Q1 2021 Cheniere Energy Inc Earnings Call
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Good day and welcome to the Cheniere Energy, Inc. Q1, 2021 earnings call and webcast. Today's conference is being recorded at this time I would like to turn the conference over to Randy Bhatia VP of IR. Please go ahead Sir.
Thank you operator, good morning, everyone and welcome to Cheniere is first quarter 2021 earnings conference call.
Slide presentation and access to the webcast for today's call are available at Cheniere Dot com.
Joining me this morning are Jack Fusco, Cheniere as president and CEO.
Anatol <unk> executive Vice President and Chief Commercial Officer, and Zach Davis, Senior 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 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 financial measure can be found in the appendix to the slide presentation.
As part of our discussion of Cheniere as 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 <unk> results separately from those of Cheniere Energy Inc.
The call agenda is shown on slide three.
Jack will begin with operating and financial highlights NFL 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 of Cheniere.
I am pleased to be here. This morning to review our outstanding result from the first quarter.
Before covering our results and outlook I wanted to spend a minute addressing and winter storm aerie and its impact on Cheniere. As we described back in February we were impacted by the widespread power outages in Texas, which resulted in our Corpus Christi facility being down for a few days.
I am extremely proud of our operating personnel at both Sabine pass and Corpus Christi for rising.
Another weather challenge and working so diligently to manage our operations smoothly throughout the freeze event.
From Hurricanes to fog to now historic freezes. The Cheniere platform has withstood whatever mother nature throws our way and our focus on safe and reliable operations continues to benefit our customers shareholders and other stakeholders.
As a result of the winter storm there was no material impact on our assets our operations.
And we were able to fill some cargoes at Sabine pass and restore corpus Christi to normal operating levels quickly to mitigate impacts on our delivery obligations.
We did recognize a financial benefit as a result of some optimization activity in the period, leading up to the storm.
But the magnitude of that benefit is not material.
Our expected full year 2021 financial results.
More importantly, the global LNG market has recovered significantly for 2021 and beyond as demand has outstripped supply, resulting in higher prices, even during the shoulder and summer months.
I continue to believe in the long term viability and sustainability of LNG as an essential fuel source.
On a low carbon future.
Please turn to slide five.
I will review some key operational and financial highlights from the first quarter, including our upwardly revised 2021 guidance.
After delivering on our 2020 guidance despite a variety of challenges.
We continued our momentum into the first quarter and are off to a fast start.
Now full year 2021 is looking even better for us than it did on our last call in February.
For the first quarter, we generated approximately $1 5 billion of consolidated adjusted EBITDA, approximately $750 million of distributable cash flow and almost $400 million and net income on revenue of approximately $3 1 billion.
We've often describe 2021 is cheniere is cash flow inflection point and you can see progress on that early in the year in our first quarter financial results.
Jack will cover these numbers in more detail in a few minutes.
During the first quarter, we exported a quarterly record of 133 cargoes of LNG from our two facilities with production.
Incentivize by strong global LNG margins during the quarter and we had the benefit of Corpus Christi train three commissioning volumes.
This record production has also despite corpus being down a few days as a result of the winter storm in February.
A sustained stronger LNG margin environment together with our results for the first quarter contribute to our ability to raise our full year 2021 financial guidance for the second consecutive quarter.
Our outlook for the balance of the year has improved since our last call in February with a slightly higher production forecast.
Many of the impact of the improved LNG margins, we see throughout the balance of the year.
We now forecast consolidated adjusted EBITDA of $4 three to $4 6 billion and.
And distributable cash flow of one six to $1 9 billion for the full year 2021.
Near the end of the quarter train three at Corpus Christi achieved substantial completion within budget and in line with the accelerated timeline, we've previously communicated.
With the completion of train three the Cheniere and backfill relationship has now delivered eight LNG trains ahead of schedule and within project budgets, which is truly world class execution.
And that execution excellence continues with our ninth train.
As construction on train six at Sabine pass continues to progress against the accelerated schedules.
The estimated substantial completion time line is accelerated once again substantial completion is now projected to be achieved in the first half of next year.
As I Hope you all saw this morning, we issued a press release announcing we supplied a carbon neutral LNG cargo to shell, whereby cheniere and shell jointly offset the full lifecycle emissions of a cargo.
The carbon offsets covered full lifecycle emissions from the wellhead through consumption with cheniere delivering the cargo to shell Fob at Sabine pass and shell delivering the cargo for European Regasification facility.
This first carbon neutral cargo is another step engineers environmental efforts I've discussed over the past several months.
Our efforts emphasize enhanced transparency is a critical step towards improving environmental performance and.
And maximizing the benefits of our LNG for Cheniere, our customers and our value chain partners.
Todays carbon neutral cargo announcement follows our February announcement of cargo emissions tax development.
The response to our CE tags from current and prospective customers has been extremely positive and has spurred further engagement or.
Our focus is to ensure the long term benefits of natural gas as an affordable reliable and clean energy source for the world.
Turn now to slide six where I'll discuss what I'm seeing in the market today and why I'm, so optimistic about cheniere as future prospects.
On the short term market, we're beginning to see the impact of the structural shift to natural gas as a primary energy source for the world as evidenced by the global LNG demand growth we saw in 2020, despite the pandemic.
There was constructive LNG demand tension between Europe, and Asia earlier, this year that let some countries short of natural gas and.
In addition, South America is entering its winter demand months and is contributing to the tightness in the global LNG market.
With natural gas storage below normal levels in Europe, and precious little new supply entering the market this year.
We also have a constructive backdrop in the LNG market for the balance of this year and into next year in 2023.
With Corpus Christi train three completed very early and the completion time line for Sabine pass train six recently accelerated again to the first half from next year, we are ideally positioned to benefit from these near term market dynamics.
And the longer term the supply and demand fundamentals in the global LNG market are even stronger and reinforce our confidence in the value of our existing platform and in our ability to commercialize our corpus Christi stage III expansion project in the four year period from 2017 to 2020.
The global LNG market added almost 120 million tons of capacity and average of almost 30 million tons per year.
