Q4 2020 Cheniere Energy Inc Earnings Call

February 24, 2021

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Good morning, and welcome to the Cheniere Energy, Inc. Fourth quarter and full year 2020 earnings Conference call and webcast. Today's conference is being recorded at this time I'd like to turn the conference over to Mr. Randy Bhatia VP of Investor Relations. Please go ahead.

Thanks, operator, good morning, everyone and welcome to <unk> fourth quarter and full year 2020 earnings conference call. The.

On slide presentation and access to the webcast for today's call are available at Cheniere Dot com joining.

Joining me. This morning are Jack Fusco, Cheniere, as President and CEO, Anatol, Hagan Executive Vice President and Chief Commercial Officer, and Jack Davis, Senior Vice President and Chief Financial Officer.

Before we begin I would like to remind all listeners that our remarks, including answers to your questions may contain forward looking statements and actual results could differ materially from what is described in these statements.

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 to the most comparable GAAP measure can be found on the appendix to the slide presentation.

As part of our discussion of <unk> results. Today's call May also include selected financial information and results for Cheniere Energy partners L. P or <unk>, we do not intend to cover CQ piece results separately from those of Cheniere Energy Inc.

The call agenda is shown on slide three Jack will begin with operating and financial highlights Anatol will then provide an update on the LNG market and Zach will review our financial results and guidance. After prepared remarks, we will open the call for Q&A.

I'll now turn the call over to Jack Fusco, Cheniere as President and CEO.

Thank you Randy and good morning, everyone. Thanks for joining us today and thank you for your continued support at Cheniere.

I'm pleased to be here. This morning to review our results from 2020, an unforgettable year for many reasons and to share my views on our bright future and why Cheniere is uniquely situated to capitalize on both current and evolving LNG market dynamics.

On these earnings calls over the past few years and even the last several quarters, you've often heard me speak about Cheniere is resiliency there.

The resiliency of our business model, our assets our product in our markets.

Never has the word resilient than more appropriate and when we reflect on generic 2020 performance, both operationally and financially.

We face logistical and operational challenges caused by the pandemic are volatile energy and financial market.

Historic Hurricane season, while maintaining our focus to deliver on our guidance.

And just last week, a historic winter weather event on the Gulf Coast led to widespread and prolonged power outages and other utility and infrastructure disruptions that impacted millions of lives, Eric Texas and the surrounding states.

I am heartbroken at the devastation to life homes, and possessions and pray for a speedy recovery to normalcy.

As you May have read Cheniere work closely with state and local officials suppliers customers and other partners to manage our operations through the event.

Moderating our electricity consumption and providing natural gas back into the system to help provide heat and power for you and needs.

Last week, the critical role that natural gas performs to ensure reliable energy was on full display for taxes, the United States and the world.

Any one of these events in the last year would have been significant individually, but to face them. All on such a short period of time and still deliver on our promises should leave no doubt as to the resiliency of our business model and more importantly, our people.

To say I'm proud of how Cheniere as employees have responded to these challenges is an understatement.

The results and financial projections that we reported this morning, our product of the dedication and hard work of the over 500 professionals at Cheniere and I am humbled to lead.

Please turn now to slide five.

I will review, some key operational and financial highlights from the quarter and the year.

We delivered on our 2020 guidance, which was issued in November of 2019 prior to the pandemic.

Our 2020 guidance may be one of the only things I can think of that didn't change last year.

The chart on the right side of this slide illustrates our resilience and forward visibility.

<unk> clot total LNG cargoes exported from our facilities by month from November 2019 through year end 2020, as well as our guidance ranges for consolidated adjusted EBITDA and distributable cash flow over the same time.

Despite volatility in LNG cargo production caused by widespread cargo cancellations and this summer as well as impacts from the pandemic and two major hurricanes, making landfall near Sabine pass.

As well as LNG spot prices, reaching both record lows and approaching record highs in the time period.

Our visibility on achieving our annual targets remain unchanged.

A testament to the foundation of our business model and the commercial structure of our long term contracts.

For the fourth quarter of 2020, regenerated consolidated adjusted EBITDA of $1 5 billion.

And distributable cash flow of approximately $330 million on revenue of approximately $2 8 billion.

We generated a net loss of $194 million, which was impacted by noncash mark to market losses on commodity and FX derivatives, primarily related to the required accounting treatment of our IPM agreements and our forward sales of LNG as LNG netback curve steadily grows over there.

Course of the quarter.

Zach will cover this in more detail in his remarks in a few minutes.

Operationally, we exported 130 cargoes of LNG from our two facilities during the fourth quarter as cargo Cancelations largely seized with expanded margins on U S cargoes as gas prices internationally rose dramatically on both winter weather as well as market balancing mechanisms.

Deployed earlier in 2020.

For the full year 2020, we generated consolidated adjusted EBITDA of approximately $4 billion within our guidance range and distributable cash flow of approximately 135 billion above the high end of the range.

During 2020, we raised a significant amount of capital over eight $5 billion across the Cheniere complex and transactions supporting our long term balance sheet priorities.

This is a great accomplishment for <unk> and the finance team to navigate a turbulent financial markets in the first half of the year and carried out a seamless CFO transition to deliver meaningful progress on some of our strategic long term financial goals.

With regard to our construction efforts at Sabine pass and Corpus Christi, the backfill cheniere reputation for market, leading project execution continues to be reinforced.

