Q3 2019 Earnings Call
Please standby.
Good morning, and welcome to the Shneur energy.
Incorporated third quarter 2019 earnings call and webcast.
Today's conference is being recorded and at this time I'd like to turn the conference over to Randy Bhatia, Vice President of Investor Relations.
Thanks, operator, good morning, everyone and welcome to Shamir Energy's third quarter 2019 earnings conference call. The slide presentation and access to the webcast for today's call or available western year Dot com.
Joining me today, or Jack Hu Scotia, nears, President and CEO , and it'll Segun executive Vice President and Chief Commercial Officer.
Hi, good shortly executive Vice President and CFO .
Before we begin I would like to remind all listeners that our remarks, including answers to your questions may contain forward looking statements.
Actual results could differ materially from what is described in these days.
Slide two of our presentation contains a discussion of those forward looking statements and associated risks.
In addition, we may include references to certain non-GAAP financial measures such as consolidated adjusted EBITDA and distributable cash flow a reconciliation of these measures. The most comparable GAAP financial measure it can be found in the appendix slide presentation.
As part of our discussion of Shinier energy Inc. results today's call May also include.
So what the financial information and result version their energy partners LP or CQ Pete.
We do not intend to cover CEQP. These results separately from those of Shinier energy.
The call agenda as shown on slide three Jack will begin with operating and financial highlights and it's all will then provide an update on the LNG market.
Michael will review our financial results.
Builds and guidance.
After prepared remarks, we will open the call for QNX I'll now turn the call over to Jack Fusco, Senior Vice President and CEO .
Thank you Randy and good morning, everyone I'm pleased to be here today to discuss our result, and accomplishments for the third quarter of 2019 as well as our outlook for 2020, which we.
Back to be a record setting year for Shinier.
The third quarter was yet another quarter highlighted by achievements across multiple facets of our business in operations and across both of our world scale LNG facilities.
Please turn now five.
For the third quarter.
We generated consolidated adjusted EBITDA of 694 million in distributable cash flow of approximately 200 million on revenue of approximately 2.2 billion. We reported a net loss attributable to common stockholders of 318 million for the quarter, which was impacted.
By noncash derivative losses, and an impairment to our investments in the mid chip project and certain other items that Michael will discuss in a few minutes.
Looking forward to the rest of the year, we continue to expect our full year 2019 consolidated adjusted EBITDA.
To be in the range of too.
0.9 to 3.2 billion and we expect distributable cash flow to be between 600 and 800 million.
For 2020, we expect significant growth in our financial results as compared to 2019 and today, we are introducing 2020 guidance for consolidated adjusted EBITDA.
3.8 to 4.1 billion.
Distributable cash flow of one to 1.3 billion.
Let's see kewpie distribution of $2.55 to $2.65 per unit.
Michael will cover our financial results and guidance in more detail in a few moments.
During the third quarter, we signed our second integrated production marketing or I PM transaction. This time with the energy resources, providing additional commercial support for Corpus Christi stage three under the terms of this deal Junnier will purchase 140000 MBT you have now.
As for gas.
Good day from NRG for price linked to Jay can for term of approximately 15 years.
The LNG associated with this gas supply approximately 0.8 5 million tons per year will be marketed and sold by our marketing affiliates. This transaction represents further progress on the commercial.
Realization of Corpus Christi stage, three and supports our expectation of a positive final investment decision on that project during the first half of next year.
The success of the ITM structure is another tangible example action years market, leading commercial innovation.
And demonstrates the value the marketplaces, and our ability to tailor solutions to meet the needs of our customers.
We continue to pursue additional ITM transactions.
Primarily in the Permian given Corpus Christi advantage location with a focus on large investment grade producers.
Turning to at Corpus Christi.
Reached substantial completion on August 28, six months to the day after the completion of train one and became the seventh operational Shinier train.
Turning to like the six trains before it was completed ahead of schedule and within budget.
In the first three.
Orders of 2019, we reached substantial completion on three trains are approximately 15 million tons of liquefaction capacity.
With each train in average of more than nine months ahead of schedule.
Product of years of development in the hard work of thousands of dedicated Shinier impactful.
This achievement further reinforces our global reputation for best in class project execution.
I will speak more about that continued progress on our liquefaction projects in a few minutes.
In September the data first commercial delivery or Dfc de was reached under the 20 year.
Contracts with both Centrica and total associated with the train five at Sabine pass.
So the transformation of our cash flows continues as we have commenced 13 of our credit worthy customers under their long term take or pay stone contracts.
Also during the third quarter, we achieved.
Some significant milestones and the execution of our balance sheet and capital allocation strategies.
We recently refinanced debt at both see Kewpie in Corpus Christi, and the latter was upgraded to investment grade credit ratings by both S&P and Fitch during the quarter.
A milestone achievement for the Corpus Christi project.
In addition, we commence debt repayment prepaying, a portion of the Corpus Christi credit facility in support of our long term balance sheet strategy to achieve consolidated investment grade credit metrics at all rated entities over the next few years.
We also continued repurchasing shares in the market.
Opportunistically with approximately 2.5 million shares repurchased in the third quarter, we have now repurchased approximately 1% of our outstanding shares since the program commenced in late June .
Operationally, we produced an exporter to 108 LNG cargoes during the third quarter.
The new quarterly record and in October we expanded our 850 of cargo. In addition, we completed additional successful maintenance turnarounds at Sabine pass and support over 2019 maintenance program.
The turnarounds for train three four and five involved over 490000 man hours.
Yes, and 2700 work orders and like to turnaround for trains one and two earlier. This year was accomplished ahead of schedule on budget and most importantly, with no safety incidents.
Congratulations to errand Stevenson in the Sabine pass team and further demonstrating the safety first culture.
Sure of seniors operations.
Now turning to slide six for an update on liquefaction project operations in development.
Since liquefaction operations began in early 2016, we have loaded in exported over 850 cargos from our two projects.
Or approximately $16 million.
Tons of LNG.
As I mentioned earlier, our seven operating trains have all entered service early on average over seven months ahead of the guaranteed completion dates.
