Q4 2021 Cheniere Energy Inc Earnings Call
Okay.
[music].
Good day and welcome to the Cheniere Energy fourth quarter 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. Please go ahead.
Thank you operator, and good morning, everyone welcome to <unk> fourth quarter and full year 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, <unk>, President and CEO , Anatol, <unk> Executive Vice President and Chief Commercial Officer, and Zach Davis Executive Vice President and CFO .
Before we begin I would like to remind all listeners that our remarks, including answers to your questions may contain forward looking statements.
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 in 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 LP or <unk>, we do not intend to cover <unk> results separately from those of Cheniere Energy Inc.
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 to Q&A.
I'll now turn the call over to Jack Fusco, <unk>, 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'm pleased to be here. This morning to review, our 2021 results and successes.
Discuss our improved 2022 outlook and share my excitement about <unk> future.
2021 was a transformative year for Cheniere first we completed the construction of our initial nine train platform and increased our run rate production to 45 million tonnes per annum.
Second we reached a meaningful cash flow inflection point and third we successfully executed a variety of long term contracts to put stage III on a path to RFID this year and the contract with EOG, We announced this morning effectively complete the commercialization of stage III.
<unk>.
While 2020 proved our resilience 2021 and showcase the power of the Cheniere platform.
There are many competitive advantages at <unk>.
Discussed on these calls over the past close to six years for our full display throughout the year each contributing to the results and the increased 2022 guidance. We are providing this morning.
We begin 2022, and an extremely supportive LNG market environment, the extended period of volatility and elevated prices driven by an underinvestment in infrastructure and geopolitical tensions underscore the vital need for reliable affordable secure and environmentally competitor.
<unk> energy supplies on a long term basis.
Please turn to slide five.
I will review key operational and financial highlights from the quarter and the year and introduce our upwardly revised guidance for the fourth quarter of 2021, we generated a consolidated adjusted EBITDA of $1 3 billion and distributable cash flow of approximately $540 million on revenue.
Approximately $6 6 billion, we exported a record 153 cargoes during the quarter, bringing our 2021 annual total to 566 cargoes of LNG ships.
We have now exported over 2000 cargos to 37 countries and regions around the world.
Throughout the year, we've repeatedly raised full year EBITDA and DCF guidance after announcing the initial ranges.
November of 2020.
Ultimately, raising EBITDA and DCF guidance by $700 million and $600 million, respectively. I'm pleased to report today that we delivered on the increased guidance generating approximately $4 9 billion.
And consolidated adjusted EBITDA, and $2 billion and distributable cash flow for the full year 2021.
Today, we are raising full year 2022 guidance to $7 to $7 5 billion and consolidated adjusted EBITDA and.
And for three to $4 8 billion and DCF.
This significant guidance increase is driven primarily by three factors.
First the earlier than forecast substantial completion of train six which occurred in early February of this year.
To further improvement in market margins since our November earnings call.
Third the timing of some cargos that were shipped around year end 2021.
Variable, which we mentioned last November .
In addition, we are raising our 2022 C. QP distribution guidance range to four to $4 $25 per unit and introducing a revised distribution plan today at <unk>, we announced the initiation of a quarterly distributions to be comprised of a base amount plus.
Variable amount, which we are expected to begin with the distribution with respect to the first quarter of 2022.
This distribution approach enables a more efficient distribution of CQ piece cash, which is warranted given the completion of train six is.
Zach will cover the financial results and guidance updates in more detail in a few minutes, but clearly we expect to build upon our success in 2021 and have an even better 2022.
Turning to slide six where we will take a victory lap on a transformative 2021.
During the fourth quarter, our commercial momentum continued as we signed long term sba's with Sinochem and foreign which built upon our long term agreements we signed earlier in the year with Terminalling, and then and Glencore and brought our aggregate long term commercial volume signed in 2021.
<unk> to approximately 80 million tonnes equivalent.
And over $11 billion of.
The fixed fees over the next 20 years or so.
Both sba's with Sinochem and Forum feature early are bridging volumes further reinforcing the value of our tailored solutions in the market.
Our commercial success in 2021, coupled with the continued momentum demonstrated by the EOG agreement, we just announced as well as recent market dynamics has brought stage III even more into focus.
And we remain confident in our mid year.
I'll speak more about stage three in a few minutes.
The excellent financial performance has enabled us to accelerate the execution of our comprehensive all of the above cap allocation strategy announced in September for the full year, we exceeded our goal of $1 billion of debt paydown by $200 million.
In a 2022.
We are already off to a fast start on debt reduction and expect to be able to significantly outperform the $1 billion.
Target this year.
Additionally, we paid our first ever quarterly dividend in the fourth quarter of 2021.
And we repurchased over 100000 shares of LNG stocks since we resumed share repurchases last year.
And of course on execution, we continue to reinforce our market leading reputation and track record on reliability, which has never been more important given the market's recent volatility and the critical need for energy security across the globe.
Substantial completion was declared on Corpus Christi train three in the first quarter of 2021.
And we just announced substantial completion on Sabine pass train six earlier this month.
With the addition of these two trains we have now completed our initial nine train platform safely ahead of schedule and on budget.
We now process over seven Bcf per day, or approximately 7% of the total gas production in the U S and we do so every day with near perfect scheduling efficiency.
Finally, and more importantly, our safety metrics improved year over year, and especially impressive.
