third parties for regasification capacity at the Sabine Pass LNG terminal. SPLNG is dependent on the respective customers’ creditworthiness and their willingness to perform under their respective TUAs. SPLNG has mitigated this credit risk by securing TUAs for a significant portion of its regasification capacity with creditworthy third-party customers with a minimum Standard & Poor’s rating of A.
Goodwill
Goodwill is the excess of acquisition cost of a business over the estimated fair value of net assets acquired.  Goodwill is not amortized but is tested for impairment at least annually or more frequently if events or circumstances indicate goodwill is more likely than not impaired.  Goodwill impairment evaluation requires a comparison of the estimated fair value of a reporting unit to its carrying value.  Cheniere tests goodwill for impairment by either performing a qualitative assessment or a quantitative test.  The qualitative assessment is an assessment of historical information and relevant events and circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.  Cheniere may

11


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



elect not to perform the qualitative assessment and instead perform a quantitative impairment test.  Significant judgment is required in estimating the fair value of the reporting unit and performing goodwill impairment tests.
As a result of finalization of organizational changes to simplify our corporate structure, improve our operational efficiencies and implement a strategy for sustainable, long-term stockholder value creation through financially disciplined development, construction, operation and investment, we revised the way we manage our business, which resulted in a change in our reporting units.  Accordingly, Cheniere reallocated goodwill to our single reporting unit following finalization of organizational changes.  We performed our annual goodwill impairment test on October 1st using a quantitative assessment and concluded that the estimated fair value of our reporting unit substantially exceeded its carrying value and, therefore, goodwill was not impaired.  Judgments and assumptions are inherent in our estimate of future cash flows used to determine the estimate of the reporting unit’s fair value.  The use of alternate judgments and/or assumptions could result in the recognition of impairment charges in the Consolidated Financial Statements.  A lower fair value estimate in the future for our reporting unit could result in an impairment of goodwill.  Factors that could trigger a lower fair value estimate include significant negative industry or economic trends, cost increases, disruptions to our business, regulatory or political environment changes or other unanticipated events.  There were no changes in the carrying value of goodwill during the year ended December 31, 2017.
Debt

Our debt consists of current and long-term secured debt securities, convertible debt securities and credit facilities with banks and other lenders.  Debt issuances are placed directly by us or through securities dealers or underwriters and are held by institutional and retail investors.

Debt is recorded on our Consolidated Balance Sheets at par value adjusted for unamortized discount or premium and net of unamortized debt issuance costs related to term notes. Discounts, premiums and debt issuance costs directly related to the issuance of debt are amortized over the life of the debt and are recorded in interest expense, net of capitalized interest using the effective interest method. Gains and losses on the extinguishment of debt are recorded in gains and losses on the extinguishment of debt on our Consolidated Statements of Operations.

Debt issuance costs consist primarily of arrangement fees, professional fees, legal fees and printing costs. These costs are recorded as a direct deduction from the debt liability unless incurred in connection with a line of credit arrangement, in which case they are presented as an asset on our Consolidated Balance Sheet. Debt issuance costs are amortized to interest expense or property, plant and equipment over the term of the related debt facility. Upon early retirement of debt or amendment to a debt agreement, certain fees are written off to loss on early extinguishment of debt.

Asset Retirement Obligations

We recognize AROs for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal use of the asset and for conditional AROs in which the timing or method of settlement are conditional on a future event that may or may not be within our control. The fair value of a liability for an ARO is recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset. This additional carrying amount is depreciated over the estimated useful life of the asset. Our assessment of AROs is described below.

We have not recorded an ARO associated with the Sabine Pass LNG terminal. Based on the real property lease agreements at the Sabine Pass LNG terminal, at the expiration of the term of the leases we are required to surrender the LNG terminal in good working order and repair, with normal wear and tear and casualty expected. Our property lease agreements at the Sabine Pass LNG terminal have terms of up to 90 years including renewal options. We have determined that the cost to surrender the Sabine Pass LNG terminal in good order and repair, with normal wear and tear and casualty expected, is immaterial.

We have not recorded an ARO associated with the Creole Trail Pipeline or the Corpus Christi Pipeline. We believe that it is not feasible to predict when the natural gas transportation services provided by the Creole Trail Pipeline or the Corpus Christi Pipeline will no longer be utilized. In addition, our right-of-way agreements associated with the Creole Trail Pipeline and the Corpus Christi Pipeline have no stipulated termination dates. We intend to operate the Creole Trail Pipeline and the Corpus Christi Pipeline as long as supply and demand for natural gas exists in the United States and intend to maintain it regularly.