As we discussed last year the construction schedule for train six at Sabine pass was accelerated with substantial completion now targeted for the second half of 2022.

At Corpus Christi <unk>.

Train three is in late stage commissioning and produced its first commissioning cargo in December of last year.

Commissioning and startup continues to test and tune train III systems, and we expect to be able to announce substantial completion in the coming weeks.

Now turn to slide six.

We're on we introduced our upwardly revised 2021 guidance and discuss my priorities for this year.

As I mentioned, a moment ago, the LNG market has strengthened considerably, especially since our last call in November and we have been taking advantage of improvements over the past few months, which has contributed to our improved outlook for 2021 today.

Today, we are raising our full year 2021 guidance to four 1% to $4 4 billion of consolidated adjusted EBITDA and one four to $1 7 billion of distributable cash flow.

Looking ahead to the balance of 2021 I've laid out on this slide some key priorities, we're focused on for the year.

Clearly, we intend to deliver our upwardly from revised financial guidance.

Just as we had the tremendous visibility into 2020 that I discussed.

We have similar visibility into 2021, despite being less than two months through the year actively reducing our exposure to what has been a fairly volatile LNG market.

On the development side. It is critical that our stage three expansion at Corpus Christi maintained its clear competitive advantages.

In 2021, our business development origination teams will be working closely together to identify opportunities for further efficiency improvements and commercialization opportunities with the goal of ensuring that we are marketing the most cost effective and environmentally responsible LNG capacity addition in America.

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Commercially we continue to believe the long term supply and demand dynamics in the market today are conducive to long term contracts progressing.

On some obvious.

Preliminary COVID-19 related headwinds persist.

Recent volatility in the LNG market and the rapid tightening of the market towards the end of last year and early this year helps to reinforce the value to customers of our flexible visible long term supply agreement with Cheniere.

In addition, the market has been responsive to our midterm marketing efforts.

And we have recently executed a few transactions in the five to approximately 11 year range.

In 2020, we will be focused on continuing to commercialize our volumes.

Both portfolio volumes from the existing platform and Corpus Christi stage three volumes.

On the Anatol will talk more about the current market and our positioning in his remarks in a minute.

Financially I've spoken at length about the importance of 2021 as our inflection point for free cash flow as we expect to be meaningfully free cash flow positive for the first time in the company's history. This year and based on the improvements in the short term market a little more so than we expected.

Back in November.

Our capital allocation strategy remains a top priority.

Initially, we intend to prioritize debt paydown that maintain the flexibility to capitalize on growth opportunities and we will provide clarity on capital returned to our shareholders. Later this year.

And finally, we are prioritizing efforts.

On the environmental opportunities, we introduced on our third quarter call.

Integrating climate into our full service commercial offering.

We've made steady progress on developing a number of those opportunities.

I look forward to updating you on in the near future as those opportunities are crystallized.

Turn now to page seven.

As you may have seen this morning, Cheniere plans to begin providing our LNG customers with greenhouse gas emissions data associated with each LNG cargo produced at our facilities.

Utilizing emissions data from the wellhead to the cargo delivery point.

Our goal is to improve the quantification of the lifecycle emissions for LNG supporting the efforts of Cheniere, our customers and suppliers to quantify and reduce emissions across the value chain.

Our product is already helping our customers by meeting their energy requirements and improving air quality by reducing traditional balloons.

In particular matter.

The cargo on emissions tags will help our customers further by enabling them to better manage their emission profiles and maximize the benefits of buying our LNG.

<unk> cargo mission tags are CE tags are a significant step forward for this company and our industry as a whole and progress our efforts on each of the environmental opportunities we discussed in November.

These tags will provide access to transparent emission data for our cargos.

A crucial step in understanding and managing emissions profiles.

Clear transparent data will enable cheniere and our value chain partners from upstream producers midstream infrastructure providers LNG ship owners and of course downstream LNG consumers.

Two identify tangible opportunities to drive continuous improvement in environmental performance.

Our size scale and reach both upstream and downstream of our facilities makes us ideally suited to lead on this front.

This represents the first time, a major LNG producer has announced the provision.

Of greenhouse gas emissions profiles a share.

<unk> with every cargo of LNG it produces.

We are proud to take a leadership position on this important effort.

Continuing to be at the forefront of the industry as it evolves and benefits all participants in the value chain.

And now I will turn the call over to Anatol, who will provide an update on the LNG market.

Thanks, Jack and good morning, everyone. Please turn to slide nine.

Over the past few quarters, we outlined the exceptional challenges the global LNG and gas markets have faced highlighted factors that helped balance the market and underscored our view for a constructive market ahead.

Today, we will discuss how we wrapped up 2020 on solid footing and share some additional key points on why we continue to expect tightening balances ahead and strong long term demand for our LNG.

The LNG market exited the third quarter, largely rebalanced with LNG production levels, $6 4 million tons or about 7% lower year on year, mainly due to unplanned supply outages in facilities outside of the U S.

Stronger economic activity and cooler temperatures in Q4 continued to strengthen LNG demand, which increased one 8% year on year on the fourth quarter and one 4% for full year 2020 to approximately 364 MTA.

As severe cold snap across Asia in December and continued GDP expansion in China induced the spike in demand and opened the arbitrage window, making European reloads to Asia economic for the first time in many months and driving a sharp decline in LNG imports to Europe.

China's LNG consumption rallied 17% year on year to 21 million tonnes during the fourth quarter, making China, the largest global LNG consumer for the quarter.