And the subsequent four year period that average is expected to drop to approximately 11 million tonnes a year, a significant slowdown in supply growth, which will be amplified by output declines from older legacy projects.
On the demand side, the structural shift to gas on a global basis is evidenced by the near term doubling of LNG importing nations in the last 10 years and.
In the one hundreds of billions of dollars of natural gas oriented infrastructure being built around the world today.
LNG consumers recognize and value lng's flexibility reliability affordability and the critical role natural gas plays in improving environmental performance and achieving de carbonization goals.
We forecast that global LNG trade will approximately double expanding by approximately 350 million tonnes per annum to over 700 million tons per annum by 2040.
Which would support additional approximately 225 million tonnes per annum of incremental global supply.
Our constructive long term view on the LNG market was recently reinforced for the results of a comprehensive climate scenario analysis, we conducted with a leading global management consulting firm.
We published this analysis last month and it's available on our website.
This study analyzed generic business over the long term under various energy transition scenarios and concluded that even under the most aggressive energy transition scenario analyzed day.
Demand for LNG and natural gas is expected to growth for decades to come.
And that not only our cheniere as existing assets well positioned to take advantage of that.
But new LNG capacity will be needed to meet that demand.
With regard to Cheniere, specifically, our accomplishments and progress over the past five years of LNG operations.
Having nothing short of transformative and position the company to take full advantage of the constructive market, we see in front of us.
We have established ourselves as a premier LNG operator, demonstrating.
Demonstrating LNG buyers worldwide, the reliability and certainty associated with a long term supply agreement with Cheniere.
In addition, our continuous improvement efforts have yielded efficiency gains.
And Debottlenecking has unlocked a significant amount of extremely cost effective volume across our projects, which further improves our competitive position and increased financial returns.
As construction ramps down the long awaited financial results of our multiyear capital programs are bearing fruit as evidenced by today's results.
This year, we expect to generate well over $1 billion on free cash flow and we are quickly approaching our expected run rate metric.
Our run rate forecast of $11 per share and distributable cash flow not only has a high degree of visibility, but also empowers us to execute.
On an all of the above strategy for capital allocation, which includes achieving investment grade credit metrics funding a significant portion of Corpus Christi stage III with cash flow. After that project is commercialized and returning significant capital to shareholders via buybacks and dividends.
Jack and his team and I are working diligently with the board and the rest of management on our detailed capital allocation plans, which we will communicate to you later this year.
I am excited about.
About what we're seeing in the LNG market, how cheniere is positioned to capitalize with our portfolio volumes.
Shovel ready brownfield expansion project commercial offerings tailored to customers' needs.
And then improving credit and cash flow profile.
With that.
I'll turn the call over to Anatol, who will provide some more details on recent LNG market development.
Thanks, Jack and good morning, everyone. Please turn to slide eight.
The global LNG market exited 2020 on a positive note this cold weather across Asia and continued economic expansion on China helped contribute to an increase in Asian LNG imports in Q4.
As non U S supply was slow to respond markets tightened as Asia pulled cargoes from Europe, the trend, which continued in Q1 of 2021.
In the first quarter global LNG supply showed positive year on year growth for the first time since the first quarter of 2020, but net growth was modest as a healthy 17% growth in U S. Exports was largely offset by declines at several LNG facilities around the globe, which were either shut down or underperforming including.
<unk> in Norway, Nigeria, Australia, Trinidad <unk>, Tobago and Russia.
Extreme cold weather in Asia, and then Europe during the first quarter combined with the supply constraints and a tight shipping market caused unprecedented price spikes in Jack in the early part of the quarter to all time highs of over $30 in January.
Since then extreme temperature conditions have passed and GKN prices have moderated however price levels are still well above where they were a year ago with March Jacob settling at $8 26.
June trading above $9 currently well above prices around the $2 <unk> btu level, a year ago, indicating on the underlying structural tightening of the market supported by strengthening demand fundamentals.
As I, just mentioned and Asia LNG imports were very strong in Q1 up over 7 million tons or 11% year on year.
<unk> added nearly 5 million tonnes of LNG demand, despite robust domestic gas production and increased Russian pipeline gas imports.
Early reports of total gas demand in China shown increase of approximately 15% year on year on Q1.
Weather continued coal to gas switching and a remarkable over 18% increase in Q1 GDP drove the demand increase.
In the Japan, Korea, Taiwan area, LNG imports increased 8% or 3 million tons year on year due partly to scheduled nuclear and coal outages.
From a structural demand level 10 years after the Fukushima earthquake, most Japanese nuclear plants remain offline with only nine units totaling $9. One gigawatts resuming operation as of Q1, 'twenty, one compared with 42 Gigawatts in 2010, solidifying LNG is a critical fuel for the stability of the energy system.
In Japan and in the region as a whole.
In Europe gas demand in major markets rose by 9% year on year during Q1 on stronger heating and gas fired power demand Cigna.
Significant drawdowns from storage through winter and into April as left European storage, approximately 34, bcm or around 50% lower than the prior year by the end of April and approximately 11 Bcf or approximately 375 Bcf below the five year average.
To attract LNG volumes away from Asia to help replenish storage CTF prices remain elevated.
Oral TGF settled higher than <unk> at $6 46, and on Btu that was 13% higher on the months on up almost 200% year on year.
Current prompt margins are on the $3 range inclusive of a dramatic upward shift in charter rates from the 30000 per day range well above the $80000 per day range today.
Just on these demand fundamentals, although specific conditions during the first quarter led to some dramatic LNG price volatility. We believe we have also seen indications that the structural tightening that we've been predicting for some time is now underway.
As such we have continued to transact incremental volumes aligns with our mid term strategy.
The team has secured an additional approximately one 7 million tonnes locking in over $200 million in fixed fees across 2022 and 'twenty three we.
We see strong appetite from mid term agreements as both intermediaries and end users add diversity security and flexibility to their portfolios.
Turning now to slide nine where I will discuss some longer term aspects of the market.
We've discussed over the last few years that we viewed 2021 is a transition year to a tight market and as we just described that has played out so much faster than we expected.
Forward margins today during the northern Hemisphere spring shoulder season are higher than they have been at any point for this season. Since we began operating just over five years ago.