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



Share-based Compensation

We have awarded share-based compensation in the form of stock, restricted stock, restricted stock units, performance stock units and phantom units that are more fully described in Note 16—Share-based Compensation. We recognize share-based compensation based upon the estimated fair value of awards. The recognition period for these costs begins at either the applicable service inception date or grant date and continues throughout the requisite service period. For equity-classified share-based compensation awards (which include stock, restricted stock, restricted stock units and performance stock units to employees and non-employee directors), compensation cost is recognized based on the grant-date fair value reduced by the present value of dividends expected to be paid on the underlying shares during the requisite service period, discounted at the appropriate risk-free interest rate and not subsequently remeasured. The fair value is recognized as expense (net of any capitalization) using the straight-line basis for awards that vest based solely on service conditions and using the accelerated recognition method for awards that vest based on performance conditions. For awards with both time and performance-based conditions, we generally recognize compensation cost based on the probable outcome of the performance condition at each reporting period. For liability-classified share-based compensation awards (which include phantom units), compensation cost is initially recognized on the grant date using estimated payout levels, and subsequently adjusted quarterly to reflect the updated estimated payout levels based on the changes in the our stock price. We account for forfeitures as they occur.

Non-controlling Interests

When we consolidate a subsidiary, we include 100% of the assets, liabilities, revenues and expenses of the subsidiary in our Consolidated Financial Statements, even if we own less than 100% of the subsidiary. Non-controlling interests represent third-party ownership in the net assets of our consolidated subsidiaries and are presented as a component of equity. Changes in our ownership interests in subsidiaries that do not result in deconsolidation are generally recognized within equity. See Note 10—Non-controlling Interest for additional details about our non-controlling interest.

Income Taxes

Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the tax basis of assets and liabilities and their reported amounts in the Consolidated Financial Statements. Deferred tax assets and liabilities are included in the Consolidated Financial Statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the current period’s provision for income taxes. A valuation allowance is recorded to reduce the carrying value of our deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will expire before realization of the benefit or future deductibility is not probable.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the tax position.

Net Loss Per Share

Net loss per share (“EPS”) is computed in accordance with GAAP. Basic EPS excludes dilution and is computed by dividing net income (loss) 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) 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 and were dilutive. 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.

Business Segment

During the first quarter of 2017, we finalized organizational changes to simplify our corporate structure, improve our operational efficiencies and implement a strategy for sustainable, long-term stockholder value creation through financially disciplined development, construction, operation and investment.  As a result of these efforts, we revised the way we manage our business, which resulted in a change to our reportable segments. We previously had two reportable segments: LNG terminal segment and LNG and natural gas marketing segment. We have now determined that we operate as a single operating and reportable segment. Our chief operating decision maker makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis in the delivery of an integrated source of LNG to our customers.

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




NOTE 3—RESTRICTED CASH
 
Restricted cash consists of funds that are contractually restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on our Consolidated Balance Sheets. As of December 31, 2017 and 2016, restricted cash consisted of the following (in millions):
 
 
December 31,
 
 
2017
 
2016
Current restricted cash
 
 
 
 
SPL Project
 
$
544

 
$
358

Cheniere Partners and cash held by guarantor subsidiaries
 
1,045

 
247

CCL Project
 
227

 
197

Cash held by our subsidiaries restricted to Cheniere
 
64

 
58

Total current restricted cash
 
$
1,880

 
$
860

 
 
 
 
 
Non-current restricted cash
 
 
 
 
CCL Project
 
$

 
$
73

Other
 
11

 
18

Total non-current restricted cash
 
$
11

 
$
91


In February 2016, Cheniere Partners entered into the $2.8 billion credit facilities (the “2016 CQP Credit Facilities”). Cheniere Partners, as well as Cheniere Investments, SPLNG and CTPL as Cheniere Partners’ guarantor subsidiaries, are subject to limitations on the use of cash under the terms of the 2016 CQP Credit Facilities and the related depositary agreement governing the extension of credit to Cheniere Partners. Specifically, Cheniere Partners, Cheniere Investments, SPLNG and CTPL may only withdraw funds from collateral accounts held at a designated depositary bank on a monthly basis and for specific purposes, including for the payment of operating expenses. In addition, distributions and capital expenditures may only be made quarterly and are subject to certain restrictions.

NOTE 4—ACCOUNTS AND OTHER RECEIVABLES

As of December 31, 2017 and 2016, accounts and other receivables consisted of the following (in millions):
 
 
December 31,
 
 
2017
 
2016
Trade receivables
 
 
 
 
SPL
 
$
185

 
$
88

Cheniere Marketing
 
163

 
121

Other accounts receivable
 
21

 
9

Total accounts and other receivables
 
$
369

 
$
218


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

NOTE 5—INVENTORY

As of December 31, 2017 and 2016, inventory consisted of the following (in millions):
 
 
December 31,
 
 
2017
 
2016
Natural gas
 
$
17

 
$
15

LNG
 
44

 
50

LNG in-transit
 
130

 
58

Materials and other
 
52

 
37

Total inventory
 
$
243

 
$
160



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



NOTE 6—PROPERTY, PLANT AND EQUIPMENT
 
Property, plant and equipment, net consists of LNG terminal costs and fixed assets and other, as follows (in millions):
 
 
December 31,
 
 
2017
 
2016
LNG terminal costs
 
 
 