Chinese LNG demand increased 12% for the full year 2020 to about 70 million tonnes closely approaching Japan as the largest consumer.

Japan, and South Korea also return to demand growth in Q4 after two consecutive quarters of year on year declines on.

But previously placed cap on coal generation in South Korea, and planned nuclear maintenance and Japan contributed to high storage drawers and resulted in a supply crunch that drove daily spot gas on power prices to record highs.

These bullish trends occurred amid a supply shortage due to multiple liquefaction outages and constraints on shipping.

A resulting in a large LNG spot price increase.

In total Asia LNG demand in the fourth quarter rose, 13% over Q3, and 8% year on year.

The region imported almost 260 million tons of LNG in 2020 over 4% or 10 million tons higher year on year powerful evidence of LNG demand growth resiliency in the region when considering the COVID-19 driven commodity demand shocks of 2020.

The draws on LNG cargoes from Asia on lower spot LNG availability towards the end of the year resulted in a sharp decline in European LNG imports over 30% or $7 7 million tonnes year on year.

Firm winter demand generated a significant draw on storage and inventories ended the year at 74% full versus over 88% at the end of 2019.

Currently storage levels remain approximately 30% lower year on year signaling tighter European balances for the spring.

These events in the fourth quarter, all contributed to the rapid spike in spot LNG prices and shipping rates to record highs.

Turning to the LNG market from surplus to shortage, while J Cam settled December at $6 90, and then on Btu. The increase in interface on flows tighter shipping market and waterway congestion drove Jacob daily spot assessments for February up to $15 in late December and to an all time high of $32 50.

In mid January.

We believe the recent volatility in the spot market underscores the importance of reliable and stable term supplies the value of a diversified and balanced LNG portfolio and the attractiveness and stability of Henry hub linked pricing.

As sellers were conscious of the importance of affordable prices and supporting LNG demand growth, we believe that our contracting structure and our term contract pricing allows buyers to benefit year round with low price volatility and diversification from most risks associated with the oil market.

We discussed with you last quarter, our decision to augment our commercial offering with medium term contracts.

As Jack mentioned the market has been receptive to this product and we executed several transactions ranging in tenor from five to approximately 11 years on both Fob Mds terms for a total volume of over 4 million tonnes over time.

We will continue to execute on this strategy to Opportunistically de risk our portfolio and enable our customers to derisk theirs.

Turning now to slide 10.

With peak winter demand requirements, largely satisfied and prices moderating we believe more stable market conditions would prevail for the rest of the year.

In addition to improving demand patterns. The market will also be supported by tapering supply additions as the current project construction cycle comes to an end.

The LNG industry realized incredible growth over the past four years, adding more than 117 million tons of capacity, an annual average of almost 30 million tonnes.

Net average is estimated to drop by over 60% to 11 5 million tons per year over the next four years.

Declines in output from existing projects are also expected to accelerate further tightening supply balances.

Feed gas availability for exports and some legacy exporting nations such as Trinidad <unk> Tobago, Indonesia, Algeria on others has been constrained because of upstream reasons or competing growing domestic needs.

Our analysis shows that our next five year period supply growth from existing and under construction projects drops by nearly 40% versus 2015 through 'twenty period.

Supply growth is expected to decline by a further 64% in 2025 to 2030 period and new capacity will be required to fill a growing supply demand gap.

Please turn to slide 11.

We expect continued LNG demand improvements as Covid vaccines are distributed and global economic activity continues to strengthen.

Longer term and as we highlighted on our third quarter call myriad policy initiatives and massive gas oriented infrastructure investments have been initiated around the globe, which we expect to be constructive for long term LNG demand.

Also expect sustained growth in the number of Regasification markets.

Over the past decade, the need to improve living standards across the world along with the technological advances and efficiencies gained on producing transporting and re gasify LNG contributed to almost doubling the number of LNG consuming nations.

We see at least 17 additional new markets that are likely to commence imports over the coming decade.

Bringing the total from 43 at the end of 2020 to 60 markets by 2030.

Each of these markets have different dynamics, but most share common factors promoting LNG demand among them natural gas or LNG is a cleaner burning fuel is increasingly available on affordable LNG provides a flexible and reliable source of fuel and power generation that can displace polluting coal and help patients reach their environmental goals faster.

Without compromising grid reliability, while also supporting growth in renewable energy. These.

These attributes make LNG indispensable for decades to come helping nations improved access to electricity combat pollution, and maintain a reliable and affordable energy system.

With Cheniere are proud to provide a product with these enduring characteristics and remain ready to work with our customers to create practical commercial solutions.

And now I'll turn the call over to Zack who will review our financial results from guidance.

Thanks, Anatol and good morning, everyone.

I am pleased to be here today to review, our fourth quarter and full year financial results and key 2020 financial accomplishments, our increased 2021 guidance and our 2021 financial priorities.

Turning to slide 13 for the fourth quarter, we generated a net loss of $194 million, which was.

<unk> by approximately $515 million related to noncash mark to market losses on commodity and FX derivatives, primarily related to the impact of shifting commodity curves on our long term IPM agreements for the purchase of natural gas and our forward sales of LNG as LNG netback curve steadily rose over.

The course of the quarter.

As we have discussed on prior calls our IPM agreements and certain gas supply agreements qualifies derivatives and require mark to market accounting.

