Q3 2022 Cheniere Energy Inc Earnings Call
Yes.
[music].
Good day, ladies and gentlemen, and welcome to today's Cheniere Energy Q3, 2022 earnings call and webcast. Today's call is being recorded at this time I'd like to turn the conference over to Randy Bhatia, Vice President of Investor Relations.
Please go ahead, thanks, operator, and good morning, everyone welcome to <unk> third quarter 2022 earnings Conference call.
The 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 vegan executive Vice President and Chief Commercial Officer.
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 and.
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 Cheniere as 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.
The call agenda is shown on slide three Jack will begin with operating and financial highlights Anatol will then provide an update on the LNG market and <unk> will review, our financial results and guidance after.
After our prepared remarks, we will open the call for 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 all for your continued support of Cheniere I.
I'm pleased to be here. This morning to highlight our third quarter 2022 results and achievements and discuss our positive outlook for the remainder of this year and into next all of which continues to demonstrates generic market leadership and excellence throughout our business.
Since our capital allocation update in September we have remained laser focused on our operations, ensuring reliable LNG production and supply for our customers amidst global energy shortages and challenges and.
In fact, just last week, we had a daily production record for the company producing well north of seven <unk> of LNG and also a daily record at Sabine pass of approximately five <unk> of LNG.
Congratulations to the Cheniere professionals for a job well done.
Additionally, in conjunction with <unk> engineering, and construction and we are off to a great start at corpus stage three.
We have rolled up our sleeves.
The ground running.
And have already seen some early signs of potential acceleration on that project.
Across the LNG market volatility continues to dominate driven by short term supply demand pressures.
Recently from record breaking warmer weather near term prices have retreated from the highs we saw barely two months ago.
Nevertheless, we are largely insulated from these price swings given the highly contracted nature of our business and.
And we remain focused on long term value creation as our priority with short term market dislocations.
<unk> survey to accelerate our long term plans.
As you heard from me exact in September .
Now please turn to slide five.
I will review some key operational financial and strategic highlights from what was yet another very successful quarter.
For the third quarter, we generated consolidated adjusted EBITDA of approximately $2 8 billion and distributable cash flow of approximately $2 8 billion as margins in the LNG market remained significantly above historical norms and our focus on execution and our operational excellence program continued to be rewarded.
Today, we are reconfirming, our full year, 2022, EBITDA and cash flow guidance.
<unk> of which were recently increased by over $1 billion.
When we announced our capital allocation plan in September .
In transit LNG shipments and commodity price volatility increase the degree of difficulty in pinpointing the forecast, but we are tracking to the upper half of the EBITDA and DCF ranges currently.
Later on this call Zach will provide you with a few early data points on how 2023 is shaping up ahead of providing full year guidance on our February call.
As we've discussed the reliability of our LNG operations is more critical than ever given the volatility present in today's market.
During the third quarter, we produced and exported 156 cargoes of LNG from our facilities.
Approximately 70% of that volume landed in Europe .
By comparison during the third quarter of last year less than 30% of the volume produced by Cheniere landed in Europe .
Not only does this shift underscore the value of our destination flexible LNG, which can quickly respond to market signals to reach end users of the greatest need is.
Also providing meaningful energy volumes to Europe at a time when the region is facing significant challenges.
The fact that these challenges could persist for a number of years has hastened a renewed focus on the criticality of energy security as governments and utilities the world over advanced strategies to mitigate energy supplier risks for the long term.
Anatol will provide further insight into the current market dynamics in a few minutes.
During the quarter, we announced our 2020 vision capital allocation plan, our revised comprehensive long term capital allocation plan designed to maintain investment grade credit metrics through cycles.
Other returned capital to shareholders over time and continue to invest in accretive organic growth.
The plan envisions $20 billion of available cash through 2026 and over $20 per share of run rate distributable cash flow.
Zach will review some of the key features of the plan in a few minutes, but we believe our new 2020 vision is an excellent capital allocation framework for our stakeholders and the planned followers are significantly accelerated execution under the long term capital allocation plan, we implemented just over a year ago.
No.
Before moving on I also want to highlight important organizational announcement I made during the quarter organizational.
Organizational clarity and operational excellence.
Two of my key priorities and as Cheniere has grown and evolved so too must our organization in order to maintain incredibly high operating standards, we have set for ourselves.
In September we announced the promotion of Corey Grindal currently executive Vice President of worldwide trading in London.
Serve engineers inaugural Chief operating officer effective January 2023.
Korea has been engineered for nearly a decade and his leadership and contributions have been an integral part of building the exceptional operating platform we enjoy today.
Prior to his role overseeing worldwide trading and lending Korea was SVP of gas supply and was the architect behind <unk> gas procurement program, which today is one of the largest holders of pipeline capacity and purchasers of natural gas in the United States.
We look forward to <unk> continued leadership as CFO building upon our safety first culture and reputation as a leading reliable supplier of LNG in the world.
I am pleased to welcome Cory back to Houston in his elevated role as COO.
You all will begin to hear from Cory directly.
Participate in Investor conferences.
These earnings calls next year.
Turn now to slide six I'll give you a brief update on construction and execution across our Sabine pass and Corpus Christi sites.
First last week Commission was completed for the third marine birth at Sabine pass and consistent with our track record. The third birth achieved substantial completion ahead of the guaranteed schedule and within project budgets.
The third birth will not only provide increased flexibility to our marine loading operations.
Particularly during suboptimal conditions by fog events, but also serves as a brownfield infrastructure that we can economically leverage as we develop our expansion plans at Sabine pass.
Now moving to Corpus Christi stage, three as I mentioned before we are off and running and the project is making excellent progress.
Inclusive of the early limited notice to proceed we utilized at the start of the year, we've invested approximately $1 billion to date of stage III.
