UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March~~June 3130, 2016

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Sabine Pass LNG, L.P.

(Exact name of registrant as specified in its charter)



Delaware	333-138916	20-0466069
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

700 Milam Street, Suite 1900 Houston, Texas		77002
(Address of principal executive offices)		(Zip Code)

(713) 375-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

Note: As a voluntary filer not subject to the filing requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has filed all reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months as if it were subject to such filing requirements.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of the issuer’s classes of common stock, as of the latest practicable date: Not applicable

SABINE PASS LNG, L.P.

TABLE OF CONTENTS

	Definitions	1
Part I. Financial Information
Item 1.	Consolidated Financial Statements	2
	Consolidated Balance Sheets	2
	Consolidated Statements of Income	3
	Consolidated Statement of Partners’ Deficit	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1314
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	1718
Item 4.	Controls and Procedures	1718
Part II. Other Information
Item 1.	Legal Proceedings	1819
Item 1A.	Risk Factors	1819
Item 5.	Other Information	1819
Item 6.	Exhibits	20
	Signatures	21

DEFINITIONS

As commonly used in the liquefied natural gas industry, to the extent applicable and as used in this quarterly report, the terms listed below have the following meanings:

Common Industry and Other Terms

Bcf/d		billion cubic feet per day
Bcfe		billion cubic feet equivalent
GAAP		generally accepted accounting principles in the United States
LNG		liquefied natural gas, a product of natural gas consisting primarily of methane (CH4) that is in liquid form at near atmospheric pressure
SEC		Securities and Exchange Commission
SPA		LNG sale and purchase agreement
Train		an industrial facility comprised of a series of refrigerant compressor loops used to cool natural gas into LNG
TUA		terminal use agreement

Company Abbreviations



Cheniere		Cheniere Energy, Inc.
Cheniere Holdings		Cheniere Energy Partners LP Holdings, LLC
Cheniere Investments		Cheniere Energy Investments, LLC
Cheniere Marketing		Cheniere Marketing, LLC and subsidiaries
Cheniere Partners		Cheniere Energy Partners, L.P.
Cheniere Terminals		Cheniere LNG Terminals, LLC
Sabine Pass GP		Sabine Pass LNG-GP, LLC
Sabine Pass LP		Sabine Pass LNG-LP, LLC
SPL		Sabine Pass Liquefaction, LLC
Tug Services		Sabine Pass Tug Services, LLC

Unless the context requires otherwise, references to “SPLNG,” “the Partnership,” “we,” “us” and “our” refer to Sabine Pass LNG, L.P. and its wholly owned subsidiary.


PART I.	FINANCIAL INFORMATION


ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS

SABINE PASS LNG, L.P. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(in thousands)

	March 31,			December 31,
	June 30,			December 31,
	2016			2015
ASSETS	(unaudited)
Current assets
Cash and cash equivalents	$	912,~~815~~262		$	7,642
Restricted cash	~~115~~77,~~469~~415			77,415
Accounts receivable—affiliate	5,100			615
Accounts and other receivables	162			43
Advances to affiliate	6,986			7,154
Accounts receivable—affiliate	3,175			615
Inventory	8,585			9,646
Advances to affiliate	5,887			7,154
Other current assets	3,574			5,499
Inventory	7,238			9,646
Total current assets	149,529			107,971
Other current assets	5,542			5,456
Total current assets	111,681			107,971
Non-current restricted cash	13,650			13,650
Property, plant and equipment, net	1,~~675~~663,~~760~~962			1,435,024
Other non-current assets	30,~~839~~079			29,149
Total assets	$	1,~~869~~819,~~778~~372		$	1,585,794
LIABILITIES AND PARTNERS’ DEFICIT
Current liabilities
Accounts payable	$	12,~~526~~071		$	2,675
Accrued liabilities	5719,~~243~~754			18,877
Current debt, net	1,~~660~~662,~~318~~257			1,658,379
Due to affiliates	3,~~377~~737			12,840
Deferred revenue	26,~~669~~709			26,669
Deferred revenue—affiliate	21,~~845~~884			21,845
Total current liabilities	1,~~770~~736,~~978~~412			1,741,285
Long-term debt, net of discount	414,~~690~~978			414,402
Non-current deferred revenue	87,500			9,500
Non-current deferred revenue—affiliate	24,533			22,080
Other non-current liabilities	~~172~~170			175
Other non-current liabilities—affiliate	~~196~~318			236
Partners’ deficit	(~~349~~364,~~291~~539		)	(601,884		)
Total liabilities and partners’ deficit	$	1,~~869~~819,~~778~~372		$	1,585,794

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

SABINE PASS LNG, L.P. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(in thousands)

(unaudited)

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Revenues
Regasification revenues	$	65,~~384~~122		$	66,~~718~~490		$	130,506		$	133,208
Regasification revenues—affiliate	65,~~346~~361			64,~~128~~236			130,707			128,364
Other revenues—affiliate	43,~~183~~453			—			7,636			—
Total revenues	~~134~~133,~~913~~936			130,~~846~~726			268,849			261,572
Operating costs and expenses
Operating and maintenance expense	118,~~938~~908			116,~~193~~790			20,846			17,983
Operating and maintenance expense—affiliate	64,~~936~~186			35,~~644~~077			11,122			8,721
General and administrative expense	~~272~~234			~~628~~797			506			1,425
General and administrative expense—affiliate	2,~~178~~324			2,~~771~~859			4,502			5,630
Depreciation and amortization expense	1213,~~398~~597			1011,~~603~~244			25,995			21,847
Total operating costs and expenses	3329,~~722~~249			2826,~~839~~767			62,971			55,606
Income from operations	~~101~~104,~~191~~687			~~102~~103,~~007~~959			205,878			205,966
Other income (expense)
Interest expense	(40,~~281~~280		)	(40,~~269~~281		)	(80,561		)	(80,550		)
Other income	~~101~~125			823			226			31
Total other expense	(40,~~180~~155		)	(40,~~261~~258		)	(80,335		)	(80,519		)
Net income	$	6164,~~011~~532		$	6163,~~746~~701		$	125,543		$	125,447

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

SABINE PASS LNG, L.P. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF PARTNERS’ DEFICIT

(in thousands)

(unaudited)

	General Partner Sabine PassLNG-GP, LLC		Limited Partner Sabine PassLNG-LP, LLC			TotalPartners’Deficit
Balance at December 31, 2015	$	—	$	(601,884	)	$	(601,884	)
Net income	—		61125,~~011~~543			61125,~~011~~543
Non-cash contributions from limited partner	—		~~254~~257,~~966~~150			~~254~~257,~~966~~150
Distributions to limited partner	—		(63145,~~384~~348		)	(63145,~~384~~348		)
Balance at March 31, 2016	$	—	$	(349,291	)	$	(349,291	)
Balance at June 30, 2016	$	—	$	(364,539	)	$	(364,539	)