A number of market conditions that have been headwinds to entering into long term commitments have more recently become tailwind such.
Such as oil price prompt margins and forward supply growth just to name a few.
We remained quite sanguine on the long term contracted market for our products over the coming quarters and years as the demand for LNG will continue to increase over time with many current markets expanding in new markets continuing to be added.
Specific to Asia, along with China, and India markets in South and Southeast Asia have shown keen interest in expanding their natural gas infrastructure from pipelines to power plants to support their rapidly growing economies.
In power generation forecast suggests that gas is expected to be the second highest growth segment. After renewables in terms of capacity additions then.
To expand access to reliable energy across the region means that natural gas is expected to play a crucial role in ensuring sustainable economic growth, while reducing emissions intensity.
Of the roughly 3000 gigawatts of forecast incremental power generation capacity in Asia by 2040 over 300, Gigawatts is expected to be gas fired.
Just for reference a gigawatt of combined cycle natural gas generation operated as Baseload requires approximately 1 million tons of LNG per annum.
A significant portion of that some will be in China, but almost half of it is expected to satisfy growth in south and southeast Asian countries, such as India, Indonesia, Bangladesh, Vietnam and the Philippines.
Some of these countries are already well established gas users with indigenous resources, which are mature and declining.
Data from Wood Mackenzie suggest that the region could lose more than 20 Bcf a day of domestic output by 2040, while current upstream developments are considered unlikely to offset more than just a small fraction of that decline in.
In addition gas demand in the region is currently expected to grow by at least 18 Bcf a day during the period to 2040, creating a gap of more than 35 Bcf a day of gas, which we expect to be satisfied in large part by LNG.
Again for reference 35 Bcf a day is equivalent to approximately 250 million tons per annum of LNG.
Please turn to slide 10.
LNG demand growth across the various markets of South and southeast Asia is an aggregate very significant LNG.
LNG demand growth in South and southeast Asia is expected to accelerate and potentially grow fivefold by $2040, adding between 160 and 200 million tons to global trade.
We believe that over the next two decades over 20% of the growth in Asian demand will come from China, and approximately 70% will come from South and Southeast Asia as these countries prioritized gas over coal to secure economic growth and meet their climate goals.
This region consumed over 17% of global coal and was responsible for more than one third of global greenhouse gas emissions in 2019.
While most net zero pledges came from outside the region, we believe that nations in South and southeast Asia have been increasingly determined to improve environmental performance.
And find ways to fuel growth in a more environmentally sustainable manner.
We see Cheniere LNG as a secure reliable and cost effective fuel for the region, and which along with renewables will displace more polluting fuels Jack.
Jack already touched on our leadership in initiatives in ESG and I'll, just add that we are seeing increasing interest and engagement from both existing and potential customers on the environmental opportunities we're developing.
Cheniere stands ready to work with customers in the region and all over the world to create practical solutions that fit their commercial needs and satisfy global environmental imperatives.
We believe our low emitting LNG standards will play a role in supporting the region's environmental goals and its energy priorities.
Thank you all for your time I'll now turn the call over to Zack who will review our financial results and guidance.
Thanks, Anatol and good morning, everyone I am pleased to be here today to review, our first quarter financial results and key financial updates as well as our increased 2021 guidance.
Turning to slide 12.
For the first quarter, we generated net income of $393 million consolidated adjusted EBITDA of approximately $1 5 billion.
And distributable cash flow of approximately $750 million.
Our financial results for the first quarter were positively impacted by increased global LNG prices and margins, particularly margins realized on spot and short term cargoes sold through our marketing affiliate and.
And a higher than normal contribution from LNG and natural gas portfolio optimization activities due to significant volatility in LNG and natural gas markets during the quarter.
As we have discussed in prior quarters, our IPM agreements certain gas supply agreements and certain forward sales of LNG qualify as derivatives and required mark to market accounting, meaning that from period to period, we will experience non cash gains and losses as movements occur and the underlying forward commodity.
Curves.
The impact of shifts in these curves on the fair value of our commodity and FX derivatives. During first quarter 2021 was a net loss of approximately $120 million, which was substantially all non cash.
For the first quarter, we recognized an income 456, <unk> of physical LNG, including 442, <unk> from our projects and 14 <unk> from third parties.
84% of these LNG volumes recognized in income were sold under long term SBA or IPM agreements.
During and after this winter storm, we were able to work with our long term customers on cargo schedules as well as shifts some volumes from corpus to Sabine leader.
Leading to no material impact to our production for the quarter.
We received no cargo cancellation notices and had no revenue related to cargo cancellations in the first quarter. However.
However, we previously recognized $38 million of revenues during the fourth quarter 2020 related to canceled cargoes that would've been lifted in the first quarter.
Commissioning activities for Corpus train three went well as Jack discussed and we received $191 million related to sales of commissioning cargos in the first quarter.
Corresponding to 25 <unk> of LNG.
As a reminder amounts received from the sale of commissioning cargoes are offset against LNG terminal construction in process.
Net of the costs associated with production and delivery of those cargoes.
Six <unk> of LNG related to commissioning activities was on the water at the end of the first quarter and will be recorded as an offset to construction in process upon delivery.
Turning to the balance sheet, we prioritized debt reduction since raising the cheniere term loan to refinance convertible notes last year and have committed to pay down at least another $500 million of outstanding debt in 2021.
We made good progress toward that goal during the first quarter, when we paid down $148 million in outstanding borrowings under the Cheniere term loan all.
I will provide some additional color in a few moments, but we are in an excellent position to reach and likely surpassed our minimum debt reduction target this year.
In February we locked 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 yielding bond ever secured across the Cheniere complex.
In March the QP Opportunistically issued $1 5 billion or 4% senior notes due 2031, the proceeds of which together with cash on hand were used to extend the maturity and accretively refinance all of <unk> five 5% senior notes due 2025.
Our efforts on execution performance and prudently managing the balance sheet throughout the Cheniere structure continued to be recognized by the credit rating agencies.
As we mentioned on our last call in February Fitch revised the outlook of SPL senior secured notes rating to positive from stable, while reaffirming its existing triple B minus investment grade rating.