The <unk> TP, not only provided cost benefits, enabling us to lock in prices early but also provided some significant construction schedule advantages with early site work such as accelerating placement of piles and soil stabilization.
A long lead time equipment orders have been placed with suppliers in key equipment manufacturing is expected to start before year end.
We recently held a groundbreaking ceremony at the stage III sites and it was exciting to see such overwhelming support for the project.
Across a broad spectrum of stakeholders to help make the project possible from regulators and government officials, who are long term customers EPC and equipment providers banks and of course our employees.
As we work towards first LNG from stage three in late 2025, and look forward to upholding seniors stellar reputation on safety and execution in partnership with backfill.
Thank you all again for your continued support of Cheniere I will now 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 eight.
Despite it being a shoulder season in many regions the turbulence in the global gas and LNG markets continued throughout the third quarter with only a few brief stretches of relative stability.
While geopolitical conflicts and the related curtailment of Russian gas flows are largely responsible for the supply shock in Europe . This year, we believe that some cyclical dynamics also played a role in laying the groundwork for today's market conditions of elevated prices and volatility in fact, we've signaled for some time that the rate of new liquefaction capacity.
Coming online would decelerate significantly during the 2020 through 2024 period, given the lack of fid's taken in years prior.
As you can see in the chart to the left we estimate current capacity growth rates to be near 2% a level not seen since 2012, when the market was all side of balance and prices clearly signaled the need for new LNG capacity.
As a result, given the long lead time required to develop LNG projects, we expect market balances to potentially remain tight for the next several years exacerbated by the crisis in Europe , and the reduction of Russian supply to the European market.
As shown in the Middle chart LNG imports from the U S have been the primary resource to offset the removal of over 50 bcm of Russian gas imports from the European market. This year further reinforcing Jack's earlier point on the ability of U S. LNG to respond quickly to market signals as.
As the primary source of global LNG supply growth for the past four years. The U S has surpassed Australia and Qatar to become the world's largest supplier measured by installed capacity. This year and this growth could not have come at a more critical time for Europe , given that inherent destination flexibility.
<unk> has become Europe's top LNG supplier engineers facilities at Sabine pass and Corpus Christi has been significant contributors to this growth helping to provide secure and reliable natural gas supply to the European market, which I will detail further in a minute.
Despite the steady increase in LNG flows to Europe CTF continued to rally in the third quarter hitting an all time high of about $99 per M and Btu in late August as concerns surrounding adequacy of supply reached new levels.
Since then <unk> prices have come off considerably settling October at about $54 in <unk>. Despite no sign of Nord stream flows resuming.
<unk> futures have traded at a discount to ETF for much of this year as European buyers have kept net backs higher into the region compared to Asia in order to fill storage ahead of winter heating demand.
In the U S. Henry hub prices are generally drops since late August settling October at $6, 87, and <unk> as temperatures and forecast moderated and gas production continued to rise.
Let's now turn to page nine to address regional dynamics in more detail.
As I just mentioned Europe has been utilizing LNG to try to offset as much of its gas supply deficit related to the Russian gas cuts by increasing its LNG imports by 65%. This year with approximately 87 million tons imported through the third quarter, making 2020 to an all time high year for LNG imports into Europe .
Imports from the U S represented 44% of that total in fact Cheniere alone was responsible for approximately a quarter of Europe's LNG imports this year.
As the top Middle chart illustrates U S LNG volumes surged over 200% year on year in the third quarter as Nordstream flows came to a halt by the end of the quarter.
Nevertheless, the European market appears well prepared for winter as shown with storage levels exceeding their five year average on the back of milder weather some level of industrial demand management and aggressive buying by European utilities as such we have recently seen prices moderate as the market waits for winter demand to kick in.
We've also seen the congestion at certain European Regas terminals continued to grow once again, evidenced the need for development of additional import capacity and related infrastructure in order to provide relief and allow greater volumes of LNG to access to market, particularly in northwest Europe .
The new E save an import terminal in the Netherlands recently began operations.
The terminal one of the few Fsrus expected to start in Europe in the coming months received its first cargo in September which was produced and delivered from our facility at Sabine pass.
In Asia LNG imports declined by $14 5 million tonnes year to date with nearly 5 million tons of the decline realized in the third quarter now.
<unk>, 90% of this decline is attributable to China as a result of reduced industrial sector demand and weak gas burn, which could remain a trend throughout this winter.
In China industrial gas demand decreased by three Bcf in the third quarter, representing an eight 7% drop year on year and low hydro levels supported thermal use in power generation with coal generation, increasing by 11% year on year in the third quarter, while gas grew only 4%.
Overall gas fired power generation dropped 8% year on year from January through September as high spot LNG prices and robust renewables generation in the first half of the year Disincentivize domestic use and actually encourage cargoes to be redirected to Europe .
Each of the demand growth in Asia in the third quarter occurred in Thailand, Japan, and Taiwan as a result of inelastic consumption needs.
As we mentioned in previous calls Thailand continues to call on LNG to supplement dwindling domestic gas production, Japan floods. The two seven gigawatt deficit in nuclear availability in the third quarter and Taiwan continues to offset the decline in coal generation.
Let's move to slide 10.
Last quarter, we discussed LNG contracting trends and the growing commercial success that U S projects, we're garnering.
That contract the momentum continued in the third quarter, reaching a total of 40 million tons per annum of long term transactions signed with U S projects year to date.
Through mid October highlighted by our long term deals with Petro China and PTT.
As you can see on the left chart. The aggregate volume is approximately 80% higher than what was signed in all of 2021 and represents more than 75% of global contracts signed year to date.
In fact, the first nine months of 2022 alone make 'twenty two a record year for U S LNG contracts signed.