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

SABINE PASS LNG, L.P. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended March 31,
	Six Months Ended June 30,
	2016			2015
Cash flows from operating activities
Net income	$	61125,~~011~~543		$	61125,~~746~~447
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	1225,~~398~~995			1021,~~603~~847
Amortization of debt issuance costs and discount	24,~~228~~455			24,~~216~~443
Other	~~226~~10			~~770~~1,076
Other—affiliate	24,~~165~~348			—2,886
Changes in restricted cash for certain operating activities	(38,054		)	(38,053		)
Changes in operating assets and liabilities:
Accounts and interest receivable	(117		)	(25,901		)
Accounts and other receivables	(120		)	(7		)
Accounts receivable—affiliate	(42,~~484~~560		)	(~~27,179~~763		)
Advances to affiliate	~~168~~1,267			(43,~~546~~925		)
Inventory	~~845~~2,408			(1411,~~591~~226		)
Accounts payable and accrued liabilities	371,~~459~~478			496,~~188~~053
Due to affiliates	(4,~~927~~667		)	67,~~949~~465
Deferred revenue	(1,~~000~~960		)	(1,~~003~~985		)
Other, net	~~2,567~~996			(24,~~786~~995		)
Other—affiliate	~~(41~~192		)	2,~~448~~449
Net cash provided by operating activities	70157,~~444~~385			19148,~~861~~765
Cash flows from investing activities
Property, plant and equipment, net	(~~350~~2,880		)	4(1,037		)
Other	(4,537		)	—
Net cash provided by (used in) investing activities	(4,887		)	4
Net cash used in investing activities	(7,417		)	(1,037		)
Cash flows from financing activities
Capital contributions from Cheniere Partners	—			5352,~~122~~400
Distributions to limited partner	(63145,~~384~~348		)	(70199,~~782~~551		)
Net cash used in financing activities	(63145,~~384~~348		)	(17147,~~660~~151		)
Net increase in cash and cash equivalents	24,~~173~~620			~~2,205~~577
Cash and cash equivalents—beginning of period	7,642			5,460
Cash and cash equivalents—end of period	$	912,~~815~~262		$	76,~~665~~037

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

SABINE PASS LNG, L.P. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1—BASIS OF PRESENTATION

The accompanying unaudited Consolidated Financial Statements of SPLNG have been prepared in accordance with GAAP for interim financial information and with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation, have been included. Certain reclassifications have been made to conform prior period information to the current presentation. The reclassifications had no effect on our overall consolidated financial position, operating results or cash flows.

In 2016, we renamed our “revenues” line item as “regasification revenues”, which include both LNG regasification capacity reservation fees that are received pursuant to our TUAs and tug services fees that are received by Tug Services, our wholly owned subsidiary.

Results of operations for the three and six months ended ~~March~~June 3130, 2016 are not necessarily indicative of the operating results ~~of operations~~ that will be realized for the year ending December 31, 2016.

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

For further information, refer to the Consolidated Financial Statements and accompanying notes included in our annual report on Form 10-K for the year ended December 31, 2015.

NOTE 2—RESTRICTED CASH

Restricted cash consists of funds that are contractually restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on our Consolidated Balance Sheets. ~~Restricted~~As of June 30, 2016 and December 31, 2015, restricted cash consisted of the following (in thousands):

	March 31,		December 31,
	June 30,		December 31,
	2016		2015
Current restricted cash
Debt service and interest payment	$	~~115~~77,~~469~~415	$	77,415
Non-current restricted cash
Debt service	$	13,650	$	13,650

Under the indentures governing our senior notes (the “Senior Notes Indentures”), except for permitted tax distributions, we may not make distributions until certain conditions are satisfied, including: (1) there must be on deposit in an interest payment account an amount equal to one-sixth of the semi-annual interest payment multiplied by the number of elapsed months since the last semi-annual interest payment, and (2) there must be on deposit in a permanent debt service reserve fund an amount equal to one semi-annual interest payment. Distributions are permitted only after satisfying the foregoing funding requirements, a fixed charge coverage ratio test of 2:1 and other conditions specified in the Senior Notes Indentures. During the ~~three~~six months ended ~~March~~June 3130, 2016 and 2015, we made distributions of $63145.43 million and $70199.86 million, respectively, after satisfying all the applicable conditions in the Senior Notes Indentures.

SABINE PASS LNG, L.P. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

NOTE 3—INVENTORY

As of ~~March~~June 3130, 2016 and December 31, 2015, inventory consisted of the following (in thousands):

	March 31,		December 31,
	June 30,		December 31,
	2016		2015
LNG	$	~~1,648~~537	$	3,690
Materials and other	6,~~937~~701		5,956
Total inventory	$	87,~~585~~238	$	9,646

NOTE 4—PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of LNG terminal costs and fixed assets, as follows (in thousands):

	March 31,			December 31,
	June 30,			December 31,
	2016			2015
LNG terminal costs
LNG terminal	$	1,~~978~~979,~~191~~320		$	1,723,534
LNG terminal construction-in-process	5,~~264~~701			7,011
LNG site and related costs, net	~~133~~131			135
Accumulated depreciation	(~~307~~321,~~944~~292		)	(295,793		)
Total LNG terminal costs, net	1,~~675~~663,~~644~~860			1,434,887
Fixed assets
Machinery and equipment	1,061			1,061
Computer and office equipment	424			424
Vehicles	676			676
Machinery and equipment	1,061			1,061
Other	669			669
Vehicles	679			676
Accumulated depreciation	(2,714		)	(2,693		)
Other	668			669
Total fixed assets, net	116			137
Accumulated depreciation	(2,730		)	(2,693		)
Property, plant and equipment, net	$	1,675,760		$	1,435,024
Total fixed assets, net	102			137
Property, plant and equipment, net	$	1,663,962		$	1,435,024

NOTE 5—ACCRUED LIABILITIES

As of ~~March~~June 3130, 2016 and December 31, 2015, accrued liabilities consisted of the following (in thousands):

	March 31,		December 31,
	June 30,		December 31,
	2016		2015
Interest expense	$	53,013	$	14,960
Interest costs	$	14,959	$	14,960
LNG terminal costs	4,~~230~~795		3,917
Total accrued liabilities	$	5719,~~243~~754	$	18,877

SABINE PASS LNG, L.P. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

NOTE 6—DEBT

As of ~~March~~June 3130, 2016 and December 31, 2015, our debt consisted of the following (in thousands):

	March 31,			December 31,
	June 30,			December 31,
	2016			2015
Long-term debt
6.50% Senior Secured Notes due 2020 (“2020 Senior Notes”) (1)	$	420,000		$	420,000
Unamortized debt issuance costs (2)	(5,~~310~~022		)	(5,598		)
Total long-term debt, net	414,~~690~~978			414,402
Current debt
7.50% Senior Secured Notes due 2016 (“2016 Senior Notes”), net of unamortized discount of $3,130 and $4,303 (3)	1,662,370			1,661,197
7.50% Senior Secured Notes due 2016 (“2016 Senior Notes”), net of unamortized discount of $1,956 and $4,303 (3)	1,663,544			1,661,197
Unamortized debt issuance costs (2)	(21,~~052~~287		)	(2,818		)
Total current debt, net	1,~~660~~662,~~318~~257			1,658,379
Total debt, net	$	2,~~075~~077,~~008~~235		$	2,072,781


(1)	Must be redeemed or repaid concurrently with the 2016 Senior Notes under the terms of the credit facilities that Cheniere Partners entered into during February 2016 (the “2016 CQP Credit Facilities”) if the obligations under the 2016 Senior Notes are satisfied with borrowings under the 2016 CQP Credit Facilities.