On April S&P revised the outlook of both Cheniere engineered partners double b ratings to positive from negative a signal that ratings upgrades may be coming.
In addition, S&P commentary indicated a leveraged level of four five to five times on a debt to EBITDA basis in the next couple of years could be consistent with an investment grade rating commentary, which is in line with and supportive of our deleveraging plan and goal of investment grade credit metrics throughout the structure.
Turning now to slide 13.
As Jack mentioned today, we are again, increasing our guidance ranges for full year 2021, consolidated adjusted EBITDA and distributable cash flow by $200 million bring.
Bringing total increases to $400 million above the original ranges we provided in November of last year.
Our revised guidance ranges are for three to $4 6 billion and consolidated adjusted EBITDA and one six to $1 9 billion and distributable cash flow.
Today's increase in guidance is largely driven by our strong results in the first quarter. The continued improvement in global LNG market pricing and our ability to execute additional higher margin <unk> sales into the stronger pricing.
Since the last call. We have continued to lock in additional volumes for the remainder of the year.
Those sales have been offset by an upwardly revised production forecast driven by maintenance optimization, some favorable weather and a much faster than expected ramp up to steady train III volumes.
We currently forecast that a $1 change in market margin would impact EBITDA by approximately $40 million for full year 2021.
As we have now sold almost all of our production for the remainder of the year and have completed and placed corpus train three into service in line with our previously forecasted timing.
Our remaining exposure this year is not material and we only plan to provide another update if that were to change.
We are confident in our ability to deliver results within these upwardly revised guidance ranges for the full year.
With train three now in operation is also now past the free cash flow inflection point, we have long discussed with our stakeholders.
We expect to generate meaningful free cash flow. This year for the first time engineers history of well over a $1 billion.
We originally committed to $500 million in debt reduction this year that we've now think $500 million is conservative due to our strong performance and cash flow generation year to date and the forward sales of LNG, we have executed and a strong LNG market.
We are continuing to work on our long term capital allocation strategy with our board and we anticipate communicating this multi year plan to you in the second half of the year, including more comprehensive plans for the remainder of free cash flow. This year. After meeting our initial 2021 debt reduction goal of $5 billion.
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 would like to ask a question. Please signal by pressing star one on your telephone keypad if you're on.
Using a speaker phone. Please make sure you're on mute function is turned off July your signal to reach our equipment. Please limit yourself to one question plus one follow up again that is star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal.
Our first question comes from Jeremy Tonet with J P. Morgan.
Hi, good morning.
Good morning, Jeremy.
Just wanted to start off with the kind of improving LNG market here and see what that could mean for cheniere. It seems like you guys are able to kind of sign some more contracts here. So I'm wondering.
How much visibility do you have do you think the market's tightening where longer term contracts might be.
Yes at attractive rates that you would look to sign or even just looking at 2022, just how much spreads are you able to capture at this point and kind of Derisk your outlook for 2022.
So Jeremy this is Jack I'll start and then I'll turn it over to Ed.
Anatol and then Zach Navy.
But we will start off with <unk>.
Im extremely pleased with my operating staff on their ability to debottleneck and optimize our maintenance program. So during the freeze at Corpus, we were actually able to do quite a bit of maintenance on the facilities. So when we came back we came back strong and we revised our production forecast and we found significant number of additional cargoes that we can monetize.
This year and that's my expectation with it with the staff and the team is continue continuing to.
Work on operating efficiency, and our effectiveness and drive drive our production appropriately with market conditions.
Anatol Jeremy's question was around the market for I guess mid and long term contracting sure good morning, Jeremy.
Things are as we mentioned.
Turning around even faster than we had expected.
Some of it as an assist from whether some of it is an assist from other facilities that are having operational issues and legacy production declines.
We've talked at length over the last couple of years quarters about the investment that's being made that Jack mentioned in his remarks on.
On the pipeline re gas facilities additional countries that are investing hundreds and hundreds of billions of dollars in long dated commitments to natural gas and.
And a lot of those places wants to have security of supply and one of the things as Jack mentioned, we've displayed as debt through thick and thin through ups and downs not only do we reliably perform on those commitments are product happens to have the lowest volatility most price stability.
Any of the other long term contracting options. So we're entering into a very good period.
We are right around the same level that we saw in 2018 in terms of forward margins for the next three or four years that was as you know a very good period for us.
Not a necessary condition, but it is certainly very helpful.
And.
The difference between 2018 on now is that was a bit of a counter cyclical rally in the market that was driven by a surprising strength in demand out of Asia, primarily China, and frankly delays in terms of some infrastructure coming online like some of the other U S projects. So the difference now as Jack said 30.
<unk> tons, a year were added 17 through 'twenty you look forward through the middle of this decade, there's not a lot of supply coming in and.
And we are very well positioned with these additional volumes that we're transacting in the short and mid term as you may recall bridging volumes were a key part of our commercial offering and that's something that allows our our customers on load serving utilities to sleep at night with that reliability and production. So again feel very good about the hand that we're playing on.
Feel very good about securing additional margin and now I'll hand, it over to Zach to that cleanup.
Sure, Thanks, Anatol and Hey, Jeremy.
Today, we obviously aren't going to give you.
I look at our open capacity for 2022 yet.
Really we have to get through that budget process, we have the annual delivery program, our ADP process.
And by November we'll give you our best outlook for 2022, and the open position and probably have even a better sense of one train six is coming on line.
But you can expect.
We're already proactively thinking about it and executing on 22 and the attractive margins now on the curve over the next few years and with the success that CMI has had on terming out physically including through midterm deals some of our Debottleneck capacity. This has really helped lock in fixed fees.
This year.
For the next few years actually.
And post 2021, we've already secured over let's say over $500 million and in just in 2020 to over $200 million.
So you can say, we've already been pretty proactive on locking up a portion of that open capacity for next year.
Got it that's very helpful. Thank you.
Maybe just shifting to carbon here.
Just wondering if you could provide thoughts as far as this new transaction you did the value chain carbon neutral LNG cargo to shallow how do you see that market developing how much appetite do you think that there could be for that over time and when it comes to carbon capture do you think the current 45 Q provide sufficient economics.
