Q4 2022 Cheniere Energy Inc Earnings Call
Good day and welcome to the Cheniere.
Energy Q4, and fiscal year 2022 earnings call and webcast. This call is being recorded at this time I'd like to turn the call over to Mr. Randy Bhatia. Please go ahead.
Thank you operator, good morning, everyone and welcome to <unk> fourth quarter and full year 2022 earnings conference call slides.
A 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, Hagan Executive Vice President and Chief Commercial Officer, Dan Davis, Executive Vice President and CFO and other members of the senior management team.
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.
The call agenda is shown on slide three Jack will begin with operating and financial highlights Anatol will then provide an update on the LNG market and Zach will review our financial results in 2023 guidance.
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. This morning, as we review an incredibly rewarding a transformational 2022 and provide our outlook for what we expect to be another very busy and successful year for Cheniere and 2023.
Let's say 2022 with an incredible year for generic would be an understatement.
Correction and volatility dominated energy markets the world over as geopolitical tension in the weapons innovation of energy supply turbocharge already volatile markets.
<unk> from years of Underinvestment in infrastructure.
The criticality of reliable natural gas supply and are normally functioning energy system and the vital role natural gas plays throughout a developed economy.
Put on full display as the Worldwatch some of the wealthiest nations in the developed world scramble to ensure reliable energy supply for their populations and economies.
And while it appears now that is severe energy crisis in Europe over the winter has been narrowly avoided.
Situation there are only further reinforces the vital need for a reliable affordable secure and diverse energy mix.
At <unk>, we were proud to play an important role in helping balance global energy markets at a time when it was needed most.
With the early completion and advanced startup of train six at Sabine pass as well as optimizing our maintenance schedule. We produced approximately 44 million tons of LNG during 2022, 72% of which was directed to Europe .
Further illustrating the value of destination flexibility, which generic pioneered.
And of course over the summer, we reached <unk> Corpus Christi stage III.
Which will bring an additional 10 million tons of much needed LNG to the global market and our long term customers beginning in 2025.
Over the course of 2022 to focus of the global natural gas industry for both suppliers and consumers crystallized to the trilemma of energy security affordability and long term environmental performance on.
On each of these critical points Cheniere offers a market leading solution, which is skills my confidence in our growth potential, which I'll speak to in a few minutes.
Please turn to slide five.
I will review key operational and financial highlights from the fourth quarter and full year 2022, and introduce our 2023 financial guidance.
We generated consolidated adjusted EBITDA of approximately $3 $1 billion in the fourth quarter, bringing our full year total to approximately <unk> 11 6 billion.
Above the high end of our guidance range.
We generated approximately $2 $3 billion of distributable cash flow in the fourth quarter, bringing the full year 2022, DCF total to approximately $8 7 billion.
Also above the high end of our guidance range.
Looking back at the original guidance provided in November of 2021, we beat the midpoint of each of those guidance ranges over $5 billion.
Illustrating the extraordinary nature of the global gas market and the value of our ability to be a reliable operator and supplier during the year.
For the fourth quarter, we generated over $3 $9 billion of net income and our annual total is a positive $1 4 billion.
Our net income continues to be impacted by noncash unrealized derivatives.
Which worked in our favor in the fourth quarter as global gas markets moderated.
During the fourth quarter, Zach and his team made excellent progress on our capital allocation plan deploying billions of dollars into capital return via debt repayment share repurchases and increased dividends as well onto disciplined accretive growth at Corpus Christi stage III.
Sitting here next to me.
Anxious to cover capital allocation in more detail.
So I'll stop there before stealing too much of his thunder.
Operationally, the fourth quarter and full year 2022 were exceptional.
Fortify engineer status as a leading global operator reliably producing LNG with safety at the foundation of every action we take during the quarter. We exported a record 166 cargoes from our facilities, bringing our annual total total to a record of 638 cargoes.
I'd like to recognize <unk>, approximately 550 professionals, who work tirelessly in 2022 for demonstrating engineers execution and operations leadership to the global marketplace and helping enable the outstanding results. We reported this morning, all while achieving record safety metrics.
Throughout the year.
Now shifting our focus to 2023 I'm pleased to introduce our 2023 financial guidance of $8 to $8 5 billion and consolidated adjusted EBITDA.