 
LNG terminal
 
$
12,687

 
$
7,978

LNG terminal construction-in-process
 
11,932

 
12,995

LNG site and related costs
 
86

 
41

Accumulated depreciation
 
(882
)
 
(555
)
Total LNG terminal costs, net
 
23,823

 
20,459

Fixed assets and other
 
 

 
 

Computer and office equipment
 
14

 
13

Furniture and fixtures
 
19

 
17

Computer software
 
92

 
85

Leasehold improvements
 
41

 
43

Land
 
59

 
61

Other
 
16

 
22

Accumulated depreciation
 
(86
)
 
(65
)
Total fixed assets and other, net
 
155

 
176

Property, plant and equipment, net
 
$
23,978

 
$
20,635


Depreciation expense during the years ended December 31, 2017, 2016 and 2015 was $354 million, $173 million and $82 million, respectively.

We realized offsets to LNG terminal costs of $320 million and $214 million in the years ended December 31, 2017 and 2016, respectively, that were related to the sale of commissioning cargoes because these amounts were earned or loaded prior to the start of commercial operations of the respective Train of the SPL Project, during the testing phase for its construction.

LNG Terminal Costs

The Sabine Pass LNG terminal is depreciated using the straight-line depreciation method applied to groups of LNG terminal assets with varying useful lives. The identifiable components of the Sabine Pass LNG terminal with similar estimated useful lives have a depreciable range between 6 and 50 years, as follows:
Components
 
Useful life (yrs)
LNG storage tanks
 
50
Natural gas pipeline facilities
 
40
Marine berth, electrical, facility and roads
 
35
Regasification processing equipment
 
30
Sendout pumps
 
20
Liquefaction processing equipment
 
6-50
Other
 
15-30
Fixed Assets and Other

Our fixed assets and other are recorded at cost and are depreciated on a straight-line method based on estimated lives of the individual assets or groups of assets.


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



NOTE 7—DERIVATIVE INSTRUMENTS
 
We have entered into the following derivative instruments that are reported at fair value:
interest rate swaps to hedge the exposure to volatility in a portion of the floating-rate interest payments under certain credit facilities (“Interest Rate Derivatives”);
commodity derivatives consisting of natural gas supply contracts for the commissioning and operation of the SPL Project and the CCL Project (“Physical Liquefaction Supply Derivatives”) and associated economic hedges (“Financial Liquefaction Supply Derivatives,” and collectively with the Physical Liquefaction Supply Derivatives, the “Liquefaction Supply Derivatives”);
financial derivatives to hedge the exposure to the commodity markets in which we have contractual arrangements to purchase or sell physical LNG (“LNG Trading Derivatives”); and
foreign currency exchange (“FX”) contracts to hedge exposure to currency risk associated with both LNG Trading Derivatives and operations in countries outside of the United States (“FX Derivatives”).
We recognize our derivative instruments as either assets or liabilities and measure those instruments at fair value. None of our derivative instruments are designated as cash flow hedging instruments, and changes in fair value are recorded within our Consolidated Statements of Operations to the extent not utilized for the commissioning process.

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 December 31, 2017 and 2016, which are classified as derivative assets, non-current derivative assets, derivative liabilities or non-current derivative liabilities in our Consolidated Balance Sheets (in millions).
 
Fair Value Measurements as of
 
December 31, 2017
 
December 31, 2016
 
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
SPL Interest Rate Derivatives liability
$

 
$

 
$

 
$

 
$

 
$
(6
)
 
$

 
$
(6
)
CQP Interest Rate Derivatives asset

 
21

 

 
21

 

 
13

 

 
13

CCH Interest Rate Derivatives liability

 
(32
)
 

 
(32
)
 

 
(86
)
 

 
(86
)
Liquefaction Supply Derivatives asset (liability)
2

 
10

 
43

 
55

 
(4
)
 
(2
)
 
79

 
73

LNG Trading Derivatives asset (liability)
(13
)
 
5

 

 
(8
)
 
2

 
(5
)
 

 
(3
)
FX Derivatives liability

 
(1
)
 

 
(1
)
 

 

 

 


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 market based approach incorporating present value techniques, as needed, using observable commodity price curves, when available, and other relevant data. We value our FX Derivatives with a market approach using observable FX rates and other relevant data.

The fair value of our Physical Liquefaction Supply Derivatives is predominantly driven by market commodity basis prices and our assessment of the associated conditions precedent, including evaluating whether the respective market is available as pipeline infrastructure is developed. Upon the satisfaction of conditions precedent, including completion and placement into service of relevant pipeline infrastructure to accommodate marketable physical gas flow, we recognize a gain or loss based on the fair value of the respective natural gas supply contracts.