For Cheniere to pursue Ccs given the dense.
Dense parity stream of Sidoti that come off LNG facilities.
Yes, Jeremy Thanks.
As a as that I'll add is I was very pleased to work with shell one of our largest foundation customers on that first carbon neutral cargo I think its successful execution just insurers that cheniere has capabilities are ensures our capabilities to actually operate across the entire value chain I think offer.
In climate solutions to our customers.
Is going to be a bigger and bigger portion of our business and right in line with what our.
Our value proposition is for the customer.
As I've talked about before in the past our first goal, though is to monitor validate and report on our carbon footprint and that's when we announce our on.
Our cargo emission tags are the CE tags.
Well on our way on that aspect of it you.
You mentioned Ccs.
Ccs is.
Important our initial blesses blushes that it looks very promising at our facilities I think we're.
We're committed and have committed some real dollars to development and engineering resource.
To flush out.
<unk> and its potential.
Capability to help us both adds to being an add on.
And at Corpus Christi, but I think our customers are going to expect us.
To continue to offer a sustainable LNG product.
Anatol you have anything to add.
Thanks, guys, just very quickly as Jack said.
Transparency and our ability to to offer that to our customers is very important. This is another arrow in our quiver and it is part of the comprehensive offering that allows us to to capture to continue to capture market share. So this is another box that we have checked in terms of our capabilities.
We're grateful to have a partner like shell as we as we navigate this and continue to develop our our ESG offerings.
Got it thank you very much from the thoughts.
Thanks, Jeremy.
Okay.
Our next question comes from Shneur <unk> with UBS.
Hi, Good morning, everyone just kind of wanted to follow up on on the first question that was asked.
Just given the fact that you've been successful at negotiating.
Incremental contracts into 'twenty three.
And kind of the volatility that we've seen and so forth.
The forecast that you laid out how close are we to securing enough contracts to give the board comfort and sanctioning stage three.
Two two on that process.
Would you do it all at once or would you do it kind of in a piecemeal type of approach.
So just to be clear, we are 100% focused on.
On on making sure that stage III gets commercialized as soon as possible.
But as I talked about on previous calls.
We literally have a virtual train of LNG that we need to sell on secure which is what our mid term product offering is helping us do so through our debottlenecking efforts and maintenance optimization. There was at least 7 million tonnes.
LNG additional LNG coming off the portfolio that debt.
We are blessed to have quite honestly. So that's first and foremost is making sure that we secure the existing nine trains worth of LNG before we go off and build stage three another 11 million tonnes.
But.
And it's always act do you have anything to add.
Thanks for the question of share where again, we're very optimistic and this all contributes to our goals of.
On increasing the contractual coverage and we will not waver on our investment commitments, which require roughly and we talk about this $1 7 million tons Thats total tonnage over over time.
As Jack said this is a 10 plus million ton project plus the volume we have in the portfolio per annum right. So so youre talking about kind of an order of magnitude more.
Commercialization, that's required but we feel very good about.
About what we're seeing today and for the coming quarters.
Greg I appreciate the color.
Maybe for a follow up.
In the quarter U prepaid $148 million on the term loan <unk>.
<unk> been able to issue debt at 4%.
<unk> had positive outlook revisions from both S&P and Fitch.
Can you kind of touched on it on your prepared remarks, but I was wondering if you can expand on the guidance or soft targets around leverage levels to get the Op Inc.
The double B, plus and then to investment grade.
Any extended discussion on that would be super helpful. Thank you.
Okay. No problem. This is Jack here.
I think the S&P note last month for the outlook upgrade at Cei and <unk>, just really validates everything we've been communicating to you all for the last few years on capital allocation and it's pretty consistent with how we step by step got our even our project ratings over time from high yield to investment grade at Sabine and Corpus by every agency.
And now looking ahead.
The defined path of EBITDA growth plus debt paydown to get below six times consolidated leverage to get to double B plus and the next year or so and then leverage down to sub five times to get to Triple B minus in the next few years.
So our path is pretty straightforward to get to IAG with S&P as metrics improve and as we simply grow into a runway run rate and follow through with capital allocation and debt paydown of up to $4 billion.
Pretty much consistent with what we've told you. So that's the plan and Thats on a consolidated debt to EBITDA basis.
Okay. Thank you very much really appreciate the color take care guys to have a great day.
Thanks.
Our next question comes from Christine Cho with Barclays.
Good morning.
When I look at your shareholder last I think theres, probably still some turnover needed in the stock maybe its lack of dividend or debt levels. That's keeping some of the investors added stock, but as you think about capital allocation. How are you thinking about bringing new investment.
Talk to investors, who like in the stock, but aren't currently or do they want and how is that going to be factored into that broader framework that you are going to come out with later in the year.
Christine it's good to hear from you.
I'll start and I'll turn it over to Zack.
Yes.
I am concerned about the lack of flow that we've had on the stock lately I mean, I think it's consistent with.
Some of the oil and gas industry overall, but I would like to see the flow get.
A little bit more I think larger investor, especially index funds released.
And my experience like to be able to get into stock and then get out on the stock without without having too much pain and so we need to we need to work on expanding our horizon and being more desirable for the investment community at large and I think a big portion of that is wed Zack has highlighted is getting our credit.
Metrics under under control, we don't screen very well on a Bloomberg screen.
And we need to we need to rectify that we think we.
We're at an inflection point, where we're going to have an opportunity here to give our shareholders back their investment.
And we need to be thoughtful about it which is why we are spending a lot of time trying to.
Trying to make sure that we get this capital allocation program done right. The first time.
And I'll, just add to what Jack Jack said Christine.
I think it's pretty obvious if we can get to investment.
Investment grade in the next couple of years or even just get into the S&P 500 index. It would be helpful to bring more and more new investors into the stock and.
And I think it's pretty safe to say, we're on track for both of those with a bit more time.
And it's probably time, that's the operative word for this company because everyday that goes by we'll be making progress on our leverage get closer and closer to our run rate cash flows.
