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UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i10-Q
i☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Exact name of registrant as specified in its charter)
iDelaware
i95-4352386
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i700 Milam Street, iSuite 1900
iHouston,
iTexasi77002
(Address of principal executive offices) (Zip Code)
(i713) i375-5000
(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
iCommon
Stock, $ 0.003 par value
iLNG
iNYSE 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. iYes☒ 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). iYes☒ 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.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
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 i☐ No ☒
As of April 26, 2023, the issuer had i242,958,190
shares of Common Stock outstanding.
As used in this quarterly report, the terms listed below have the following meanings:
Common Industry and Other Terms
ASU
Accounting Standards Update
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
FASB
Financial Accounting Standards Board
FERC
Federal
Energy Regulatory Commission
FID
final investment decision
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
IPM agreements
integrated production marketing agreements in which the gas producer sells to us gas on a global LNG index price, less a fixed liquefaction fee, shipping and other costs
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
SOFR
Secured
Overnight Financing Rate
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
The following diagram depicts our abbreviated legal entity structure as of March 31, 2023, 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, CQP.
Cost (recovery) of sales (excluding items shown separately below)
(i1,539)
i7,336
Operating
and maintenance expense
i444
i389
Selling,
general and administrative expense
i107
i96
Depreciation
and amortization expense
i297
i271
Development
expense
i10
i5
Total
operating costs and expenses (recovery)
(i681)
i8,097
Income
(loss) from operations
i7,991
(i613)
Other
income (expense)
Interest expense, net of capitalized interest
(i297)
(i349)
Gain
(loss) on modification or extinguishment of debt
i20
(i18)
Interest
rate derivative gain, net
i—
i3
Other
income, net
i37
i5
Total
other expense
(i240)
(i359)
Income
(loss) before income taxes and non-controlling interest
i7,751
(i972)
Less:
income tax provision (benefit)
i1,316
(i191)
Net
income (loss)
i6,435
(i781)
Less:
net income attributable to non-controlling interest
i1,001
i84
Net
income (loss) attributable to common stockholders
$
i5,434
$
(i865)
Net
income (loss) per share attributable to common stockholders—basic
$
i22.28
$
(i3.41)
Net
income (loss) per share attributable to common stockholders—diluted (1)
$
i22.10
$
(i3.41)
Weighted
average number of common shares outstanding—basic
i243.9
i254.0
Weighted
average number of common shares outstanding—diluted
i245.8
i254.0
(1)Earnings
per share in the table may not recalculate exactly due to rounding because it is calculated based on whole numbers, not the rounded numbers presented.
The accompanying notes are an integral part of these consolidated financial statements.
Trade
and other receivables, net of current expected credit losses
i929
i1,944
Inventory
i465
i826
Current
derivative assets
i78
i120
Margin deposits
i63
i134
Other
current assets
i70
i97
Total current assets
i5,048
i5,608
Property,
plant and equipment, net of accumulated depreciation
i31,747
i31,528
Operating
lease assets
i2,553
i2,625
Derivative
assets
i200
i35
Goodwill
i77
i77
Deferred
tax assets
i35
i864
Other
non-current assets, net
i605
i529
Total assets
$
i40,265
$
i41,266
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable
$
i93
$
i124
Accrued
liabilities
i1,328
i2,679
Current
debt, net of discount and debt issuance costs
i61
i813
Deferred revenue
i108
i234
Current
operating lease liabilities
i604
i616
Current
derivative liabilities
i1,292
i2,301
Other
current liabilities
i40
i28
Total current
liabilities
i3,526
i6,795
Long-term
debt, net of premium, discount and debt issuance costs
i23,928
i24,055
Operating
lease liabilities
i1,919
i1,971
Finance
lease liabilities
i487
i494
Derivative
liabilities
i4,407
i7,947
Deferred
tax liabilities
i388
i—
Other
non-current liabilities
i170
i175
Stockholders’
equity (deficit)
Preferred stock: $ii0.0001/
par value, ii5.0/ million shares
authorized, iinone/ issued
i—
i—
Common
stock: $ii0.003/ par value, ii480.0/
million shares authorized; i277.7 million shares and i276.7 million shares issued at March 31, 2023 and December
31, 2022, respectively
i1
i1
Treasury
stock: i34.5 million shares and i31.2 million shares at March 31, 2023 and December 31, 2022, respectively,
at cost
(i2,821)
(i2,342)
Additional
paid-in-capital
i4,328
i4,314
Accumulated
income (deficit)
i394
(i4,942)
Total
Cheniere stockholders’ equity (deficit)
i1,902
(i2,969)
Non-controlling
interest
i3,538
i2,798
Total
stockholders’ equity (deficit)
i5,440
(i171)
Total
liabilities and stockholders’ equity (deficit)
$
i40,265
$
i41,266
(1)Amounts
presented include balances held by our consolidated variable interest entity (“VIE”), CQP, as further discussed in Note 7—Non-controlling Interest and Variable Interest Entity. As of March 31, 2023, total assets and liabilities of CQP were $i18.4 billion and $i19.7
billion, respectively, including $i834 million of cash and cash equivalents and $i160 million of restricted cash and cash equivalents.
The
accompanying notes are an integral part of these consolidated financial statements.
NOTE
1—iNATURE OF OPERATIONS AND BASIS OF PRESENTATION
We operate itwo
natural gas liquefaction and export facilities located in Cameron Parish, Louisiana at Sabine Pass and near Corpus Christi, Texas (respectively, the “Sabine Pass LNG Terminal” and “Corpus Christi LNG Terminal”).
CQP owns the Sabine Pass LNG Terminal, which has natural gas liquefaction facilities consisting of isix operational Trains, for a total production capacity of approximately i30
mtpa of LNG (the “SPL Project”). The Sabine Pass LNG Terminal also has operational regasification facilities that include ifive LNG storage tanks, vaporizers and ithree
marine berths. The Sabine Pass LNG Terminal also includes a i94-mile pipeline owned by CTPL, a subsidiary of CQP, that interconnects our facilities with a number of large interstate and intrastate pipelines. As of March 31, 2023, we owned i100%
of the general partner interest and a i48.6% limited partner interest in CQP.
The Corpus Christi LNG Terminal currently has ithree
operational Trains for a total production capacity of approximately i15 mtpa of LNG, ithree LNG storage tanks and itwo
marine berths. Additionally, we are constructing an expansion of the Corpus Christi LNG Terminal (the “Corpus Christi Stage 3 Project”) for up to iseven midscale Trains with an expected total production capacity of over i10
mtpa of LNG. Through our subsidiary CCP, we also own a i21.5-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 Corpus Christi LNG Terminal and the Corpus Christi Stage 3 Project, the “CCL Project”).