We include a portion of our Physical Liquefaction Supply Derivatives as Level 3 within the valuation hierarchy as the fair value is developed through the use of internal models which may be impacted by inputs that are unobservable in the marketplace. The curves used to generate the fair value of our Physical Liquefaction Supply Derivatives are based on basis adjustments applied to forward curves for a liquid trading point. In addition, there may be observable liquid market basis information in the near term,

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



but terms of a Physical Liquefaction Supply Derivatives contract may exceed the period for which such information is available, resulting in a Level 3 classification. In these instances, the fair value of the contract incorporates extrapolation assumptions made in the determination of the market basis price for future delivery periods in which applicable commodity basis prices were either not observable or lacked corroborative market data. As of December 31, 2017, some of our Physical Liquefaction Supply Derivatives existed within markets for which the pipeline infrastructure is under development to accommodate marketable physical gas flow.

The Level 3 fair value measurements of our Physical Liquefaction Supply Derivatives could be materially impacted by a significant change in certain natural gas market basis spreads due to the contractual notional amount represented by our Level 3 positions, which is a substantial portion of our overall Physical Liquefaction Supply portfolio. The following table includes quantitative information for the unobservable inputs for our Level 3 Physical Liquefaction Supply Derivatives as of December 31, 2017:
 
 
Net Fair Value Asset
(in millions)
 
Valuation Approach
 
Significant Unobservable Input
 
Significant Unobservable Inputs Range
Physical Liquefaction Supply Derivatives
 
$43
 
Market approach incorporating present value techniques
 
Basis Spread
 
$(0.703) - $0.432

The following table shows the changes in the fair value of our Level 3 Physical Liquefaction Supply Derivatives during the years ended December 31, 2017, 2016 and 2015 (in millions):
 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
Balance, beginning of period
 
$
79

 
$
32

 
$

Realized and mark-to-market gains (losses):
 
 
 
 
 
 
Included in cost of sales (1)
 
(37
)
 
48

 
32

Purchases and settlements:
 
 
 
 
 
 
Purchases
 
14

 
1

 

Settlements (1)
 
(12
)
 
(2
)
 

Transfers out of Level 3
 
(1
)
 

 

Balance, end of period
 
$
43

 
$
79

 
$
32

Change in unrealized gains relating to instruments still held at end of period
 
$
(37
)
 
$
49

 
$
32

 
    
(1)
Does not include the decrease in fair value of $1 million related to the realized gains capitalized during the year ended December 31, 2016.
Derivative assets and liabilities arising from our derivative contracts with the same counterparty are reported on a net basis, as all counterparty derivative contracts provide for net settlement. The use of derivative instruments exposes us to counterparty credit risk, or the risk that a counterparty will be unable to meet its commitments in instances when our derivative instruments are in an asset position. Additionally, we evaluate our own ability to meet our commitments in instances where our derivative instruments are in a liability position. Our derivative instruments are subject to contractual provisions which provide for the unconditional right of set-off for all derivative assets and liabilities with a given counterparty in the event of default.

Interest Rate Derivatives

SPL had entered into interest rate swaps (“SPL Interest Rate Derivatives”) to protect against volatility of future cash flows and hedge a portion of the variable interest payments on the credit facilities it entered into in June 2015 (the “2015 SPL Credit Facilities”), based on a portion of the expected outstanding borrowings over the term of the 2015 SPL Credit Facilities. In March 2017, SPL settled the SPL Interest Rate Derivatives and recognized a derivative loss of $7 million in conjunction with the termination of approximately $1.6 billion of commitments under the 2015 SPL Credit Facilities, as discussed in Note 12—Debt.

CCH has entered into interest rate swaps (“CCH Interest Rate Derivatives”) to protect against volatility of future cash flows and hedge a portion of the variable interest payments on its credit facility (the “2015 CCH Credit Facility”), based on a portion of the expected outstanding borrowings over the term of the 2015 CCH Credit Facility. In May 2017, CCH settled a portion of the CCH Interest Rate Derivatives and recognized a derivative loss of $13 million in conjunction with the termination of approximately $1.4 billion of commitments under the 2015 CCH Credit Facility, as discussed in Note 12—Debt.


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



Cheniere Partners has entered into interest rate swaps (“CQP Interest Rate Derivatives”) to protect against volatility of future cash flows and hedge a portion of the variable interest payments on the 2016 CQP Credit Facilities, based on a portion of the expected outstanding borrowings over the term of the 2016 CQP Credit Facilities.

As of December 31, 2017, we had the following Interest Rate Derivatives outstanding:
 
 
Initial Notional Amount
 
Maximum Notional Amount
 
Effective Date
 
Maturity Date
 
Weighted Average Fixed Interest Rate Paid
 
Variable Interest Rate Received
CQP Interest Rate Derivatives
 
$225 million
 
$1.3 billion
 
March 22, 2016
 
February 29, 2020
 
1.19%
 
One-month LIBOR
CCH Interest Rate Derivatives
 
$29 million
 
$4.9 billion
 
May 20, 2015
 
May 31, 2022
 
2.29%
 
One-month LIBOR

The following table shows the fair value and location of our Interest Rate Derivatives on our Consolidated Balance Sheets (in millions):
 
 
December 31, 2017
 
December 31, 2016
 
 
SPL Interest Rate Derivatives
 
CQP Interest Rate Derivatives
 
CCH Interest Rate Derivatives
 
Total
 
SPL Interest Rate Derivatives
 
CQP Interest Rate Derivatives
 
CCH Interest Rate Derivatives
 
Total
Balance Sheet Location
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
$