Five 5% to $6 billion in distributable cash flow.
And $4 to $4 25 and per unit distributions at <unk> I.
I am pleased to provide 2023 guidance figures that are significantly higher than our more normalized nine train run rate and I believe that the stabilization of both prices and volatility in the international gas markets will support stronger and faster demand growth ultimately this should support.
The long term health conviction and the structural shift.
To natural gas worldwide.
Turn now to slide six where I'll cover my key priorities for 2023.
First and foremost we.
We have an established track record earned over multiple years of delivering on our promises and I expect that to be maintained in 2023, we.
We have set ambitious but achievable guidance ranges for the year.
And our focus will be on strengthening that track record by delivering on our financial guidance.
In 2023.
<unk> CMI volume and without the variable of new capacity entering service.
We have a higher degree of visibility on our metrics and we did a year ago to hit our forecasted production estimates and continued to progress on our 2020 vision capital allocation plan.
Second we expect to lead with organic growth and have over 30 million tonnes currently under development or under construction.
Our 40 plus billion dollars in infrastructure investments as one of the biggest competitive advantages we have as it enables economically advantaged capacity expansions such as Corpus Christi stage three.
Construction activities at stage III is progressing and while it's too early to say we are ahead of schedule. Since we are about 2% complete on construction.
<unk> is beginning to execute on some.
Some aspects of early construction ahead of plan.
On the growth front beyond stage III, we're progressing through the pre filing process in Mexico of trains eight nine at Corpus Christi, and we expect to submit the full filing to FERC before the end of the first quarter.
Over at Sabine Pass I Hope you saw our announcement. This morning that we have just initiated the permitting process for a significant capacity expansion there by submitting pre filing documentation to FERC.
I'll discuss this project in more detail in next slide, but we are extremely excited about developing this expansion of Sabine pass, which could add approximately 20 million tons of additional capacity at the site moving.
Moving this project through the engineering and construction and permitting process will be a major priority in 2023.
Anatol Ramzi and the team are actively commercializing this new potential investments.
Third we will further advance our climate and sustainability initiatives.
Which we like to describe as actionable not aspirational.
Despite the industry wide focus on energy security in 2022, improving environmental performance remains a long term goal in establishing and maintaining environmental competitiveness is critical for continued natural gas.
<unk> and therefore, the long term resiliency of LNG.
The programs, we have discussed on recent calls such as our <unk> program, our cargo emission tags and joining the U and oil and gas methane partnerships are all efforts on which I expect continuous focus and improvement and refinement to further reinforce <unk> leadership position.
On these crucial efforts.
Now turn to slide seven.
We're I'll share some details about our next major capacity expansion at Sabine pass.
We've just commenced the permitting process on this large scale project by submitting the pre filing documentation to FERC.
We expect to submit the full filing before the end of the year and look forward to working with FERC and permitting this major brownfield capacity.
Sanchez.
The Sabine pass expansion project is being designed for approximately 20 million tons of LNG the.
The project is expected to consist of up to three large scale liquefaction trains utilizing the same liquefaction process technology. That's deployed on the fixed operating trains SDL each.
<unk> is expected to have a nominal production capacity of approximately six 5 million tonnes.
The project is also expected to include a boil off gas <unk> unit, which would add almost 1 million tonnes of production and two full containment LNG storage tanks.
You can see the rendering of the projects on this slide.
Been hard at work on early stage development of this project and have backed already engaged on front end engineering and design work and are excited about transforming the engineering drawing on this slide into reality at Sabine pass.
We will develop the Sabine pass expansion project utilizing the same rigorous and financially disciplined approach to project development and capital investment.
Become accustomed to from Cheniere.
The SPL expansion project is consistent with our significant growth plans, we laid out in our capital allocation presentation in September .
We showed a potential 90 million ton platform across the main pass in Corpus Christi.
Our infrastructure platform is an enormous competitive advantage.
Which this project is expected to capitalize on.
In order to deliver brownfield economics.
As the world cost for more LNG capacity <unk>.
<unk> is in an economically and environmentally advantaged position to provide that incremental capacity. We look forward to updating you on this large scale growth projects at Sabine pass as well as the developments at Corpus as we move through this process.
Thank you again for your continued support of generic I'll 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 nine.