Considering we were commissioning and completing trained at both Sabine pass and Corpus Christi. During the year safety is the foundation of our success and I am proud that our continued focus on safety and operational excellence continues to yield tangible benefits for all cheniere stakeholders.
Turning now to slide seven.
As I, usually do on these year end calls I'd like to lay out some of my key goals for the Cheniere team to accomplish in 2022.
This is not an exhaustive list of what I expect us to achieve this year as the team in this room was certainly a test, but I wanted to highlight some of my top priorities for the year.
First and foremost we intend to deliver on the upwardly revised financial guidance. We provided this morning.
We are excited about our significantly improved outlook for the year.
Energy markets remain volatile, but we have a high degree of visibility into our ability to deliver results within the ranges provided.
Given how we manage our exposure to the market.
Second to get our Corpus Christi stage three project.
Corpus Christi stage three is a very competitive expansion project, which meets our financially disciplined growth capital investment parameters and achieved the kind of accretive growth we target as part of our long term capital allocation plan.
As I said, a moment ago. The project is well positioned to be sanctioned and it is fair to describe our remaining steps to.
As <unk>.
Ms and crossing our T's.
We are working closely with <unk> to finalize EPC contract and expect to conclude that soon.
We had great success in getting Corpus Christi train three and Sabine pass train six underway with limited notices to proceed or <unk>, which de risk the projects and got them ahead of schedule early.
We would look to do the same on stage III.
So that's something that could happen in the near term as we progress towards a full and full NTP on all seven trains sometime this summer.
On the commercial front, we are now working to finalize the contract portfolio for stage III. Both in regard to potentially new long term agreement as well as with existing agreements at CMI.
The enhanced EOG IPM agreements effectively completes the required commercialization support for stage III and.
In addition, we have recently assigned the ENN and Glencore Sba's from CMI to Sabine pass and expect to further optimize CMS long term contract portfolio in support of our projects, including additional support for SPL and the assignment of CMI contracts and some.
Port of stage three.
On the financing side, Zach and his finance and Treasury teams are preparing to kick off the financing process with the banks. So it's all coming together and we look forward to continuing to deliver world class execution on stage three.
Lastly, I want to highlight ESG as a priority goal for 2022.
We made major strides on our ESG initiatives in 2021, specifically on our climate and sustainability, where we demonstrated our leadership through several major programs announced last year.
Our initiatives from our cargo emission tags to our QM RV study with our producer and shipping partners are all the result of a multi year effort built from our climate and sustainability principles, which we announced back in 2018.
These programs demonstrate our approach to climate and sustainability issues and opportunities, which center around transparency science, our supply chain and operational excellence.
We are pleased to see our efforts on this front being recognized by our communities and stakeholders.
Earlier. This year, we were named adjust 100 leader by just capital, which ranks companies on corporate behavior issues, such as climate job creation and community development.
We are proud to be the top ranked company in our sector and.
35 overall out of nearly 1000 companies.
And just last week, we were ranked among America's most responsible companies in Newsweek's annual ESG performance ranking for the first time.
My goal for 2022 is to advance our leadership position within our industry on these crucial efforts.
Our ESG strategy is focused on being actionable non aspirational.
And the initiatives I detailed in 2021 are evidence of that.
In 2020 to William to further integrate ESG into our business and strategy, we believe and improves our competitiveness and enhances the long term sustainability of our LNG.
And these arent just empty promises we are putting our money where our analysis.
In 2020% to 30% of our annual compensation scorecard.
Which applies to every cheniere employee.
Will be based on ESG metrics and milestones.
2021 was truly a transformational year for Cheniere.
Our successes are the product of a dedicated and results driven workforce that continues to inspire me.
We begin 2022 with tremendous momentum and look forward to executing and delivering on the high expectations, we set for ourselves year after year.
And now I'll 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.
I'll start with a quick look at the full year numbers for 2021 last.
Last year saw 5% growth in LNG imports compared to 2020, taking total trade to 374 million tons.
This 18 million ton a year over year growth took LNG trade figures to well above pre pandemic levels.
Actually all of the supply growth came from the U S, which exported an additional 23 million tons year over year and press release Cheniere was responsible for over half of that U S volume growth.
Despite the relatively healthy overall growth in total LNG trade the increase in supply was more than matched by demand growth in Asia, and Latin America, while imports into Europe declined by 9% year over year.
Low storage inventories in Europe , following a period of cold weather early in the year and lower LNG and pipeline imports as compared to 2020 resulted in spot gas prices in Europe , and Asia rising throughout the year as the market became increasingly concerned about adequacy of storage fill levels approaching winter in both regions.
The rising geopolitical tensions in Europe in the fourth quarter compounded market uncertainty leading to unprecedented prompt price levels and extreme volatility during what is arguably the most in elastic demand period of the year.
As such competition between Europe , and Asia for LNG supplies led to a sharpened version and the two regional price benchmarks of TTS and Jae Kim with Europe , Outbidding Asia to attract LNG cargoes in the fourth quarter, both CTF and Jacob reached record daily highs in December of last year with Tcf trading at $59 60.
And then on Btu more than $10 of them and btu higher than <unk> at $49 30.
More recently, an increase in LNG flows into Europe predominantly from the U S has helped alleviate some of the extreme market tightness. We saw in the fourth quarter CTF settle January of $28 90, while <unk> settled at $35 70, and <unk> still of course high by historical standards, but well below the peak levels at year end. Please.