This commercial success is owed largely to several key advantages of U S LNG destination flexibility competitive and stable pricing, the mature upstream and midstream footprint and time to market.
These advantages coupled with elevated market prices have provided a tailwind for the development of additional LNG capacity in the U S.
However, most of those U S projects still have yet to make.
Given the rigorous commercial financial regulatory and technical hurdles projects are required to overcome in order to raise financing and move forward with construction and those hurdles are only getting higher given volatility inflation and rising interest rates.
For our part as we discussed last month, we plan to continue to pursue growth of our 55 million ton platform, starting with our near term plans to add approximately 5 million tonnes per annum via the CCL trains eight and nine mid scale projects and some debottlenecking at stage III, along with the long term potential to add an incremental <unk>.
30 million tonnes per annum volume across our two sites volume that we will continue to ensure security of supply and sustainable economic growth for our long term customers and end use communities.
Hard at work on these opportunities and will keep you informed on them as they achieve project development milestones.
And now I'll turn the call over to Zach to review, our financial results and guidance.
Thanks, Anatol and good morning, everyone.
I'm pleased to be here today to review, our third quarter 2022 financial results and key financial accomplishments all of which continue to reflect our team's tireless efforts to ensure safe and reliable operations and seamless execution throughout this period of prolonged volatility in the global energy market.
Turning to slide 12.
During the third quarter, we generated adjusted EBITDA of approximately $2 8 billion.
Distributable cash flow of approximately $2 billion.
And a net loss of approximately $2 4 billion.
Our third quarter results. Once again was supported by the sustained higher margin environment across global gas and LNG markets higher lifting margins due to higher Henry hub prices across the quarter and incremental margin achieved from certain portfolio optimization activities.
Our quarterly results were achieved despite a couple of CMI cargos moving into Q4 from Q3.
In addition in the third quarter, we recognized a portion of the payment from Chevron related to the early termination of the Regasification, which.
Which we expect to receive for year end.
We recognized an income 560, TVT U a physical LNG during the third quarter, including 550 60 Btu produced from our Sabine pass our Corpus Christi projects and <unk> sourced from third parties.
<unk>, 82% of these LNG volumes recognized in income were sold under long term SBA or IPM agreements with terms greater than 10 years.
Once again, the net income line continues to be impacted by the unrealized noncash derivative impact related to our long term IPM agreements as we have discussed on prior earnings calls in.
In the third quarter, we recognized $4 9 billion of these unrealized noncash drew losses attributable to the continued growth of LNG margins and commodity price volatility.
As a reminder, because GAAP requires mark to market accounting of these long term gas supply agreements, but does not permit the mark to market of the associated and offsetting sale of LNG and results in a mismatch of accounting methodology for the purpose for the purchase of natural gas and the corresponding sale of LNG, which.
Drives this quarterly variability.
And net income from period to period that.
That is why we would expect as margin stabilize and price volatility subsides over time that these unrealized noncash drew moves will become much less pronounced in our quarterly results.
Thanks in large part to the significantly accelerated progress on our capital allocation plan announced in September of 2021 during the quarter, we rolled out a revised long term capital allocation plan, our 2020 vision of over $20 billion of available cash through 2026, as well as over $20 per share of run rate distributable cash flow.
Built upon the foundation of our previous plan. This plan is designed to achieve and maintain investment grade metrics through cycles.
Further return capital to shareholders over time and continue to invest in accretive growth beyond Corpus Christi stage three as part of their revised plan, we increased our share repurchase authorization by $4 billion.
For an additional three years beginning October one 2022.
<unk> lowered our consolidated long term leverage target to approximately four times and increased the dividend by 20% beginning in the third quarter of 2022 targeting.
Targeting a 10% annual dividend growth rate through the construction of stage III into the mid 2020.
Our accelerated progress in terms of capital allocation, coupled with a revised plan demonstrates the power of the Cheniere platform through market cycles, and solidifies <unk> position as a leading global LNG, operator, and a preeminent north American infrastructure company.
During the quarter, we repaid over $1 3 billion of consolidated long term indebtedness, bringing our total debt paydown to over $4 4 billion.
During the third quarter since launching our capital allocation plan last year.
And in the first nine months of this year, we have repaid over $3 2 billion of debt.
In the third quarter alone, we prepaid nearly $800 million of outstanding borrowings on the CCH term loan facility, and notably we repurchased over $530 million and principal of senior notes at both cei in CCH at price levels under par under an open market repurchase program that was initiated during.
The quarter.
This past month, we have also redeemed $300 million of the 2023 senior secured notes at SPL pursuant to an early redemption notice issued in September .
We are clearly demonstrating our commitment to our balance sheet by utilizing multiple avenues to efficiently reach those target leverage metrics and we will continue to be opportunistic as we optimize the debt across the cheniere complex to achieve resilient and sustainable investment grade credit metrics.
Our accelerated deleveraging efforts towards an investment grade consolidated balance sheet had been reflected in ratings upgrades by multiple agencies recently in September Moody's upgraded cei, two notches to <unk>, one and <unk>, one notch to <unk> and <unk> to.
Bringing all S&P and Moody's ratings in sync across the Cheniere complex.
Also on September Fitch upgraded <unk> to Triple B minus and SPL to Triple B flat.
Fitch has upgraded <unk> to triple B minus is significant as it marks the first ever unsecured investment grade rating and one of our corporate parent entities and is an important milestone engineers continued evolution.
We will continue to execute on our 2020 vision plan and expect further positive ratings momentum and migration to investment grade over time.
In terms of shareholder returns during the third quarter, we repurchased over a half a million shares for approximately $75 million.
Bringing our total shares repurchased to approximately 5 million shares for a little over $600 million.