An accelerated post pandemic recovery, followed by the curtailment of Russian gas flows into Europe made for a sharp increase in LNG demand in 2022 with.
With limited new liquefaction capacity in several production outages. The LNG market remained extremely tight throughout the year as we saw prices reached all time highs and remained elevated.
Despite the supply side challenges global LNG trade grew by approximately 5% from 2021 or an additional approximately 19 million tons.
For all U S exports increased 9% year on year up $6 3 million tons to $76 five M. Tpa in 2022, despite the Freeport outage during the second half of the year.
U S. LNG represented nearly 40% of the growth in global LNG supply and the early completion of our ninth train meaningfully contributed to that growth.
As Jack noted our increase in production enabled cheniere to help answer Europe's call for reliable flexible natural gas supplies.
Having lost Russia is a significant supplier Europe became a substantial demand center for LNG, attracting approximately 70% of all U S. LNG in 2022 as prices reached record levels and redirected destination flexible U S LNG volumes to address the deficit.
The CTF monthly settlement prices averaged around $40 per btu in 2022.
Over 180% higher than the $14 average in 2021 and.
In the fourth quarter, TGF monthly settlement prices averaged $42 per btu or 46% higher year on year, but significantly lower than the peak of nearly $100 of them of Btu in late August .
Similarly, the 2022, Jacob average settlement price increased by over 125% year on year to an average of $34 Permian Btu for the fourth quarter average price, increasing 38% year on year to an average of $38, but well below the summer peak of nearly 70%.
In the U S. Henry hub price averaged nearly $7 22, but has moderated considerably since the peak in September and is now trading well below $3 per M and btu.
This rapid correction driven by North American production growth again demonstrates the relative attractiveness of Cheniere as Henry hub denominated long term Fob Mds contracts and.
And underpins producers' desire to diversify away from solely domestic indices.
Despite the retreat of global gas prices to prewar levels, beginning in the fourth quarter and into 2023 on the back of a mild winter and demand reduction efforts in Europe . The overall market remains volatile and we expect volatility to remain elevated as Europe's sorts out its near and long term gas supply strategies and the impact of a post.
Covid, China on the market becomes more apparent.
Let's now turn to slide 10 to address regional dynamics and some more detail.
As noted much of the flexible LNG in the market was directed to Europe and was able to offset a large part approximately 84%.
Of the 74, bcm or 55 million ton reduction in Russia and gas supply.
Europe's LNG imports totaled over 120 million tonnes of which 110 million tonnes went to EU, plus UK, which is a 69% increase year on year.
U S LNG to the block plus the UK totaled 48 million tons, a 165% increase year on year, clearly destination flexible U S. LNG was able to answer in Europe's call for natural gas supply in 2022.
Throughout the year, the EU implemented several extraordinary measures to mitigate the potential impact of a complete cutoff of Russian gas and potentially cold winter amid low nuclear and hydro generation output.
As Jack noted the challenges the European Nations face were significant.
But these measures along with mild weather and demand price response enabled Europe to replenish its inventories and avoid a potentially crippling energy crisis in the near term.
Some of the coordinated initiatives included a regulatory push to immediately increase LNG import infrastructure diversify supply sources and reduced natural gas demand.
To date five new Regasification terminals have commenced service in Europe since September a key enabler of europes ability to grow LNG imports to record levels in the fourth quarter.
Demand reduction efforts have also been made across Europe residential commercial and industrial customers were able to reduce aggregate demand by an estimated 12% during the year as power generation resorted to increase coal usage a trend that we think will reverse in 2023, given elevated gas storage levels and again a mild weather.
Outlook.
At present it appears the European gas system will make it through this winter without the enforce supply restrictions many had feared.
Amid historically high LNG prices, the global inflationary environment, lower economic activity and lower market liquidity some of the more price sensitive Asian buyers withdrew from the spot LNG market <unk>.
Imports into Asia declined by 20 million tons or 7% year on year with nearly 16 million tonnes of the drop attributable to China.
This was the first substantial annual decline in LNG imports since the country began importing in 2006.
China's economy faced extended Covid restrictions a property sector crisis in severe drought all of which led to a drop in total gas demand of four bcm in 2022 with a decline led by the industrial and power generation sectors.