From period to period, we will experience noncash gains and losses as movements occur and the underlying forward commodity curves.

This accounting accounting treatment, coupled with the long term duration and international price basis of our IPM agreements will result in fluctuations in fair market value from period to period.

While operationally, we seek to eliminate commodity risk by matching our natural gas purchases and LNG sales on the same pricing index or long term LNG SBA is do not currently qualify.

Our mark to market accounting, meaning that the fair market value impact of only one side of the transaction is recognized on our financial statements until the delivery of natural gas and sale of LNG occurs.

During the fourth quarter as global LNG market strengthened cargo cancelations, largely abated, resulting in adjusted EBITDA of $1 5 billion for the quarter and distributable cash flow of approximately $330 million.

We recognized an income 470, 70, Btu, a physical LNG during the fourth quarter, including 453 TVT from our projects in 2004 <unk> sourced from third parties.

83% of these LNG volumes recognized in income were sold under long term SBA or IPM agreements.

While cargo Cancelations largely abated during the fourth quarter, we recognized $38 million of revenues related to canceled cargoes that would've been lifted in the first quarter of 2021.

In combination with $47 million of revenue is recognized in the third quarter for the cargoes that would've been lifted in the fourth quarter. The net impact on our fourth quarter financial results was immaterial.

For the full year, we generated a net loss of $85 million, which was also impacted by noncash mark to market losses on commodity and FX derivatives as well as certain non operating losses on modification or extinguishment of debt interest rate derivatives and our equity method investments.

Okay.

For the full year, we generated consolidated adjusted EBITDA of $3 96 billion just above the midpoint of our original unchanged guidance range and distributable cash flow of approximately $1 35 billion.

Above the upper end of our guidance range.

As Jack mentioned earlier to produce these results in the middle of a pandemic and one of the worst LNG market downturns in history is a tremendous testament to the resilience and effectiveness of our business model.

On to the tenacity and dedication of our people.

I'd like to thank the entire cheniere team for their hard work and contributions which have enabled us to attain these results.

For the full year, we recognized an income almost 500, TVT geophysical LNG, including almost 1400 TVT you from our projects and just over 100 <unk> sourced from third parties.

78% of these LNG volumes recognized in income were sold under long term SBA or IPM agreements.

Turning now to slide 14.

As Jack mentioned today, we are increasing our guidance ranges from full year 2021, consolidated adjusted EBITDA and distributable cash flow by $200 million Inc.

Increasing our consolidated adjusted EBITDA range to $4, 1% to $4 4 billion and our distributable.

<unk> cash flow range to one four to $1 7 billion.

The largest variable to achieving financial results within our guidance ranges remains the completion of Corpus Christi train three which is now on the late stages of commissioning.

That project is progressing very well and remains on target for completion before the end of the first quarter consistent with the timing we projected last quarter. When we issued our original 2021 guidance.

The significant tailwind.

That enables us to increase our guidance today is the improvement of global LNG market pricing and our team has been actively selling up and volumes for the year to forward sales on hedges, reducing market exposure and increasing earnings visibility.

We now sold over 95% of our total expected production for this year and we currently forecast that a $1 change in market margin would only impact EBITDA by approximately $50 million from full year 2021.

Turning now to slide 15.

Before discussing our financial priorities for 2021, I'd like to recap some of our key achievements in 2020 at.

As Jack mentioned, we raised over $8 5 billion in capital across our structures through the year.

Strengthening our balance sheet and executing on our capital allocation priorities among.

Among the transactions and particularly like to highlight refinancing the SPL 2021 notes amid COVID-19 related uncertainty on the capital markets and May issuing an inaugural bond in September and refinancing the CCH Holdco convertible notes and a significant portion of the <unk> convertible notes with debt preventing over 40.

Shares of equity dilution.

The rating agencies continue to recognize a significant progress and Moody's upgraded corpus to investment grade in August now both of our projects are rated investment grade by all three agencies and Fitch recently revised <unk> outlook to positive while reaffirming its existing <unk> rating.

Additionally, we followed through with our debt reduction plan in the second half of 2020 utilizing $200 million of available cash to pay down outstanding borrowings under the term loan.

As we look toward 2021, our primary capital allocation priority is to continue with our debt reduction plan and we have committed at least $500 million this year to pay down outstanding debt.

Our second capital allocation priority is to manage upcoming debt maturities, our only debt maturity. In 2021 is the remaining approximately $475 million balance on the cei convertible notes, which we expect to redeem in cash using cash on hand and availability under the term loan.

We've also developed our refinancing plan this year to manage the $1 billion of SPL notes, which mature in March 2022, we anticipate managing that maturity with a combination of options, including debt issued at SPL debt migrated to <unk> and debt pay down with cash flow. We have already started to derisk. This maturity by locking in an approximately.

$150 million private placement of long term amortizing fixed rate notes at SPL that are committed to fund in late 2021 at a rate of 295% the lowest yield bond ever secured by Cheniere.

As always we will remain opportunistic in assessing other opportunities to economically refinance debt throughout the structure.

Our third primary capital allocation priority is to provide updated guidance on our long term capital allocation plan and we anticipate communicating that to you in the second half of this year.

As we discussed on our last call 2021 is an inflection point for Cheniere and we expect to generate significant positive free cash flow for the first time in our history and this will give us added flexibility in capital allocation decisions.