The upsize share repurchase authorization, we announced as part of our new capital allocation plan didn't commence until the fourth quarter and I can tell you. We are often running under the new authorization, having already repurchased over 1 million shares just in October as we have now recalibrated, our debt paydown to share repurchase ratio through 2026.
On a long term cumulative basis from 41 to one to one to further enhance shareholder returns while further solidifying our long term investment grade credit metrics.
During the third quarter.
We also declared and paid our fourth quarterly dividend of 33 per common share, bringing our total dividends paid to a $1 32 per common share.
Under our new capital allocation plan, we increased the dividend by 20% for the dividend related to the third quarter to $39.05 per common share and maintain our commitment to increasing the dividend by approximately 10% per year through stage, three construction, which will grow us into around a 20% payout ratio over time.
Turning now to slide 13, where I'll provide additional detail around guidance and our open capacity for the remainder of the 2022 as well as for 2023.
We are reconfirming, our full year 2022 guidance ranges of 11% to $11 5 billion and consolidated adjusted EBITDA and $8, one to $8 6 billion and distributable cash flow.
These ranges for each already increased by approximately $1 2 billion since our last earnings call in September and we can now highlight that we are currently tracking into the upper half of both ranges as well as to the high end of our <unk> distribution guidance of $4 to $4 25 per unit.
Our guidance ranges illustrate what an incredible year 2022 has been for Cheniere.
Since our initial guidance ranges for 2022 were provided 12 months ago, we have increased the midpoint of our EBITDA range by approximately 85% DCF by approximately 150% and <unk> distribution by approximately a third.
With respect to the EBITDA sensitivity for the remainder of 2022, we are approaching the end of the year and therefore, we have sold much of our total expected production for the remainder of the year and have approximately 20 <unk> unsold remaining weak.
Currently forecast at $1 change in market margin would impact EBITDA by approximately $20 million the balance of 2022 as we have released the remaining volume.
That had been reserved for a long term origination back to C&I.
Our results could also be impacted by those year end cargoes, we mentioned back on our call in September with the volatility and evolving market dynamics. These cargoes could be drawn to Asia, which would push the timing of recognition of some of these cargoes into 2023.
With that being said as we look to 2023 and our sensitivity to market margin. Currently we forecast approximately 150 <unk> of open volumes in 2023, and we expect $1 change in market margin to impact 2023, EBITDA by approximately $130 million as a portion of our forecasted unsold volume for next year.
Being reserved for potential long term origination negotiation.
We do have some term contracts commencing over the course of the year. There is likely a slight weighting of that open volume to the first half of the year.
In terms of major capital expenditures I would mainly highlight we forecast spending approximately $1 5 billion in capex related to Corpus Christi stage three in 2023, which is a similar amount to what we expect to have funded this year, including our <unk> payments since the start of 2022.
As we mentioned in September we will provide our full year EBITDA DCF and <unk> distribution guidance ranges for 2023 in the fourth quarter call in February our unfilled position in 2023 is expected to be lower than 2022 as 2022 benefited from the early completion and ramp up of train six and the maintenance opt.
Innovation, we disclosed in may certain long term contracts are scheduled to commence over the course of 2023, and we have higher planned maintenance scheduled for the next year at Sabine.
Without a new train coming into service next year, we wouldn't expect a material change to the production forecast from here.
The current state of global gas markets, which are featured elevated market margins for nearly a year now underscore the global call for meaningful investment in natural gas infrastructure, which generic leading with our recent sanctioning of Corpus Christi stage three.
During this prolonged period of heightened volatility we've been deliberate and prudent stewards of capital accelerating progress in our capital allocation objectives and positioning cheniere for resilience success in the decades to come.
And we expect to lead with a sustainable investment grade balance sheet accretive growth projects and meaningful and growing shareholder returns.
That concludes our prepared remarks.
You for your time and your interest in Cheniere.
Operator, we are ready to open the line for questions. Thank.
Thank you, ladies and gentlemen, if you'd like to ask a question. Please signal by pressing star one on your telephone keypad using a speaker phone. Please make sure. Your mute function is turned off to lay your signal to reach our equipment.
We ask that you. Please limit yourself to one question and one follow up question to give everyone an opportunity to ask questions. Thank you.
Again star one to ask a question, we'll pause a moment to give everyone an opportunity to signal for questions.
Okay.
We will take our first question from Michael <unk> with Goldman Sachs. Please go ahead.
Hey, guys. Thanks for taking my questions just real quickly.
Jack a little bit about timeline, you hinted at it a little bit for stage three in terms of potentially.
Being able to move things forward, a little bit how much how material and then can you talk about the maintenance at Sabine pass in 2023, I assume it's probably more shoulder months.
If thats wrong, and how should we sort of way to quantify the impact on volume.
Hi, Michael Thanks, So first on construction of states Ram extremely pleased at.
At.
The progress to date.
You can tell from my talking points that I'm.
I perfectly expect my staff and backfill to have under promise and we'll over deliver on my expectations.
It's a little early at this point for us to revise our schedule, but I would I would stay tuned if we continue to have this favorable weather and we continue to execute.
The way the way the plan has.
Has developed.
As far as.
Maintenance.
Youre right, we try to do maintenance.
In the shoulder months, where LNG prices typically are our lowest.
It's a six year cycle.
At at Sabine.
<unk>.
Unusual year for us, where we have two trains coming down.
Basically at the same time due to do maintenance on them as.
As far as quantities as a maintenance I'll turn it over to Zac and give you more detail on that part of it.
Michael as we think about 'twenty two versus 'twenty three.
We're going to be slightly up year over year on total production and Thats really mainly due to the train six.
Had about 11 months of production hitting P&L last year this year.