As a result of the early completions and excellence in operations, our marketing affiliate has been able to sell.
Over 200 cumulative cargoes of incremental LNG into the global market.
A significant benefit to shinier and our shareholders.
We remain laser focused on maintaining excellence in execution as both Sabine pass train six in Corpus Christi train three.
Progress through construction.
At Sabine pass train six Bechtel continues to progress construction efforts against an accelerated schedule.
Project completion for train six is over 38% as of the end of September construction is ramping up with head count now over five.
100, and activities focused on foundation and column work and commencing structural steel.
Bechtol is currently projecting substantial completion of train six in the first half 2023.
At Corpus Christi train three spectral also continues to progress construction efforts.
Against an accelerated timeline.
There are over 2000 workers currently on site for train three in the project is over two thirds complete as of the end of September .
Construction activities are focused on structural steel above ground piping installation mechanical and instrumentation activities and recently.
The concrete roof for was completed on the third LNG storage tank.
Spectral now projects substantial completion of train three in the first half of 2021.
And acceleration from the previously projected target for the second half of 2021.
Our development efforts.
On Corpus Christi stage three continue in that project remains on the expected timeline, we have previously communicated.
We continue to expect to reach F. I'd for stage three in 2020.
We are currently in the process of evaluating EPC bids and we intend to have a cost competitive fully ramped lump.
Im turnkey EPC contract in place over the next few months.
On the regulatory front, we continue to expect full regulatory approvals for stage three by the end of the year and on the commercial side significant progress has been made already with our IP m. transactions with Apache in LNG.
And Anatol will speak in a minute and what we see in the market today that gives us confidence.
In commercial momentum to enable UNEV idea of stage three next year.
Before turning the call over I'll briefly outline what I see as some action years key priorities for 2020.
First in.
Foremost, we plan to deliver on the 2020 financial guidance, we rolled out today.
We have good visibility into next year in 2020 should feature less volatility than 2019, given that much more of our overall production next year will be under long term.
Contracts and there are no new train scheduled to enter.
Service next year.
Another key priority for 2000 Twentys to maintain our reputation for operational excellence our track record in LNG development execution and operations is a key differentiator in a key competitive advantage and it is imperative that we keep our eyes on the ball.
Yes.
In May of 2020, we expect to reach the FCD with respect to train two at Corpus Christi and commenced the long term SBH tied to train two.
In 2019, our teams have done a tremendous job of Onboarding, new ESP customers with the Dfc DNA of contracts tied to Corpus Christi.
And one in Sabine pass train five as well have some of our marketing Sta.
And we expect that performance to continue next year.
As I've already mentioned, we expect to reach F. I'd for Corpus Christi stage, three next year States reason attractive growth project, which will leverage.
A significant amount of infrastructure, we've built in corpus.
We look forward to receiving our FERC permit later this year and finishing the remaining steps of commercialization and financing.
Ahead of us full last I'd.
Finally in 2020, we will continue to pursue additional development opportunities to maintain or.
Growth momentum.
We have an incredible infrastructure and land position in Corpus Christi, which we expect to enable further brownfield expansion economics for future liquefaction projects.
In addition to our own infrastructure dislocation is proximate to significant new pipeline development.
And natural gas resources.
Our Corpus Christi project is by far the closest LNG project.
Neither in operations or development to the Permian Basin.
So our site is an ideal location to match new gas supply with global LNG demand over the long term.
Our project development focus.
Focus in 2020 is on leveraging those advantages to expand our LNG footprint in Corpus Christi beyond stage three.
And now I'll turn the call over to anticipate.
Thanks, Jack and good morning, everyone. Please turn to slide nine.
2019 has continued to be a year of substantial.
Mobile LNG supply growth.
After adding a record 12 million tons of supply in the second quarter. Another 10 million tons of supply was added in the third quarter.
Full year 2019 is on pace to add about 40 million tons of supply, which will be a new yearly record.
This year supply growth has been driven largely by you.
Yes projects, including our projects with substantial completion achieved four corpus Christi train, one and Sabine pass train five in the first quarter and for Corpus Christi train two in August .
Other us projects have also reached recent milestones as Freeport train one exported its first cargo in September and the first.
And that Elba Island recently entered commercial service.
Incremental supply during the third quarter was absorbed primarily by Europe .
The region continued its global balancing role as we also saw in the first half of the year.
Europe imported a record 18.4 million tons during the third quarter nearly double the import.
Level as compared to a year ago.
As this year's rapid supply growth has outpaced Asian demand growth pushing incremental supplies to Europe and driving down spot prices. We've also seen a convergence of European and Asian spot gas price.
A spot price markers, most commonly used in Asia, and Europe , JK EM and.
And TTF, respectively of occasionally shown some deviations, but generally spreads between the two have narrowed as compared to previous years.
In contrast to the decrease in TTF in GTM prices, Brent equivalent pricing continued to diverged and generally traded above the $10 an MPV to you level during the third quarter.
More than three times higher than Henry hub, and almost double TTF NJ Cam levels.
Please turn to slide 10.
European imports were lower quarter on quarter, but remained well above prior years levels.
The quarter on quarter slowdown in imports was driven by strong storage levels and low gas price in Europe and by an.
Police in imports into traditional counter seasonal markets and emerging Asian market.
RPM gas storage levels have continued to be above the five year range and storage was reported to be close to 100% full in the middle of October .
These storage levels have allowed spot LNG prices to remain low and the European markets through.
I mean comfortable with supply and demand dynamics heading into the winter withdrawal season.
So negative news flow on Groningen, French nuclear facilities and lack of progress on the Ukraine transit agreements during the quarter our potential tailwinds.
Pipeline flows into Europe also fell off during the third quarter, helping to balance the market.
All three regional flows into Europe from Russia, Algeria, and Norway were lower quarter on quarter, and Norway had the largest declined flung, 22% less than in the third quarter of last year.
Low gas prices and strong LNG imports have also incentivized increased gas fired power generation.
Spain has had the most noticeable risk.
Bonds, increasing its gas power generation by 58% in the third quarter as compared to last year.