(2)

Effective January 1, 2016, we adopted ASU 2015-03 and ASU 2015-15, which require debt issuance costs to be presented in the balance sheet as a direct deduction from the debt liability, rather than as an asset, retrospectively for each reporting period presented. As a result, we reclassified $5.6 million and $2.8 million from debt issuance costs, net to long-term debt, net and current debt, net, respectively, as of December 31, 2015.


(3)	Matures on November 30, 2016. We currently anticipate that we will satisfy this obligation with capital contributions from Cheniere Partners, which it will fund with borrowings under the 2016 CQP Credit Facilities.

Fair Value Disclosures

The following table (in thousands) shows the carrying amount and estimated fair value of our long-term debt:

March 31, 2016

December 31, 2015

June 30, 2016

December 31, 2015

CarryingAmount

EstimatedFair Value ~~(1)~~

CarryingAmount

EstimatedFair Value ~~(1)~~

Senior Notes, net of discount (1)

2,~~082~~083,~~370~~544

2,~~146~~130,~~985~~485

2,081,197

2,056,091

(1) Includes 2016 Senior Notes, net of discount, and 2020 Senior Notes (collectively, the “Senior Notes”). The Level 2 estimated fair value was based on quotes obtained from broker-dealers or market makers of ~~our~~the Senior Notes and other similar instruments.

NOTE 7—RELATED PARTY TRANSACTIONS

Terminal Use Agreement

SPL, a wholly owned subsidiary of Cheniere Partners, obtained approximately 2.0 Bcf/d of regasification capacity under a TUA with us as a result of an assignment in July 2012 by Cheniere Investments, a wholly owned subsidiary of Cheniere Partners, of its rights, title and interest under its TUA with us. SPL is obligated to make monthly capacity payments to us aggregating approximately $250 million per year, continuing until at least 20 years after SPL delivers its first commercial cargo at SPL’s facilities under construction. We entered into a terminal use rights assignment and agreement (the “TURA”) with SPL and Cheniere Investments pursuant to which Cheniere Investments has the right to use SPL’s reserved capacity under the TUA and has the obligation to make the monthly capacity payments required by the TUA to us. Cheniere Investments’ right to use capacity at our LNG terminal will be reduced as each of Trains 1 through 4 reaches commercial operations. The percentage of the monthly capacity payments payable by Cheniere Investments will be reduced from 100% to zero (unless Cheniere Investments utilizes terminal use capacity after Train 4 reaches commercial operations), and the percentage of the monthly capacity payments payable by SPL will

SABINE PASS LNG, L.P. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

~~increase~~NOTE by the amount that Cheniere Investments’ percentage decreases. Cheniere Partners has guaranteed SPL’s obligations under the TUA and the obligations of Cheniere Investments under the TURA. We recorded other revenues7—~~affiliate~~RELATED ofPARTY ~~$1.5 million for cargo loading services, pursuant to the TURA during the three months ended March 31, 2016.~~TRANSACTIONS

Below is a summary of our related party transactions as reported on our Consolidated Statements of Operations for the three and six months ended June 30, 2016 and 2015 (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Regasification revenues—affiliate
TUA fees from Cheniere Investments	$	53,261		$	63,385		$	116,764		$	126,769
TUA fees from SPL	10,242			—			10,242			—
Sale of natural gas under TUA	1,141			143			1,348			178
Contracts for Sale of Natural Gas	—			—			919			—
Tug Boat Lease Sharing Agreement	717			708			1,434			1,417
Total regasification revenues—affiliate	65,361			64,236			130,707			128,364

Other revenues—affiliate
Cargo loading fees under the Terminal Use Rights Assignment and Agreement (the “TURA”)	2,050			—			3,507			—
Contracts for Sale of LNG	1,403			—			4,129			—
Total other revenues—affiliate	3,453			—			7,636			—

Operating and maintenance expense—affiliate
Contracts for Purchase of Natural Gas and LNG	—			—			607			—
Services Agreements	4,475			5,127			11,094			8,971
LNG Site Sublease Agreement	(236		)	(121		)	(471		)	(241		)
Other agreements	(53		)	71			(108		)	(9		)
Total operating and maintenance expense—affiliate	4,186			5,077			11,122			8,721

General and administrative expense—affiliate
Services Agreements	2,324			2,859			4,502			5,630

Terminal Use Agreements

SPL, a wholly owned subsidiary of Cheniere Partners, obtained approximately 2.0 Bcf/d of regasification capacity under a TUA with us as a result of an assignment in July 2012 by Cheniere Investments, a wholly owned subsidiary of Cheniere Partners, of its rights, title and interest under its TUA with us. SPL is obligated to make monthly capacity payments (the “TUA Fees”) to us aggregating approximately $250 million per year, continuing until at least 20 years after SPL delivers its first commercial cargo at SPL’s facilities under construction. We entered into the TURA with SPL and Cheniere Investments pursuant to which Cheniere Investments has the right to use SPL’s reserved capacity under the TUA and has the obligation to pay the TUA Fees required by the TUA to us. Cheniere Investments’ right to use capacity at our LNG terminal will be reduced as each of Trains 1 through 4 reaches commercial operations. The percentage of the TUA Fees payable by Cheniere Investments will be reduced from 100% to zero (unless Cheniere Investments utilizes terminal use capacity after Train 4 reaches commercial operations), and the percentage of the TUA Fees payable by SPL will increase by the amount that Cheniere Investments’ percentage decreases. In May 2016, Cheniere Investments’ percentage of all TUA Fees payable to us was reduced from 100% to 75% and SPL’s percentage of all TUA Fees payable to us was increased from zero to 25% in accordance with the TURA. Cheniere Partners has guaranteed SPL’s obligations under the TUA and the obligations of Cheniere Investments under the TURA. In addition, under the TURA, SPL is required to pay us cargo loading fees for the LNG vessels that they load at our LNG terminal.

Services Agreements

WeAs ~~have~~of ~~entered~~June 30, ~~into~~2016 ~~a long-term operation~~ and ~~maintenance~~December ~~agreement~~31, ~~(the~~2015, ~~“O&M~~we ~~Agreement”)~~had ~~with~~$5.9 ~~Cheniere~~million ~~Investments~~and ~~pursuant~~$7.2 tomillion, ~~which~~respectively, weof ~~receive~~advances ~~all necessary services required~~ to ~~operate~~affiliates ~~and~~under ~~maintain~~the ~~our~~services ~~LNG~~agreements ~~receiving~~described ~~terminal~~below. WeThe ~~incur~~non-reimbursement aamounts ~~fixed~~incurred ~~monthly fee of $130,000 (indexed for inflation)~~ under the ~~O&M~~services ~~Agreement,~~agreements ~~which~~described isbelow are recorded asin general and administrative expense—affiliate on our Consolidated Statements of Income, and the cost of a bonus equal to 50% of the salary component of labor costs in certain circumstances to be agreed upon between the parties at the beginning of each operating year. ~~In addition, we incur costs to reimburse Cheniere Investments for its operating expenses, which consist primarily of labor expenses.~~

We have entered into a long-term ~~management~~operation ~~services~~and maintenance agreement (the “~~MSA~~O&M Agreement”) with Cheniere ~~Terminals,~~Investments apursuant ~~wholly~~to ~~owned~~which ~~subsidiary~~we ofreceive ~~Cheniere,~~all ~~pursuant~~necessary toservices ~~which~~required ~~Cheniere~~to ~~Terminals~~operate ~~manages~~and ~~the~~maintain ~~operation of~~ our LNG receiving terminal~~, excluding those matters provided for under the O&M Agreement~~. We incur a ~~monthly fixed fee of $520,000 (indexed for inflation) under the MSA, which is recorded as general and administrative expense—affiliate on our Consolidated Statements of Income.~~

Cheniere Investments has entered into an information technology services agreement with Cheniere, pursuant to which Cheniere Investment’s subsidiaries, including us, receive certain information technology services. On a quarterly basis, the various entities receiving the benefit are invoiced by Cheniere according to the cost allocation percentages set forth in the agreement. In addition, Cheniere is entitled to reimbursement for all costs incurred by Cheniere that are necessary to perform the services under the agreement.