With a little ramp up in Q1, we have a full year of train six for 'twenty, three but that will be offset a bit by.
This this major maintenance that is definitively planned for next year.
Basically I would say, we're probably rounding down to 44 million tons for the year. This year and we'll be right around 45 million tons, where the rest of the seven trains that not that won't have the maintenance, we'll pick up the slack to an extent.
Got it thank you guys much appreciated.
We will take our next question from Michael Blum.
With Wells Fargo. Please go ahead.
Thanks, Good morning, everyone.
Just wanted to go back to hear your comments on Capex in 2003, So you flagged the corpus.
Corpus Christi stage III.
Spending so that's clear.
Anything else you'd flag major I know you've talked in the past about prep work on mid scale ignite. So I just wanted to see if there are any other major items.
Hi.
That's about it Michael I mean, the $1 five as the let's say all and Levered cost debt that we would deploy next year and obviously thats kind of what we expect this year, we spent about $1 billion already pre and post <unk>.
And have another $4 million to $500 million goal this quarter.
As were like 12% progress at stage III.
On other Capex, we're going to be spending money, let's say hundreds of millions of dollars across the board on things to continue to offer them optimize but also develop at corpus and Sabine.
And Youre, just not going to notice it. It clearly will have billions of DCF next year, when we come out with it officially in February .
Okay got it that makes sense and then just wanted to ask kind of.
Okay.
Between year debt and equity.
Allocation decisions quarter by quarter third quarter buybacks are a little bit lower that purchase was higher clearly buybacks are picked up in Q4, just trying to see if there's any.
Patterns, we should be aware of or what's behind the decision process. There. Thank you.
Sure. So so clearly you can see in Q2, we bought back over $500 million.
Stocking.
During that June period of specifically the stock had a little pressure on it and we were opportunistic and then if you just look at Q3 from $6 30 to $9 30. The stock went up like $35. So you can imagine as the stock is going up we're obviously being less opportunistic but when when things are at.
Bit more stagnant, obviously, there's pressure on the stock.
We're hitting it harder and then another the other thing I'd add is we clearly had to wait till the announcement on capital allocation in mid September adjusted with all the MPI that came with that to officially set up the <unk> for Q4, and that's why the new plan with the Upsized allocations started in earnest in Q4.
And we've already.
Back over 1 million shares just in October .
Perfect. Thank you.
Thank you we'll take our next question.
From Jeremy Tonet.
With Jpmorgan. Please go ahead.
Hi, good morning.
Good morning, Jeremy.
I just wanted to kind of reconcile against the last update that we heard from you guys a bit over a month ago with the September update you gave guidance lifted guidance and since then spreads came in and Europe faced logistical issues you would now point to the high end of the EBIT Guide just wondering what positive has materialized in <unk>.
They carry into 'twenty three.
Hey, Jeremy.
So a few things materialize for us in terms of I think there was an extra cargo at corpus.
<unk> I mentioned in the prepared remarks.
We had higher sub chartering revenue as we really positioned.
The whole portfolio going into the winter and with elevated pricings on shipping.
That added some money and then we obviously, we're a little proactive on selling into the market.
Even in September before the market came down a bit and now is now just over $10 for for the rest of the year.
And that was offset a bit even by some.
Some crossover of cargoes that we pushed out again into 2003, theyre moving back and forth depending on whether they are going to hit Europe or Asia.
So.
Only took a few hundred million dollars, there and thats not to mentioned, we released the final origination cargos.
We pretty much rolled those over into 2023 to keep that in the Arsenal for the long term origination team, but with all of that yes, we feel pretty good will be in the upper half of our guidance range.
Got it makes sense say I bet, a little Cheniere conservatism was baked in there as well so always good to see that and just kind of continuing with this week. These.
These European logistics issues.
Going forward into 2023.
Just wondering if you see that kind of impacting our outlook now and also just.
Hardly macro question here from Russia ascending much less gas into Europe in 'twenty three.
How do you think Europe still stores next year.
Hey, Jeremy it's Anatol, thanks for the questions.
The good news on the Europe front is it is moving very aggressively to resolve these infrastructure issues.
We spoke about.
Honored to to inaugurate beams Haven that facility will double we do expect that throughout 'twenty three.
About 60 million tons of additional re gas capacity will be added that number will probably get over 70 million tons in 'twenty, four but but we agree with you. We think Europe is in no way out of the woods without that pipeline flow. It is.
For most of this year. It is next winter that we were more worried about because obviously this winter did have the benefit of a substantial amount of flow even in the first half of this year before before Nordstream was fully shut off so.
It will be a challenge the infrastructure issues will be addressed over the next really six to 12 months.
You've already seen a dramatic decrease in the amount of floating storage into Europe , and we think that that was a little bit of weather and additional infrastructure.
<unk> solutions will get cleaned up quickly, but the molecules for Europe .
Will be very difficult to come by over the coming years.
Got it so just to be clear on that last point you are seeing the winter fill next year it looks like it could be as tight as it was this year.
Weather dependent of course, as always but entirely possible that it will be more difficult to reach these 80 plus.
Ill.
Full storage levels.
That's very helpful. Thank you.
We will take our next question from Mark.
Joe with Barclays. Please go ahead.
Hi, good morning in terms of the liquefaction fee environment than the marginal cost of new supply it wasn't too long ago, where it seemed like the industry might've been trending towards the lower half of that two to $2 50, CMI margin assumption range. So just wondering with the with interest rates now at the highest they've been adding over 15 years in EPC costs trending higher where do you see the mark.
All costs of new supply in liquefaction fee is trending today.
Yes, Thanks, Mark Alex I'll again.
We expect that trend to play out, but I have to tell you kind of in the trenches you haven't seen much of that there.