Turn to slide 10.
With the resurgence of LNG imports in the fourth quarter LNG represented 43% of all Europe's gas imports in December with the U S providing over a third or 36% of all LNG receipts.
That share rose to 45% in January reflecting the highest share of LNG volumes every imported into Europe from any single country.
European LNG imports reached $22 6 million tons in the fourth quarter up 36% year on year as the storage deficit continues to widen European storage levels started dipping below the five year lows around the middle of 'twenty, one with a deficit, reaching about 19 billion cubic meters in December over triple the deficit during the same period last year.
This period of low storage levels. During 'twenty, one was caused by a number of factors.
Lower domestic production, coupled with lower pipeline imports from Russia into Continental Europe constrained gas availability for injections MLD LDC demand throughout the year. In addition, lower renewables output and a drop in nuclear generation further exacerbated the fuel shortage.
Nevertheless countries in Europe pressed ahead with planned coal and nuclear phase outs last year.
Germany for example, shutdown seven three gigawatts of coal capacity and four three gigawatts of nuclear power capacity just prior to year end.
We believe these dynamics along with the recent geopolitical tensions impacting European gas prices continue to signal that LNG will remain a critical component of Europe's energy mix for the long term at.
At the same time Asian, LNG demand remained robust throughout 'twenty, one while policy and infrastructure investments signals continued to reinforce future demand growth in the region for the long term.
Despite increased nuclear generation in Japan, overall Asian imports increased 8% to 273 million tons in 2021.
Nuclear outages and retirements in both South Korea, and Taiwan, along with restrictions on coal burn in the winter supported LNG import growth. While both continued to show policy commitments to increased use of natural gas as a primary energy source. While we have long described as the structural shift to natural gas.
Accordingly, Taiwan cleared the way for a new LNG import terminal confirmed its plans to be nuclear free by 2025 and committed to increase its use of LNG and its power mix from 36% currently to 50% by 2025.
Similarly in its 14th gas plan on carbon neutrality roadmap, South Korea pledged to reduce the use of coal and nuclear and designated LNG as a green fuel and its taxonomy supporting further near term investment in natural gas infrastructure and underscoring the important role of natural gas as a primary fuel for South Korea, and the long term.
China was the largest single contributor to demand growth last year, adding over 11 million tons of demand year over year, and overtaking Japan as the world's largest LNG importer for the first time.
China's significant economic rebound in 2021, which saw GDP growth of eight 1% fueled higher demand for virtually all energy products last year, China announced plans to be carbon neutral by 2060 and reinforced its intention to reach peak carbon emissions by 2030.
Both pledges are constructive for gas and LNG is China's plans to grow its gas demand are concrete and already in progress.
The country is currently building about 'twenty, two gigawatts of gas fired power generation, adding over 100 million tonnes per annum of LNG import capacity by 2025 and has ramped up its gas and LNG term contract activity in recent months, including a recent long term contracts with ENN sinochem and for them.
Moving on to slide 11, I'd like to highlight the rise in long term contracting activity in the second half of 2021 and into 2022 with Cheniere has certainly participated in with the deals we signed last year and the one we announced this morning with EOG effectively completing the commercialization of stage III.
There was a notable increase in commercial transactions during the year with U S sourced LNG in high demand, which is intuitive given the relative stability and affordability of Henry hub versus international gas hubs.
International prices began to send the price signal mid year with U S. Gulf Coast margins moving above our long term assumptions in the second quarter.
The inexorable upward shift in mid term forward margins has continued to offer a tailwind to our commercial offering which as Jack highlighted often includes bridging volumes.
Firm contracts with mid and long term tenors increased almost 80% year on year, surpassing 50 million tons in 2021.
S projects made up about 45% of total firm contracts, which is nearly double the amount of U S price deals last year.
This surge in activity was underpinned by strong demand from Asia, particularly China.
About two thirds of all contracts signed in 2021 were executed with Asian buyers, 45% of which in turn were from China.
<unk> is proud to have added several new customers in 2021, including our new buyers in China.
The ongoing evolution of the Chinese gas market, including the expansion of non NOC re gas capacity access in China should facilitate terminal access and increase the exposure of emerging buyers to be international LNG market.
<unk> ability to execute these contracts efficiently, while providing buyers energy solutions tailored to the needs and constraints of their markets demonstrates the competitiveness and flexibility of our offerings and the attractiveness of our product and providing support to policy decisions and other fundamental drivers impacting the energy landscape of the future.
In addition to organic market growth the LNG market continues to undergo a transformation as legacy contracts begin to expire providing additional <unk> to new contracts.
Over 200 million tons are expected to expire over the next decade, and we estimate that for the period between 2026, and 2030, roughly 100 million tonnes of LNG contracts will need to be replaced.
While some of these could be renewed with existing suppliers. There are significant uncertainties surrounding feedstock availability price indexation and direction environmental profile and other geopolitical issues brought to the forefront by the recent market turmoil.
We see an increase in opportunities for new demand and long term contracts emerging as we believe a portion of these deals will form the basis of the next contracting cycle engineered continues to be well positioned to capture a segment of this demand along with new contracts that underpin demand growth.
Now I will turn the call over to <unk> to review, our financial results and guidance.
Thanks, Anatol and good morning, everyone.