And $11 is just going to be too hard to ignore.
<unk>.
Okay, especially as that close with capital allocation and growth.
I think the other thing I would note Christine I'll just add one more thing to that is that it's more than fair to say that over time.
On.
We're interested in attracting more and more income investors to the stock as well.
But we know our leverage goes hand in hand with that to ensure that any shareholder return really is just sustainable not just for a few years, but for decades.
So I think the all of the above type strategy to capital allocation like Jack mentioned in the prepared remarks is exactly what we're going to try to bring to you all in the next.
Year or so.
Got it.
Helpful.
And then maybe if I can move on to contracting.
And the last several weeks months, we've seen a number of long term contracts signed in the market and most of them have been with Chinese counterparties. So just curious.
With no U S. China trade deal how should we think about interest from portfolio of companies.
Especially with delays that are going on with other ongoing LNG projects that are on construction.
Yes, Thanks Christine.
That's absolutely fair.
It is a.
The market continues to contract for term.
We've always been in the camp that long term contracts are a key building block to to this market as it continues to grow and develop and as we talked with with Cheniere.
Yes. It is a period, we've gone through a period where oil indexation.
<unk> more attractive to buyers than the Nymex now we're entering a period, where we're we firmly believe the opposite will be true.
We are quite optimistic on on the Chinese market for gas and for LNG. We think this is a critical component of it.
Economic and environmental objectives <unk> five year plan continues to to commit to that President XI has committed to.
To limit and actually decrease the amount of coal generation and subsequent five year plans, which which all bodes quite well for us we're very proud of what we have done to date.
Have a great commercial engagement with the with our Chinese counterparties. So he's on the tier two and tier three players and we fully expect to have more commercial success there.
It is a very large and important market as Jack has said on previous calls it can double the size of cheniere in and of itself.
And we continue to be quite engaged there, but I will tell you one of the reasons, we highlighted on this call non China Asian markets.
It is because there is.
There is a broad range of opportunities beyond China as well so.
Just like on capital allocation it'll be all of the above and again, we're entering now what we see is a multi year period, where <unk>.
IMAX based contracting long term contracting will be very attractive.
Got it thank you.
Yeah.
Our next question comes from Michael Lapidus with Goldman Sachs.
Hey, guys. Thank you for taking my question and congrats for a good start to the year.
Can you talk a little bit about Sabine six just like.
When you talk about bringing it up into the first half of 'twenty. Two are you talking just a couple of months ahead of what you originally planning or is it conceivable you could get it very early in the course of next year on line.
Hi, Michael it's Jack and thanks for the kind words.
At Sabine pass, which is what you would expect train six is actually our train number nine with <unk>.
I'd like to say, we have figured out how to.
To stick build these trains faster and better than probably anywhere else in the world and it is way ahead of accelerated schedule.
Probably close to a year ahead, so I would expect that barring.
Decent weather, because we are about ready to head into the hurricane season, again, which seems to almost never ending.
Anymore, but borrowing decent whether that will be producing LNG.
And commissioning on that train before the end of the year.
And.
So we're hopeful that.
Debt, we can exceed the first half of the year guidance that we've given.
And by November when we talk about 2022 guidance, we might be able to be more specific than just the first half of the year, but.
It's tracking in the right in the right way right now and in terms of costs.
There is 6% to $700 million remaining of Unlevered cost there before contingency.
On a large majority of that is this year.
So things are really ramping up there.
Got it Super Super Helpful. And then just trying to think about stage three at Corpus is there a material benefit in your kind of your cost to construct to be able to take that.
Before.
Before before the the major construction work that you've done over the last five plus seven plus years with bechtel kind of winds down meaning if bechtel leaves the site does that make a material change in your opening more sites plural does that make a material change to what stage three would cost or put it in.
The way if you had a two or three year, a pause before <unk> stage III does that kind of change the outlook for the economics of it on the cost of it.
Not necessarily Michael for me, it's more about the team.
We got a great team at Cheniere backfill has a great team supporting US right now if there's that much of a delay.
I'm sure those folks will get assigned elsewhere around the world there are on international.
Contractor in.
And theyre not going to keep their people waiting.
For me, it's more about the team and less about.
About <unk>.
<unk> and demobilization costs, because those are quite frankly kind of immaterial to the to the total investment.
Scott I would just add debt.
We're partnering with Bechtel as we speak actively looking at ways to make it cheaper and cheaper and more cost competitive.
So.
There'll be around.
Okay, and then last one just real quick you mentioned.
Kind of doing short term contracts from one or two year $200 million of incremental revenue roughly $1 seven tons. Just we'll back of the envelope that's a little over $2 in <unk> Btu I would assume that all kind of drops to the bottom line are almost all drops on the bottom line.
Absolutely that's the beauty of some of these midterm deals. It just gives us even more clarity on how much cash is available for the company to support capital allocation efforts as we give you guys an update later this year.
Got it. Thank you guys much appreciate it.
Thanks, Michael.
Our next question comes from Jean Ann Salisbury with Bernstein.
Hi, Good morning, and Qatar has taken some steps the last few months to move forward with their mega expansion.
Net of investors that I talk to that's their biggest worry is that Qatar could price low enough to keep any other new projects from moving forward and obviously in the market. So I just wanted to hear your comment on net price pressure that is a real thing that youre seeing.
Thank you Dan it's Anatol.
<unk>.
Supply stack that we've ever put together has.
Our friends at <unk> on the far left I mean, there is no question that that thing gets dispatched and gets built but.
It's 32 million tons, right and and as we've mentioned.
And Jack just mentioned this market when it was a smaller market grew at 30 plus million tons per year. So as.
As we look at that supply curve.
We've talked about this over the last year and a half.
There were a lot of things.
In that that we thought even a year ago. We're a foregone conclusion that now may not even materialize this year.
Q.
North field expansion of course has been <unk> and we were always fully expecting that.
It will get placed into the market it will be done.
On the on the oil index basis, most likely in.
I'd say, it's one of our two main competitors that we see kind of as a foregone conclusion being in the market. So.
We're not afraid of that were part of the sort of diversification of supply and contracting structure, along with QP and.