We are evaluating our capital return policy with our board and we will provide you additional information later this year regarding our path to investment grade across the complex debt pay down priorities and resumption of capital return via share repurchases and our timing of an inaugural dividend. We continue to view a dividend that LNG as an eventuality.

To the long term highly contracted nature of our business model and we will evaluate timing and magnitude with our board and in consideration of market conditions, our balance sheet, the stock price and other variables, including ensuring sufficient capital to continue pursuing economically and credit accretive investments in our brownfield expansion opportunities.

That concludes our prepared remarks. Thank you for your time and your interest in Cheniere operator, we are ready to open the line for questions.

Thank you if you'd like to ask a question. Thanks for taking my pressing star one on your telephone keypad.

Using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment also we do ask that you. Please limit yourself to one question and one follow up prior to reentering the queue. Once again net star one if you'd like to ask a question.

We will take our first question from Christine Cho with Barclays. Please go ahead.

Good morning.

Ken can you give us an idea of the kinds of customers, who signed the mid term LNG sales agreements with where they are actual end users are where theyre marketers in there as well.

Concentrated with a concentrated in any one region and what's the timing primarily driven by the events that went on with a short LNG and needed to locking cargos or was it more on ensuring a diversity of supply and if you can also provide an update on.

Current conversations are looking like have they slowed down after signing those same or accelerated.

Thank you Christine.

And.

We're going to have to divide that question up to a few different bites. So we'll start with with Anatol you want to talk about revenue.

It just so happens that in this case, the counterparties where end users.

The appetite for the product so I would say ranges across all of the all of the buckets of that.

We are typically engaged with including intermediaries. So.

It also happens to be that debt.

These transactions are staying in this hemisphere, but but there is very broad appetite across across both the Atlantic and Pacific Basin in debt engagement. If anything is picking up these we're not done.

I would say against the backdrop of the extremes that you saw in in December January and into early February. These were on these were engagements that we've had for a while debt.

Has that enabled us to find the right solution to meet the end users' needs.

And then.

Updated like conversations have slowed down stay the same accelerated.

No.

If anything the market is continuing on the trajectory of improving having digested the this massive supply wave and and.

And the Covid issues, it's really staggering to me that that the LNG market.

'gainst that backdrop managed to grow not now the blockbuster growth year, but still it's still a growth year and what we saw in Asia in 2020 Asia overall grew 4% in 2023% in 2019, so even though the market grew more than 2019 most of that as you know went into the more price elastic.

Northwest European market and now the market is rebalancing with the fundamental growth that we always expected to see out of Asia. So things are picking up and.

This event over the winter was quite a shot across the bow, where our customers continued to enjoy reliable stably priced product and in those that thought that relying on the spot market equals low prices.

Obviously, obviously has not experienced debt.

Kristina I'll just add.

As you all know Amit I'm, an operator by.

By heart and.

Im extremely proud of the team I mean, we have a trained operating today as we speak we're over six two b's today that have been non to the two facilities.

And our Debottlenecking and operator.

Effectiveness efficiency program is working extremely well. So there is plenty of more from our portfolio supply perspective that we would like to get termed out.

Okay.

And then from my follow up.

I'm, assuming the headline cancellations we saw in <unk>.

Or.

Due to a shortage of ships due to the extended transit times with what was going on with Panama Canal on things like that and not because the economics work and I know you don't comment on cargo cancellations, but theoretically.

If this did happen do you actually have enough ships to <unk>, taking advantage of any extra cargoes that might've materialized.

C&I.

Thanks Christine.

As you said there is a range of reasons why why customers choose to exercise the feature of cancellation.

Portfolio of balancing and other other constraints as you correctly pointed out the the margins.

We're not the issue at this point and.

And our team does an exceptional job.

Managing our shipping requirements. So so there are opportunities for us to take advantage of those available volumes.

Great. Thank you.

Thank you we'll take our next question from Michael <unk> with Goldman Sachs. Please go ahead.

Guys. Thank you for taking my question.

Actually I have a couple first of all on the new contracts do those all start immediately order those stagger in over time, meaning some may start this year. Some may start four or five years from now. That's question. One question. Two is how should we think about the economics of those versus the existing long term SBA that you've signed over the years.

Thanks, Michael.

Not immediately the staggering, but they don't start on a on a very deferred basis. So so this year and next to give you some color on that in terms of economics, we think that our product is.

Is one that.

Is that has a fair amount of extremely value as we just discussed with pristine and we look to to price that into those those midterm offerings. So.

There are attractive economics to us, but obviously are on a mid term basis and.

And are not.

Are not structurally the types of transactions that would underpin incremental investment.

Got it and interest.

Any follow on thoughts regarding corpus mid scale.

Just kind of what it would take to get corpus mid scale to have Heidi.

So on.

Corpus mid scale, we are 100% focused on making sure that debt will be the most competitive expansion project.

In the U S and we feel really good about our positioning there I think there is an opportunity for us.

To really move that commercialization forward this year.

On the volatility in the LNG markets.

Created in a sense of urgency with the customers and I think we'll be we'll be in good shape on that project on a row Anatol you have anything to add to that.

Just that.

As we've said to you guys that we are fully committed to maintaining the rules of engagement on deploying capital I'm sure exactly what led to this and in order to in order to push the go button on stage three we need to meet all of the criteria that we've laid out of <unk>.

Return on capital on a fully contracted basis. The types of returns that we that we want to see as well as the <unk>.

Percentage contracted both for the project and for the overall portfolio.