I am pleased to be here today to review, our fourth quarter and full year 2021 financial results as well as our key financial accomplishments our increased 2022 guidance.
Our 2022 financial priorities.
Turning to slide 13.
During the fourth quarter, we generated adjusted EBITDA of $1 3 billion and distributable cash flow of approximately $540 million as our marketing and portfolio optimization teams continued to take advantage of our portfolio volumes and a sustained higher margin environment and global LNG markets.
Adjusted EBITDA was partially offset by an increase in realized losses from financial derivative instruments used to hedge our exposure to the commodity markets in which we have contractual arrangements to purchase or sell physical LNG.
We recognized an income 520, <unk> a physical LNG during the fourth quarter, including 513, <unk> from our projects and 70 Btu sourced from third parties.
87% of these LNG volumes recognized in income were sold under long term SBA or IPM agreements.
We generated a net loss of $1 3 billion in the fourth quarter. The net income line continues to be impacted by the unrealized derivative impact mainly related to a long term IPM agreements as we have discussed on prior earnings calls the.
The derivative accounting, coupled with the long term duration and international price basis of our IPM agreements result in fluctuations in fair market value from period to period as LNG curves move.
While IPM agreements may contribute to this variability those agreements provide us with the stable long term cash flows that helps support our infrastructure platform.
And as such we will continue to pursue them as part of our strategic growth plans as we just demonstrated with the EOG IPM agreements.
The EOG agreement effectively completes the commercialization of stage III and accretive project, which meets our disciplined capital investment parameters related to returns accretion and contracting.
For the full year, we generated consolidated adjusted EBITDA of approximately $4 9 billion and distributable cash flow of approximately $2 billion.
Both exceeding our initial guidance ranges and coming in at the high end of the revised ranges we provided in November .
Our outstanding performance in 2021 was a result of the hard work and dedication of the entire cheniere workforce, despite market volatility and continued COVID-19 related challenges throughout the year.
For the full year, we recognized an income almost 2000, TVT U a physical LNG, including over 1950 <unk> from our projects and just under 50 Btu sourced from third parties.
83% of these LNG volumes recognized in income were sold under long term SBA or IPM agreements.
Before discussing our financial guidance and priorities for 2022 I'd like to also recap some of our key achievements in 2021.
First and foremost we rolled out our comprehensive all of the above capital allocation plan, which was enabled by the near term completion of our ninth train platform and the meaningful cash flow inflection point, we've reached as a company.
Since the announcement in September they have not only executed on the plan, but the timelines for achieving the goals of our capital allocation priorities have been accelerated due to the sustained higher margin environment.
Last year alone, we repaid $1 $2 billion of indebtedness strengthening our balance sheet and outperforming our $1 billion annual debt Paydown goal.
We raised over $5 billion in aggregate financing last year in support of our long term balance sheet priorities further demonstrating our access to capital and generic credibility with capital providers.
Among our refinancing transactions in 2021 I'd like to highlight the 2032 unsecured notes we issued at <unk> in the third quarter as this transaction accomplished several key priorities simultaneously.
With this transaction, we achieved the lowest price for a 10 year non call five high yield issuance in energy at 3.25%, which reduced interest expense by approximately $30 million per year efficiently migrated project level debt to the corporate level and further decent care to our consolidated balance sheet.
Through our combined refinancing and debt repayment activity in 2021 extended the weighted average maturity of our outstanding debt by over a year and lowered our weighted average borrowing rate.
One of the primary objectives of the capital allocation plan is to achieve consolidated investment grade credit metrics and we are pleased that our accelerated execution under the plan is being recognized by the rating agencies in the form of continued ratings progression.
Just last week S&P upgraded both cei and CQ P to double B, plus one notch away from investment grade ratings and maintain positive outlook at both companies.
S&P cited improved financial metrics due to the progress we've achieved to date and the expectation of continued execution under the capital allocation plan is primary justification for the upgrade and positive outlook.
As I mentioned, a moment ago, we expect to surpass our $1 billion debt Paydown goal again in 2022, as we have already exceeded over a $5 billion of debt paydown since the <unk>.
Beginning of the year with the redemption of the 2045 converts at Cei in January .
Are generating significant cash flow and have the fully drawn freely pre payable credit facility of approximately $1 7 billion at corpus to flexibly paydown over time.
In 2021, we initiated a dividend at CER for the first time and paid our inaugural quarterly dividend for the third quarter. In addition, we continued to repurchase shares under our newly reset $1 billion share repurchase program for.
<unk> for the year, we repurchased over 100000 shares for approximately $9 million.
Although debt Paydown remains our capital allocation priority in the near term our share repurchase program is designed to be opportunistic and enable us to take advantage of dislocations in the market.
As we continue to accomplish our debt pay down goals, we expect to be able to deploy incremental capital to our other capital allocation priorities, including capital return via future repurchase authorizations.
Finally, we made significant progress on commercializing stage III to meet or exceed our exceed our disciplined growth capital investment parameters during the year.
2021 was truly a transformative year for Cheniere.
From a financial perspective, but as Jack mentioned, we expect to build on that and have an even better 2022.
Turning now to slide 14, where I'll discuss our significant increase in 2022 guidance.
We are increasing the consolidated adjusted EBITDA range to $7 to $7 5 billion.
And distributable and distributable cash flow range to $4 three to $4 8 billion.