As of March 31, 2016 and December 31, 2015, we had $7.0 million and $7.2 million, respectively, of advances to affiliates under the foregoing services agreements. During the three months ended March 31, 2016 and 2015, we recorded general and administrative expense—affiliate of $2.2 million and $2.8 million, respectively, and operating and maintenance expense—affiliate of $7.2 million and $3.8 million, respectively, under the foregoing services agreements.

Agreement to Fund Our Cooperative Endeavor Agreements (“CEAs”)

We have executed CEAs with various Cameron Parish, Louisiana taxing authorities that allowed them to collect certain annual property tax payments from 2007 through 2016. This 10-year initiative represented an aggregate commitment of up to $25.0 million in order to aid in their reconstruction efforts following Hurricane Rita. As of March 31, 2016, we have fulfilled our aggregate commitment obligations to the various Cameron Parish, Louisiana taxing authorities. In exchange for our advance payments of annual ad valorem taxes, Cameron Parish will grant us a dollar-for-dollar credit against future ad valorem taxes to be levied against our LNG terminal starting in 2019. Beginning in September 2007, we entered into various agreements with Cheniere Marketing, pursuant to which Cheniere Marketing would pay us additional TUA revenues equal to any and all amounts payable by us to the Cameron Parish taxing authorities under the CEAs. In exchange for such amounts received as TUA revenues from Cheniere Marketing, we will make payments to Cheniere Marketing equal to, and in the year the Cameron Parish dollar-for-dollar credit is applied against, ad valorem tax levied on our LNG terminal.

These advance tax payments were recorded to other non-current assets, and payments from Cheniere Marketing that we utilized to make the ad valorem tax payments were recorded as deferred revenue—affiliate. As of March 31, 2016 and December 31, 2015, we had $24.5 million and $22.1 million, respectively, of both other non-current assets resulting from ad valorem tax payments and non-current deferred revenue—affiliate resulting from these payments received from Cheniere Marketing.

Contracts for Sale and Purchase of Natural Gas and LNG

We are able to sell and purchase natural gas and LNG under agreements with Cheniere Marketing. Under these agreements, we purchase natural gas or LNG from Cheniere Marketing at a sales price equal to the actual purchase price paid by Cheniere Marketing to suppliers of the natural gas or LNG, plus any third-party costs incurred by Cheniere Marketing with respect to the receipt, purchase and delivery of the natural gas or LNG to our LNG terminal. As a result, we record the purchases of natural gas and LNG from Cheniere Marketing to be utilized as fuel to operate our LNG terminal as operating and maintenance expense.

SABINE PASS LNG, L.P. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

Wefixed ~~recorded~~monthly ~~operating~~fee ~~and maintenance expense—affiliate~~ of $~~0.7~~130,000 ~~million~~(indexed ~~and~~for ~~$1.6~~inflation) ~~million~~under in the ~~three~~O&M ~~months~~Agreement, ~~ended~~and ~~March~~the ~~31,~~cost ~~2016~~of ~~and~~a ~~2015,~~bonus ~~respectively,~~equal ofto ~~natural~~50% ~~gas~~of ~~purchased~~the ~~from~~salary ~~Cheniere~~component ~~Marketing~~of ~~under~~labor ~~these~~costs ~~agreements. We~~in ~~recorded~~certain ~~regasification~~circumstances ~~revenues—affiliate~~to ofbe ~~$0.9~~agreed ~~million~~upon ~~and~~between ~~$1.3~~the ~~million~~parties inat the ~~three~~beginning ~~months~~of ~~ended~~each ~~March~~operating 31year. In addition, ~~2016~~we ~~and~~incur ~~2015,~~costs ~~respectively,~~to reimburse Cheniere Investments for ~~natural~~its ~~gas~~operating ~~sold~~expenses, towhich ~~Cheniere~~consist ~~Marketing~~primarily ~~under~~of ~~these~~labor ~~agreements~~expenses.

We ~~are~~have ~~also~~entered ~~able~~into toa ~~sell~~long-term ~~and~~management ~~purchase~~services ~~natural~~agreement ~~gas~~(the ~~and~~“MSA”) ~~LNG~~with ~~under~~Cheniere anTerminals, ~~agreement~~a ~~with~~wholly ~~SPL. During~~owned ~~the~~subsidiary ~~three~~of ~~months~~Cheniere, ~~ended~~pursuant ~~March~~to ~~31,~~which ~~2016,~~Cheniere weTerminals ~~sold~~manages ~~LNG~~the tooperation ~~SPL~~of ~~and~~our ~~recorded~~LNG ~~other~~receiving ~~revenues—affiliate~~terminal, ofexcluding ~~$2.7~~those ~~million. We~~matters ~~also~~provided ~~sold~~for ~~natural~~under ~~gas~~the toO&M ~~SPL~~Agreement. We ~~and~~incur ~~recorded~~a ~~regasification~~monthly ~~revenues—affiliate~~fixed fee of $~~0.3~~520,000 ~~million~~(indexed infor ~~the~~inflation) ~~three~~under ~~months~~the ~~ended March 31, 2016~~MSA.

Agreement to Fund Our Cooperative Endeavor Agreements (“CEAs”)

We have executed CEAs with various Cameron Parish, Louisiana taxing authorities that allowed them to collect certain annual property tax payments from 2007 through 2016. This 10-year initiative represented an aggregate commitment of $24.5 million in order to aid in their reconstruction efforts following Hurricane Rita, which we fulfilled our obligations in the first quarter of 2016. In exchange for our advance payments of annual ad valorem taxes, Cameron Parish will grant us a dollar-for-dollar credit against future ad valorem taxes to be levied against our LNG terminal starting in 2019. Beginning in September 2007, we entered into various agreements with Cheniere Marketing, pursuant to which Cheniere Marketing would pay us additional TUA revenues equal to any and all amounts payable by us to the Cameron Parish taxing authorities under the CEAs. In exchange for such amounts received as TUA revenues from Cheniere Marketing, we will make payments to Cheniere Marketing equal to, and in the year the Cameron Parish dollar-for-dollar credit is applied against, ad valorem tax levied on our LNG terminal.

These advance tax payments were recorded to other non-current assets, and payments from Cheniere Marketing that we utilized to make the ad valorem tax payments were recorded as deferred revenue—affiliate. As of June 30, 2016 and December 31, 2015, we had $24.5 million and $22.1 million, respectively, of both other non-current assets resulting from ad valorem tax payments and non-current deferred revenue—affiliate resulting from these payments received from Cheniere Marketing.