 
$
7

 
$

 
$
7

 
$

 
$

 
$

 
$

Non-current derivative assets
 

 
14

 
3

 
17

 

 
16

 

 
16

Total derivative assets
 

 
21

 
3

 
24

 

 
16

 

 
16

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities
 

 

 
(20
)
 
(20
)
 
(4
)
 
(3
)
 
(43
)
 
(50
)
Non-current derivative liabilities
 

 

 
(15
)
 
(15
)
 
(2
)
 

 
(43
)
 
(45
)
Total derivative liabilities
 

 

 
(35
)
 
(35
)
 
(6
)
 
(3
)
 
(86
)
 
(95
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative asset (liability), net
 
$

 
$
21

 
$
(32
)
 
$
(11
)
 
$
(6
)
 
$
13

 
$
(86
)
 
$
(79
)

The following table shows the changes in the fair value and settlements of our Interest Rate Derivatives recorded in derivative gain (loss), net on our Consolidated Statements of Operations during the years ended December 31, 2017, 2016 and 2015 (in millions):
 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
SPL Interest Rate Derivatives loss
 
$
(2
)
 
$
(6
)
 
$
(42
)
CQP Interest Rate Derivatives gain
 
6

 
12

 

CCH Interest Rate Derivatives gain (loss)
 
3

 
(16
)
 
(162
)

Commodity Derivatives

Liquefaction Supply Derivatives

SPL and CCL have entered into index-based physical natural gas supply contracts and associated economic hedges, if applicable, to purchase natural gas for the commissioning and operation of the SPL Project and the CCL Project. The terms of the noncurrent physical natural gas supply contracts range from approximately one to seven years, most of which commence upon the satisfaction of certain conditions precedent, if not already met, such as the date of first commercial delivery of specified Trains of the SPL Project and the CCL Project.

Our Financial Liquefaction Supply Derivatives are executed through over-the-counter contracts which are subject to nominal credit risk as these transactions are settled on a daily margin basis with investment grade financial institutions. We are required by these financial institutions to use margin deposits as credit support for our Financial Liquefaction Supply Derivatives activities.

18


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




LNG Trading Derivatives

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 to economically hedge exposure to the commodity markets in which we have contractual arrangements to purchase or sell physical LNG. We have entered into LNG Trading Derivatives to secure a fixed price position to minimize future cash flow variability associated with LNG purchase and sale transactions.

The following table shows the fair value and location of our Liquefaction Supply Derivatives and LNG Trading Derivatives (collectively, “Commodity Derivatives”) on our Consolidated Balance Sheets (in millions, except notional amount):
 
December 31, 2017
 
December 31, 2016
 
Liquefaction Supply Derivatives (1)
 
LNG Trading Derivatives (2)
 
Total
 
Liquefaction Supply Derivatives (1)
 
LNG Trading Derivatives (2)
 
Total
Balance Sheet Location
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
$
41

 
$
9

 
$
50

 
$
13

 
$
7

 
$
20

Non-current derivative assets
17

 

 
17

 
67

 

 
67

Total derivative assets
58

 
9

 
67

 
80

 
7

 
87

 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities

 
(17
)
 
(17
)
 
(7
)
 
(10
)
 
(17
)
Non-current derivative liabilities
(3
)
 

 
(3
)
 

 

 

Total derivative liabilities
(3
)
 
(17
)
 
(20
)
 
(7
)
 
(10
)
 
(17
)
 
 
 
 
 
 
 
 
 
 
 
 
Derivative asset (liability), net
$
55

 
$
(8
)
 
$
47

 
$
73

 
$
(3
)
 
$
70

 
 
 
 
 
 
 
 
 
 
 
 
Notional amount (in TBtu) (3)
2,539

 
25

 
 
 
1,117

 

 
 
 
    
(1)
Does not include collateral call of $1 million and collateral deposit of $6 million for such contracts, which are included in other current assets in our Consolidated Balance Sheets as of December 31, 2017 and 2016, respectively.
(2)
Does not include collateral of $28 million and $10 million deposited for such contracts, which are included in other current assets in our Consolidated Balance Sheets as of December 31, 2017 and 2016, respectively.
(3)
SPL had secured up to approximately 2,214 TBtu and 1,994 TBtu of natural gas feedstock through natural gas supply contracts as of December 31, 2017 and 2016, respectively. CCL has secured up to approximately 2,024 TBtu and zero TBtu of natural gas feedstock through natural gas supply contracts, a portion of which is subject to the achievement of certain project milestones and other conditions precedent, as of December 31, 2017 and 2016, respectively.

The following table shows the changes in the fair value, settlements and location of our Commodity Derivatives recorded on our Consolidated Statements of Operations during the years ended December 31, 2017, 2016 and 2015 (in millions):
 
Statement of Operations Location (1)
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
LNG Trading Derivatives gain (loss)
LNG revenues
 
$
(44
)
 
$
(4
)
 
1

Liquefaction Supply Derivatives loss (gain) (2)
Cost (cost recovery) of sales
 
24

 
(42
)
 
(33
)
 
(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 and selling, general and administrative expenses related to operations in countries outside of the United States.