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. In March 2023, certain of our subsidiaries submitted an application with the FERC under the Natural Gas Act for an expansion adjacent to the CCL Project consisting of itwo midscale Trains with an expected total production capacity of approximately i3
mtpa of LNG. In February 2023, certain subsidiaries of CQP initiated the pre-filing review process with the FERC under the National Environmental Policy Act for an expansion adjacent to the SPL Project consisting of up to ithree Trains with an expected total production capacity of approximately i20
mtpa of LNG. 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 positive FID.
i
Basis of Presentation
The accompanying unaudited Consolidated Financial Statements
of Cheniere have been prepared in accordance with GAAP for interim financial information and in accordance with Rule 10-01 of Regulation S-X and reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of the financial results for the interim periods presented. 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, 2022.
Results of operations for the three months ended
March 31, 2023 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 2023.
i
Recent Accounting Standards
ASU
2020-04
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. The temporary optional expedients under the standard became effective March 12, 2020 and will be available until December 31, 2024 following a subsequent amendment to the standard.
We
have various credit facilities indexed to LIBOR, as further described in Note 9—Debt. To date, we have amended certain of our credit facilities to incorporate a replacement rate or a fallback replacement rate indexed to SOFR as a result of the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
expected
LIBOR transition. We elected to apply the optional expedients as applicable to certain modified facilities; however, the impact of applying the optional expedients was not material, and we do not expect the transition to SOFR or other replacement rate indexes to have a material impact on our future cash flows. We will apply the optional expedients to qualifying contract modifications in the future; however, we do not expect the impact of such application to be material.
NOTE 2—iRESTRICTED
CASH AND CASH EQUIVALENTS
i
Restricted cash and cash equivalents consisted of the following (in millions):
Cash
held by our subsidiaries that is restricted to Cheniere
i242
i304
Total
restricted cash and cash equivalents
$
i495
$
i1,134
/
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—iTRADE
AND OTHER RECEIVABLES, NET OF CURRENT EXPECTED CREDIT LOSSES
i
Trade and other receivables, net of current expected credit losses consisted of the following (in millions):
(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.
NOTE 6—iDERIVATIVE INSTRUMENTS
We
have entered into the following derivative instruments:
•commodity derivatives consisting of natural gas and power supply contracts, including those under our IPM agreements, for the development, commissioning and operation of the Liquefaction Projects and associated economic hedges (collectively, “Liquefaction Supply Derivatives”);
•LNG derivatives in which we have contractual net settlement and economic hedges on 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 such changes are capitalized.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
i
The following table shows the fair value of our derivative instruments that are required to be measured at fair value on a
recurring basis (in millions):
We
value our Liquefaction Supply Derivatives and LNG Trading 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 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, but not limited to, evaluation of whether the respective market exists from the perspective of market participants as infrastructure is developed.
We
include a significant portion of our 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 and volatility.
The Level 3 fair value measurements of our natural gas positions within our Liquefaction Supply Derivatives could be materially impacted by a significant change in certain natural gas and international LNG prices. iThe
following table includes quantitative information for the unobservable inputs for our Level 3 Liquefaction Supply Derivatives as of March 31, 2023:
Net Fair Value Liability (in millions)
Valuation
Approach
Significant Unobservable Input
Range of Significant Unobservable Inputs / Weighted Average (1)
Liquefaction Supply Derivatives
$(i5,426)
Market
approach incorporating present value techniques
Henry Hub basis spread
$(i1.173) - $i0.370
/ $(i0.085)
Option pricing model
International LNG pricing spread, relative to Henry Hub (2)
i86%
- i574% / i178%
(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 Liquefaction Supply Derivatives.
Realized
and change in fair value gains (losses) included in net income (1):
Included in cost of sales, existing deals (2)
i4,097
(i3,540)
Included
in cost of sales, new deals (3)
i3
i—
Purchases
and settlements:
Purchases (4)
i—
(i3)
Settlements
(5)
i398
i156
Balance,
end of period
$
(i5,426)
$
(i7,423)
Favorable
(unfavorable) changes in fair value relating to instruments still held at the end of the period
$
i4,100
$
(i3,540)
(1)Does
not include the realized value associated with derivative instruments that settle through physical delivery, as settlement is equal to contractually fixed price from trade date multiplied by contractual volume. See settlements line item in this table.
(2)Impact to earnings on deals that existed at the beginning of the period and continue to exist at the end of the period.
(3)Impact to earnings on deals that were entered into during the reporting period and continue to exist at the end of the period.
(4)Includes any day one gain (loss) recognized during the reporting period on deals that were entered into during the reporting period which continue to exist at the end of the period, in addition to any derivative contracts
acquired from entities at a value other than zero on acquisition date, such as derivatives assigned or novated during the reporting period and continuing to exist at the end of the period.
(5)Roll-off in the current period of amounts recognized in our Consolidated Balance Sheets at the end of the previous period due to settlement of the underlying instruments in the current period.
/
All existing 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 those derivative contracts with the same counterparty and the unconditional contractual right of set-off 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 incorporate both our own nonperformance risk and the respective counterparty’s nonperformance risk in fair value measurements depending on the position of the derivative. 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.
Commodity Derivatives
SPL and CCL hold Liquefaction Supply Derivatives which are primarily indexed to the natural gas market and international LNG indices. The terms of the Liquefaction Supply Derivatives range up to approximately i15 years, some of which commence upon the satisfaction of certain events or states of affairs.
Cheniere
Marketing has historically entered into, and may from time to time enter into, LNG transactions that provide for contractual net settlement. Such transactions are accounted for as LNG Trading Derivatives along with financial commodity contracts in the form of swaps or futures. The terms of LNG Trading Derivatives range up to approximately ione year.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
i
The following table shows the notional amounts of our Liquefaction Supply Derivatives and LNG Trading Derivatives (collectively, “Commodity
Derivatives”):
(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 value associated with derivative instruments that settle through physical delivery.
/
FX Derivatives
Cheniere Marketing holds 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 ione year.