Similar to parts of Europe , low hydro output and high gas prices supported increased coal generation in the second half of 2022.
However, with JK Aman DTF prices moderating, we expect to see price sensitive Asian, LNG demand resume and indications of higher industrial activity in China as Covid restrictions are lifted.
The latter of course could have a potentially material impact on next winters global balance.
Let's move to slide 11.
Europe shift away from Russia created an immediate supply gap of approximately 70 bcm in 2022, which will likely rise to approximately 110 bcm in 2023.
Assuming Russian pipeline supplies are eventually fully curtailed the gap created of 100 MTA is equivalent to around a quarter of the current global LNG market the.
The magnitude of the supply shock stress the global LNG market in 2022, resulting in some demand destruction in certain regions during the year.
More important however, as Jack noted the market dynamics of 22 highlighted the critical role of LNG and ensuring energy security underscoring the importance of long term contracted reliable LNG supply in the global energy mix.
While short term dynamics of dominated headlines and narratives over the last year. The long term fundamentals are central to our strategic planning and positioning and the need for further investment in LNG capacity was again laid bare last year over the next few decades, both the supply and demand side are supportive of new liquefaction infrastructure. In addition to high project.
<unk> hurdles capital intensity and long construction timelines for new LNG facilities.
Legacy plant utilization rates worldwide continued to decline as a result of outages feedstock limitations and fleet inefficiencies as well as competing domestic demand in some markets.
Since 2010, the volume produced from these legacy projects has declined by 23% are over 25 million tons further.
Further contributing to the need for more capacity.
These facilities produced about a quarter of all total volume last year their contribution will likely decline over time as feedstock resources deplete their ability to export declines and their performance potentially degrades means.
Meanwhile, investment in downstream LNG infrastructure continues to grow not only in Europe , but also in other parts of the world.
Over 370 million tons of re gas capacity is under development, which is equivalent to about 80% of global LNG trade today.
Are there more nine new markets are expected to enter the LNG trade in the next two years, including Vietnam, The Philippines and Garner just to name a few.
Investments in new LNG supply of critically needed not only to address the current market imbalance and meet the expected long term demand growth, but also to offset declining production from certain legacy production facilities to.
To this end Cheniere is doing its part with over 10 million tons under construction and another 20 million tons in the permitting process. We aim to leverage our many advantages to economically contributes to the overall reliability security affordability and scale of the global LNG market with commercial support for capacity beyond Corpus.
Christi stage III in hand, the team is well positioned to leverage that success as we develop and commercialize the SPL expansion project.
That I will 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 fourth quarter and full year 2022 results and key financial accomplishments in 2023 financial guidance.
As Jack and Anatol as noted 2022 was quite a year for our company, our stakeholders and our industry as a whole and the financial results. We reported today once again reflect the cheniere team's unwavering commitment to operational excellence execution and financial discipline.
Which is especially important throughout this period of prolonged volatility in the global energy markets.
Turning to slide 13 for.
For the fourth quarter and full year, we generated adjusted EBITDA of approximately $3 1 billion.
And $11 6 billion.
Respectively, and distributable cash flow of approximately $2 3 billion.
$8 7 billion.
Or approximately $35 of annual cash flow per share with the full year results exceeding the high end of our latest guidance ratios ranges provided in September .
Thanks to these full year results ending up close to $5 5 billion higher than our original 2022 guidance, we've been able to transform our capital allocation objectives now as an investment grade company with stage III construction fully underway and a sharpened focus on more robust shareholder returns in the form of our Upsized 4 billion buyback.
Graham and our competitively growing dividend.
During the fourth quarter and full year, we recognized an income 591, and 2317 <unk>, a physical LNG, respectively, which included 581 and 2288 <unk> from our projects.
10 in 2009, TVT sourced from third parties respectively.
Approximately 80% of these LNG volumes recognized in income in both periods were sold under long term SBA or IPM agreements with terms greater than 10 years.
Our fourth quarter and full year results. Once again were supported by increased margins realized on our LNG delivered which were primarily driven by the elevated market pricing throughout the year and higher volumes produced at both of our sites. Thanks to the early completion and ramp up of SPL train six and the maintenance optimization announced in May.
Our total margins also benefited from portfolio optimization activities. In addition to the proceeds from the early termination of the Chevron to UA.