19


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




The following table shows the fair value and location of our FX Derivatives on our Consolidated Balance Sheets (in millions):
 
 
 
Fair Value Measurements as of
 
Balance Sheet Location
 
December 31, 2017
 
December 31, 2016
FX Derivatives
Derivative assets
 
$

 
$
4

FX Derivatives
Derivative liabilities
 

 
(4
)
FX Derivatives
Non-current derivative liabilities
 
(1
)
 


The total notional amount of our FX Derivatives was $27 million and $11 million as of December 31, 2017 and 2016, respectively.
    
The following table shows the changes in the fair value of our FX Derivatives recorded on our Consolidated Statements of Operations during the years ended December 31, 2017, 2016 and 2015 (in millions):
 
 
 
Year Ended December 31,
 
Statement of Operations Location
 
2017
 
2016
 
2015
FX Derivatives loss
LNG revenues
 
$
(1
)
 
$

 
$

FX Derivatives loss
Other income
 

 
(1
)
 


Balance Sheet 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):
 
 
Gross Amounts Recognized
 
Gross Amounts Offset in the Consolidated Balance Sheets
 
Net Amounts Presented in the Consolidated Balance Sheets
Offsetting Derivative Assets (Liabilities)
 
 
 
As of December 31, 2017
 
 
 
 
 
 
CQP Interest Rate Derivatives
 
$
21

 
$

 
$
21

CCH Interest Rate Derivatives
 
3

 

 
3

CCH Interest Rate Derivatives
 
(35
)
 

 
(35
)
Liquefaction Supply Derivatives
 
64

 
(6
)
 
58

Liquefaction Supply Derivatives
 
(3
)
 

 
(3
)
LNG Trading Derivatives
 
9

 

 
9

LNG Trading Derivatives
 
(37
)
 
20

 
(17
)
FX Derivatives
 
(1
)
 

 
(1
)
As of December 31, 2016
 
 
 
 
 


SPL Interest Rate Derivatives
 
$
(6
)
 
$

 
$
(6
)
CQP Interest Rate Derivatives
 
16

 

 
16

CQP Interest Rate Derivatives
 
(3
)
 

 
(3
)
CCH Interest Rate Derivatives
 
(95
)
 
9

 
(86
)
Liquefaction Supply Derivatives
 
82

 
(2
)
 
80

Liquefaction Supply Derivatives
 
(11
)
 
4

 
(7
)
LNG Trading Derivatives
 
21

 
(15
)
 
6

LNG Trading Derivatives
 
(17
)
 
8

 
(9
)
FX Derivatives
 
5

 
(1
)
 
4

FX Derivatives
 
(4
)
 

 
(4
)


20


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



NOTE 8—OTHER NON-CURRENT ASSETS

As of December 31, 2017 and 2016, other non-current assets, net consisted of the following (in millions):
 
 
December 31,
 
 
2017
 
2016
Advances made under EPC and non-EPC contracts
 
$
26

 
$
69

Advances made to municipalities for water system enhancements
 
97

 
99

Advances and other asset conveyances to third parties to support LNG terminals
 
48

 
53

Tax-related payments and receivables
 
29

 
31

Equity method investments
 
64

 
10

Other
 
24

 
40

Total other non-current assets, net
 
$
288

 
$
302


Equity Method Investments

As of December 31, 2016, our equity method investments consisted of interests in privately-held companies. During the second quarter of 2017, we acquired an equity interest in Midship Holdings, LLC (“Midship Holdings”), which manages the business and affairs of Midship Pipeline Company, LLC (“Midship Pipeline”). Midship Pipeline is pursuing the development, construction, operation and maintenance of an approximately 230-mile natural gas pipeline project (the “Midship Project”) that connects new production in the Anadarko Basin to Gulf Coast markets. Midship Holdings entered into agreements with investment funds managed by EIG Global Energy Partners (“EIG”) under which EIG-managed funds committed to make an investment of up to $500 million (the “EIG Investment”) in the Midship Project, subject to the terms and conditions contained in the applicable agreements. The EIG Investment, when combined with equity contributed by us, is intended to ensure the Midship Project has the equity funding expected to be required to develop and construct the project. Midship Holdings requires acceptable financing arrangements and regulatory and other approvals before construction of the proposed Midship Project commences.

We have determined that Midship Holdings is a variable interest entity (“VIE”) because it is thinly capitalized at formation such that the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support. We do not consolidate Midship Holdings because we do not have power to direct the activities that most significantly impact its economic performance. We continually monitor both consolidated and unconsolidated VIEs to determine if any events have occurred that could cause a change in our identification of a VIE or determination of the primary beneficiary to a VIE. We account for our investment in Midship Holdings under the equity method as we have the ability to exercise significant influence over the operating and financial policies of Midship Holdings through our non-controlling voting rights on its board of managers. Our investment in Midship Holdings at December 31, 2017 was $55 million. Obligations to make additional investments in Midship Holdings are not significant and we have not provided financial support to Midship Holdings beyond amounts contractually required.