The total notional amount of our FX Derivatives was $i484
million and $i619 million as of March 31, 2023 and December 31, 2022, respectively.
i
The
following table shows the effect and location of our FX Derivatives recorded on our Consolidated Statements of Operations (in millions):
Gain
(Loss) Recognized in Consolidated Statements of Operations
(1)Does
not include collateral posted with counterparties by us of $i14 million and $i111 million as of March
31, 2023 and December 31, 2022, respectively, which are included in margin deposits in our Consolidated Balance Sheets and collateral posted by counterparties to us of $i8 million and izero
as of March 31, 2023 and December 31, 2022, respectively, which are included in other current liabilities on our Consolidated Balance Sheets.
(2)Does not include collateral posted with counterparties by us of $i49 million and $i23 million,
as of March 31, 2023 and December 31, 2022, respectively, which are included in margin deposits in our Consolidated Balance Sheets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
Consolidated
Balance Sheets Presentation
i
The following table shows the fair value of our derivatives outstanding on a gross and net basis (in millions) for our derivative instruments that are presented on a net basis on our Consolidated Balance Sheets:
NOTE
7—iNON-CONTROLLING INTEREST AND VARIABLE INTEREST ENTITY
CQP is accounted for as a consolidated VIE. We own a i48.6%
limited partner interest in CQP in the form of i239.9 million common units, with the remaining non-controlling limited partner interest held by Blackstone Inc., Brookfield Asset Management Inc. and the public. We also own i100%
of the general partner interest and the incentive distribution rights in CQP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
i
The
following table presents the summarized assets and liabilities (in millions) of CQP, which are included in our Consolidated Balance Sheets. The assets in the table below may only be used to settle obligations of CQP. 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 CQP only and exclude intercompany balances between CQP and Cheniere that eliminate in the Consolidated Financial Statements of Cheniere.
Working
capital revolving credit and letter of credit reimbursement agreement (the “SPL Working Capital Facility”)
i—
i—
Total
debt - SPL
i12,132
i12,132
CQP:
Senior
Notes:
i4.500% due 2029
i1,500
i1,500
i4.000%
due 2031
i1,500
i1,500
i3.25%
due 2032
i1,200
i1,200
Total
CQP Senior Notes
i4,200
i4,200
Credit
facilities (the “CQP Credit Facilities”)
i—
i—
Total
debt - CQP
i4,200
i4,200
CCH:
Senior
Secured Notes:
i7.000% due 2024 (the “2024 CCH Senior Notes”)
i—
i498
i5.875%
due 2025
i1,491
i1,491
i5.125%
due 2027
i1,201
i1,271
i3.700%
due 2029
i1,125
i1,361
i3.788%
weighted average rate due 2039
i2,541
i2,633
Total
CCH Senior Secured Notes
i6,358
i7,254
CCH
Credit Facility
i—
i—
Working
capital facility (the “CCH Working Capital Facility”) (1)
i—
i—
Total
debt - CCH
i6,358
i7,254
Cheniere:
i4.625%
Senior Secured Notes due 2028
i1,500
i1,500
Revolving
credit facility (the “Cheniere Revolving Credit Facility”)
i—
i—
Total
debt - Cheniere
i1,500
i1,500
Cheniere
Marketing: trade finance facilities (1)
i—
i—
Total
debt
i24,190
i25,086
Current
portion of long-term debt (2)
(i61)
(i813)
Long-term
portion of unamortized premium, discount and debt issuance costs, net
(i201)
(i218)
Total
long-term debt, net of premium, discount and debt issuance costs
$
i23,928
$
i24,055
(1)These
debt instruments are classified as short-term debt as we are required to reduce the aggregate outstanding principal amount of the CCH Working Capital Facility to zero for a period of five consecutive business days at least once each year, and the borrowings under the Cheniere Marketing trade finance facilities are required to be repaid within 90 days.
/
(2)As of March 31, 2023, $i61 million
of debt with contractual maturities of greater than one year was classified as current portion of long-term debt based on our intent and ability to repay the debt with cash that was on hand at March 31, 2023, including repurchases of debt subsequent to the balance sheet date and through April 26, 2023.
(1)The margin on the interest rate and the commitment fees is subject to change based on the applicable entity’s credit rating.
(2)The CCH Credit Facility matures the earlier of iJune 15, 2029
or itwo years after the substantial completion of the last Train of the Corpus Christi Stage 3 Project.
/
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. SPL, CQP and CCH are restricted from making distributions under agreements governing their respective indebtedness generally until, among other requirements, appropriate reserves have been established for debt service using cash or letters of credit and a historical debt service coverage ratio and projected debt service coverage ratio of at least i1.25:1.00
is satisfied.
As of March 31, 2023, each of our issuers was in compliance with all covenants related to their respective debt agreements.
Interest Expense
i
Total interest expense, net of capitalized interest, consisted of the following (in millions):
(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.
The estimated fair value of our credit facilities approximates the principal amount outstanding 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.
NOTE 10—iLEASES
Our leased assets consist primarily of LNG vessels leased under 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 certain of our vessel charters and tug vessels, which are classified as finance leases.
i
The following table shows the classification and location of our right-of-use assets and lease liabilities on our Consolidated Balance Sheets (in millions):
March
31,
December 31,
Consolidated Balance Sheets Location
2023
2022
Right-of-use assets—Operating
Operating lease assets
$
i2,553
$
i2,625
Right-of-use
assets—Financing
Property, plant and equipment, net of accumulated depreciation
i498
i511
Total
right-of-use assets
$
i3,051
$
i3,136
Current
operating lease liabilities
Current operating lease liabilities
$
i604
$
i616
Current
finance lease liabilities
Other current liabilities
i31
i28
Non-current
operating lease liabilities
Operating lease liabilities
i1,919
i1,971
Non-current
finance lease liabilities
Finance lease liabilities
i487
i494
Total
lease liabilities
$
i3,041
$
i3,109
/
i
The
following table shows the classification and location of our lease costs on our Consolidated Statements of Operations (in millions):
(1)Presented
in cost of sales, operating and maintenance expense or selling, general and administrative expense consistent with the use of the asset under lease.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
i
Future
annual minimum lease payments for operating and finance leases as of March 31, 2023 are as follows (in millions):
Years Ending December 31,
Operating Leases
Finance Leases
2023
$
i516
$
i49
2024
i670
i66
2025
i529
i71
2026
i396
i75
2027
i300
i77
Thereafter
i497
i427
Total
lease payments (1)
i2,908
i765
Less:
Interest
(i385)
(i247)
Present
value of lease liabilities
$
i2,523
$
i518
(1)Does
not include approximately $i3.3 billion of legally binding minimum payments primarily for vessel charters executed as of March 31, 2023, but will commence in future periods with fixed minimum lease terms of up to i15
years.