The competition among U S D.
<unk> is still one that is anchoring expectations buyer expectations in that low end of the range.
I will say that it has been coming up somewhat but.
In the aggregate between these aggressively priced offtake deals, but by some of the early stage developers as well as the EPC inflationary pressures and the.
The interest rate environment.
Thats a tough.
Tough equation to solve and we think that Thats of course part of the reason why you haven't seen.
More projects breast the FID.
Tape Zach do you want to add some thoughts on inflation sure. So just to acknowledge the inflation out there that's clearly happening for everybody and we think about our operating expenses or even our SG&A, our SBA, which we have over 30 of with different counterparties all over the world. They all have a built in <unk>.
Annual escalator based on CPI.
<unk>, let's say approximately give or take 15%.
And if you just baked that in and with how much we haven't fixed fees.
Going into the new year.
We're more than covering any inflation on O&M and SG&A for the company, which just highlights the stability of that run rate cash flow.
Got it that's very helpful. And then as it relates to 150 TVT open for next year have you started to lock in some of your open exposure for 2023 and would that be included in that referenced open capacity number.
Yes, so what we acknowledged.
Acknowledged in the prepared remarks and in the presentation is we actually have 150, <unk> truly open and all of that we're reserving 'twenty TVT you for origination placeholders, so that $130 million give or take for a $1 move in margin.
Open today, However, I would say, we have probably sold onward and locked in fixed margins for around 20 <unk>.
2023 at this point clearly the liquidity is pretty tough with how volatile it has been.
But we're making a dent there will give us even more robust update next year.
Got it I appreciate the time.
We will take our next question from Jean Ann Salisbury with Bernstein. Please go ahead.
Hi, good morning, and I kind of wanted to get your view on the medium term LNG market, obviously large moving pieces and whether more U S projects go forward, whether Russian gas keeps flying but seeing everything that you can see now do you think it's more likely that LNG will be over a belt or under our belts in the back half of the decade.
I really don't see this overbuilt dynamic.
Even in that 'twenty, six 'twenty 728 timeframe.
Such an enormous amount of latent demand. If you will we've been shying away from the term of demand destruction.
We've termed it demand management, even as prices pulled back in Europe modestly over the last month month, and a half <unk> seen a fairly dramatic resumption in industrial demand.
Those numbers don't go away for a very long time and yes.
And others may build facilities in the U S and in Qatar, but fundamentally the demand picture in Europe , just isn't going to change that much and we still see a tremendous demand growth story out of Asia and <unk> in general. So we of course as you know fully believe that the Qatari Mega trades will continue to come on.
The four under construction now plus two more plus two more.
There just arent enough solutions and now with this very robust contracting, but relatively slow process too.
<unk> projects, that's just going to make the market that much tighter through the back half of this decade, so we see years and years of this.
This dynamic before you can see a truly balanced market.
Jean Ann This is Jack I always track how much capital is being invested in our natural gas infrastructure around the world and there's over a trillion dollars right now of Nat gas projects around the world with with pipelines and power plants.
And in.
Re gas facilities.
So that to me is a signal of that gas is here its here to stay for the long long term and that the LNG side of it will continue to grow.
Great. Thank you.
Hey, I appreciate all that.
As a follow up I'm, just wondering what the waiting time for a new LNG FERC filing as these days I think earlier. This year you kind of estimated two years, but said maybe if that you guys.
Focused on it it could be a lot faster than that so I was wondering if <unk> is still a good number or faster than that or possibly slower than that.
Yes, no gene Anna.
I'll tell you over the over the last six years, we've doubled our business.
Here at Cheniere and today more than ever that that permitting strategy I believe is essential right, because it's more and more difficult with the current regulatory environment to make any mid course changes whether they are on design or construction.
So.
We've filed we pre filed for mid scale trains eight nine that got accepted.
Not too long ago, there is a six month period after pre filing that.
We need to wait it's our expectation that we will file immediately thereafter, so early next year with.
<unk> eight nine and then and hopefully my goal is to make those trains contiguous so right after train seven.
Is commissioned I want to go to train eight and then to train nine. So we're trying to move quickly I think that that just strategically the whole permitting.
Our strategy parts and making sure that you have cross the Ts and dotted the is and your application is more important than ever today.
Great. Thanks, a lot that's all for me.
We will take our next question from Brian Reynolds with UBS. Please go ahead.
Hi, Good morning, everyone, maybe just a follow up to <unk> question on the permitting process.
Any insights on whether we could see further growth Corp.
Corpus of Sabine are there any.
Signposts that we should be looking for in terms of preference when should we expect maybe a pre filing process to begin there. Thanks.
Now look you know from our talking points and Anatol stocking points to that.
That we're looking at 30 plus.
MTP a of growth across the portfolio.
I would expect to be in to be first I'd expect sometime next year that we do a pre filing for additional growth there at Sabine, but again like I said, we're making sure that.
We understand everything it is to know about that growth and that that filing is complete so it gets accepted and move through the process appropriately and then right. After that hopefully trains eight nine will be done at corpus and we can we can focus on whatever additional expansion plans we have there.
<unk>.
Great. That's super helpful. Maybe as a follow up the ability to sell cargoes forward in the market.
<unk> seen shorter and shorter relative to years past, just given pricing and liquidity.
Can you just talk about how that market is now is it improving in terms of being able to sell those cargos board and could.
Could you be in a situation.
Middle of next year going into the tight winter that we that was alluded to earlier.
It's where you'll be selling those cargos basically at spot.
Spot prices at that time thanks.
Sure so.
This is Jack and I have mentioned this previously on calls but.
It's just a totally different world than it was let's say 18 to 24 months ago, where you could lock in a cargo and maybe tie up capital for.