Cheniere LNG O&M Services, LLC (“O&M Services”), our wholly owned subsidiary, provides the development, construction, operation and maintenance services associated with the Midship Project pursuant to agreements in which O&M Services receives an agreed upon fee and reimbursement of costs incurred. O&M Services recorded $3 million of income in other—related party during the year ended December 31, 2017 and $2 million of accounts receivable—related party as of December 31, 2017 for services provided to Midship Pipeline under these agreements. CCL has entered into transportation precedent agreements with Midship Pipeline to secure firm pipeline transportation capacity for a period of 10 years following commencement of the Midship Project.

NOTE 9—VARIABLE INTEREST ENTITIES

Cheniere Holdings
Cheniere Holdings is a limited liability company formed by us in 2013 to hold our Cheniere Partners limited partner interests. As of December 31, 2017 and 2016, we owned 82.7% and 82.6%, respectively, of Cheniere Holdings as well as the director voting share. The director voting share is the sole share entitled to vote in the election of Cheniere Holdings’ board of directors and allows us to remove members of the board of directors at any time and for any reason. If we cease to own greater than 25% of the common shares of Cheniere Holdings or if we choose to relinquish the director voting share, the director voting share will be extinguished.


21


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



The board of directors makes all major operating and financial decisions on behalf of Cheniere Holdings. Because ownership of the director voting share allows us to control Cheniere Holdings, irrespective of our majority ownership interest, and the director voting share cannot be removed from our control by the other equity holders of Cheniere Holdings, we have determined that Cheniere Holdings is a variable interest entity. We consolidate Cheniere Holdings in our Consolidated Financial Statements as we have determined that we are its primary beneficiary.

Cheniere Partners
Cheniere Partners is a limited partnership formed by us in 2006 to own and operate the Sabine Pass LNG terminal and related assets. As a result of the mandatory conversion of Cheniere Partners’ Class B units (“Class B units”) on August 2, 2017, as of December 31, 2017, Cheniere Holdings owned a 48.6% limited partner interest in Cheniere Partners in the form of 104.5 million common units and 135.4 million subordinated units, with the remaining non-controlling interest held by Blackstone CQP Holdco LP (“Blackstone CQP Holdco”) and the public. Prior to the conversion, as of December 31, 2016, Cheniere Holdings owned a 55.9% limited partner interest in Cheniere Partners in the form of 12.0 million common units, 45.3 million Class B units and 135.4 million subordinated units, with the remaining non-controlling interest held by Blackstone CQP Holdco and the public. We also own 100% of the general partner interest and the incentive distribution rights in Cheniere Partners.

Cheniere Partners GP, our wholly owned subsidiary, is the general partner of Cheniere Partners. In 2012, Cheniere Partners, Cheniere and Blackstone CQP Holdco entered into a unit purchase agreement (the “Blackstone Unit Purchase Agreement”) whereby Cheniere Partners sold 100.0 million Class B units to Blackstone CQP Holdco in a private placement. The board of directors of Cheniere Partners GP was modified to include three directors appointed by Blackstone CQP Holdco, four directors appointed by us and four independent directors mutually agreed upon by Blackstone CQP Holdco and us and appointed by us. In addition, we provided Blackstone CQP Holdco with a right to maintain one board seat on our Board of Directors (our “Board”). A quorum of Cheniere Partners GP directors consists of a majority of all directors, including at least two directors appointed by Blackstone CQP Holdco, two directors appointed by us and two independent directors. Blackstone CQP Holdco will no longer be entitled to appoint Cheniere Partners GP directors in the event that Blackstone CQP Holdco’s ownership in Cheniere Partners is less than: (1) 20% of outstanding common units, subordinated units and Class B units and (2) 50.0 million Class B units.

As a result of contractual changes in the governance of Cheniere Partners GP in connection with the Blackstone Unit Purchase Agreement, we have determined that Cheniere Partners GP is a variable interest entity and that we, as the holder of the equity at risk, do not have a controlling financial interest due to the rights held by Blackstone CQP Holdco. However, we continue to consolidate Cheniere Partners as a result of Blackstone CQP Holdco’s right to maintain one board seat on our Board which creates a de facto agency relationship between Blackstone CQP Holdco and us. GAAP requires that when a de facto agency relationship exists, one of the members of the de facto agency relationship must consolidate the variable interest entity based on certain criteria. As a result, we consolidate Cheniere Partners in our Consolidated Financial Statements.

NOTE 10—NON-CONTROLLING INTEREST
 
Cheniere Holdings was formed by us in 2013 to hold our Cheniere Partners limited partner interests. As of December 31, 2017 and 2016, we owned 82.7% and 82.6%, respectively, of Cheniere Holdings as well as the director voting share, with the remaining non-controlling interest held by the public. In December 2016, we increased our ownership percentage of Cheniere Holdings by acquiring additional publicly-owned shares of Cheniere Holdings in exchange with unregistered shares of our common stock.