To similar story in Germany, where gas power generation rose by 39% year on year in the third quarter.
While hydro and renewables of oscillated in both countries natural gas supported by low prices and a strong.
Carbon price is taking market share away from coal.
Please turn to slide 11.
Asian LNG imports in the third quarter were slightly higher than 2018 and continued to trend above the five year range.
Strong nuclear generation from legacy LNG consumers in Japan, South Korea and Taiwan.
Has placed downward pressure on LNG imports this year.
Lower imports from Japan, and South Korea were offset by strong imports in the third quarter from China, India, Bangladesh, Pakistan, and Malaysia, all of which have experienced double digit growth from last year.
Looking ahead there are several developments in themes were fall.
And that are expected to be favorable to Asian LNG demand growth.
In Japan, there have been challenges in complying with anti terrorism retrofits on time at nuclear facilities, resulting in the potential closure of 12 gigawatts of nuclear capacity.
In South Korea their plans for more temporary closures of coal fired power plants.
During winter.
A proposal was submitted to the president of South Korea to close 14 coal fired plants from December to February and another 22 in March in addition to the five currently scheduled to be closed from March to June .
China recently announced that target to replace dispersed coal with clean heating options. This year.
5.2 million households across 28 cities are targeted to switch to cleaner burning options, 45% higher than in 2018.
While the impact on gas demand based on this policy is not yet known it's a good example of China continuing to implement environmentally driven policies, which should incentivized stronger gas.
I am going forward.
As we look toward winter end 2020, the market will continue to absorb the recent amounts of new supply that have come online at 40 million tons. The LNG supply growth. This year has been unprecedented.
However, this wave is well over 80% behind us with only 24 million tons are about 17% of.
Mental supply forecast to come on line between now and the end of next year.
Asian demand has continued to grow and Europe has largely balanced the markets in part by rebuilding the muscle memory of natural gas imports and consumption.
The forward margin curve remains and steep contango on margins, while not what I would characterize as robust are fairly.
The healthy only a couple of quarters out on the curve.
We continue to expect that the prospects for global natural gas demand growth.
Commercial momentum in our advantage position of Us Gulf Coast LNG exports will enable us to capture significant additional term economics.
We remain confident that these efforts should aggregate sufficient commercial support.
Our Corpus Christi stage, three and we'll forward next year.
Thank you for your time and attention I will turn it over to Michael will review our financial results.
Thanks, Anatol and good morning, everyone turning to slide 13 for the third quarter, we reported a net loss of 318 million consolidated adjusted EBITDA of 694 million and distributable.
Cash flow of approximately 200 million.
For the nine months ended September Thirtyth, we reported a net loss of 291 million consolidated adjusted EBITDA of approximately 2 billion and distributable cash flow of approximately 520 million.
Jack mentioned during the third quarter net loss was negatively impacted by an impairment of approximately 80 million.
Into our equity investment in the mid ship projects.
This is due to cost overruns and extended construction time lines at the mid chip project, resulting in a reduction of the expected fair value of our equity interest.
Net loss for the quarter also included on approximately 140 million noncash loss from changes in the fair value of commodity derivatives, primarily.
Related to our gas supply contracts and an approximately 80 million noncash loss related to interest rate derivatives.
We exported 383, TBT you have LNG from our liquefaction projects during the third quarter, an increase of 22 TV to you over the second quarter, primarily due to incremental commissioning and operational volumes.
From Corpus Christi train, two which was completed in placed into service in August .
We exported 20 Tbtu you have commissioning volumes during the third quarter related to train two.
In the nine months ended September Thirtyth, we exported over 1050, Tbtu firmer liquefaction projects.
For the third quarter, we recognized an.
Mm 364, TV to you have LNG produced at our liquefaction projects consisting of 364 tbtu loaded during the quarter plus 36, TBT loaded in the second quarter, but delivered and recognized in the third quarter less 30, 60, Bts sold on a delivered basis and in transit at the end of the third quarter.
We also.
Ignite as an income Eightv view of LNG that was sourced from third parties.
Approximately 73% of the 364 TV to you recognize an income from our projects during the quarter with sold under long term Sps and the remaining 27% with sold by our marketing affiliate either into the spot market are under short and medium term.
Yeah.
Volume sold under long term ESPN has increased by 38 tbtu compared to the second quarter driven by a full quarter of volumes under the FDA related to Corpus Christi train, one which reached the CD on June Onest and by volumes under the FDA is related to see being passed train five which reached the CD on September onest.
For the nine months ended September Thirtyth, we recognized an income 998 TV to you have LNG produce that are liquefaction projects.
And of which 73% will sold under long term Sta. We also recognize an income 31 tbtu of LNG source from third parties.
Operating income for the third quarter was 307 million a.
Decrease of 125 million compared to the second quarter. The decrease in operating income was primarily due decrease total margin and a slight increase in total operating costs and expenses primarily related to Corpus Christi train, two which revenue and cost began to be recognized in income after substantial completion in late August .
Total.
Margins or total revenues less cost of sales decreased by 112 million in the third quarter as compared to the second quarter due to increased mark to market loss from changes in fair value of commodity in FX derivatives, partially offset by an increase in LNG volumes recognized an income.
Margins for MBT, you have LNG recognized.
An income were materially consistent between quarters as lower LNG market pricing was largely offset by lower natural gas feedstock costs.
Regarding the net loss from changes in fair value of commodity and FX derivatives. The impact is primarily related to changes in the fair value of agreements for the future purchase of natural gas.
Certain of our gas supply agreements, including our IBM agreements qualifies derivatives and require mark to market accounting from period to period, we will experience noncash gains and losses as price or basis movements occur in the underlying commodities related to these forward contracts for purchase of natural gas.
Well operationally, we seek to eliminate commodity risk by matching our gas purchases and LNG sales on the same pricing index. Our long term LNG ESP days do not currently qualify for mark to market accounting, meaning that the fair value impact of only one side of the transaction is recognized until the delivery of natural gas than say.
All of our.
Our LNG occurs.