In addition, I would like to highlight that we generated net income of $3 9 billion.
And $1 4 billion for the fourth quarter and full year, respectively as.
As we've noted in prior earnings calls our net income line is impacted by the unrealized noncash derivative derivative impact primarily related to the mismatch of accounting methodology for the purchase of natural gas and the corresponding sale of LNG under a long term IPM agreements.
While this resulted in unfavorable changes throughout most of 2022 as international gas prices rose during the fourth quarter. The moderating of international gas price curves provided a significant benefit, allowing us to hit an inflection point with cumulative positive net income for the preceding 12 months for the first time in a few years.
Before discussing our financial guidance and priorities for 2023, I'd like to recap some of our key financial accomplishments for 2022, and how effective we've been in allocating the capital back into the business and to our shareholders first and foremost I'm pleased to highlight that our commitment to achieving and maintaining a sustainable balance sheet was recognized by the <unk>.
Agencies with 13 distinct upgrades to our credit ratings across our corporate structure over the last year, including the achievement of two investment grade ratings at each of our parent entities solidifying Cheniere is officially investment grade.
In November S&P upgraded Cheniere and <unk> by two notches to Triple B.
With a stable outlook marketing scenarios first and <unk> second investment grade rating.
Not long after Fitch initiated its coverage of Cheniere with a triple b minus rating and a stable outlook.
As you all know achieving investment grade has long been a goal of ours as we believe it best positions cheniere for the future and validates the long term value and sustainability of our platform <unk>.
During the quarter, we prepaid approximately $2 2 billion and consolidated long term indebtedness, bringing our total debt pay down to just over $6 6 billion through.
Through the fourth quarter since launching our original capital allocation plan in 2021 with over $5 billion of debt reduction in 2022 alone since our third quarter call. In November . We also issued $500 million of senior secured amortizing notes due 2037 in the public and private debt capital markets.
The proceeds of which were used along with cash on hand.
To redeem the remaining SPL 2023 notes.
In December we also repurchased over $750 million of the outstanding 2024 notes at CCH pursuant to a tender offer and in January we redeemed the remaining nearly $500 million outstanding with cash on hand.
We also continue to utilize our open market repurchase program and in the fourth quarter repurchased over $400 million and principal of outstanding CCH notes with maturities ranging from 2025 to 2039.
With all that said today, we have almost $10 billion of consolidated available liquidity, including our bank facilities investment grade balance sheets throughout the cheniere structure and our nearest maturity is not until next year.
I am very proud of what our team has accomplished at such an accelerated pace as each of these transactions reflects our focus on managing our debt across the corporate structure Opportunistically and strategically for the long term.
As we mentioned back in November now that we have solidified our balance sheet and reached our initial investment grade goals. We are balanced at our priorities recalibrating, our debt paydown to share repurchase ratio from 41 to one to one as outlined in our revised capital allocation from last September .
In fact in the fourth quarter, we repurchased approximately four 4 million shares for over $700 million.
Our total shares repurchased during 2022 to $9 3 million for approximately $1 4 billion.
Given our one to one cumulative goal over time, you can expect that we will continue the share buyback momentum with growing relative buyback allocations for 2023 in order to achieve our cumulative of one to one target ratio with debt Paydown.
We also paid $1 38, and a half cents per common share and dividends last year inclusive of a 20% increase for the third quarter and declared and paid our sixth quarterly dividend of <unk> $39 five for the fourth quarter. This past month.
We intend to follow through with our previous guidance of growing our dividend annually by approximately 10% into the mid 2020 through construction of stage III.
Turning now to slide 14, where I will discuss our 2023 guidance and update you on our open capacity for the remainder of the year.
For 2023, our guidance is eight to eight 5 billion and consolidated adjusted EBITDA, and five 5% to $6 billion and distributable cash flow or over $20 of cash flow per share.
These ranges reflect current international gas prices curves as well as our significantly smaller open position relative to 2022, given the start of several long term contracts this year and our planned maintenance at Sabine pass.
Thousand 22 was an unprecedented year with.
EBITDA and DCF approaching double and triple our respective nine train run rate guidance levels for those metrics two.
2023 is shaping up to be another incredible year with guidance ranges multiple billions of dollars above the run rate levels for both thanks.