Our ownership of Cheniere Partners interests is further discussed in Note 9—Variable Interest Entity.

NOTE 11—ACCRUED LIABILITIES
  
As of December 31, 2017 and 2016, accrued liabilities consisted of the following (in millions): 
 
 
December 31,
 
 
2017
 
2016
Interest costs and related debt fees
 
$
397

 
$
273

Compensation and benefits
 
141

 
56

LNG terminals and related pipeline costs
 
490

 
284

Other accrued liabilities
 
50

 
24

Total accrued liabilities
 
$
1,078

 
$
637


22


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



 
NOTE 12—DEBT
 
As of December 31, 2017 and 2016, our debt consisted of the following (in millions): 
 
 
December 31,
 
 
2017
 
2016
Long-term debt:
 
 
 
 
SPL
 
 
 


5.625% Senior Secured Notes due 2021 (“2021 SPL Senior Notes”), net of unamortized premium of $6 and $7
 
$
2,006

 
$
2,007

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

 
1,000

5.625% Senior Secured Notes due 2023 (“2023 SPL Senior Notes”), net of unamortized premium of $5 and $6
 
1,505

 
1,506

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

 
2,000

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

 
2,000

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

 
1,500

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

 
1,500

4.200% Senior Secured Notes due 2028 (“2028 SPL Senior Notes”), net of unamortized discount of $1 and zero
 
1,349

 

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

 

2015 SPL Credit Facilities
 

 
314

Cheniere Partners
 
 
 
 
5.250% Senior Notes due 2025 (“2025 CQP Senior Notes”)
 
1,500

 

2016 CQP Credit Facilities
 
1,090

 
2,560

CCH
 
 
 
 
7.000% Senior Secured Notes due 2024 (“2024 CCH Senior Notes”)
 
1,250

 
1,250

5.875% Senior Secured Notes due 2025 (“2025 CCH Senior Notes”)
 
1,500

 
1,500

5.125% Senior Secured Notes due 2027 (“2027 CCH Senior Notes”)
 
1,500

 

2015 CCH Credit Facility
 
2,485

 
2,381

CCH HoldCo II
 
 
 
 
11.0% Convertible Senior Notes due 2025 (“2025 CCH HoldCo II Convertible Senior Notes”)
 
1,305

 
1,171

Cheniere
 
 
 
 
4.875% Convertible Unsecured Notes due 2021 (“2021 Cheniere Convertible Unsecured Notes”), net of unamortized discount of $121 and $146
 
1,040

 
960

4.25% Convertible Senior Notes due 2045 (“2045 Cheniere Convertible Senior Notes”), net of unamortized discount of $314 and $317
 
311

 
308

$750 million Cheniere Revolving Credit Facility (“Cheniere Revolving Credit Facility”)
 

 

Unamortized debt issuance costs
 
(305
)
 
(269
)
Total long-term debt, net
 
25,336

 
21,688

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

 
224

$350 million CCH Working Capital Facility (“CCH Working Capital Facility”)
 

 

Cheniere Marketing trade finance facilities
 

 
23

Total current debt
 

 
247

 
 
 
 
 
Total debt, net
 
$
25,336

 
$
21,935



23


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



Below is a schedule of future principal payments that we are obligated to make, based on current construction schedules, on our outstanding debt at December 31, 2017 (in millions): 
Years Ending December 31,
 
Principal Payments
2018
 
$

2019
 
55

2020
 
1,035

2021
 
3,161

2022
 
3,485

Thereafter
 
18,330

Total
 
$
26,066


Senior Notes

SPL Senior Notes

In February 2017, SPL issued an aggregate principal amount of $800 million of the 2037 SPL Senior Notes on a private placement basis in reliance on the exemption from registration provided for under Section 4(a)(2) of the Securities Act of 1933, as amended. In March 2017, SPL issued an aggregate principal amount of $1.35 billion, before discount, of the 2028 SPL Senior Notes. Net proceeds of the offerings of the 2037 SPL Senior Notes and the 2028 SPL Senior Notes were $789 million and $1.33 billion, respectively, after deducting the initial purchasers’ commissions (for the 2028 SPL Senior Notes) and estimated fees and expenses. The net proceeds of the 2037 SPL Senior Notes, after provisioning for incremental interest required during construction, were used to prepay the then outstanding borrowings of $369 million under the 2015 SPL Credit Facilities and, along with the net proceeds of the 2028 SPL Senior Notes, the remainder is being used to pay a portion of the capital costs in connection with the construction of Trains 1 through 5 of the SPL Project in lieu of the terminated portion of the commitments under the 2015 SPL Credit Facilities.
  
In connection with the issuance of the 2037 SPL Senior Notes and the 2028 SPL Senior Notes, SPL terminated the remaining available balance of $1.6 billion under the 2015 SPL Credit Facilities, resulting in a write-off of debt issuance costs associated with the