Since announcing our initial guidance ranges for 2022 train six at Sabine pass reached substantial completion considerably earlier than expected, enabling LNG sales from train six to contribute to both EBITDA and DCF for almost two months longer than originally forecast.
In addition, the global LNG market continued to strengthen since November providing an uplift in value to our remaining open volumes.
And as we mentioned in November at the timing of a few cargoes around year end 2021 also provide some tailwind to our forecast for 2022.
Thanks to the team's execution and the market fundamentals. This elevated guidance should provide us momentum to achieve record DCF per share levels in 2022 in the high teens.
As well as be a catalyst to achieving investment grade credit metrics throughout the complex sooner than previously expected.
With respect to EBITDA sensitivity, we've sold over 95% of our total expected production for this year and have less than 100 <unk> unsold.
We currently forecast that a $1 change in market margin would impact EBITDA by approximately $50 million for 2022 after accounting for the long term origination volume placeholders.
This morning, we also announced an evolution in the <unk> distribution plan, whereby the distribution is expected to be comprised of a quarterly base amount equal to $77.05 per unit or $3 <unk> annualized plus a variable amount equal to the remaining available cash each quarter after first taking into.
<unk> amounts reserved for debt repayment and other capital allocation priorities, including anticipated cash funded capex and cash reserves needed as part of the ordinary course of business.
This plan is expected to commence with the distribution related to the first quarter of 2022 as a result, we are raising full year 2022 distribution guidance range at <unk> to $4 to $4 25.
<unk> common units.
This updated distribution plan is enabled by the completion of train six and is dynamic flexible and long term.
We believe it is an efficient way to accelerate cash returns to unitholders, while retaining flexibility for future debt paydown within <unk> as well as growth opportunities at Sabine pass and.
In short a win win for both <unk> unitholders and Cei shareholders.
That concludes our prepared remarks. Thank you for your time and your interest engineering operator, we are ready to open the line for questions.
Thank you.
I'd like to ask a question.
Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again press Star one to ask a question and please limit yourself to one question and one follow up.
We will take our first question from Jeanine Salisbury with Bernstein. Please go ahead.
Alright, congrats on the quarter.
My first question is for Ed.
Keep hearing from our European analyst and clients that even with all that's happened European utility, they're really hesitant to sign long term gas sales above kind of 10 to 15 years because gas contracts are set at the end by 2049.
That duration, obviously makes it hard to get financing for new trends and I guess my question is has that been what you've seen in your experience and how do you see that mismatch shaking out over the medium term.
Thanks, Gena and thanks for the kind comments.
Europe is we think evolving in a healthy direction now after some meaningful challenges that were a function of regulatory compact and Brussels direction.
Including gas in the Green taxonomy is is a key issue as you know we've had some success with.
With mid term and long term deals that were on the kind of 10% to 15 year range, we expect to see more of that traction going forward and whether we will see.
Kind of a foundation customer commitment of 20 plus years out of our European load serving entity, it's too early to tell but.
Given the recent developments I think.
The trend is in the right direction and clearly we've demonstrated our ability to meet their objectives in terms of having the right environmental credentials for our products as well.
Great. Thank you and then I think my second question is for Zach depending on how things go.
Possible that you could hit investment grade and be place for S&P inclusion sometime next year and can you talk about what it would take for generic ticket into the S&P and are you actively positioning for that.
We're doing the best we can on that.
Not really in our control.
We had met all the requirements for quite some time in previous years, whether it be market cap sufficient free float and net income.
And it's kind of hard to believe we won't be the most logical energy candidate at this point.
<unk> I believe were larger than a third of the energy constituents in the S&P 500.
However.
Some of the unrealized derivative moves mainly related to the IPM agreements that are marketing to marketing those long term deals based on the curve that keep on going up since last summer.
Had some negative net income quarters in a row and we will have to I guess ways to an extent until we're positive net income on a cumulative four quarter basis.
At that point.
We check all the boxes.
And we think it would be logical to happen later this year.
Great. Thanks, that's all for me.
And we'll take our next question from Michael Lapides with Goldman Sachs. Please go ahead.
Hey, guys congrats on a good quarter and start to 22 one.
One short term question one longer term question short term question is I know you have a lot less open exposure in 2023 than you do in 'twenty. Two just because you have so many contracts starting up but with the futures curve, having moved a ton.
Would you say you're being pretty active in 2023 market for that opening position.
That's the first question second question more longer term would love your thoughts on the FERC policy statement.
The evaluation of future gas infrastructure projects pipelines, liquefaction et cetera, and GHT emissions and what that means potentially for either getting asset new assets.
<unk> three stage four type assets.
New pipelines to serve those type of assets built.
Thank you Michael this is Jack so all I'll start and as you know we don't we don't like to give a lot of guidance.
Beyond 2022 at this point into 2023.
As you say the market continues to get healthier, but it's extremely volatile and you should expect us to be opportunistic.
Out there and I'll, let anatol, whose biting at the bit.
Thanks, Jack Thanks, Michael I'll, just add to Jack's comments that as you know one of the more valuable components of our of our value proposition for long term commitments are these bridging volumes. So that is a component that is increasingly becoming more valuable and more important in these discussions.
On top of the volatility that Jack mentioned <unk> has been being those volumes to get us the long term commitments that supports our long term investment.
Top priority.
Okay.
Michael I would just add this is zach.