Our friends at Nova Tech and G&A on I would say that Zach mentioned, we're working very closely with backfill to ensure that that our expansion at Corpus Christi is the most competitive.
Economic Henry Hub index.
And.
Expansion in the U S period.
Great. Thank you and then just as a follow up if you can disclose that and I apologize if that was in there or at least on land.
On a per and then btu basis did that carbon neutral upset at finish out Greg.
And as Anatol, we are not disclosing that again, we partnered with shell on that.
Shell has the lead them using it it's methodologies, we continue to develop our LCA and get that.
Totally buttoned up peer reviewed et cetera, but those commercial terms and economics, we are not disclosing.
Okay No problem, that's all for me. Thank you.
Thank you.
And our next question comes from Michael Blum with Wells Fargo.
Thanks, Good morning, everyone.
Just had a really a clarification.
Question on the mid term contracts you've been signing are you purposely signing shorter term contracts for your open capacity there or is that just what the market is willing to bear right now and given the improving market fundamentals that you described earlier do you see that changing at all.
The.
Michael midterm contracts have been around in this market forever. So we're not the first and only.
LNG provider to offer a midterm contracts, but but it is a great way for us to meet with some of increase our customer.
Base and meet with our objectives are which.
<unk>.
And quite honestly compete with the qataris or the Russians.
Or the French hotel and offering these shorter term midterm.
Contracts. So we've found a pretty good appetite of customers that are not traditionally I would say the customer's utility customers that we see on the long term side.
But there's a good market for that and that helps us manage some of these excess volumes from our our production Anatol.
Jack you've covered everything is just another product in on.
Our portfolio one that we were not offering in and of itself as recently as a year ago. We did we did do mid term contracts that were effectively staples to long term, but but it is something that.
As Jack said, it helps us engage and broadens our commercial offering.
And again fully expect that long term contracting.
We'll resume and in short order given given the current margin environment on where we are in the cycle.
Thank you very much.
Yeah.
Our next question comes from Julien Dumoulin Smith with Bank of America.
Julien we're unable to hear you. Please check your mute function.
So once again Julien.
Okay. Our next question comes from Greg share with <unk>.
Truly brothers.
Thanks for squeezing me in on congratulations on the good quarter.
Chuck did I hear you say Corpus Christi stage III could be an 11 MTA project and then a related question.
Any updates on.
Further upsizing opportunities for the legacy line trained position.
Absolutely Corpus Christi stage, III could be 11 million ton project.
And that's that's currently what we're as we continue to.
Work on value engineering with backfill, we continue to drive not only the production of those trains, but also drive the costs down Greg and then I'm sorry, I missed the last half the rest was on Debottlenecking further debottlenecking on the 19, yes. So we've.
The debottlenecking effort as well.
Well above at least my expectations. The team has just done a great job I would say picking the low hanging fruit, but there.
And they continue to identify different choke points within the LNG.
Liquefaction process that we can make modifications due to continue to drive more output through it. So I do think there's more to come.
We'll be giving you some guidance on that is as we identify and feel comfortable that we can deliver it over the long term.
Thank you.
Our next question comes from Chris <unk> with Weber Research.
Hi, Good morning, gentlemen, thanks for squeezing me in.
I wanted to just kind of touch on the color you were talking about for the supply curve.
Are you able to kind of provide any thoughts on the <unk> LNG deferral, yes.
Project debt.
On 13 on Tpa being deferred by at least a year have you noticed any impacted on marketing.
<unk>.
Is there any impact for stage III.
With that capacity.
No look.
I only know about the Mozambique delay with what I read as well as what you read.
Debt from hotel.
And Exxon.
It's.
A sad situation and I hope.
I hope everybody is.
Safe and healthy.
That we're there to experience at unrest.
But.
No I don't think its I don't.
Again, it's a different.
Business paradigm than what we offer so we offer a full value product the customer doesn't have to invest in equity customer doesn't have to worry about the E&P side of the business because.
We've been able to buy.
At our peak almost seven BS a day of U S net gas.
From almost 100 different producers on 26 different pipelines and deliver it to our two facilities. So we take care of a lot of what the customer needs.
Unlike them, having to invest equity or be intimately involved in the in the E&P side of the business, but Anatol do you have anything to add on Mozambique, no. Thanks Jack.
Great No that's kind of the point it seems like the project kind of challenge.
You guys are able to handle from a product and without equity.
We're able to deliver this product so could you guys, possibly be.
Be able to.
Absorbs some of that off take or have discussions with us.
Customers that are impacted practice facility.
Oh absolutely.
Okay.
Absolutely and most customers are interested on the diversity of supply and having a reliable supply of LNG and that's what we offer.
But absolutely yes.
Okay Alright.
Alright and.
Just one more on the.
The ESC from you guys introduced the Caribbean cargo emission tags on February and it looks like you.
You guys were able to deliver your first carbon neutral cargo to shell and it looks like these are measures taken to kind of a switch.
European businesses and customers.
With regards to the carbon intensity of need.
So I guess.
Given.
I guess.
How have those conversations.
Changed or have they kind of stayed consistent.
The first half of this year.
Thanks, Chris said as Anatol.
This is again a continued progress by the team.
On the work that we have done over the last couple of years made us very comfortable with our environmental footprint and emissions footprint and we are working on again, quantifying validating and having that properly assessed before we roll it out as you know.
In 'twenty two.
We.
We are confident that we are part of the solution for decades to come we just have to deliver on that transparency and that is something that we're working on obviously the engagement with shell demonstrates steps in that direction as well.
It is part and parcel of our commercial discussions and debt. We are we fully expect it to be an increasingly important component of those discussions so.
Again dealt a very good hand that will continue to improve overtime.
And contributes solutions is as our customers move forward.
Okay, great. Thanks, so much on congrats on a great quarter.
Thank you.
Our next question comes from Sean Morgan with Evercore.
This question is probably probably best for maybe Anatol, but.
Last time I talked to on until we were talking about the disruption I guess to two customers posed by the Super spikes that we saw with J Cam.
I think thats, maybe causes a little bit of difficulty in terms of.