I don't know 10, 10 to $15 million to $20 million.
We're tying up cargoes now into the end of the year and that.
That potentially requires us to reserve capital of almost $200 million.
And then we start talking about tightening up cargos financially.
And into next year or a quarter plus away that's over a half of $1 billion still.
The volatile and the volatility is just still elevated.
And even with <unk>.
I guess a.
A drop in LNG prices to an extent, even though we're still talking about 10 plus dollars. This year 20, plus dollars next year and onward.
It just doesn't make it to tenable to handle 130 <unk> that are open for us to let the CMI team has done tremendously well this year and is already doing as we speak is selling selling physical cargoes on a fixed price basis or even on the Henry hub plus basis.
And that's how we've been able to give you these guidance updates with confidence even though there has been just so much volatility so for the time being yes, we don't see financially hedging.
As a large tool for the company, but it will be a tool I mean, you see there is still a margin deposits on the balance sheet of over 200 million for the quarter.
So we are using it but we're being quite selective.
Alright, that's super helpful and enjoy the rest of the morning, everyone and thanks for the time.
Thank you.
We will take our next question from Julien Dumoulin Smith with Bank of America. Please go ahead.
Hey, good morning, Jack and team. Thanks for the time just to come back to kind of quantify some of this.
In terms of improving returns just if only simply because of the higher rate environment can you try to speak to that a little bit more in terms of what youre prospectively seeing in your counterparty conversations again.
I know that.
You try to provide some context in terms of the offtake prices themselves, but maybe reframe that in terms of returns. If you can elaborate on that initially and maybe speak a little bit to the pace of contract and obviously you've retained a certain portion in 'twenty three but what are you seeing in terms of your own commitment pace next year as well.
Alright. This is zach I'm going to try to answer some of that and I'll hand, it off to Anatol, but basically what a lot of these folks are experiencing as they try to.
I really really don't pertain to us today.
We started locking in our costs earlier this year and then we have a lump sum turnkey contract where I can still say to you that we're building stage III at six times Capex to EBITDA and it's under our lump sum turnkey contract with Bechtel and we have hundreds of millions of dollars of contingency that were baked into that cost that we haven't touched.
So we feel very good that we were able to be competitive in our two to $2 50 range for long term contracts and we're going to make double digit unlevered returns on stage III.
We're in the process of permitting trains eight or nine on top of that obviously, they're going to be incredibly cost effective considering we're not using tanks for our pipeline to expand there.
And we'll see where those prices shake out, but we think it's going to be extremely competitive and we will be able to offer a really competitive price out there without elevating prices all that much if at all I'll hand, it off to Anatol them, Yes, Julien. So we felt comfortable with this 2% to $2 50 range as you heard.
Some of the previous Q&A the market overall for U S projects has has firmed up a bit but it is still very much anchored in those.
Early stage developer proposals, we've always felt like we extract a premium for the operational excellence and the performance that we now have a track record of we don't participate in the race to the bottom and we have a lot of a lot.
Sort of components to our contractual agreements like the inflation mechanism that <unk> spoke to earlier that that are heavily negotiated and we think we will stand the test of time much better than than most of the other proposals that are in the market. So.
We're still very comfortable with the returns responsible for the top line of that Zach equation. I think we can continue to deliver those types of economics and.
And yes, we cheat with this brownfield advantage in operational excellence and cargoes that are incrementally available from Debottlenecking as part of that commercial.
Proposition, but.
The numbers that we're giving you today, we still feel very good and strong about it.
And it's nice to add that we're not really issuing debt all that much. These days, we're just paying down billions of dollars of debt. So we're just in a different world.
Then we would have been 10 years ago.
In a rising rate environment.
Totally.
Understood.
It sounds like return disclosure that you guys are writing are largely unchanged.
Albeit elevated nonetheless, if I can just to come back and clarify some earlier on pre filing.
Should we expect a regular cadence.
Do you think about the your regular deployment of Av.
New liquefaction out in the decade as you alluded to a moment ago. You would expect next year. Some pre filing should we expect them to sort of overlap in the <unk>.
And regular cadence.
Or do you think that because as you say you need a dot your i's and t's here.
You can't have as much of an overlap I know that that was a little bit of a thought earlier, but just coming back to clarify that.
No I think <unk>.
And you should expect some overlap between the two sites you want we're not going to have overlap on one site.
Got it Okay, Alright fair enough. Thank you guys.
Okay. Thanks Julien.
We'll take our next question from Ben Nolan with Stifel. Please go ahead.
Thanks, Hey, guys.
Yes.
I am surprised that nobody has mentioned this yet, but how about Christian Javier and those Astros yesterday my goodness.
Matt Thank.
Thank you for mentioning that because.
Okay.
Before it was a bad night.
And last night data for it. So we're very excited to have them come back home and bring home the World series right here in Houston.
Absolutely I'm with you soon.
Yes.
Two quick questions here is.
First of all I am curious, where you stand as it relates to LNG shipping obviously, we've seen any shipping rates.
<unk>.
Blowed here recently.
A lot of what you do is fully contracted but maybe just any update on sort of.
How you are positioned in.
In that respect.
Yes, Thanks Ben.
We operate a long term business that has long term commitments and lots.
Lots of flexibility within that.
Learned our lessons really before we started in the market.
And are not in a position to risk being short shipping. So we're we're well protected our delivered contracts on our producer contracts have a lot of optionality embedded in them that are paid for by our customers and we take advantage of that as Jack mentioned earlier in some of the optimization opportunities we have.
We've experienced over over this year. So we're in good shape and in the markets give us on that side at the moment, yes, I'll just add.
At this point, where basically the second largest charter of ships in the world.