Anticipate that this accounting treatment mismatch will cost and volatility on our financial statements overtime in the form of noncash gains and losses, which will be reflected primarily in cost of sales.
For the third quarter, the net noncash impact of changes in fair value of commodity NFX derivatives was a loss of approximately 100.
And $40 million and year to date September Thirtyth, the impact was a gain of approximately 40 million.
Net loss attributable to common stockholders for the third quarter was $318 million or $1.25 per share compared to net loss of 114 million or 44 cents per share for the second quarter. The increase in net loss was.
Driven primarily by decreased operating income increased other expense related to the impairment of our equity investment in mid ship.
Increased interest expense and the increased loss on extinguishment of debt, partially offset by decreased net income attributable to non controlling interest.
Net income attributable to non controlling interest.
Decrease compared to the second quarter due to a decrease in net income recognized by CEQP.
In which the non controlling interests are held.
Please turn to slide 14, where I'll discuss 2019 and 2020 guidance.
Looking forward to the remainder of 2019 has jakone Anatole discussed.
We continue to see relatively.
Soft short term LNG market environment.
However, we have continued to have strong operating performance and have effectively hedged most expected production volumes for the remainder of the year.
We remain on track to deliver consolidated adjusted EBITDA for the full year within our guidance range of 2.9 to 3.2 billion.
Liam and distributable cash flow within our guidance range of point 6.8 billion.
Today, we are issuing 2020 consolidated adjusted EBITDA guidance of $3.8 billion to $4.1 billion.
And distributable cash flow guidance of one to 1.3 billion.
And kewpie distribution of $2.55 to.
The dollar 65 cents per unit.
We expect stable operations during 2027 trains and service throughout the whole year.
And with the FDA is related to six of those trains already in effect and the SBA for Corpus Christi trained to expected to reach DSD in May 2020.
The total.
It'll volume produced at our facilities in 2020, we expect approximately 7.5 million ton to be available to our marketing affiliates down from over 9.5 million tons in 2019.
And a significant portion of that capacity has already been heads either physically or financially.
This forecast considers production efficiencies as well as maintenance.
Question, Debottlenecking efforts, which had been implemented throughout this year.
Our marketing volume forecast for next year is weighted towards the first half of the year due to the timing of the CD for Corpus train two Sps and we've been actively pre selling some of these volumes in both the physical and financial markets.
We currently forecast.
So at a one dollar change in market margin would impact EBITDA by approximately 100 million for full year 2020.
Turning now to slide 15.
During the third quarter, we completed several transactions, which advance key initiatives related to our long term balance sheet management and capital allocation strategy.
In September CEQP.
We issued $1.5 billion of 4.5% senior notes due 2029 to prepay all of the outstanding term loans under the CEQP credit facilities and to fund future capital expenditures related to construction Sabine pass train six.
Dancing train six at the CQ Pea level has allowed us to bolster the resilience of SPL is investment grade credit.
Selling and as a step towards our longer term goals of de securitizing, our balance sheets, and achieving investment grade credit metrics throughout our corporate structure.
In September Corpus received investment grade senior secured debt ratings from S&P and Fitch and in October received an investment grade issuer default rating from Fitch.
Subsequent.
It's a corpus receiving these I'd ratings, we issued $727 million of 4.8% senior notes due 2039 pursuant to the previously announced private placement transaction with the Ali on.
The closing and funding of which was contingent upon corpus receiving the GE ratings.
In October we entered into another private.
Placement transaction with accounts managed by Blackrock them, Metlife and issued 475 million of 3.9% to 5% senior notes due 2039.
The proceeds of these two private placements were used to prepay outstanding amounts under the corpus credit facility.
Both sets of nodes are fully amortizing with a weighted.
At average life for 15 years, and they help us achieve a broader balance sheet goals is strengthening project level credit metrics and reducing consolidated leverage over time.
Finally in support of our capital allocation framework during the third quarter, we were repurchased approximately 2.5 million shares of common stock for a total of 156 million under.
Our share repurchase program and we commence deleveraging by prepaying, approximately 70 million of outstanding borrowings under the Corpus credit facility.
That concludes our prepared remarks. Thank you for your time and your interest engineer operator, we're ready to open the line for questions.
Thank you and if you do other question at this time, Please press star.
Our wind on your Touchtone phone.
Just a reminder, if you're joining us five speaker phone today make sure. Your mute function is turned up till now this signals from each our equipment.
We ask that you limit yourselves to initially to one question and one follow up question and you May recall you add if you have additional question.
And we will go first to Jeremy today.
JP Morgan.
Good morning.
Just morning Jeremy.
Thanks wanted to start off with the 2020 EBITDA guidance very strong number it looks like there and just wondering if you could share any more behind what assumptions are embedded.
There you talked about a whopping hedged or being sold forward.
When you talk about the sensitivity one dollar versus 100 million, but just trying to see does that you know.
Hi stack being employed there is that the same as the 2019 levels or is that where the strip set now or anything else you could share as far as the sensitivities that drive the.
Tom versus bottom of that range.
Sure Jeremy Hey, it's Michael.
I'll start with production I guess for 2020 to be a big production year for US obviously, we'll we'll end up probably in the mid Thirtys in terms of Mtpa for the year.
You know we've guided to four seven to five Boe per train SPL will be at the top end of.
That range.
That range was supposed to be a 20 year average building in all of the maintenance planned next year is going to be a low may certainly a low planned maintenance year for Sabine So that'll drive a lot of production.
Out of that facility corpus will be at the lower end of the range, just given where it is and its ramp up.
We have some de.
King efforts underway that should bear fruit over the next couple of years, but for next year kind of at the lower end of the range in terms of percent contracted and kind of EBITDA margin sensitivities.
As we said in the remarks in 2020 Ob about 7.5 billion tons left in the CMDB down from nine five almost 10 this.
Sure so down about 20%.
Out of that seven and a half as we said we've been actively putting that away for semi has a fair amount of long term contracts in that book right. Now. So if you back that off and then back off all of the shorter term stuff that we've already put in place for next year.
Back off the.