Contracts for Sale and Purchase of Natural Gas and LNG

We are able to sell and purchase natural gas and LNG under agreements with Cheniere Marketing. Under these agreements, we purchase natural gas or LNG from Cheniere Marketing at a sales price equal to the actual purchase price paid by Cheniere Marketing to suppliers of the natural gas or LNG, plus any third-party costs incurred by Cheniere Marketing with respect to the receipt, purchase and delivery of the natural gas or LNG to our LNG terminal. We are also able to sell and purchase natural gas and LNG under an agreement with SPL.

Tug Boat Lease Sharing Agreement

In connection with our tug boat lease, Tug Services, our wholly owned subsidiary, entered into a tug sharing agreement with a wholly owned subsidiary of Cheniere to provide its LNG cargo vessels with tug boat and marine services at our LNG terminal. ~~Tug~~ ~~Services recorded regasification revenues—affiliate of $0.6 million and $0.7 million pursuant to this agreement during the three months ended March 31, 2016 and 2015, respectively.~~

LNG Site Sublease Agreement

We have entered into agreements with SPL to sublease a portion of the LNG terminal site for its liquefaction project. The annual sublease payment is $0.9 million, which was increased from $0.5 million during 2015. The initial term of the sublease expires on December 31, 2034, with options to renew for multiple 10-year extensions with similar terms as the initial term. The annual sublease payment will be adjusted for inflation every five years based on a consumer price index, as defined in the sublease agreement. We recognized $0.2 million and $0.1 million of sublease revenue from SPL as a credit to operating and maintenance expense—affiliate on our Consolidated Statements of Income for each of the three months ended March 31, 2016 and 2015, respectively.

SABINE PASS LNG, L.P. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

LNG Terminal Export Agreement

We have entered into an LNG Terminal Export Agreement with Cheniere Marketing that provides Cheniere Marketing with the ability to export LNG from our LNG terminal. We did not record any revenues associated with this agreement during the three and six months ended ~~March~~June 3130, 2016 and 2015.

Cooperation Agreement

We have entered into an agreement with SPL to allow SPL to retain and acquire certain rights to access the property and facilities that we own for the purpose of constructing, modifying and operating SPL’s facilities under construction. In consideration for the access we have given, SPL has agreed to transfer title to us of certain facilities, equipment and modifications, which we are obligated to operate and maintain. The term of this agreement is consistent with our TUA described above. Under this agreement, SPL conveyed to us zero and $252.8 million of assets for the three and six months ended June 30, 2016, respectively, and $080.75 million of assets ~~during~~for both the three and six months ended ~~March~~June 3130, ~~2016 and~~ 2015, respectively.

State Tax Sharing Agreement

We have entered into a state tax sharing agreement with Cheniere. Under this agreement, Cheniere has agreed to prepare and file all state and local tax returns which we and Cheniere are required to file on a combined basis and to timely pay the combined state and local tax liability. If Cheniere, in its sole discretion, demands payment, we will pay to Cheniere an amount equal to the state and local tax that we would be required to pay if our state and local tax liability were calculated on a separate company basis. There have been no state and local taxes paid by Cheniere for which Cheniere could have demanded payment from us under this agreement; therefore, Cheniere has not demanded any such payments from us. The agreement is effective for tax returns due on or after January 1, 2008.

10NOTE 8—SUPPLEMENTAL CASH FLOW INFORMATION

The following table (in thousands) provides supplemental disclosure of cash flow information:



	Six Months Ended June 30,
	2016		2015
Cash paid during the period for interest	$	76,106	$	76,106
Non-cash contributions for conveyance of assets under Cooperation Agreement	252,802		80,515
Non-cash contributions from limited partner for certain operating activities	4,348		2,886

The balance in property, plant and equipment, net funded with accounts payable and accrued liabilities (including affiliate) was $0.4 million and $0.1 million, as of June 30, 2016 and 2015, respectively.

SABINE PASS LNG, L.P. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

NOTE 8—SUPPLEMENTAL CASH FLOW INFORMATION

The following table (in thousands) provides supplemental disclosure of cash flow information:

	Three Months Ended March 31,
	2016		2015
Non-cash contributions for conveyance of assets under Cooperation Agreement	$	252,801	$	745
Non-cash contributions from limited partner for certain operating activities	2,165		—

The balance in property, plant and equipment, net funded with accounts payable and accrued liabilities (including affiliate) was $1.4 million and zero, as of March 31, 2016 and 2015, respectively.

NOTE 9—RECENT ACCOUNTING STANDARDS

The following table provides a brief description of recent accounting standards that had not been adopted by the Company as of ~~March~~June 3130, 2016:



Standard	Description	Expected Date of Adoption	Effect on our Consolidated Financial Statements or Other Significant Matters
ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and subsequent amendments thereto	This standard amends existing revenue recognition guidance and requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance may be early adopted beginning January 1, 2017, and may be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption.	January 1, 2018	We are currently evaluating the impact of the provisions of this guidance on our Consolidated Financial Statements and related disclosures.
ASU 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern	This standard requires an entity’s management to evaluate, for each reporting period, whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued. Additional disclosures are required if management concludes that conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. Early adoption is permitted.	December 31, 2016	The adoption of this guidance is not expected to have an impact on our Consolidated Financial Statements or related disclosures.
ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory	This standard requires inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This guidance may be early adopted and must be adopted prospectively.	January 1, 2017	We are currently evaluating the impact of the provisions of this guidance on our Consolidated Financial Statements and related disclosures.
ASU 2016-02, Leases (Topic 842)	This standard requires a lessee to recognize leases on its balance sheet by recording a liability representing the obligation to make future lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term. A lessee is permitted to make an election not to recognize lease assets and liabilities for leases with a term of 12 months or less. The standard also modifies the definition of a lease and requires expanded disclosures. This guidance may be early adopted, and must be adopted using a modified retrospective approach with certain available practical expedients.	January 1, 2019	We are currently evaluating the impact of the provisions of this guidance on our Consolidated Financial Statements and related disclosures.

1112

SABINE PASS LNG, L.P. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED

(unaudited)

Additionally, the following table provides a brief description of recent accounting standards that were adopted by the Company during the reporting period:

Standard	Description	Date of Adoption	Effect on our Consolidated Financial Statements or Other Significant Matters
ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis	These amendments primarily affect asset managers and reporting entities involved with limited partnerships or similar entities, but the analysis is relevant in the evaluation of any reporting organization’s requirement to consolidate a legal entity. This guidance changes (1) the identification of variable interests, (2) the variable interest entity characteristics for a limited partnership or similar entity and (3) the primary beneficiary determination. This guidance may be early adopted, and may be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption.	January 1, 2016	The adoption of this guidance did not have an impact on our Consolidated Financial Statements or related disclosures.
ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs and ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements	These standards require debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the debt liability rather than as an asset. Debt issuance costs incurred in connection with line of credit arrangements may be presented as an asset and subsequently amortized ratably over the term of the line of credit arrangement. This guidance may be early adopted, and must be adopted retrospectively to each prior reporting period presented.	January 1, 2016	Upon adoption of these standards, the balance of debt, net was reduced by the balance of debt issuance costs, net, except for the balance related to line of credit arrangements, on our Consolidated Balance Sheets. See Note 6—Debt for ~~required~~additional disclosures ~~for a change in accounting principle~~.