And we've been proactive on this and as we sign up the CES deals our IPM deals where typically almost simultaneously locking in long term charters so going into this winter even going into this year. We've had a large portfolio that's well under 100000, a day when prices have been doubled tripled sometimes.
Quadrupled or more so thats been part of the tailwind to EBITDA this year and even part of how we got to the upper end of the guidance range at this point and just the last month.
Some of the sub chartering that we've been able to do as we haven't used all our ships to get to Asia, but are directing them towards Europe .
That's great color appreciate that.
Alright, and then as my follow up.
It's interesting to hear you guys talking about sort of beyond.
The next phase of Corpus Christi, I'm looking to potentially do something.
Being passed I'm curious, how you're thinking about the way that it's done obviously here lately youre doing the mid scale.
Versions is that is that just because they happened to be a good fit for where the.
What you are trying to do with stage III or are you thinking that whatever the mid scale model is probably the way that youre going to be moving forward with all your incremental development going forward.
Now we're looking at all.
All of the technologies. So we're looking at gas compression, we're looking at large electric compression, we're looking at mid scale electric compression. So.
We're doing a complete.
Evaluation.
I like the mid scale solution for for stage three.
It helped control the inflationary pressures that we see on the large trains with a lot of.
Nine nickel and precious metals.
But it doesn't mean, that's where we're going to stay for for the rest of the portfolio. So we will develop a solution that is appropriate for the site.
Okay I appreciate it thank you.
We will take our next question from Alex Kenya with Wolfe Research. Please go ahead.
Alex Your line is open please check your mute button.
Sorry about that mute.
Thanks for taking the time.
Just can you talk a little bit more maybe just about the <unk>.
Broader landscape of these partially contracted LNG projects.
Do you think that ultimately.
That a fair amount of those may not end up moving forward and if so.
Do those kind of represent commercial opportunities for you to kind of discuss kind of thumb.
Contracting with some of these parties that are that are already on board. Some some some projects that may end up not moving forward.
Yes, Alex as Anatol I'll try that first and see if anyone else wants to chime in but we.
The loss of Arctic, Russia, as a major supply nodes to meet the LNG demand.
U S was the next logical choice you saw this.
This rush to contracts 40 million tonnes year to date and $30 million of that has has yet to be performed on.
And like with all of these.
There isn't a simple answer these questions anymore as the market becomes large diverse has multiple participants.
There are a lot of.
Load serving entities in that 30 million tons that need the LNG and there are a lot of opportunistic buyers and those 30 million tons that are just out there to see what can possibly get over the finish line and offered the kind of attractive economics that were too good to pass up so.
There's some of each we certainly think that that.
We're in a great position to continue to grow our platform.
Judiciously and potentially benefit from some of the buyers that really need the supply over the coming over the coming years.
Great. Thanks, and then maybe just to follow up on the rating agencies I mean, I know they've had some time to digest the capital allocation plan that <unk> had are decent rating updates do you kind of have a sense, though broadly about.
How maybe that trend towards the investment grade goal may look heading into next year or so just getting a sense of the range is what else the rate agencies need.
To get U K uniformly internet Triple B range.
Sure. This is Zack again, and I'll, just say, we feel quite confident that our balance sheet strategy has been validated.
Even recently with the remote momentum on the ratings.
<unk> finally, starting to catch up to the momentum on the on the debt Paydown on the credit metrics that are at this point under three times, even on an LTM basis.
But I guess, how I'll put it is we're on the <unk>.
In the spirit of the Astros being in the World series and then no hitter last night, we're in the homestretch on getting to the IAG and basically the game plan is we're going to inundate, our overwhelm them with a little more debt paydown.
And EBITDA growth.
Yes, it's just going to be too evident when you add onto that the execution from operations and construction and just the contracts I mean, we have over 30 Counterparties average rating a remaining life of the contracts of 17 years for over 90% of our capacity.
So when you add all that up.
Yes, we're pretty confident we're going to get there by the first half of 2023, if not sooner and.
Seeing all the agencies provide upgrades already this year.
We're just getting started there.
Great. Thanks, so much take care.
We'll take our last question from Craig Shere with Tuohy Brothers. Please go ahead.
Thanks for fitting me in.
Just kind of picking up a little on the last question about contracting.
Note that long term SBA is from prospective in actual U S projects kind of materially trailed off the last couple of months.
Given that brief hiatus wondering Paul if you can opine on your confidence that the Europeans will step up to the table again into the first half of next year.
If you could give us a sense to the degree you think cheniere or being short listed by the Europeans.
On perspective, new long term commitments due to a combination of bridging cargoes a desire to reward those who help this year and the desire to work with partners that can make clean energy investments and the medium and long term and <unk> and hydrogen are priority.
Thanks, Craig for the leading question.
If I ever gave you the impression that we feel confident that there will be in our model of <unk>.
P and load serving utilities as Counterparties I misspoke.
I think that.
Those will be few and far between we of course have.
I have done the transactions with <unk> as you know this year and we are optimistic that that European based buyers will be part of the portfolio and part of the solution going forward, but we do see the the Asian market is as the primary growth driver in the primary long term.
Contracting opportunity year to date, there's been precious few.
I think what you would call European buyers.
Have come to the table Youll see them here and there. We're obviously in those discussions as you said, we bring a lot to the table, but they are there are fewer and far between and even though we have been a critical part of rebalancing Europe .
Last year and this year and we will continue to do our best to support its efforts to to meet its energy demands. We don't expect a lot of.
Load serving European utilities to be in that.
In that 30 plus.
Counterparty list going forward.
Understood.
Thanks, Greg.
Thank you everybody. Thanks.
Thanks for your support of generics.
And ladies and gentlemen, this does conclude today's conference. We appreciate your participation you may now disconnect.