But we are quite optimistic that this is the.

On the right point on the cycle as this supply wave fabs and we've already seen what what the market can do.

In the short and medium term.

Got it. Thank you guys much appreciate it.

Thank you, we'll hear next from Ben Nolan with Stifel.

Yes, hi.

So well.

On my first one just relates maybe to Jack something that you've mentioned in terms of your priorities.

And one of the things that you had said.

Turning to prioritize growth and you were just talking about corpus stage three.

Is that.

When youre thinking about prioritizing growth.

Does that really equate to corpus stage, three or maybe are there other things that.

That are also sort of in that bucket that you maybe could elaborate on.

No I think that net corpus stage three will be one of the most economic.

Projects ever on.

For U S LNG and and as you know, we will be able to leverage our existing infrastructure.

They're in.

But that's.

That's a significant amount of organic growth Thats 10 million tons of site two more trains effectively cheniere trains for us So as you know.

We're finished basically we're training we're doing some fine tuning and then and then it will be handed off to US trained nine is way ahead of schedule Thats Sabine pass six home will be look at for 10 and 11, but as Anatol said, we'll be very disciplined we have a lot of excess in the portfolio that we'd like to get termed out.

And.

But we're very hopeful that there is a huge demand worldwide for the product.

Okay. That's helpful.

And then and then as my follow up maybe from.

On a macro perspective.

A lot has happened really even in the last few months are you seeing this huge differential between the price on Henry hub and the price internationally that you guys have talked about many of all of this crazy weather, that's going on and limitations to gas exports.

And also major expansions from guitar and other places.

Maybe and it's all the Jack whoever.

Can you maybe talk through it.

Yes.

How if any.

The market has changed with respect to maybe your customers' appetite to buy from the U S.

It improved or.

<unk>.

Or not relative to sort of all of the rest of the competition elsewhere on oil.

Okay.

I would I would say Ben first when customers buy LNG from Cheniere, they're not only buying flexible reliable on LNG to meet.

Their energy needs right.

They're buying stability and the sanctity of the U S regulatory framework in the U S rule of law, So I would say.

Here.

Recently that debt, we've seen an increase.

And our customers wanting access to two U S LNG.

LNG engineer LNG more specifically.

Mono line auto how do you yes.

Yes, just balance.

Just to add to that as we looked into our crystal ball in 18 1920, we.

We saw a record year of <unk> that was 19 and then as we've discussed with you guys. We saw another potentially record year. In 2020, we now know that that of course did not happen and even against that backdrop, we work quite constructive on the LNG market medium to long term.

Now we are in a position where 2020 saw the lowest number of up <unk> 97, and and whatever is now the Qatari Mega projects were always in our in our SMB balances going forward the net.

X two trains of the Qatari expansion are on our balances going forward as are a number of other projects and we still see substantial incremental need to meet growth as well as to offset the declines in the in the legacy supply portfolio, we think that our decades and decades of LNG growth ahead of us on as Jack said.

Delta Great hand would be expansion opportunity with the track records that our ops and marketing.

And and shipping team have provided and.

Our customers again enjoy this.

Reliability and price stability that that is going to be a major part of lots of portfolios as they meet their energy needs going forward.

Okay.

Thanks, guys.

Thank you, we'll hear next from Matt Jeremy Tonet with Jpmorgan.

Hi, good morning.

Good morning, Jeremy.

Just wanted to start off real quick.

Pre commissioning cargoes, if you could help us out there.

22, <unk> are you able to kind of share with us.

Kind of the quantum of the of the value there and if that was done into the spot market that could be a bigger number and just if you could refresh us whether that shows up in EBITDA or free cash flow trying to make sure we get that strength.

Hey, Jeremy Zac.

So yeah, I'll give you a little more insight on that so you won't see those figures.

From commissioning show up.

And P&L.

So they instead, they offset capex for the project.

They are not showing up in EBITDA or DCF.

Those were the actually the few cargoes that we really left open going into Q1, considering the uncertainty that comes with commissioning train III.

And based on our latest estimates I'd say, its adding over $100 million or so of cash flow to our balance sheet, just based on where those margins were at the time.

And if you think about our free cash flow, where it does show up we said that was around $1 billion or so last quarter.

We're comfortably above a $1 billion at this point, thanks to that and the improvements in overall EBITDA.

Got it 100 million that's helpful for sure.

Maybe just kind of pivoting over to the storm.

And I was just curious if you could share a bit more color on on what happened there I think.

Glad to hear everything is all right with everyone. There, but I think theres a lot of concern in the marketplace with regards to how this might impact your business model, but it seems from what you've said there is no material impacts there and just wondering if you could expand a bit more how you were able to do that despite.

Operationally despite these headwinds.

Yeah, well, thanks, Jeremy and I have to tell you. It was extremely try and time and I am looking at everybody in the room not only on this call, but we were without.

Power water and heat.

I personally for little over three days.

I know Zach was close to the week with that without any of the three and so.

So it is it is good to have 70 ish degrees in Houston today, and some normalcy, but we win when it became clear to US that this was going to be a historic weather event in that.

There was a real a real crisis on human needs for for heating.

And.

On power, we wanted to be part of the solution that non.

That's not part of the problem so.

We actually.

Corpus tripped offline on Sunday night.

There was a power.

Frequency drew.

Drop in the area that took corpus out.

And then things got really cold and very very fast.

So we.