With the 100 <unk> you opened this year and the dollar moves with $50 million.
Our forecast was assuming let's say mid to high teens net backs.
So even just this year and now we're <unk>.
The curves are moving all over the place today, but we're talking about $1 billion of contribution to EBITDA just this year.
And next year is clearly attractive to us.
But at the same time for.
For the next decade, we're almost 95% contracted on average and we're really over 90% contracted on nine train.
Through the early 2030.
It is really why at this time.
Page three this summer.
And then in regards to the FERC.
Michael what in there their new policy statements on greenhouse gas emissions for new pipelines I'm very pleased that we've completed our 32 billion dollar infrastructure project already.
I am very pleased that stage three is fully permitted.
I do think.
That we have a slight advantage because we've already completed.
<unk>.
Our LCA as well as Rcs or report so we've been very transparent about the about our lifecycle analysis and emissions profile for our LNG and we think Thats a competitive advantage when when we want to continue to grow that we can show how it.
<unk> that LCA.
Got it thank you Jack much appreciate it.
Thanks, Michael.
And we will take our next question from Brian Reynolds with UBS. Please go ahead.
Hi, good morning, everyone I.
I was wondering if you could give us an update on your expectations around the $2 billion in additional cash that's in your guidance you had a capital allocation day outside of whats accounted for with stage III buybacks and dividends.
Curious post the guidance update that we should be thinking about this number as you know four or $5 billion through 24, and how potential expansions beyond CCL stage three could impact this use of cash.
Sure.
Zack again, I'll, just say I had thought we would have a break for a couple of years before needing to come out with another capital allocation plan, but at the rate, we're going with $4 billion or.
More of DCF. This year in that original $10 billion of available cash at this point through 'twenty four is closer to $14 billion.
Hi.
Literally 'twenty two through 'twenty four is like $12 billion.
Our focus right now is really just to think about the $4 billion of debt Paydown goal, the $1 billion buyback program.
Continue with growing the dividend, which we will grow this year.
Like we guided you all to <unk>.
And we're already budgeting 800 plus million to kickoff stage three of this year with that.
What you have here is we're likely going to finish those capital allocation plan at the very least a year early.
And from there, we will likely <unk> plan.
<unk> plan in the first half of next year or even later this year.
And it's logical to assume that.
Based annual amount of debt paydown of $1 billion.
Can come down a bit on a relative basis and that we can be even more aggressive on the allocations to buybacks.
Great really appreciate all that color.
And just a follow up on your future growth plans. It sounds like detailed stage III is going to be mid summer and you know investors will start looking ahead at potentially CCL stage four beyond that just kind of curious just from a gas perspective, and particularly from the Permian.
Ultimately do you need to see from a gas perspective to support the long term viability of an expansion at corpus is at 1% to two pipes kind of what are you looking for what are your customers looking for.
As you start proceed plans for further growth beyond stage three.
Yes, so thank you Brian so when we when we look at both sites, we think that we're in a we're in the pole position. So we're in a very very good position with our brownfield expansion capabilities at both facilities.
I'd say with with stage three we build even more infrastructure that helps us in our future growth projects.
Another pipe or another.
Another substation for power down there.
More water, so I feel very good about our position to grow as far as additional pipes coming out of the Permian I'll ask Anatol. If he has an opinion of what what we would need going to thanks Jack.
Opinions.
I'll just add to Jack's comments that South Texas is a great place to be to your point about the Permian and of course that is one of the driving factors behind these IPM transactions and EOG and.
Particular, so we are we have this symbiotic relationship with the infrastructure partners and the producers.
Fortunately too to the previous question on FERC the solutions tends to be intrastate solutions, which are which are of course, an easier. These days. So we're very very optimistic.
The quantum of additional infrastructure the market will decide on that.
We're optimistic that the producers have the resources and we have the wherewithal as Jack set to grow our brownfields platform.
Great I appreciate all the color how good a rescue morning, everyone. Thanks.
And we'll take our next question from Jeremy Tonet with J P. Morgan. Please go ahead.
Hi, good morning.
Good morning, Jeremy.
I just wanted to.
Touch somberly on eastern European geopolitical developments, there and wondering any thoughts you could share with regards to how that could impact negotiations over time.
For your product or any other thoughts you could share there.
Yes, Jeremy it's tragic what's going on in eastern Europe .
<unk>.
Very it saddens me to see.
Satellite images on the new screen as we've all witnessed this morning so.
But.
If anything these high prices the volatility.
<unk>, even more energy security and long term contracting.
So.
I would say.
Debt.
Debt.
The fact that.
There is a scarcity of LNG these days.
Is driving more and more conversation on how to increase our infrastructure.
And secure.
Contracts for our European customers.
That's great Jack obviously, you've seen the moves by early on in Lithuania, Poland, others in the region to build that infrastructure available sales of the supply and as Jack said, the reliable and flexible products that we put on the water.
Will will be a key part of the solution going forward.
The human toll and tragedy, obviously has our thoughts and prayers.
Okay.
Got it thank you for that and then <unk>.
Just kind of pivoting towards future growth plans and seeing like <unk>.
CCL three it seems like it's in the back pocket after negotiating EPC at this point and as the market is always looking for what's next just wondering if you could frame out a bit more I guess.
How you think about next steps here.
It seems like there's a lot of acreage in corpus and maybe you could do more there or looking at other other sites for expansion or maybe I'm off base in returning capital will be a greater priority at that point just wondering if you could help.