All hedges, we haven't place that's down to something like 100, TBT laughter about 2 million tons of unsold. So in terms of margin certainty for US next year, it's kind of in the mid Ninetys percentage range. So we feel like 2020 is generally put to bed on the margin side.
So don't.
Expect really much sensitivity next year, we say a dollar move is $100 million.
To the extent, we get into the year five in a position to tighten our EBITDA guidance range down once we get some of that behind us, but thats really the big the Big driver Force at this point and of course not very big.
Ninetys, that's a great to hear.
And Jack just want to second question here as far as the stock price I know that you've talked before as far as frustration and holders of the stock have to pheno frustrated with the market seeming to not kind of recognized stability in your cash flows just wondering how you think about that now what levers do you have to.
Paul to try to.
Addressed that or any thoughts.
Got you could share there.
But.
Jeremy over the long term I think our capital allocation strategy is or is the right. One so when we when we see weakness in the stock price as you can tell from the Q we're pretty.
This is really buying out there, we don't need to sell stock for to raise capital work.
Our plans call for us to generate cash that we can reinvest in the business for our expansion plans and.
We'll pay down our debt to get our balance sheet, and what kind of being continued to be very opportunistic about buyback our stock.
That's helpful Thats It for me thanks.
Thanks.
Well Im next to Christine Cho and Barclays.
Okay.
Good morning, everyone. The one dollar changing market margin changing your EBITDA by 100 million. That's helpful are you willing to share with us what.
The average marketing margins and in your guidance after factoring in all the long long time in short comment financial hedges is today I ask because.
The 2020 guidance that you gave a sustained setting trial run rate guidance that you gave at your analyst day, a couple of years down which.
The thing they extend could you earnings having trains, but I think in adding that analysis, you would assume Gino 250, as youre seeing my marketing. So I'm, just trying to get a sense of how far off.
From that initial metric.
Yes, I understand it's Michael you got it.
We're not.
Getting to 50, obviously the books more life.
Although lender to next year.
So thats a headwind versus the guidance, we put out of course, that's offset by the fact that production.
As much higher than we thought it was going to be back when we put out that guidance in 17 and updated in an 18.
And then the other thing I'll point out and it's kind of along the same line.
On the run rate guidance assumed a full year of train two whereas next year, obviously only have until starting in may in terms of de FCD.
So all those puts and takes equal out to us being able to stay in that guidance.
Okay, Great that's helpful.
And then earlier this year I saw that semi.
Entered into an agreement with SPL for up to 20 cars this year.
The stand up 15% as Henry hub, plus $2 per and then veto. My guess is this was driven by.
Thank you Kate more stability for CTP Verastem, Sandra 80, 20 sharing agreement you have but should we think that.
Sorry, greenman like Mike continuing to the future Seattle spot price is there a little slow our volatile or did it just makes more sense for 2018, because you had higher than normal spot exposure.
Christine This is Jack so there's a couple of reasons and you've you've touched upon all of them one is.
We we fill is that.
Kewpie it gets rewarded on its share price for having stability and its cash flows and.
And this helped deliver that it also helps us.
FCM I cover some of our positions that have some certainty on that on that price.
Okay.
Of what that is so you should expect us to continue to try to work.
Closely and collaboratively with with our board at CEQP as well as as.
As seen on my to make sure that those those deals are when when from both parties.
Okay. So we shouldn't be.
Be surprised if we see like this this kind of continue going forward.
No you shouldn't be surprised thank you.
Our next question comes from Ben Nolan Stifel.
Great. Thanks.
Yeah I have my first question relates to something that came up on the BP Conference call earlier, this week, where they indicated that they thought that global gas market was oversupplied and there is a.
Pretty strong chance that.
Some of the U.S. capacity might actually need to be backed off a little better or operate at lower utilization.
To help balance the market the airing curious if you guys see the same thing or is there might it how that might play out if there are other.
Locations around the world of might come off first perhaps.
Hey, Ben This is Jack I'll I'll start off and then and then I'll ask Anatol to give his opinion then.
It is never ceases to Amaze me.
That we keep keep getting this.
Or having a conversation.
One of.
Of us LNG and in those.
Part that customers want lift because we are extremely competitive worldwide.
As Anatol mentioned Theres a lot of infrastructure that continues to be built in support of natural gas consumption worldwide.
And and we feel very very good about our position in the in the world market in our customers physician on how they how they are utilizing nat gas and that overall cost of production, but and as always.
Thanks, Ben just to follow on Jack's comments number.
One this supply wave from 16 through next year is about 150 million tons. As we said in her prepared remarks, a little over 20 million tons left to go so the global LNG market. Today is about 360 370 million tons sort of current monthly run rate, that's 50 bps today or so.
Our gas supply team core it takes about 5.5 Bcf of gas to our plants alone the U.S. as seven the half. So number one I think were much closer to the end of the supply of wave. Obviously the question of how quickly the world absorbs that is in part weather, but but certainly.
We fully expect the emerging markets and actually overall to Europe to continue to grow and have fundamental demand growth and number two you switch off 15% of global supply is going to have quite an impact on the Henry hub here and LNG prices globally. So.
We.
We expect that to happen, we think it's very rapidly self correcting and of course.
That the LNG World does not run off the spot spread right. Neither physically nor financially. So we think there is a good chances that were in another nine to 12 months of a steep contango and as a.
Michael discuss the Jack discussed earlier.
They are we'll take advantage of that contango and and secure margins for ourselves.
Great I appreciate that color to that thought that's what you might say.
Yeah. The other question is about the other guidance for 2020 and the EBITDA guidance. This came up earlier is as you laid out in terms of so that they absolutely.
Numbers.
For seven train run right, but.
The DCF guidance was was a bit different.
Which I thought was odd given EBITDA being the same.
Any color as to what is happening on the DCF side relative to two to EBITDA guidance.
Yes, Ben it's Michael Thanks for asking that.
Russia I should clarify that last in the last question. So the only difference there is some of the same things I mentioned to 50 margin not it's not full year of.
The CD on train two but the big one is train six equity down at Pat CGP. So remember were more 50 50 financing that that train at.