<unk> worked closely with the state and local officials with the upstream producers with.

They are producers.

With the midstream infrastructure providers to make sure that the gas that would have went to corpus stayed in taxes and stayed on those pipes and went to a human needs.

Areas like hospitals and homes.

So.

Yes, but thats.

The few customers that we were gonna lift at corpus.

Most of them.

We're willing to move to Sabine pass as you know, Louisiana did not have the issues that Texas was experiencing.

And it came back fairly quickly.

From from the KOL event as far as power and water et cetera, and we were able to load them at Sabine and and cover that.

Demand from the customers.

But we've had as I said, we've got eight trains up and running six two BS go into the facilities and we're back.

Back at normal operations.

Got it that's helpful I'll stop there thanks.

Thank you we'll hear next from Ross <unk> with credit Suisse.

Hey, good morning, guys.

First one is for you I just want to come back to capital return mentioned it began and perhaps we had clarity later this year I just want to get more color on that front not opinion down but in the interest of setting expectations. I guess is the plan to announce something later this year with implementation in 2022 on.

Could we actually see something in terms of capital return this year and interest of tag along to that you highlighted several factors that are going to decide that the timing and magnitude balance sheet is one that certainly within your control.

Curious what the metrics are that you're looking for there by year end I assume investment grade is maybe one of those gating items.

Yes.

Everything update today is pretty consistent with what we told you in the previous quarters, but we will come back in the second half with a more comprehensive plan to date, we pretty much giving you year by year updates.

And we see line of sight to finally getting to the nine trains operational in 'twenty two so when we do come back to you later this year.

It'll be based on that over $12 billion now of available cash over the next five years.

And how we plan to deploy that methodically.

For that period of time, but whether our capital return is this year on next year, we'll give you that type of yes.

That type of update at that point.

But it's definitely part of part of the strategy and with having over $1 billion of free cash flow. Now. This year, you can expect that $500 million on debt Paydown is the bare minimum and theres going to be still leftover money for other capital allocation goals.

Got it that's helpful.

Second question just on the medium term deals that you announced it sounds like you plan to continue to contract along those lines I was just.

Could you just remind us again, how are you thinking about a target percentage of the overall portfolio. When it comes to contracting and then to what degree the agencies of maybe set the range agency that has a sale lease target for you is that also a factor as you approach investment grade did you want to see a bigger contract book.

Alright, Thanks merits Anatol just to start is as we've said to you as we get into.

Kind of a steady state.

Have a very good feel for what the what our ops guys can do.

We are targeting 90% contracted for the portfolio overall and the medium term volumes will will certainly be a portion of that and.

As Jack discussed earlier on.

Our flexibility the flexibility that we need to maintain with the system on the ability to to respond to some of these punches in the mouth.

It means that we're also comfortable with that that 5% or so remaining open on a on a forward basis. So 90% plus mid term will be a key part of that we've got good traction on that it's another arrow in our commercial quiver in and.

And we will continue to add to that portfolio.

And I'll just add even on those on midterm deals they don't change our guidance whatsoever. There in a range of what we want from a capacity, but the beauty of it is on a downside case, it's still there.

So bringing up the downside case, even more so the rating agencies do give us some credit not may be in a range of two to $2 50 for the open capacity, but they give us some credit, but basically it's around $5 5 billion Consol.

Consolidated EBITDA in a couple of years and we need to get under five times, we have $31 billion of debt.

At $3 to $4 billion on debt Paydown is still the right number.

That's as simple as it should be for US, we'll just complete the trains and follow through with capital allocation.

Got it thanks for the time guys.

Paul.

Thank you we'll hear next from Julien Dumoulin Smith with Bank of America.

Hey, guys. This is on your Australian for Julien.

Alright, So I was just wondering on.

Hi, Greg you were willing to the needs from line guidance, James just asking between EBIT and EBITDA sensitivity on John.

The $50 million for dollar teens marketing margin, but then you maintained that $300 range for guidance on.

What are the variables are there on Satcom, China, Inc.

That could impact.

Hi, Greg.

Sure I think its just consistency that we keep a $300 million range I mean, it's less than 10%.

The overall EBITDA, but you can assume net it's around the midpoint of that range and again, we're literally less than two months into the year and we raised our guidance by $200 million and Thats really thanks to.

The CMI team of locking in more of those cargoes, meaning that we're over 95% contracted and then obviously, our E&C and operations team getting ready to to bring train III.

The operations, but the variables Saar was still on commissioning.

We still have 50 TVT you open.

And we're going to really have to just see how the year plays out and we can give you more precise guidance and in future quarters.

Okay. Thanks, just wanted any channel.

And then Seth.

And as a follow up I wanted to ask about Debottlenecking efforts alright.

Alright, Thank you our latest update.

In <unk> nine to five one in Tpa, which means thank you can't get Covid.

Could you talk a little bit more about opportunities. There and then you can expect to get too technical.

From a run rate impact and is there upside to that is on.

There is upside to it.

First.

Guidance that we gave.

Was based on a lot of low hanging fruit.

Without additional investments into infrastructure.

And now we'll be evaluating.

On what when investments.

Debt, we would like to make to the existing facilities to possibly get more output.

Out of them, so there'll be more to come on that but we will it will be in lock step with our with our guidance on our capital allocation discussions.

Okay sounds good thank you.

Thank you, we'll hear next from Sean Morgan with Evercore.

Hey, guys just going back to this.