Help us think through what could be next there.
Thanks, Jeremy and I got to say you all are tough crowd.
There is a lot of work to be done between FY <unk> and then going operational.
Corpus stage three.
Over 10 million ton expansion project, which is equivalent to two of our large trained and.
Hi.
I am excited to see my team in action and deliver another quality expansion project to the portfolio, but.
Having said that Zach do you want to talk a little bit about sure Hey, Jeremy It doesn't hurt having four 3% to $4 8 billion and DCF This year, which just.
But in our perspective is 17% to $19 a share of cash flow.
I don't think we thought we'd get there quickly.
But I think it just shows the value of the platform.
Honestly the value of our operations and construction teams.
Be able to give us this opportunity.
With those types of numbers and clearly margins above the $2 50 range for the foreseeable future. There's billions of dollars to go around so we have already budgeted for 800 million on stage three for the next four to five years to get that up and running by 2026 or so.
And then there are still billions.
The deal.
Taken care of the balance sheet.
Buybacks will have a large arsenal ready to go and the growing dividend. So it's really all of the above.
Accentuated with.
With a few more billion.
Coming coming our way.
Got it that makes sense. Thank you for that.
And we will take our next question from Sean Morgan with Evercore. Please go ahead.
Thanks, guys.
So just touching.
Obviously, there's been a lot of success. This year in markets have kind of trended pretty favorably in the arb is wide open. So I'm wondering sort of the depth of the U S gas markets and maybe its adaptive relative to exports, but what percentage increase in total export capacity on the water right now.
Now from the U S Gulf could we see before we started to see an impact on kind of domestic pricing.
Well I think it would be unfair to say that there hasn't been an impact on domestic pricing as the LNG industry takes 13, BS a day or so with us well over seven.
The market's in a healthy place now one of the things we're watching for of course is how the production function responds.
We're.
Setting records in terms of in terms of daily production, we are very comfortable that the resource availability is there there will be some of the previous questions.
The supply growth that we saw out of the northeast is probably not the best to make going forward, but that gives us great comfort being in western Louisiana, and South, Texas and the resource that can get to US we think at the <unk>.
350 level and you've seen gas rig counts now surpassed pre pandemic levels. So we think that that.
It will respond, but ultimately the market will figure out if there's enough gas that is globally competitive to dispatch.
Okay. Thanks, guys.
Regarding the EOG.
I think you kind of made it clear that this helps fill out your total required capacity for stage three but is there is there sort of a limit in terms of the total notional export capacity that you would want to sign up for Icm's.
Is there any sort of.
Puts and takes versus the off take agreements or they are not necessarily mutually exclusive.
I wouldn't say, it's mutually exclusive but at the same time at this point, we have signed up lets say I don't know four or so million tonnes with IPM deal.
Maybe a little more than that.
And that's in the context.
Eventually our 55 plus million ton portfolio.
It's still a rather small piece of the puzzle here and what Youre seeing as we're doing this with the most credible producers, which also gives us the benefit of the gas supply for extended periods of time, and then with with really strong counterparties credit wise as well are investment grade wise as well so.
Yes, I would say, it's not ever going to be a majority of what we do but I think stage III is really indicative that it is going to be a nice mix of fob be CES in IPM deals just showing the evolution of.
Our commercial offering.
Thank you back on <unk> comments.
The gas supply piece.
It cannot be overstated right. The fact that EOG in partnership with US is going to be delivering over 700, a day to this project that that will be at 25 plus million ton project.
The flexibility that we have Zach set with the operational mix of the three products, which are which allows the operational side of the equation to be to be as reliable as we've as we've seen in the last five years.
Alright, Thank you and that's helpful.
Our next question comes from Mark <unk> with Barclays. Please go ahead.
Hi, Good morning would also echo the congratulations on the quarter here.
Just with the move up in the forward curve today effectively extend into 2000, plus dollar LNG price environment through 2023 would be curious to get your latest thoughts on the medium term price outlook and just the general price responsiveness, you've seen from customers as the forward strip has moved higher since the time of your last call.
Yes so.
Again, the the tragic events of <unk>.
This morning, notwithstanding <unk> seen a structural shift upwards in that in that curve that you referenced site as we progressed through the second half of the year and the logistics of not just refilling European storage, but also meeting the the inexorable growth out of Asia has been.
Challenge for the gas market and and that has caused those those mid term margins to respond accordingly. So.
That is obviously a tailwind as we've discussed in.
And <unk>.
Rest assured that we will take advantage of that either and in some of the more prompt transactions or more structurally through bridging volumes in our long term commitments that.
Obviously at this point of the cycle are a nice tailwind.
Great I appreciate the color there and then recognizing the long term NPV and strategic consider considerations in your allocation of bridging cargoes for your open exposure. This year just wondering if there's a certain price point and the forward strip, where you would perhaps allocate a greater percentage the forward spot sales.
Yes, I guess it is a balancing act and we would always.
Let me clarify one thing when we transact for these bridging volumes. These bridging volumes are done at market prices. They are embedded in the long term deal, but they are they are at the economics.
Or in the prevailing market when we execute the transactions. So we like the strategic benefit of having those long term commitments and having that.