Could you be that resulted in slower distribution go grow so were for both foregoing some distributions today, which is impacting our DCF right. We only count what comes out to seek to us and CEO Dcs as or more foregoing that today for a much larger distribution later, so that's the reconciling item.
Got it appreciate it.
Thanks, guys.
Moving next to Julien Dumoulin Smith at Bank of America.
Hey, good morning to you.
Good morning Julien.
Hey, so perhaps just a follow up on a little bit more on Christine's question can you talk about some of the sort of let's call. It does normalize.
Thanks for the multi train starts it you released in the past obviously it was a little bit of is sort of largely in line, but a little bit of discrepancy relative to that guidance more on the cash flow side than the EBITDA side can you talk about some of those the puts and takes again a little bit more discreetly and then kind of apply that if you would if you care.
And.
For the other guidance levels that youve articulated for the future trains.
Yes, I mean, it's Michael again sticking with all of the future try and guidance whether it's.
The nine we rolled out and even the stage three preliminary guidance we gave.
On this year again, it's it's those three items.
As for EBITDA minutes were not getting to 50, which is what's in there, but we have higher production, which is offsetting that.
And we don't have a full year of the 350 contracts, which will come with the Dfc the train two.
Those are both impacting 2019.
But leaving us in the same play so the guidance, we said in 2017 and.
Bcf has the added difference of train six equity being funded by withholding distributions from us which will ultimately come.
Got it so nothing nothing else different on costs et cetera.
If I can pivot a little bit different direction, maybe more of a Jack question, we've seen dominion.
Out there selling down a stake in their business of late obviously more discreet to them and their long term financing decisions.
I know that folks and you I'll just talk so let's see kewpie, but I'd be curious when could we potentially go back the other way with respect to Corpus Christi and I know you guys are trying to simplify things, but at the same time, if you find these particular.
Equally attractive cost of capital out there that we've seen with some of your peers.
Is there anything out there on that.
Any thoughts.
Yes, well Julian I have to tell you congrats to Dominion I mean, it when we look at that looks like they got 12 times.
EBITDA for that for.
A non controlling piece of LNG facility.
Which is fantastic for our complex overall.
But I think look.
Different different owners of these LNG terminals will have a different needs needs for cash we're we're pretty.
Please with our capital structure and our performance.
Year to date, we're happy to give guidance that it's relatively consistent with what we told you we're going to do years ago, and and we're just going to keep plugging away at our business.
Okay.
So fair enough alright. Thanks.
Yes, I'll leave it there.
Moving next to lever research and Mike letter.
Hey, good morning, guys how are you.
Am I right.
Hey, Hey, Jack I, just wanted to come back to the question around Dominion or maybe kind of think about that from a different angle.
Maybe not not necessarily you guys need to offload capex to financial buyer, but I guess I guess I don't disagree with it but this indirectly but if you just think about them multiple there that's implied for Dominion at 12 times.
You mentioned that you know it's for for non controlling stake Jack I'm. Just curious in terms of how you think about that multiple relative to CGP and.
Candidates different aspects of.
Right and how it's applicable to obviously, what's happening with corpus or with Mr. Bean.
Kind of walk us getting shop now.
Okay.
Has there that no great indirectly assets I'm, just going to go and that is yes, yes.
Yes look.
Well.
We like.
Both of our businesses there is a significant spread.
As we all know between how CCP trades, and how LNG trains and at some point the market will figure out which ones right and.
And we'll see what happens there you can tell from our very or buyback program that that.
That.
We continue to alike.
Buying back our LNG stock at these prices and.
And levels, but I'm not going to im not going to get into trying to anticipate what one shareholder may do as far as our stock or their stock position is really does not matter for.
For us strategically we continue to perform and execute on our business.
And that's where we're going to stay focused on is making sure that we hit all of our targets and we beat our commitments dollar view.
Yes, it appreciate that.
A follow up just more in the market in general.
Enrollments are going on I guess or projector, France, all but just the it just within the context of your ongoing conversations with the Chinese you just gets in a while now I'm just curious on.
How have those conversations changed since trade War started and then I know, we probably picked at this in each earnings call but.
Any in any given point would be the demand for LNG is going to be a zero sum game, but over over time, you can definitely see value week huge and I'm. Just wondering is there a point in time, we've already seen in the Chinese help underwrite Arctic too I'm sure, they're being fish aggressively at West Africa.
At what point do you think you start to see permanent market share loss from us.
Last call as a result tears.
For the where specifically within the within the context of a Chinese that.
Yes so.
I'm going to take that a couple of different ways. I mean, you you just fell from Anatels presentation that the shows work they've had over 20 million tons a growth.
Year over year.
Okay, 10, 20%, 20%.
10 million tons of growth.
This year. So they continue to use more and more LNG. We continue to work very closely with our counterparts there in China.
There are very interested and in securing more.
Henry.
The trade Tensioned have gone on a little longer than I think any of us have anticipated and we continue to work with.
With the administration at our counterpart parts and in China to make sure that were on the right side.
The relationship when winter.
When things get better so I mean, that's.
Thats been our physician from day, one and it's the way we've conducted our business.
With with China, but anecdotally everything else to no just just echo Jack's comments and Mike as you know, we're continuing to be very committed leases.
I think it's a great opportunity, we want to support China, and its ambitions to grow gas to 15% of its economy and.
And Cleveland skies and have affordable reliable solutions. So we are as engaged as ever and the and are looking forward to the right opportunities to consummate those.
Yeah, maybe the best way to ask is do you think that Chinese bid getting directed elsewhere as helped underwrite any projects it wouldn't have gotten done.
Anyway.
No I think I don't think any.
Got you done I think everything that's been dispatch to date that has China's involvement our projects that we fully expect that to be there.
Stashed, whether they've got high Florida rate.
Gotcha, that's helpful Alright, guys. Thanks accounts.
And we'll go next you Michael in the PD at Goldman Sachs.
Hey, guys. Thank you for taking my question.
One operational widens do you think it and if you do can you talk about.
What do we take to achieve this to be able to get above 5 million tons per year per train, meaning is there incremental operational upside potential that may exist over the longer term and if so how do you achieve it.