/
i
The following table shows the weighted-average remaining lease term and the weighted-average discount rate for our operating leases and finance leases:
(1)The
weighted average discount rate is impacted by certain finance leases that 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):
Cash
paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
i181
$
i151
Operating
cash flows from finance leases
i8
i2
Right-of-use
assets obtained in exchange for operating lease liabilities
i90
i7
/
LNG
Vessel Subcharters
We sublease certain LNG vessels under charter to third parties while retaining our existing obligation to the original lessor. All of our sublease arrangements have been assessed as operating leases. iThe following table shows the sublease income recognized in other revenues on our Consolidated Statements of Operations (in millions):
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):
Contract assets, net of current expected credit losses
$
i185
$
i186
/
i
The
following table reflects the changes in our contract liabilities, which we classify as deferred revenue and other non-current liabilities on our Consolidated Balance Sheets (in millions):
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. iThe
following table discloses the aggregate amount of the transaction price that is allocated to performance obligations that have not yet been satisfied:
(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. Additionally, we have excluded
variable consideration related to contracts where there is uncertainty that one or both of the parties will achieve certain milestones. Approximately i59% and i66%
of our LNG revenues from contracts included in the table above during the three months ended March 31, 2023 and 2022, respectively, were related to variable consideration received from customers. During the three months ended March 31, 2023 and 2022, approximately i7%
and i6%, respectively, 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.
Natural Gas Transportation and Storage Agreements (1) (2)
i18
i14
(1)Cheniere
LNG O&M Services, LLC (“O&M Services”), our wholly owned subsidiary, provides the development, construction, operation and maintenance services to Midship Pipeline Company, LLC (“Midship Pipeline”), a subsidiary of Midship Holdings, LLC whom we own an equity method investment in, pursuant to agreements in which O&M Services receives an agreed upon fee and reimbursement of costs incurred. O&M Services recorded $ii1/ million
of other receivables as of both March 31, 2023 and December 31, 2022 for services provided to Midship Pipeline under these agreements.
(2)CCL is party to natural gas transportation agreements with Midship Pipeline for the operation of the CCL Project. We recorded accrued liabilities of $ii1/
million as of both March 31, 2023 and December 31, 2022 with this related party.
/
Other Agreements
Interest in ADCC Pipeline, LLC and its wholly owned subsidiary (collectively, “ADCC Pipeline”)
In June 2022, we acquired a i30%
equity interest in ADCC Pipeline through our wholly owned subsidiary Cheniere ADCC Investments, LLC. ADCC Pipeline will develop, construct and operate an approximately i42-mile natural gas pipeline project (the “ADCC Pipeline Project”) connecting the Agua Dulce natural gas hub to the CCL Project. We currently have a future commitment of up to approximately $i93 million
to fund our equity interest, which commitment is subject to a condition precedent that has not yet been satisfied. Upon funding of such commitment, the investment will be recognized in our Consolidated Balance Sheets as an equity method investment.
Natural Gas Transportation Agreement with ADCC Pipeline
CCL is party to a natural gas transportation agreement with ADCC Pipeline for the operation of the CCL Project, with an initial term of i20 years with extension rights, which will
commence upon the completion of the ADCC Pipeline Project.
NOTE 13—iINCOME TAXES
We recorded an income tax provision of $i1.3 billion
and an income tax benefit of $i191 million during the three months ended March 31, 2023 and 2022, respectively, which was calculated using the annual effective tax rate method.
The effective tax rate was i17.0%
andi19.7% for the three months ended March 31, 2023 and 2022, respectively, and was less than the statutory tax rate primarily due to income allocated to non-controlling interest not taxable to Cheniere. The change in our effective tax rate between comparable periods was driven by discrete tax items, primarily related to stock-based compensation award vestings, which had a larger impact on our effective tax rate in 2022
due to lower pre-tax income.
We are not subject to the i15% corporate alternative minimum tax ("CAMT") in 2023 based on enacted law and regulatory guidance; however, our CAMT status for 2023 could change in the future, depending on new regulations or regulatory guidance issued by the U.S. Department of the Treasury.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(unaudited)
NOTE 14—iNET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
i
The
following table reconciles basic and diluted weighted average common shares outstanding and common stock dividends declared (in millions, except per share data):
Net
income (loss) attributable to common stockholders
$
i5,434
$
(i865)
Weighted
average common shares outstanding:
Basic
i243.9
i254.0
Dilutive
unvested stock
i1.9
i—
Diluted
i245.8
i254.0
Net
income (loss) per share attributable to common stockholders—basic
$
i22.28
$
(i3.41)
Net
income (loss) per share attributable to common stockholders—diluted (1)
$
i22.10
$
(i3.41)
Dividends
paid per common share
$
i0.395
$
i0.33
(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.
/
On April 28, 2023, we declared a quarterly dividend of $i0.395 per share of common stock that is payable on May
17, 2023 to stockholders of record as of the close of business on May 10, 2023.
i
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):
(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.
/
(2)The 2045 Cheniere Convertible Senior Notes were redeemed or converted in cash on January 5, 2022. However, the adoption of ASU 2020-06 on January 1, 2022 required a presumption of share settlement for the purpose of calculating the impact to diluted earnings per share during the period the notes were outstanding in 2022. Such impact was anti-dilutive as a result of the reported
net loss attributable to common stockholders during the 2022 period.
NOTE 15—iSHARE REPURCHASE PROGRAMS
On September 7, 2021, our board of directors (our “Board”) authorized a reset in the previously existing share repurchase program
to $i1.0 billion, inclusive of any amounts remaining under the previous authorization as of September 30, 2021, for an additional ithree years
beginning on October 1, 2021. On September 12, 2022, our Board authorized an increase in the existing share repurchase program by $i4.0 billion for an additional ithree
years, beginning on October 1, 2022. iThe following table presents information with respect to common stock repurchased under our share repurchase program (in millions, except per share data):
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 relating to Cheniere’s capital deployment, including intent, ability, extent, and timing of capital expenditures, debt repayment, dividends, share repurchases and execution on the capital allocation plan;
•statements regarding our future sources of liquidity and cash requirements;
•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; 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 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, 2022. 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:
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.
LNG is natural gas (methane) in liquid form. The LNG we produce is shipped all over the world, turned back into natural gas (called “regasification”) and then transported via pipeline to homes and businesses and used as an energy source that is essential for heating, cooking and other industrial uses. Natural gas is a cleaner-burning, abundant and affordable source of energy. When LNG is converted back to natural gas, it can be used instead of coal, which reduces the amount of
pollution traditionally produced from burning fossil fuels, like sulfur dioxide and particulate matter that enters the air we breathe. Additionally, compared to coal, it produces significantly fewer carbon emissions. By liquefying natural gas, we are able to reduce its volume by 600 times so that we can load it onto special LNG carriers designed to keep the LNG cold and in liquid form for efficient transport overseas.