Bulletproof reliable platform that is kind of first and foremost in our thinking to the extent that there are real time opportunities. The team is very good at optimizing the portfolio and capturing that incremental margin that's available to us and I would say mark that I spent 35 years in the power business.
I've seen this game before and electric power in this type of volatility and <unk>.
What goes up will come down so.
We're trying to do is as secure our production for the long term through through contracts with Creditworthy Counterparties and then help us build additional infrastructure without taken risk so I'm not I'm not.
Sold on having a entirely merchant portfolio.
Got it thanks for the time.
Okay.
And we'll take our next question from Craig Shere with Tuohy Brothers. Please go ahead.
Okay.
Hi, congratulations on the guidance.
I want to pick up on Jeremy's, what next question and Michael FERC question.
And see if you can perhaps elaborate on opportunities for further training upsizing efforts and also with <unk>.
Timing may be right and coming quarters to more actively pursue carbon capture.
Okay, So thats a load Greg.
Craig So I'll start I am extremely pleased.
With our operational excellence program and the results of that.
We've been able to increase our reliable production significantly from from where we were back in 2016 2017, I think there's still more to go there and I'm excited about that as far as the expansion goes.
I think we're very positive on stage three I view as you've heard from us today.
We're crossing the T's dotting the eyes I would expect us to.
To launch full force with four.
Sometime later this year and.
And then at that point, we will start working on our next <unk>.
<unk> growth potential and.
Sure.
And then and as you know in this industry, it's the worst kept secret.
It takes <unk>.
Two to three years to do a review on LNG export terminal.
And it's pretty well public and transparent for the market to see.
I would say what I same thing I told Jeremy which as you guys are a tough act.
Stay tuned we're not done yet.
The second question.
DCF injection.
Yes, we've spent a lot of effort with engineering.
And planning on Ccs, mostly at Sabine pass now, we see that having the greatest opportunity or the least price. If you will for for some some carbon capture.
We are now.
Ready to announce anything yet.
But we're making good ground on.
On that aspect of it and.
I'd say im totally.
Supportive of.
The administration's desire to to make 45 Q.
A little more economically healthy for those of us in the fossil fired industry I think we need it we need to have a little bit better price signal on what the true price of carbon is going to be in America and that will help us significantly, but we have some options there at both facilities we've been <unk>.
<unk> on Sabine first in and there'll be more to come.
One quick follow up.
The ability with a little capex to increase to nine train portfolio capacity buys another point to three <unk> per train.
Where do you stand on authorization to do that.
No.
Sure.
If I remember right or.
Authorization now is up to five 5 million tonnes per annum per train.
So that gives us plenty of breathing room.
Gotcha. Thank you.
Thanks, Greg.
And we'll be taking our last question from Julien Dumoulin Smith with Bank of America. Please go ahead.
Okay.
Hey team. Thanks for the time I'll make this real quick I think lots of afternoons.
Jack just going back to what you were saying a moment ago about taking.
Taking some time.
To move through the process, whether it's <unk> or beyond.
How do you think about potential.
Potential acquisitions of existing sites, just to kind of get a jumpstart.
That whole process <unk>.
You can at least kind of conceptually set.
A benchmark as to how you think about what you would be able to target next volumes right. I mean, we're talking 'twenty four 'twenty five in terms of <unk> for subsequent volumes or how do you want to at least kind of set.
The cadence if that's the right word.
Yes so.
I'll take it and then two points one potential acquisitions so were we.
We're building stage three it looks like it will be around six times EBITDA.
You've seen where some of these LNG terminals have traded out with some of these infrastructure funds.
Multiples above the six times EBITDA. So in this case Julian just like in power, where it would rotate whether it was cheaper to build or to buy.
It's definitely cheaper to build than it is to buy and pay somebody else a premium so I would think initially at least.
So my Crystal ball I see us continuing to do these brownfield expansions just from how cost competitive.
We are today.
And now.
Forgot about the second half of that question.
I'm just saying.
Yes, I'm going to go the organic brownfield route.
Okay, So stage III stage.
Stage three won't come in one big Big lump.
And on Corpus three and Sabine six right. When when we took substantial completion that was 5 million tons here, it's going to be.
A train or two every couple of months. So if we start construction. This year I would expect sometime in 2006 that wed have the first train online and then every couple of months thereafter, another train until we're fully up and running on that over 10 million ton portfolio by 2027.
So there'll be.
It's a pretty high growth rate.
Would expect us to file.
For additional expansion.
Soon.
And the goal would be there to.
You have these trains coming online from 'twenty to 'twenty, seven or even late 'twenty five to 27 nine daily will then.
Have some growth to add to the portfolio in 2007 2008 2009.
Got it Okay, Alright fair enough and then on the acquisitions of uneven development assets down like that.
Ideal I.
I think that's what you were alluding to.
Yes, yes, I mean, the Magnolia sulfur over 2 million box.
Yes, sorry.
Excellent.
<unk>.
Okay.
Thank you.
Thank you.
At this time I will turn the conference back to the speakers for any additional or closing remarks.
Hi, This is Jack I just wanted to say thank you again for all of your support.
Really good about where we are today.
I think overall the industry needs to settle down a bit.
I like.
Anatol said, our thoughts and prayers are with eastern Europe at this point.
But I think.
What we're showing is the value.
<unk> of natural gas and LNG around the world and.
I wish you all to be safe.
And this concludes today's call. Thank you for your participation you may now disconnect.
Yes.
Yes.