Yes, I do think.
Having.
We work closely with the operational team recently on our de Bottlenecking initiatives I think the Debottlenecking plan that they put before us for for some additional capital.
We could achieve over 5 million tons if.
Yes.
Yes.
If necessary, but that but I think what you're hearing from Michael as we're trying to do all all of the low hanging fruit first do the debottlenecking that gets us.
As much LNG as we possibly can without having to invest it.
Large quantities of capital.
But but yeah, Michael I do think weekend.
We can achieve numbers above that.
Thats something you think is in the kind of the next three to four years three to five year horizon, sorry, thinking that's kind of a longer term kind of target.
I think we will guide you appropriately when we when we get to that point.
But.
For now we're sticking with our our.
Original 20 your guidance.
And then one follow up in this maybe more of a micro question. How are you thinking about the balance like when you think about your cat. Your your debt capital structure between wanting to have bullet gap versus having amortizing debt and how.
How you would go about changing that balance over Todd.
Yes, good question I mean the.
This for a two private placement markets on advertising market and we like it helped us achieve some of our deleveraging goals and kind of commits it commits us to it by entering into this self amortizing.
I think that the rating agencies like that as well.
And the issue is that's not a giant market. So we're going to be a big bullet issuer for a long period of time and we'll opportunistically do these private placements when we can.
So, yes, I think the larger part of our debt Paydowns, just going to be paying down debt win.
When we have bonds mature so it'll be a mix I couldn't give you a target.
Okay. Thanks, guys much appreciated.
Thank you.
And we'll go next to Craig Shere at two brothers.
Good morning.
Oh ordinarily expect.
With respect to the.
On the hedged equity cargoes.
As we kind of add up availability given the.
Really good performance was train three corpus construction.
If you're.
Trophee or petrochina contract automatic step ups train three.
Yeah.
Yeah. A couple other quick was would any ultimately finalize Chile and LNG to power agreement.
Deployed for the first three trains at corpus or more for stage three.
And how much or aggregate.
Oh capacity upside job.
On de bottlenecking heading from 2020 to 2021, because you said most of those efforts are gonna be hitting next year is just that you have low maintenance.
Okay. So theres three there there were three questions than the one right Craig so that the first one.
Ill take which was win with the accelerated schedule.
Legible for train three in our performance, which as well know is really our train eight.
And we should be getting better and better at it as we go get to get more and more of these behind us.
Do they contract startup or have the right to start up early the answer that has no.
Those those.
Early cargos would be treated the same way, we've treated them in the past, which which would be.
Yes marketed by our semi affiliate.
The second part of that was Chilean et cetera, all the other contracts for stage three and I'll turn that went over to Anatol. Thanks, Jay just to follow on.
Jacks answer there was nothing steps up as a function of the trains coming on earlier, but as you know there are bridging volume components to some of the transactions and those do ramp until we get to the to the ratable volume stage in the contract is just not trained dependent in terms of your.
Question on on Chile.
We are we're finalizing that agreement, it's relatively modest in size it'll be something that.
That is axiom why it's on a on the delivered basis as you know and.
We will contributes to to supporting our our investment portfolio and has the flexibility.
For us to do with.
In essence as we please.
With the contract being at CMS, but but it's very modest in size and for all of us additional contracts whether they are the two IP ends, which is Apache and Ian GE or the CPC contract in Taiwan.
We're trying to put a portfolio of contracts.
Whether that support the expansion of our facilities and that next expansion this stage three.
And then I think there was one more question you had Craig in that and that long list.
Yes, the past few claridge Yeah, you. The guidance was the you were looking good and 2020 capacity because.
So low maintenance year, but that you're actually also working on active de bottlenecking efforts that weren't really going to hit mostly next year. So I was just asking about the trend of capacity uplift from de bottlenecking from 2020 to 2021.
Dan.
Yeah, I don't know yet.
And we've raised our production range per train three times and hopefully we can continue to do that overtime, but for now we're at four seven to five.
Okay. So so perhaps with a little more deserve a your.
Turnarounds or maintenance.
Might offset the bottlenecking.
I assume the 2021 is about the same for train as 2020.
Okay. That's fine for now Yeah, we'll see 2020 twos, a ways away, but I just find for now.
You also have another train starting up in 2021.
Which is trained threat at corpus.
Right.
Right, yes, but for train basis, just just for now.
Got it.
Yes.
Okay. Thank you.
Well my thanks to this taro Jeanette at credit Suisse. Please.
Hey, good morning, everyone, maybe just starting off on.
Onstage three could just remind us again, how you're thinking about the size of that F.I.D. I believe it at one point you kind of left at the door open to maybe a partial if I'd have so just wanted an update on maybe your current thinking around that and if you could maybe tied to and it's all his confidence here and maybe what that next set of contracts looks like as we go forward.
Yes, thanks, very much it's Michael I think we're still open to the possibility of.
Different kinds of ESI. These for that project now.
It's a seven train project as of mid scale, we could probably be five as we look through the numbers, but ultimately the markets will dictate that as you mentioned, so I'll turn it over.
To answer yes, Thanks, Barry Michael Yes, So as you guys know Jack mentioned between UGI Apache and some of the some of the things we have in the portfolio.
Each one of these trades as ballpark one the half million tons. So if there is no theres no reason to even discussed a.
Three trains solution, but the it's possible as Michael said that.
That is five at seven.
Okay Fair enough I appreciate that and then second one you talked about a little bit, but just maybe getting more specific around Europe and the storage situation there.
But what are you help me think sort of resolves that issue going into next year is.
It is it pretty much close to capacity as weaker sort of Christmas seasonality I mean, it's all you mentioned some tailwinds, but is that kind of enough to help that market absorb another year of U.S. imports and what does that ultimately in for the Arb and 20.
Yes.
Great question on Fairpoint right, we don't.
We don't reset to zero and have.
Europe able to grow from this space by another 20 million pounds, plus that very fair 0.1 of the things that has played out is a fewer a lower volumes on pipes as as a function of north African and European supply in Norway has been down pretty significantly.