Customer assurance of signing long term deals, but have you because you saw Henry hub really hanging in with a lot less volatility is there any kind of demand response are you seeing now the benefit cheniere that maybe more customers looking to sign up Henry hub base price volume because of because of the kind of consistency of pricing there.
Thanks, Ron if I, if I may redirect a little bit.
What I think we are discussing is if we were in a world where natural gas prices global natural gas prices spike to such elevated levels.
It could create.
Create long term headwinds to natural gases market share in the primary energy mix.
What we've always said is that that disruption that played out in the short term spot market was a great.
Advertisement if you will for long term contract right.
Our customers enjoyed almost perfect reliability, an almost perfect price stability over that period.
And what's being highlighted now as prices and margins have normalized is that again the attractiveness of a.
$3 minus ish Nymex products, plus our economics on the on the long term side are very stable and very attractive.
We think a key part of our diversified and.
And flexible portfolio. So so if anything just like some other price excursions that we've seen over the last couple of years. It continues to highlight the attractiveness of our commercial offering.
And and.
And we're very well positioned for these coming years.
On the dilution.
Sorry about that yeah.
Just going back to Mozambique real quick.
Hey, Sean.
Sean.
Over on our Moreover, on our time, so I'm going to go and we still have people in the queue. So I'm going to ask that.
Everyone left just one question please.
Sure. Thanks, Thanks Jack.
Thank you.
Our next question comes from Ben Nolan with Stifel.
Hey, Thanks, I appreciate you squeezing me in here Jack.
I wanted to and I apologize this is overly simplistic, but just.
Just sort of looking at the quarter, you did a 1 billion and a half of EBITDA, but then sort of extrapolating.
The guidance for the remainder of the year, it's only about $1 billion per quarter and thats, even with not full contribution from train three.
In the first quarter.
Ken.
Zach or anyone can you maybe walk through how youre thinking about.
What the moving parts are to that level of guidance relative to sort of the performance in the first quarter.
Sure I think.
Many folks smoothed out our quarters over the course of the year and maybe that underestimated what many of you thought we would have produced for Q1.
But Q1 Q4, often the colder quarters of the year theyre not shoulder season seasons that theres less demand for LNG as well.
And theres more of volatility at the same time all of that adds to.
Higher higher EBITDA higher figures for the beginning in the end of the year. So this was as expected to us and we've made it pretty simple debt.
For the rest of the year, there's only about 40 TPG you even open when those cargoes are delivered that depends on some of the <unk> deals that we have.
But this is right on track for where we thought we would be for Q1 with some additional optimization of higher LNG margins and then for the rest of the year.
Alright, okay.
Thanks.
Okay.
We will take our next question from Alex Kania with Wolfe Research.
Great. Thanks for thanks for taking my question, maybe just a follow up on the shell deal.
The long term as you just think about the European carbon market developing we've seen higher prices, there and the potential for kind of import important kind of tariffs I guess associated with carbon potentially envision doing a carbon neutral on our carbon free product kind of being value additive rather than just.
Providing a good arb, rather than just getting a European buyers just.
Pay more money for kind of per just to kind of a generic premium or is it going to ultimately be.
Positive for you guys just on on our basis.
Yes.
I would say first and foremost in Brussels are in Europe.
Is the U S gas market is the most transparent market.
In the world.
So the first thing we need to do is get our LCA done.
Get it published get it reviewed by all the scientists.
How were going to calculate the lifecycle.
Emissions of Av.
The whole LNG train.
There is a lot of disinformation out there and there is not a very good process for defining terms that everyone agrees to so when we talk about transparency about monitoring validating and reporting our carbon footprint.
And that's in direct response to a lot of misinformation miscalculation.
To say the least.
And then secondly, I do think theres going to be a.
Our premium too.
On the carbon offsets.
And our ability to generate or produce carbon offset to help our customers in those offsets need to be.
With their appropriate registrar they need to be validated I think it is all in line with what our offerings are for our customer and part of our our business line and business proposition.
But and.
Yes, I think the first.
The first go round will be European.
Our European customer.
As.
Initially, but I think worldwide.
The whole industry will move this way client Anatol, yes, just to follow up on on Jack's points, we have very good engagement across the world on on these issues and metrics.
Europe.
Has the most liquid the most transparent.
Carbon emissions markets as you pointed out the trading around.
At $60 a tonne today that is very very good sign of the benefits that the natural gas.
To the extent that we are comfortable with our <unk> emissions footprint.
Cheniere is LNG.
The value that that can contribute to that market, but but also good engagement really all over Asia as the world continues to focus and we continue to focus on on improving our our value chain lifecycle emissions profile that we're quite optimistic about so.
Got it again, just like capital allocation on all of the above.
Great. Thanks.
Our next question comes from James Carreker with U S capital Advisors.
Alright, thanks for the question.
Circling back to guidance I was wondering if we could talk a little bit about <unk>.
What kind of changed between now and the Q4 call.
I think it was late February and the larger.
Spot price LNG spikes had kind of subsided. It was kind of post the storm and I think you only had 50 TB to use of open capacity at that time, so kind of.
Maybe can you talk a little bit about between now and then what has changed to yield $200 million of additional upside.
Sure. This is Jack as you mentioned, we were able to raise guidance last time in February by $200 million or 200, <unk> of open capacity went down to <unk> and as the market went up we were able to.
To take advantage of that.
Since that call.
The rest of the year had been looking around $2. That's gone up another dollar.
And at the same time, our operations folks.
<unk> been pretty opportunistic on on the production just with the colder weather train III actually ramping up pretty pretty smoothly. After March 26.
And then just some opportunistic maintenance during the freezing and fog that they added around 10 more cargoes to the forecast that's over 30 TV to you.
So when you add those two things together that get to your 200 pretty much.
Okay and is there any amount of debt that you could quantify that's kind of.
Gas optimization related to the storm.
Not not really considering I just gave you a number that's maybe three force if not more of a 100 move alright.
Alright, thank you.
And those are all the questions. We have on today's call that does conclude today's conference. We thank you for your participation you may now disconnect.
Okay.
[music].
Okay.
Okay.
Yes.