We are the largest producer of LNG in the United States and the second largest LNG operator globally, based on the total production capacity of our liquefaction facilities, which totals approximately 45 mtpa as of March 31, 2023.
We own and operate a natural gas liquefaction and export facility located in Cameron Parish, Louisiana at
Sabine Pass (the “Sabine Pass LNG Terminal”), one of the largest LNG production facilities in the world, through our ownership interest in and management agreements with CQP, which is a publicly traded limited partnership that we formed in 2007. As of March 31, 2023, we owned 100% of the general partner interest and a48.6% limited partner interest in CQP. The Sabine Pass LNG Terminal has six operational Trains, for a total production capacity of approximately 30 mtpa of LNG (the “SPL Project”). The Sabine Pass LNG Terminal also has three marine berths, two of which can accommodate vessels with nominal capacity of up to 266,000 cubic meters and the third berth which can accommodate vessels with nominal capacity of up to 200,000 cubic meters, operational regasification facilities that include five LNG storage tanks with aggregate capacity of approximately
17 Bcfe and vaporizers with regasification capacity of approximately 4 Bcf/d. The Sabine Pass LNG Terminal also includes a 94-mile
pipeline owned by CTPL, a subsidiary of CQP, that interconnects our facilities to several interstate and intrastate pipelines (the “Creole Trail Pipeline”).
We also own and operate a natural gas liquefaction and export facility located near Corpus Christi, Texas (the “Corpus Christi LNG Terminal”) through CCL, which has natural gas liquefaction facilities consisting of three operational Trains for
a total production capacity of approximately 15 mtpa of LNG, 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. Additionally, we are constructing an expansion of the Corpus Christi LNG Terminal (the “Corpus Christi Stage 3 Project”) for up to seven midscale Trains with an expected total production capacity of over 10 mtpa of LNG. In June 2022, our board of directors (our “Board”) made a positive FID with respect to the Corpus Christi Stage 3 Project and issued a full notice to proceed with construction to Bechtel Energy Inc. (“Bechtel”) effective June 16, 2022. We also own and operate through CCP a 21.5-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 Corpus Christi LNG Terminal and the Corpus Christi Stage 3 Project, the “CCL Project”).
Our long-term customer arrangements form the foundation of our business and provide us with significant, stable, long-term cash flows. We have contracted substantially all of our anticipated production capacity under SPAs, in which our customers are generally required to pay a fixed fee with respect to the contracted volumes irrespective of their election to cancel or suspend deliveries of LNG cargoes, and under IPM agreements, in which the gas producer sells natural gas to us on a global LNG index price, less a fixed liquefaction fee, shipping and other costs. Through our SPAs and IPM agreements, we have contracted approximately 95% of the total anticipated production from the SPL Project and the CCL Project (collectively, the “Liquefaction Projects”)
through the mid-2030s, inclusive of contracts executed to support additional liquefaction capacity at the Corpus Christi LNG Terminal beyond the Corpus Christi Stage 3 Project. Excluding contracts with terms less than 10 years and contracts executed to support additional liquefaction capacity at the Corpus Christi LNG Terminal beyond the Corpus Christi Stage 3 Project, our SPAs and IPM agreements had approximately 16 years of weighted average remaining life as of March 31, 2023. We also market and sell LNG produced by the Liquefaction Projects that is not contracted by CCL or SPL through our integrated marketing function. The majority of our contracts
are fixed-priced, long-term SPAs consisting of a fixed fee per MMBtu of LNG plus a variable fee per MMBtu of LNG, with the variable fees generally structured to cover the cost of natural gas purchases and transportation and liquefaction fuel to produce LNG, thus limiting our exposure to fluctuations in U.S. natural gas prices. We continue to grow our portfolio of SPA and IPM agreements, and we believe that continued global demand for natural gas and LNG will provide a foundation for additional growth in our portfolio of customer contracts in the future.
We remain focused on safety, 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. In March 2023, certain of our subsidiaries submitted an application with the FERC under the Natural Gas Act (“NGA”) for an expansion adjacent to the CCL Project consisting of two midscale Trains with an expected total production capacity of approximately 3 mtpa of LNG (the “CCL Midscale Trains 8 & 9 Project”). Additionally, in February 2023, certain subsidiaries of CQP initiated the pre-filing review process with the FERC under the National Environmental Policy Act (“NEPA”) for an expansion adjacent
to the SPL Project consisting of up to three Trains with an expected total production capacity of approximately 20 mtpa of LNG (the “SPL Expansion Project”). The development of the CCL Midscale Trains 8 & 9 Project, the SPL Expansion Project 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 positive FID.
Additionally, we are committed to the responsible and proactive management of our most important environmental, social and governance (“ESG”) impacts, risks and opportunities. In 2022, we published Acting Today, Securing Tomorrow, our third Corporate Responsibility (“CR”) report, which details our approach and progress on ESG issues, including our collaboration
with natural gas midstream companies, technology providers and leading academic institutions on life-cycle assessment (“LCA”) models, quantification, monitoring, reporting and verification (“QMRV”) of greenhouse gas emissions and other research and development projects. We also co-founded and sponsored the Energy Emissions Modeling and Data Lab (“EEMDL”), a multidisciplinary research and education initiative led by the University of Texas at Austin in collaboration with Colorado State University and the Colorado School of Mines. In addition, we commenced providing Cargo Emissions Tags (“CE Tags”) to our long-term customers in June 2022 and joined the Oil and Gas Methane Partnership (“OGMP”) 2.0, the
United Nations Environment Programme’s (“UNEP”) flagship oil and gas methane emissions reporting and mitigation initiative, in October 2022. Our CR report is available at cheniere.com/our-responsibility/reporting-center. Information on our website, including the CR report, is not incorporated by reference into this Quarterly Report on Form 10-Q.
Overview of Significant Events
Our significant events since January 1,
2023 and through the filing date of this Form 10-Q include the following:
Strategic
•In March 2023, certain of our subsidiaries submitted an application with the FERC under the NGA for the CCL Midscale Trains 8 & 9 Project.
•In February 2023, certain subsidiaries of CQP initiated the pre-filing review process with the FERC under the NEPA for the SPL Expansion Project, and in April 2023, one of our subsidiaries executed a contract
with Bechtel to provide the Front End Engineering and Design (“FEED”) work on the project.