CE taxes introduced on slide seven.

I think the <unk> mitigation solutions. So I'm wondering is that does that actively.

Capturing carbon on storage or is that still on the investigation and if you've looked into that at all what sort of price would that imply on how do you kind of.

Put that in the context of.

<unk>.

Offering a solution that is you mentioned debt at Corpus Christi Phase III, that's going on with the most competitive in the U S and sort of balancing those two factors.

So there is a whole lot on that question that you probably didn't realize but the first one was the CE tags are different than carbon sequestration. So.

CE tags or our ability to basically give our carbon footprint.

Specific cargo to our customer so every time that a generic cargo either.

As purchased Fob.

So at that flange or whether it's delivered that there will be a.

Our carbon footprint of what the carbon the CEO two equivalent.

Offsets need to be for that carbon to make it carbon neutral okay.

Tag.

It's not us.

Z as it sounds right.

Day on the $6 to these that we bought today, we bought from 68 different counterparties on 15 different pipelines.

So that is not.

An easy exercise right because as you know every producer every pipe Navy has a little different footprint carbon footprint.

And we hope over time that we're going to get better and better at these tags and then our customers will be able to see more transparently.

How we're calculating it and whats all encompassed in it and then we can start managing it more appropriately the different lifecycle elements of the value chain.

LNG. So that's that's the announcement with the carbon taxes, the CE tags.

Cargo tags are the <unk> that we announced this morning, we are constantly evaluating other improvements to our overall a mission profile carbon sequestration is one of them as you may or may not know stage three at Corpus Christi is electric driven compression.

<unk> not gas driven compression so it's emissions profile looks a lot different than our existing trains.

If we buy renewables power to backup the power consumption there.

Net profile looks significantly better so we are constantly evaluating.

How we can make ourselves more environmentally friendly to make the product more sustainable.

<unk>.

Get get to where people are talking about net gas and LNG.

What we believe which is part of the solution.

Overall, so did I answer the question for you on why it wasn't.

Yes, no I think thats helpful.

So we probably haven't got to the stage at we're just monitoring and figuring out how to basically explain to your customers.

Total carbon emissions chain.

But having price not necessarily on in mitigation, yet because it's still early stages yet.

Yes, there is.

Got to walk before we can run.

There's a lot of misinformation out there.

The initial lifecycle analysis that was done in 2014.

From the National Energy Technology Laboratory.

Numbers that are quite a bit higher than what we think our actual.

Carbon emissions of greenhouse gas emissions profile really is so we want to make sure that debt, we get the right information out there as soon as we possibly can.

Yes, yes, and I, certainly don't want to take anything away from this effort because it's unique and I'll take it.

It's.

It's going to help.

Everyone in the marketplace. So and then just one quick follow up.

On the bonds, obviously, that's a pretty impressive to nine 5% print are you seeing similar excitement.

On the project finance side beyond just refinancing.

For phase III in terms, you might be able to improve upon previous.

Yes.

Absolutely I think.

<unk>, meaning if we can raise attractive project financing or term loans for stage III yet to say that we're confident on that is is an understatement. Considering we went through the pandemic and raised over $2 5 billion at pretty attractive rates last year.

So that that wont hold us back.

That goes with having a bank group of 40, plus banks that have supported us for almost a decade.

And obviously all the capital markets activity that we do to keep on bringing them down and manage their exposures.

Okay. Thanks Jack.

Thank you we'll take our next question from Michael Blum with Wells Fargo.

Thanks, Good morning, everyone.

One point of clarification on on the guidance the increase from 'twenty. One guidance is that driven by the newly signed mid term deals or you just locked in more cargoes for the coming year bias CMI or I guess have been some growth.

Can you give us a rough sense on the relative contributions.

It's really the latter and science the CMI just went to work on hedging as the market went up and putting on like physical cargoes to bad debt fixed prices. There are few cargoes in there from the medium term deals, but majority is really CMI.

On being quite active literally starting the day, we gave guidance.

Last year.

Great Thats all I had.

Thank you Michael.

Thank you, we'll hear next from Alex <unk> with Wolfe Research.

Hi.

I guess a follow up question.

On the carbon.

On tagged I guess do you think just the high level that it's competitive.

Type of disclosure relative to maybe what other alternatives LNG sources globally might be so as a competitive edge or assistance.

Try to get more transparency and then I guess the second question would just be any kind of sense early on in the by the administration about kind of changes in tone on trade policy or whatnot I'm, just thinking about again the potential market for for China. Knowing of course, you did a little bit late last year, but just curious if that's an avenue that might seem more open now.

Sure.

Okay.

Okay. So first.

Do you view this as a competitive advantage for us I think there's a lot of misinformation out there of what.

We'll have the emissions profile for U S LNG and I think as we begin to.

Discuss.

In an international workshops.

Our methodology and we try to make it more transparent so we.

Everybody else on the same level Plainfield.

I think we're going to find out that U S. LNG can be very competitive engineers LNG.

Extremely competitive.

Worldwide and helping with some of these countries environmental aspirations.

In regards to.

President Biden.

We're on.

We have a very strong relationship generic does in China already and in all of Asia. We have a great office there we've sold quite a few cargoes.

Here recently on the spot market to China, and we're hopeful that.

Net.

The relationship between the two countries can continue to improve in and hopefully we'll be back at the table for.

Q4 2020 Cheniere Energy Inc Earnings Call

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