1213


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.” All statements, other than statements of historical facts, included herein or incorporated herein by reference are “forward-looking statements.” Included among “forward-looking statements” are, among other things:


•	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, regardless of the source of such information, or the transportation or demand for and prices related to natural gas, LNG or other hydrocarbon products;


•	statements regarding any financing transactions or arrangements, or ability to enter into such transactions;


•	statements regarding any 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 TUAs and other contracts;


•	statements regarding our business strategy, our strengths, our business and operation plans or any other plans, forecasts, projections, or objectives, including anticipated revenues and capital expenditures, 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; and


•	any other statements that relate to non-historical or future information.

All of these types of statements, other than statements of historical fact, are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” 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 due to factors described in this quarterly report and in the other reports and other information that we file with the SEC. These forward-looking statements speak only as of the date made, and other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed under “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2015. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these risk factors. Other than as required under the securities laws, we assume no obligation to update or revise these forward-looking statements or provide reasons why actual results may differ.

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 ~~include~~includes the following subjects:


•	Overview of Business


•	Liquidity and Capital Resources

1314


•	Results of Operations


•	Off-Balance Sheet Arrangements


•	Summary of Critical Accounting Estimates


•	Recent Accounting Standards

Overview of Business

We own and operate an LNG receiving and regasification terminal in ~~western~~ Cameron Parish, Louisiana, less than four miles from the Gulf Coast on the Sabine-Neches Waterway (our “LNG terminal”). Our LNG terminal includes existing infrastructure of five LNG storage tanks with capacity of approximately 16.9 Bcfe, two marine berths that can accommodate vessels with nominal capacity of up to 266,000 cubic meters and vaporizers with regasification capacity of approximately 4.0 Bcf/d.

Liquidity and Capital Resources

Cash and Cash Equivalents

As of ~~March~~June 3130, 2016, we had $912.83 million of cash and cash equivalents and $~~129~~91.1 million of current and non-current restricted cash, which is restricted to pay interest on the Senior Notes described below.

The foregoing funds and cash flows generated from operations are anticipated to be sufficient to fund our operating expenditures and interest requirements for at least the next twelve months. All of our revenues from external customers and long-lived assets for each of the three and six months ended ~~March~~June 3130, 2016 and 2015 are attributed to or located in the United States.

TUA Revenues

Our LNG terminal has operational regasification capacity of approximately 4.0 Bcf/d and aggregate LNG storage capacity of approximately 16.9 Bcfe. Approximately 2.0 Bcf/d of the regasification capacity at our LNG terminal has been reserved under two long-term third-party TUAs, under which our customers are required to pay fixed monthly fees, whether or not they use our LNG terminal. Each of Total Gas & Power North America, Inc. (“Total”) and Chevron U.S.A. Inc. (“Chevron”) has reserved approximately 1.0 Bcf/d of regasification capacity and is obligated to make monthly capacity payments to us aggregating approximately $125 million annually for 20 years that commenced in 2009. Total S.A. has guaranteed Total’s obligations under its TUA up to $2.5 billion, subject to certain exceptions, and Chevron Corporation has guaranteed Chevron’s obligations under its TUA up to 80% of the fees payable by Chevron.

The remaining approximately 2.0 Bcf/d of capacity has been reserved under a TUA by SPL, a wholly owned subsidiary of Cheniere Partners (NYSE MKT: CQP), a publicly traded partnership which indirectly owns us. SPL is developing liquefaction facilities at our LNG terminal adjacent to our existing regasification facilities in order to liquefy and export natural gas from the United States. SPL is obligated to make monthly capacity payments (the “TUA Fees”) to us aggregating approximately $250 million annually, continuing until at least 20 years after SPL delivers its first commercial cargo at SPL’s liquefaction facilities under construction at our LNG terminal. We entered into a terminal use rights assignment and agreement (the “TURA”) with SPL and Cheniere Investments, a wholly owned subsidiary of Cheniere Partners, pursuant to which Cheniere Investments has the right to use SPL’s reserved capacity under the TUA and has the obligation to ~~make~~pay the ~~monthly~~TUA ~~capacity~~Fees ~~payments~~ required by the TUA to us. Cheniere Investments’ right to use capacity at our LNG terminal will be reduced as each of Trains 1 through 4 reaches commercial operations. The percentage of the ~~monthly~~TUA ~~capacity~~Fees ~~payments~~ payable by Cheniere Investments will be reduced from 100% to zero (unless Cheniere Investments utilizes terminal use capacity after Train 4 reaches commercial operations), and the percentage of the ~~monthly~~TUA ~~capacity~~Fees ~~payments~~ payable by SPL will increase by the amount that Cheniere Investments’ percentage decreases. In May 2016, Cheniere Investments’ percentage of all TUA Fees payable to us was reduced from 100% to 75% and SPL’s percentage of all TUA Fees payable to us increased from zero to 25% in accordance with the TURA. Cheniere Partners has guaranteed SPL’s obligations under the TUA and the obligations of Cheniere Investments under the TURA.

Under each of these TUAs, we are entitled to retain 2% of the LNG delivered to our LNG terminal. During the three and six months ended ~~March~~June 3130, 2016, we sold LNG to SPL and recorded ~~regasification~~other revenues—affiliate of $21.74 million and $4.1 million, respectively.

During the three months ended March 31, 2016, SPL commenced export of LNG from our LNG terminal, and we provided related cargo loading services. We recorded other revenues—affiliate of $1.5 million related to these services. 15

14In 2016, SPL commenced export of LNG from our LNG terminal, and we provided related cargo loading services. During the three and six months ended June 30, 2016, we recorded other revenues—affiliate of $2.1 million and $3.5 million, respectively, related to these services.

Capital Resources

As of ~~March~~June 3130, 2016, we had an aggregate principal amount of $1.7 billion, before discount, of the 7.50% Senior Secured Notes due 2016 (the “2016 Senior Notes”) and $0.4 billion of the 6.50% Senior Secured Notes due 2020 (the “2020 Senior Notes” and collectively with the 2016 Senior Notes, the “Senior Notes”). Borrowings under the 2016 Senior Notes and 2020 Senior Notes accrue interest at a fixed rate of 7.50% and 6.50%, respectively. The terms of the 2016 Senior Notes and 2020 Senior Notes are substantially similar. Interest on the Senior Notes is payable semi-annually in arrears. Subject to permitted liens, the Senior Notes are secured on a pari passu first-priority basis by a security interest in all of our equity interests and substantially all of our operating assets.

We may redeem all or part of our 2016 Senior Notes at any time at a redemption price equal to 100% of the principal plus any accrued and unpaid interest plus the greater of:

•1.0% of the principal amount of the 2016 Senior Notes; or

•

the excess of: (1) the present value at such redemption date of (a) the redemption price of the 2016 Senior Notes plus (b) all required interest payments due on the 2016 Senior Notes (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the treasury rate as of such redemption date plus 50 basis points; over (2) the principal amount of the 2016 Senior Notes if greater.

We may redeem all or part of the 2020 Senior Notes at any time on or after November 1, 2016, at fixed redemption prices specified in the indenture governing the 2020 Senior Notes, plus accrued and unpaid interest, if any, to the date of redemption. We may also redeem, at our option, all or part of the 2020 Senior Notes at any time prior to November 1, 2016, at a “make-whole” price set forth in the indenture governing the 2020 Senior Notes, plus accrued and unpaid interest, if any, to the date of redemption.