•On January 2, 2023, Corey Grindal, formerly Executive Vice President, Worldwide Trading, was promoted to Executive Vice President and Chief Operating Officer of the Company.
Operational
•As of April 26, 2023, over 2,770 cumulative LNG cargoes totaling approximately 190 million tonnes of LNG have been produced, loaded and exported from the Liquefaction Projects.
Financial
•In
January 2023, we achieved our second issuer investment grade credit rating from Fitch Ratings of BBB- with a stable outlook. In February 2023, S&P Global Ratings upgraded its issuer credit rating of SPL from BBB to BBB+ with stable outlook.
•During the three months ended March 31, 2023, we accomplished the following pursuant to our capital allocation priorities:
◦We prepaid $896 millionof consolidated long-term indebtedness pursuant to our capital allocation plan, inclusive of $398 million of debt repurchases in the open market.
◦We repurchased approximately 3.1 millionshares of our common stock as part
of our share repurchase program for $450 million.
◦We paid a dividend of $0.395 per share of common stock.
◦We continued to invest in accretive organic growth, including the Corpus Christi Stage 3 Project, as further described under Investing Cash Flows in Sources and Uses of Cash within Liquidity and Capital Resources.
LNG from the Liquefaction Projects sold under third party long-term agreements (1)
$
3,740
$
4,138
$
(398)
LNG
from the Liquefaction Projects sold by our integrated marketing function under short-term agreements
3,244
3,098
146
LNG procured from third parties
—
258
(258)
Net
derivative gains (losses)
54
(224)
278
Other revenues
53
70
(17)
Total
LNG revenues
$
7,091
$
7,340
$
(249)
Volumes delivered as LNG revenues (in TBtu):
LNG
from the Liquefaction Projects sold under third party long-term agreements (1)
511
470
41
LNG from the Liquefaction Projects sold by our integrated marketing function under short-term agreements
108
111
(3)
LNG
procured from third parties
—
11
(11)
Total volumes delivered as LNG revenues
619
592
27
(1)Long-term
agreements include agreements with an initial tenure of 12 months or more.
Net income (loss) attributable to common stockholders. The favorable variance of $6.3 billion for the three months ended March 31, 2023 as compared to the same period of 2022 was primarily attributable to:
•favorable variance of $8.2 billion (before tax and the impact of non-controlling interest) from changes in fair value and settlement of derivatives between the years, including gains of $4.6 billion in the three months ended March 31, 2023 and losses of $3.6 billion in the three months ended March 31, 2022 primarily related to non-cash favorable changes in fair value of our IPM agreements
where we procure natural gas at a price indexed to international gas prices; and
•increased LNG revenues, net of cost (recovery) of sales and excluding the effect of derivatives (as further described above), of $388 million, the majority of which was attributable to higher margins on LNG delivered between the comparable periods, as further described below.
The favorable variances were offset by:
•unfavorable variance of $1.5 billion in income tax provision (benefit); and
•increased net income attributable to non-controlling interest of $917 million.
The following is an additional discussion of the significant variance drivers of the change
in net income (loss) attributable to common stockholdersby line item:
Revenues. $174 million decrease between comparable periods primarily attributable to:
•$495 million decrease due to lower pricing per MMBtu, primarily from decreased Henry Hub pricing, for which the majority of our long-term contracts are indexed; and
•$34 million decrease in regasification revenues due to the termination of revenue recognized with one of our TUA agreements in December 2022.
The decrease was offset by:
•$278 million favorable variance
from changes in fair value and settlements of derivatives, primarily due to shifts in forward commodity curves related to arrangements designed to economically hedge commodity markets in which we have contractual arrangements to sell physical LNG;
•$109 million increase in other revenues, primarily due to an increase in sublease income from LNG vessel subcharters as a result of higher rates and an increase in the total number of days subchartered due to the availability of and demand for vessel charter capacity between the periods; and
•$14 million
increase due to higher volumes of LNG delivered between the periods, which increased 27 TBtu or 5%, primarily due to the substantial completion and commencement of operations of Train 6 of the SPL Project on February 4, 2022.
Operating costs and expenses (recoveries). $8.8 billion favorable variance between comparable periods primarily attributable to:
•$8.0 billion favorable variance from changes in fair value and settlements of derivatives included in cost of sales, from $3.4 billion of losses in the three months ended March 31, 2022 to $4.6 billion of gains in the three months ended March 31, 2023, primarily due to decreased international
gas prices resulting in non-cash favorable changes in fair value of our commodity derivatives indexed to such prices; and
•$915 million decrease in cost of sales excluding the effect of derivative changes described above, primarily as a result of $1.0 billion in decreased cost of natural gas feedstock largely due to lower U.S. natural gas prices and partially offset by increased volume of LNG delivered, as discussed above under the caption Revenues.
Other income (expense). $119 million decrease in total other income (expense) between comparable periods primarily attributable to:
•$52 million decrease in interest expense, net of capitalized interest, as a result of lower debt balances due to repayment of
debt in accordance with our capital allocation plan and lower interest costs due to refinancing higher cost debt; and
•$38 million favorable variance in gain (loss) on modification or extinguishment of debt, primarily due to a reduction in premiums paid for the early redemption or repayment of debt principal, as further described under Financing Cash Flows in Sources and Uses of Cash within Liquidity and Capital Resources.
Income tax provision (benefit). $1.5 billion unfavorable variance between comparable periods primarily attributable to an increase in pre-tax income.
The
effective tax rate was 17.0% and 19.7% for the three months ended March 31, 2023 and 2022, respectively, and was less than the statutory tax rate primarily due to income allocated to non-controlling interest not taxable to Cheniere. The change in our effective tax rate between comparable periods was driven by discrete tax items, primarily related to stock-based compensation award vestings, which had a larger impact on our effective tax rate in 2022 due to lower pre-tax income.
Our effective tax rate is subject to variation prospectively due to variability in our pre-tax and taxable earnings and the proportion of such earnings attributable to non-controlling interests.
Net income attributable to non-controlling
interest. $917 million increase between comparable periods was primarily attributable to $1.8 billion increase in CQP’s consolidated net income between the comparable periods.
Significant factors affecting our results of operations
Below are significant factors that affect our results of operations.