We need.
A winter cleans up faster, we have had very robust demand growth on the power Gen side. So that is something that is not.
Not dependent on seasonality and is back half of 2019 weighted as everything was put in place and Europe continues to to grow that.
Demand function. So all those health again 2020 will be a very big supply year right. There's no question big supply year on a run rate basis and of course, you get the full year effect of the 40 million tons coming on in that in 2019. So.
We're not as you can tell we're not that optimistic on.
20, hence as a as Michael said, we've got.
More or less everything we can have put away put away.
My point is that that's beyond 2020, there really is no meaningful supplies literally a couple of trains for a number of years with most of those being are trained so so.
Fairly confident.
The Twentys when is the the transition year end 20 ones were 23 look much better.
Understood appreciate the color. Thank you gentlemen.
And well hear next from Shneur Gershuni at you, but yes.
Hi, good afternoon, everyone.
Just wanted to touch on a couple of quick questions here since most of my questions have been asked and answered I.
I was wondering if you can talk about the past to investment grade at the LNG level I.
I notice you've had a lot of positive rating actions at the subs.
Is it is is it is it 2020, a reasonable timeframe to.
Towards the end of 2020 that you can see.
She across the board.
Or 2021 or more realistic target.
Thank you Michael.
Yes, I know, it's not going to be next year. I mean look we've said, it's a multiyear progression, it's going to take us a while to get down to this high.
Hi Force number that we're targeting I think they agencies are going to give us credit.
For getting there before we get there, but thats not next year and the two prong deleveraging.
Strategy doing stage three at 50% debt equity is highly deleveraging for us we got to get that done.
And then the balances just straight that debt pay down.
Which will happen as the money comes in and so.
It's not next year.
And we'll see if it's the following year or even the year after that but thats. The best we know right now.
Okay that makes total sense and one other question.
I appreciate the fact that huge pre soldier.
We'll marketing for for next year on year.
Effectively at 95% sold out and trying to.
Upgrade the quality of the earnings from an Investor perspective.
Just wondering if that's going to be the strategy going forward that when we have this call next year.
We'll also be in a 95% sold out.
Position and we can sort of think of it. It's a more ratable business then it's historically been treated.
Yes, absolutely you should expect us to to manage the business appropriately and not take a lot of commodity risk. If we go into if we don't have to do so.
I'm, not giving I won't say about 95.
5% as our target but.
But you should expect us to be prudent and disciplined.
Perfect really appreciate the color guys have great weekend.
Actually it's exactly.
On the next two Evercore and John Chapelle.
Thank you good morning, guys.
Michael one of the key.
Tidbits you gave on the last conference call was the cadence around the buyback up until that point, there's only 3 million in the 630 financials, but you had said that you'd bought up to 100 million at that point in August or is there any clarity you can give on what you've done since the end of the third quarter I know, we're only on November onest.
First 31 days.
Yeah, I think we're going to get out of the habit of given those updates and just wait for the Q to come out we were kind of our first report after starting the program and so we made an exception last time I think from here on that will rely on the Q.
Okay that makes sense and then just a follow up to one at a couple ago.
Maybe to add it all on the how you're thinking about Ccs three.
Sounds I mean jacks confident as ever FERC BPC sounds like we maybe to have an update on that and by the time. We speak to next is there a percentage threshold on S.P.A., a that you're thinking about before you actually trigger F.I.D. and.
And also kind of a part b to that do you view IPO Sims is exactly similar to an S.P.A. or are they not quite kinda like the long term contracts area.
Hey, it's Michael Yeah, I mean on this on the second question Tom It for us the very similar.
I.
I think they count.
Alan is as underwriting and investment.
And then the first question was how much do we need to be sold and we never have really targeted a number we're trying to underwriter economics on a contracted basis kind of underwrite our downside case.
And so thats always how we've looked at it.
But having said that it will be similar to our.
Projects of you know two thirds, 85% contracted just depending on the economics.
The good sell one molecule for a couple billion dollars, we'd be we'd be Doug.
[laughter] I'm sure you're on that Anatol, Michael just to be clear. Those you said you view them kind of similarly, the discussions you've had with banks as far as underwriting.
Projects do I assume debut them exactly generally as well.
I think for US yeah, Yeah, Matt.
I'm not sure. That's the case, if we were in a six seven years ago, but for now and others think where we are yeah that is the case. Okay. That's helpful. Thanks, Michael Thanks and adult.
Well take our last question today, it's kind of analytics, Kenya at Wolfe research.
Thanks.
Risk of I guess getting ahead of myself here a little bit.
Jackie just mentioned.
Extending a little bit more upon it kind of longer term growth opportunities.
You presumably.
The way beyond phase three at Corpus I'm, just wondering if that's kind of arising from just broader commercial discussions you're having with people right now in terms of with the opportunity set is over the very long term was it just hey, we're pretty close to getting phase three in the next let's say six to nine months and so we're kind of thinking about whats was further on im just kind of curious.
As how.
How real you see that right now.
Okay.
Yeah, and thank you know I think it's it's a combination of things. One is we're very close to securing another or close to 500 acres of property contiguous to our corporate.
Corpus site.
So that'll give us more land and expand and birthing birthing capacity because as it happens to be waterfront.
And that that transaction should get done early early next year and that really opens up the possibility for quite a bit of additional.
I mentioned at Corpus and.
The second part of that as the commercialization efforts.
As we've said.
Theres just a lot of interest in in that site and its location to the Permian and trying to evacuated.
Some of this associated gas that's going to becoming.
And in greater and greater quantities from a from the Permian and then thirdly with the infrastructure that we already have there.
Our additional expansion plan should be extremely competitive worldwide with with any other.
Options that that utility customers have.
So we're we're very very focused on on Corpus, we we do felt like.
Stage, three is going extremely well and we're looking for you know stage form beyond.
Great. Thanks very much.
Thank you Alex and thanks.
All of you for your support.
Generic.
Okay.
And ladies and gentlemen, once again that does conclude today's conference and again I would like to thank everyone for joining us today.