Under the indentures governing the Senior Notes (the “Senior Notes Indentures”), except for permitted tax distributions, we may not make distributions until certain conditions are satisfied, including: (1) there must be on deposit in an interest payment account an amount equal to one-sixth of the semi-annual interest payment multiplied by the number of elapsed months since the last semi-annual interest payment, and (2) there must be on deposit in a permanent debt service reserve fund an amount equal to one semi-annual interest payment. Distributions are permitted only after satisfying the foregoing funding requirements, a fixed charge coverage ratio test of 2:1 and other conditions specified in the Senior Notes Indentures. During the ~~three~~six months ended ~~March~~June 3130, 2016 and 2015, we made distributions of $63145.43 million and $70199.86 million, respectively, after satisfying all the applicable conditions in the Senior Notes Indentures.

In February 2016, Cheniere Partners entered into a Credit and Guaranty Agreement aggregating $2.8 billion (the “2016 CQP Credit Facilities”). A portion of the borrowings under the 2016 CQP Credit Facilities will be used to redeem or repay approximately $1.7 billion of the 2016 Senior Notes and $420.0 million of the 2020 Senior Notes, which must be redeemed or repaid concurrently.

1516

Sources and Uses of Cash

The following table (in thousands) summarizes the sources and uses of our cash, ~~and~~ cash equivalents and restricted cash for the ~~three~~six months ended ~~March~~June 3130, 2016 and 2015. 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.

	Three Months Ended March 31,
	Six Months Ended June 30,
	2016			2015
Sources of cash and cash equivalents
Operating cash flows
Operating cash flow	$	70,444		$	19,861
Net cash provided by operating activities	$	157,385		$	148,765
Capital contributions from Cheniere Partners	—			53,122
Investing cash flows
Property, plant and equipment, net	—			4
Net cash used in investing activities	(7,417		)	(1,037		)
Total sources of cash and cash equivalents	70,444			72,987
Financing cash flows
Uses of cash and cash equivalents
Net cash used in financing activities	(145,348		)	(147,151		)
Distributions to limited partner	(63,384		)	(70,782		)
Net increase in cash, cash equivalents and restricted cash	4,620			577
Property, plant and equipment, net	(350		)	—
Cash, cash equivalents and restricted cash—beginning of period	98,707			96,525
Other	(4,537		)	—
Cash, cash equivalents and restricted cash—end of period	$	103,327		$	97,102
Total uses of cash and cash equivalents	(68,271		)	(70,782		)
Net increase in cash and cash equivalents	2,173			2,205
Cash and cash equivalents—beginning of period	7,642			5,460
Cash and cash equivalents—end of period	$	9,815		$	7,665

Operating Cash ~~Flow and Capital Contributions from Cheniere Partners~~ Flows

~~Cash~~Operating ~~flow~~cash ~~from~~flows ~~operations~~during ~~was $70.4 million and $19.9 million in~~ the ~~three~~six months ended ~~March~~June 3130, 2016 and 2015 were $157.4 million and $148.8 million, respectively. Operating cash flow related primarily to fixed monthly fees paid by our TUA customers, which in 2015 was offset by an amount paid to purchase LNG cargoes used to maintain cryogenic readiness of our LNG terminal, which was not incurred in 2016. ~~Such~~This purchase was funded by capital contributions from Cheniere Partners~~. No~~ ~~such~~in ~~cargoes~~2015, ~~were~~but ~~purchased~~our ~~in 2016. Our~~ TUA customers ~~are~~were obligated to fully reimburse us for their proportional share of the cost of these LNG cargoes.

~~Distributions~~Investing toCash ~~Limited Partner~~Flows

WeInvesting ~~made~~cash flows during the six months ended June 30, 2016 and 2015 were $637.4 million and $701.80 million, ofrespectively. During ~~distributions to our limited partner in~~ the ~~three~~six months ended ~~March~~June 3130, 2016, ~~and~~we ~~2015,~~used ~~respectively~~$4. ~~The~~5 ~~decrease~~million inprimarily ~~distributions~~for payments made pursuant to ~~our~~the ~~limited~~information ~~partner~~technology inservices ~~2016~~agreement ~~compared~~for tocapital ~~2015,~~assets ~~primarily~~purchased ~~resulted~~on ~~from~~our ~~increased~~behalf. The ~~operating~~remaining ~~cash~~$2.9 ~~needs~~million asand we$1.0 ~~performed~~million ~~services~~for tothe ~~support~~six ~~SPL’s~~months ~~production~~ended atJune ~~its~~30, ~~liquefaction~~2016 ~~facilities~~and ~~adjacent~~2015, respectively, were used to ~~our~~purchase ~~existing~~property, ~~regasification~~plant ~~facilities~~and equipment.

~~Other~~Financing Cash Flows

~~During~~Financing cash flows during the ~~three~~six months ended ~~March~~June 3130, 2016, weand ~~used~~2015 were $4145.53 million ofand ~~cash~~$147.2 ~~for~~million, ~~other activities~~respectively, ~~which~~as ~~primarily~~a ~~related~~result toof adistributions ~~payment~~to ~~made~~our ~~pursuant~~limited topartner. During the ~~information~~six ~~technology~~months ~~services~~ended ~~agreement~~June ~~for~~30, ~~capital~~2015, ~~assets~~the ~~purchased~~distributions onof ~~our~~$199.6 ~~behalf~~million to ~~perform~~our ~~these~~limited ~~services~~partner were offset by capital contributions received from Cheniere Partners of $52.4 million.

Results of Operations

There were no significant changes in our revenues or operating costs and expenses in the three and six months ended ~~March~~June 3130, 2016, as compared to the respective ~~period~~periods in 2015, except for $43.25 million and $7.6 million of other affiliated revenues for the three and six months ended June 30, 2016, respectively. The other affiliated revenues for the three and six months ended June 30, 2016 included $2.1 million and $3.5 million, respectively, for cargo loading services for SPL and $21.74 million and $4.1 million, respectively, for sales of LNG to SPL. We expect further increases in our revenues and operating costs and expenses as SPL continues production at its liquefaction facilities adjacent to our existing regasification facilities. Additional revenues will primarily consist of cargo loading and tug services fees that will be partially offset by additional operating costs and expenses related to these activities.

1617

Off-Balance Sheet Arrangements

As of ~~March~~June 3130, 2016, we had no transactions that met the definition of off-balance sheet arrangements that may have a current or future material effect on our consolidated financial position or operating results.

Summary of Critical Accounting Estimates

The preparation of our 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 year ended December 31, 2015.

Recent Accounting Standards

For descriptions of recently issued accounting standards, see Note 9—Recent Accounting Standards of our Notes to Consolidated Financial Statements.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Cash Investments

We have cash investments that we manage based on internal investment guidelines that emphasize liquidity and preservation of capital. Such cash investments are stated at historical cost, which approximates fair market value on our Consolidated Balance Sheets.


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 voluntarily filed by us under the Securities Exchange Act of 1934, as amended (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 general partner’s management, including our general partner’s Chief Executive Officer and 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 general partner’s Chief Executive Officer and 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.

1718


PART II.	OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

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.

Please see Part II, Item 1, “Legal Proceedings - LDEQ Matter” in the Partnership’s Quarterly Report on Form 10-Q for the period ended March 31, 2016.