Gains and losses on derivative instruments
Derivative instruments, which in addition to managing exposure to commodity-related marketing and price risks are utilized to manage exposure to changing interest rates and foreign exchange volatility, are reported at fair value on our Consolidated Financial Statements. For commodity
derivative instruments related to our IPM agreements, the underlying LNG sales being economically hedged are accounted for under the accrual method of accounting, whereby revenues expected to be derived from the future LNG sales are recognized only upon delivery 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, and given the significant volumes, long-term duration and volatility in price basis for certain of our derivative contracts, use of derivative instruments may result in continued volatility of our results of operations based on changes in market pricing, counterparty credit risk and other relevant factors that may be outside of our control, notwithstanding the operational intent to mitigate risk exposure over time.
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 months ended March 31, 2022, we realized offsets to LNG terminal costs of $204 million corresponding to 15 TBtu attributable to the sale of commissioning cargoes from Train 6 of the SPL Project. We did not have any commissioning cargoes during the three months ended March 31, 2023.
Liquidity
and Capital Resources
The following information describes our ability to generate and obtain adequate amounts of cash to meet our requirements in the short term and the long term. In the short term, we expect to meet our cash requirements using operating cash flows and available liquidity, consisting of cash and cash equivalents, restricted cash and cash equivalents and available commitments under our credit facilities. Additionally, we expect to meet our long term cash requirements by using operating cash flows and other future potential sources of liquidity, which may include debt and equity offerings by us or our subsidiaries. The table below provides a summary of our available liquidity (in millions). Future material sources of liquidity are discussed below.
Restricted cash and cash equivalents designated for the following purposes:
SPL Project
160
CCL
Project
93
Cash held by our subsidiaries that is restricted to Cheniere
242
Total restricted cash and cash equivalents
495
Available commitments under our credit facilities (2):
SPL’s
working capital revolving credit and letter of credit reimbursement agreement (the “SPL Working Capital Facility”)
871
CQP’s credit facilities
750
CCH Credit Facility
3,260
CCH
Working Capital Facility
1,338
Cheniere’s revolving credit facility (the “Cheniere Revolving Credit Facility”)
1,250
Total available commitments under our credit facilities
7,469
Total
available liquidity
$
10,912
(1)Amounts presented include balances held by our consolidated variable interest entity, CQP, as discussed in Note 7—Non-controlling Interest and Variable Interest Entity of
our Notes to Consolidated Financial Statements. As of March 31, 2023, assets of CQP, which are included in our Consolidated Balance Sheets, included $0.8 billion of cash and cash equivalents.
(2)Available commitments represent total commitments less loans outstanding and letters of credit issued under each of our credit facilities as of March 31, 2023. See Note 9—Debt of our Notes to Consolidated Financial Statements for additional information on our credit facilities and
other debt instruments.
Our liquidity position subsequent to March 31, 2023 will be driven by future sources of liquidity and future cash requirements. Future sources of liquidity are expected to be composed of (1) cash receipts from executed contracts, under which we are contractually entitled to future consideration, and (2) additional sources of liquidity, from which we expect to receive cash although the cash is not underpinned by executed contracts. Future cash requirements are expected to be composed of (1) cash payments under executed contracts, under which we are
contractually obligated to make payments, and (2) additional cash requirements, under which we expect to make payments although we are not contractually obligated to make the payments under executed contracts. For further discussion of our future sources and uses of liquidity, see the liquidity and capital resources disclosures in our annual report on Form 10-K for the fiscal year ended December 31, 2022.
Although our sources and uses of cash are presented below from a consolidated standpoint, SPL, CQP, CCH and Cheniere operate with independent capital structures. Certain restrictions under debt and equity instruments executed by our subsidiaries limit each entity’s ability to distribute cash, including the following:
•SPL and CCH are required to deposit all cash received into restricted cash and cash equivalents accounts under certain of their debt agreements. The usage or withdrawal of such cash is restricted to the payment of liabilities related to the Liquefaction Projects and other restricted payments. In addition, SPL and CCH’s operating expenses are managed by our subsidiaries
under affiliate agreements, which may require SPL and CCH to advance cash to the respective affiliates, however the cash remains restricted to Cheniere for operation and construction of the Liquefaction Projects;
•CQP is required under its partnership agreement to distribute to unitholders all available cash on hand at the end of a quarter less the amount of any reserves established by its general partner. Beginning with the distribution paid in the second quarter of 2022, quarterly distributions by CQP are comprised of a base amount plus a variable amount equal to the remaining available cash per unit, which takes into consideration, among other things, amounts reserved for annual debt repayment and capital allocation goals, anticipated capital expenditures to be funded with cash, and cash reserves to provide for the proper conduct of CQP’s business.
•Our
48.6% limited partner interest, 100% general partner interest and incentive distribution rights in CQP limit our right to receive cash held by CQP to the amounts specified by the provisions of CQP’s partnership agreement; and
•SPL, CQP and CCH are restricted by affirmative and negative covenants included in certain of their debt agreements in their ability to make certain payments, including distributions, unless specific requirements are satisfied.
Notwithstanding the restrictions noted above, we believe that sufficient flexibility exists within the Cheniere complex to enable each independent capital structure to meet its currently anticipated cash requirements. The sources of liquidity at SPL, CQP and CCH primarily fund the cash requirements of the respective entity, and any remaining liquidity not subject to restriction,
as supplemented by liquidity provided by Cheniere Marketing, is available to enable Cheniere to meet its cash requirements.
Corpus Christi Stage 3 Project
The following table summarizes the project completion and construction status of the Corpus Christi Stage 3 Project as of March 31, 2023:
Overall project completion percentage
28.7%
Completion
percentage of:
Engineering
49.5%
Procurement
41.8%
Subcontract work
37.1%
Construction
3.4%
Date of expected substantial completion
2H 2025 - 1H 2027
Sources
and Uses of Cash
The following table summarizes the sources and uses of our cash, cash equivalents and restricted cash and cash equivalents (in millions). The table presents capital expenditures on a cash basis; therefore, these amounts differ from the amounts of capital expenditures, including accruals, which are referred to elsewhere in this report. Additional discussion of these items follows the table.
Our operating cash net inflows during the three months ended March 31, 2023 and 2022 were $3.4 billion and $2.7 billion, respectively. The $766 million favorable variance between the periods was primarily related to lower cash outflows for natural gas feedstock, partially offset by an unfavorable variance due to lower cash receipts from the sale of LNG cargoes, both primarily due to lower U.S. natural gas prices. This favorable variance was partially offset by an unfavorable variance due to timing of cash receipts and payments.