We, SPL and Sabine Pass Liquefaction Expansion, LLC (“SPLE”), are in discussions with the Louisiana Department of Environmental Quality (“LDEQ”) to resolve self-reported deviations arising from operations of the Sabine Pass LNG terminal and the commissioning of the natural gas liquefaction facilities at such terminal, and relating to certain requirements under our operating permit issued under Title V of the Clean Air Act Title V permit conditions. The matter involves deviations self-reported to LDEQ pursuant to the Title V permit and covering the time period from January 1, 2012 through March 25, 2016. On April 11, 2016, we received a Consolidated Compliance Order and Notice of Potential Penalty (the “Compliance Order”) from LDEQ covering deviations self-reported during that time period. We continue to work with LDEQ to resolve the matters identified in the Compliance Order. We do not expect that any ultimate sanction will have a material adverse impact on our financial results.


ITEM 1A.	RISK FACTORS

There have been no material changes from the risk factors disclosed in our annual report on Form 10-K for the year ended December 31, 2015.


ITEM 5.	OTHER INFORMATION

Compliance Disclosure

Pursuant to Section 13(r) of the Exchange Act, if during the quarter ended ~~March 31~~June 30, 2016, we or any of our affiliates had engaged in certain transactions with Iran or with persons or entities designated under certain executive orders, we would be required to disclose information regarding such transactions in our quarterly report on Form 10-Q as required under Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRA”). During the quarter ended ~~March 31~~June 30, 2016, we did not engage in any transactions with Iran or with persons or entities related to Iran.

Blackstone CQP Holdco LP, an affiliate of The Blackstone Group L.P. (“Blackstone Group”), is a holder of ~~approximately~~more than 29% of the outstanding equity interests of Cheniere Partners and has three representatives on the board of directors of Cheniere Partners’ general partner. Accordingly, Blackstone Group may be deemed an “affiliate” of Cheniere Partners, as that term is defined in Exchange Act Rule 12b-2. ~~We have received notice from~~ Blackstone Group ~~that~~included ~~it may include~~ in its quarterly report on Form 10-Q for the quarterly period ended ~~March~~June 3130, 2016 disclosures pursuant to ITRA regarding ~~two~~one of its portfolio companies that may be deemed to be affiliates of Blackstone Group. Because of the broad definition of “affiliate” in Exchange Act Rule 12b-2, ~~these~~this portfolio ~~companies~~company of Blackstone Group, through Blackstone Group’s ownership of Cheniere Partners, may also be deemed to be ~~affiliates~~an affiliate of ours. We have not independently verified the disclosure described in the following ~~paragraphs~~paragraph.

~~We have received notice from~~ Blackstone Group disclosed that ~~Travelport~~NCR ~~Worldwide~~Corporation ~~Limited~~ (“~~Travelport~~NCR”) has engaged in the following activities: asNCR ~~part~~has ofreported ~~its~~that ~~global~~during ~~business~~the inperiod from April 1, 2016 through April 30, 2016, NCR continued to maintain a bank account and guarantees at the ~~travel~~Commercial ~~industry~~Bank of Syria (“CBS”), ~~Travelport~~which ~~provides~~was ~~certain~~designated ~~passenger~~as ~~travel~~a ~~related~~Specially ~~Travel~~Designated ~~Commerce~~National ~~Platform~~pursuant to Executive Order 13382 (“EO 13382”) on August 10, 2011. This bank account and ~~Technology~~the ~~Services~~guarantees at CBS were maintained in the normal course of business prior to ~~Iran~~the ~~Air~~listing of CBS pursuant to EO 13382. ~~Travelport~~ NCR ~~also~~reported ~~provides~~that ~~certain~~the ~~airline~~last ~~Technology~~known ~~Services~~account tobalance ~~Iran~~as ~~Air~~of April ~~Tours~~30, 2016, was approximately $3,468. The ~~gross~~bank ~~revenues~~account did not generate interest from April 1, 2016 through April 30, 2016, and ~~net~~the guarantees did not generate any revenue or profits ~~attributable~~for NCR. Pursuant to ~~such~~a ~~activities~~license granted to NCR by ~~Travelport~~the ~~during~~Office of Foreign Assets Control (the ~~quarter~~“OFAC”) ~~ended~~on ~~March 31~~January 3, ~~2016~~2013, ~~have~~and ~~not~~subsequent licenses granted on April 29, 2013, July 12, 2013, February 28, 2014, November 12, 2014, and October 24, 2015, NCR had been ~~reported~~winding bydown ~~Travelport~~its past operations in Syria. ~~Blackstone~~NCR’s ~~Group~~last ~~informed~~such uslicense ~~that~~expired ~~Travelport~~on ~~intends~~April 30, 2016. In addition, NCR’s application to ~~continue~~renew ~~these~~the ~~business~~license ~~activities~~to transact business with ~~Iran~~CBS, ~~Air~~which ~~and~~was ~~Iran~~submitted ~~Air~~to ~~Tours~~OFAC ason May 18, 2015, was not acted upon prior to the expiration of NCR’s last such ~~activities~~license. As ~~are~~a ~~either~~result, ~~exempt~~and ~~from~~in ~~applicable~~connection ~~sanctions~~with ~~prohibitions~~the orlicense ~~specifically~~expiration, ~~licensed~~the Company abandoned its remaining property in Syria, which, including the CBS account, was commercially insignificant, and ended the employment of its final two employees in Syria, who had remained employed by the ~~Office~~Company to assist with the execution of ~~Foreign~~the ~~Assets~~Company’s ~~Control~~wind-down (activities pursuant to authority granted by the “OFAC”) licenses. NCR does not intend to engage in any further business activities with CBS.

We have received notice from Blackstone Group that NCR Corporation (“NCR”) has engaged in the following activities: NCR has reported that during the period from January 1, 2016 through March 31, 2016, NCR maintained a bank account and guarantees at the Commercial Bank of Syria (“CBS”), which was designated as a Specially Designated National pursuant to Executive Order 13382 (“EO 13382”) on August 10, 2011. This bank account and the guarantees at CBS were maintained in the normal course of business prior to the listing of CBS pursuant to EO 13382. NCR reported that the last known account balance

as of March 31, 2016, was approximately $3,468. The bank account did not generate interest from January 1, 2016 through March 31, 2016, and the guarantees did not generate any revenue or profits for NCR. Pursuant to a license granted to NCR by the OFAC on January 3, 2013, and subsequent licenses granted on April 29, 2013, July 12, 2013, February 28, 2014, November 12, 2014, and October 24, 2015, NCR has been winding down its past operations in Syria. NCR’s current license expired on April 30, 2016. NCR has also received licenses from OFAC to close the CBS account and terminate any guarantees. NCR’s application to renew the license to transact business with CBS, which was submitted to OFAC on May 18, 2015, remains pending. Following the termination of guarantees and the closure of the account, NCR does not intend to engage in any further business activities with CBS.


ITEM 6.	EXHIBITS



Exhibit No.		Description
31.1*		Certification by Chief Executive Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act
31.2*		Certification by Chief Financial Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act
32.1**		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document



*	Filed herewith.
**	Furnished herewith.

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.

		SABINE PASS LNG, L.P.
		By:	Sabine Pass LNG-GP, LLC,
			its general partner
Date:	~~May~~August 58, 2016	By:	/s/ Michael J. Wortley
			Michael J. Wortley
			Chief Financial Officer
			(on behalf of the registrant andas principal financial officer)
Date:	~~May~~August 58, 2016	By:	/s/ Leonard Travis
			Leonard Travis
			Chief Accounting Officer
			(on behalf of the registrant andas principal accounting officer)

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