We are not subject to the 15% corporate alternative minimum tax ("CAMT")
in 2023 based on enacted law and regulatory guidance; however, our CAMT status for 2023 could change in the future, depending on new regulations or regulatory guidance issued by the U.S. Department of the Treasury. The CAMT may cause volatility in our cash tax payment obligations, particularly in periods of significant commodity, currency or financial market variability resulting from potential changes in the fair value of our derivative instruments.
Investing Cash Flows
Our investing cash net outflows in both years primarily were for the construction costs for the Liquefaction Projects. The $549 million increase in 2023 compared to 2022 was primarily due to spend during the three months ended March 31, 2023 related to construction work performed by Bechtel for
the Corpus Christi Stage 3 Project following our issuance of full notice to proceed to Bechtel in June 2022, partially offset by a decrease in spend due to the completion of Train 6 of the SPL Project in February 2022. We expect our capital expenditures to increase in future periods as construction work progresses on the Corpus Christi Stage 3 Project.
Financing Cash Flows
The following table summarizes our financing activities (in millions):
During the three months ended March 31, 2022, we had total borrowings of $575 million on the Cheniere Revolving Credit Facility. The proceeds from the borrowings during the three months ended March 31, 2022, together with cash on hand, were used to redeem or repurchase $1.6 billion of outstanding indebtedness, entirely associated with redemptions of our outstanding notes or repayment of amounts outstanding under our credit facilities. We did not have any debt issuances or borrowings during the three months ended March 31, 2023.
Total
redemptions, repayments and repurchases of debt
$
(896)
$
(1,615)
Non-Controlling
Interest Distributions
We own a 48.6% limited partner interest in CQP with the remaining non-controlling limited partner interest held by Blackstone Inc., Brookfield Asset Management Inc. and the public. CQP paid distributions of $261 million and $171 million during the three months ended March 31, 2023 and 2022, respectively, to non-controlling interests.
Repurchase of Common Stock
During the three months ended March 31, 2023 and 2022, we paid $450 million and $25 million to repurchase 3.1 million and 0.2 million shares of our common stock, respectively, as part of our
share repurchase program. As of March 31, 2023, we had approximately $3.2 billion remaining under our share repurchase program.
Cash Dividends to Stockholders
During the three months ended March 31, 2023, we paid a dividend of $0.395 per share of common stock, for a total of $99 million paid to common stockholders. We paid a dividend of $0.33 per share of common stock, for a total of $86 million during the three months ended March 31, 2022.
On April 28, 2023, we declared a quarterly dividend of $0.395 per share of common
stock that is payable on May 17, 2023 to stockholders of record as of the close of business on May 10, 2023.
Summary of Critical Accounting 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. There have been no significant changes to our critical accounting estimates from those disclosed in our annual
report on Form 10-K for the fiscal year ended December 31, 2022.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Marketing and Trading Commodity Price Risk
We have commodity derivatives consisting of natural gas supply contracts
for the commissioning and operation of the SPL Project and the CCL Project, and associated economic hedges (collectively, “Liquefaction Supply Derivatives”). We have also entered into physical 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”). In order to test the sensitivity of the fair value of the Liquefaction Supply Derivatives and the LNG Trading Derivatives to changes in underlying commodity prices, management modeled a 10% change in the commodity price for natural gas for each delivery location and a 10% change in the commodity price for LNG, respectively, as follows (in millions):
See Note 6—Derivative Instruments of our Notes to Consolidated Financial Statements for additional details about our commodity derivative
instruments.
Foreign Currency Exchange Risk
We have entered into foreign currency exchange (“FX”) contracts to hedge exposure to currency risk associated with operations in countries outside of the United States (“FX Derivatives”). In order to test the sensitivity of the fair value of the FX Derivatives to changes in FX rates, management modeled a 10% change in FX rate between the U.S. dollar and the applicable foreign currencies as follows (in millions):
See Note
6—Derivative Instruments of our Notes to Consolidated Financial Statements for additional details about our foreign currency derivative instruments.
ITEM 4. CONTROLS AND PROCEDURES
We maintain a set of disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports filed by us under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As of the end of the period
covered by this report, we evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective.
During the most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We may in the future be involved as a party to various legal proceedings, which are incidental to the ordinary course of business. We regularly analyze current information and, as necessary, provide accruals for probable liabilities on the eventual disposition of these matters. Other than discussed below, there have been no material changes to the legal proceedings disclosed in our annual
report on Form 10-K for the fiscal year ended December 31, 2022.
Louisiana Department of Environmental Quality (the “LDEQ”) Matter
Certain of our subsidiaries are in discussions with the LDEQ to resolve alleged non-compliance with national emission standards for formaldehyde from combustion turbines at the Sabine Pass LNG Terminal. The allegations are identified in a Consolidated Compliance Order and Notice of Potential Penalty, Tracking No. AE-CN-22-00833 (the “2023 Compliance Order”) issued by the LDEQ on April
12, 2023. In August 2004, the U.S. Environmental Protection Agency (the “EPA”) had stayed the application of the emission standard to combustion turbines such as those at the Sabine Pass LNG Terminal. In March 2022, the EPA lifted the stay, and in June 2022 our subsidiaries petitioned the EPA and LDEQ for approval of additional operating parameters to demonstrate compliance with the emission limitation. The petition remains pending. Our subsidiaries continue to work with the LDEQ to resolve the matters identified in the Compliance Order, including the petition pending with the EPA. As of March 2023, our subsidiaries have filed test results with the LDEQ indicating that 41 of 44 turbines meet
the relevant compliance standard, including through retesting. We do not expect that any ultimate penalty will have a material adverse impact on our financial results.
ITEM 2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
The following table summarizes stock repurchases for the three months ended March 31, 2023:
Period
Total
Number of Shares Purchased (1)
Average Price Paid Per Share (2)
Total Number of Shares Purchased as a Part of Publicly Announced Plans
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans
January 1 - 31, 2023
1,596,211
$145.70
1,595,939
$3,392,468,870
February
1 - 28, 2023
960,698
$148.29
960,698
$3,250,005,313
March 1 - 31, 2023
678,050
$149.80
503,178
$3,174,726,771
Total
3,234,959
3,059,815
(1)Includes
issued shares surrendered to us by participants in our share-based compensation plans for payment of applicable tax withholdings on the vesting of share-based compensation awards. Associated shares surrendered by participants are repurchased pursuant to terms of the plan and award agreements and not as part of the publicly announced share repurchase plan.
(2)The price paid per share was based on the average trading price of our common stock on the dates on which we repurchased the shares.
Management contract or compensatory plan or arrangement.
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.