Thanks to proactive management of our open capacity, despite a higher contribution from long term contracts in 2023.
Our focus remains on achieving the 2020 vision of generating over $20 billion of cash and over $20 DCF per share.
And our expectation on accomplishing that plan hasn't wavered, despite the moderation in near term prices highlighting the stability and visibility of our long term cash flow profile.
With regard to open capacity, we have less than 70 <unk> of unsold LNG remaining 20 of which are reserved for long term originations and we currently forecast that a $1 change in market margin would impact EBITDA by approximately $50 million for the balance of 2023.
The marketing team has done an excellent job proactively selling our open capacity since November from 150, <unk>, which has allowed us to come out with this guidance range of over $8 billion today and keep us on track with our 2020 vision.
In addition, our results could be impacted by the timing of certain year end cargoes heading into 2024.
Distributable cash flow for 2023 could also be affected by certain contemplated changes in the tax code under the IRI. However.
However, the guidance provided today is based on the current IRI tax law guidance in which we would not qualify for the minimum corporate tax of 15% this year.
However, both of these dynamics with mainly affect timing and not materially impact our cumulative cash flow generation through the mid 2020, as we think about overall capital allocation deployment.
Looking back on 2022 year was filled with uncertainty across global energy markets, but the Cheniere team remained focused on what we could control the reliable safe and seamless operations at Sabine pass and Corpus Christi, which enabled us to achieve extraordinary results across our business accelerate our follow through on our commitment to capital allocation by.
Deploying over $8 billion towards our all of the above plans, including our growth objectives with stage III.
Our conviction in the critical long term role of natural gas across the globe to address the trilemma of energy security affordability and long term environmental performance has only grown in the wake of energy market volatility last year.
We are positioning cheniere for the future and everything that we do including our accretive growth projects, our investment grade balance sheet, and our long term commitment to generating meaningful and sustainable shareholder returns.
That concludes our prepared remarks. Thank you for your time and your interest in Cheniere operator, we are ready to open the line for questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
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Also.
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Opportunity.
Question.
And our first question comes from the line of Brian Reynolds with UBS.
Morning, everyone and congrats on now qualifying for S&P 500 eligibility.
Maybe to start off just on the macro we see a much different headline tcf and JK and price versus our time to get on the last conference call.
That side were starting to see some green shoots on demand recovery in both Europe and Asia and was curious if you could broadly discussed perhaps what are you seeing in terms of near term demand coming back supporting the spot market and then as a follow up perhaps on a longer term basis.
A more normalized headline price are you seeing a pickup in contract and activity from.
From Counterparties.
<unk>.
Thanks, Brian I'll turn it over to Anatol and he can talk about the demand growth that we're seeing across the globe.
Hey, Brian Good morning. Thanks.
We've had very good engagement throughout 'twenty two as you can imagine as we've discussed in the prepared remarks and throughout throughout the last few years the value of that long term contract the stability reliability.
Getting these volumes at a quarter or a third of that headline price has never been clearer than it was throughout 'twenty. Two so we're very encouraged by what we're seeing we while we obviously saw a short term demand destruction to your point. Most countries remained very committed to gas continued to invest substantially in infrastructure, whether that's China, India other South East Asia.
Markets et cetera, Europe of course, and we're very encouraged by a very broad mix of.
Committed interest to our products so feel very optimistic about the hand, we're dealt and obviously very excited that now the SPL expansion that was out there for us to really hit the ground running.
Great Thanks, and as a follow up on just capital allocation.
Recent investment grade upgrades by two agencies and growth Capex and dividend seems to be spoken for for the next couple of years should we view cheniere through the lines of a return of cash story via buybacks or are there any moving pieces that we should think about for use of excess cash flow and the excess balance sheet capacity that you have now thanks.
Hey, this is that and I think you've got it right but.
Over $700 million our buybacks in Q4 was the most we've ever done strategically.
We were thinking about late last year and early this year, we were really just trying to take care of the ratings and then we overloaded the debt pay down to get there once and for all with Fitch and S&P.
So the guidance is one to one we did pay down a bit more debt.
The last quarter or so so it is time to catch up this year and going forward to get back to one to one on a cumulative basis.
And as you think about how much debt Paydown, we did over the last year. It was like five plus billion dollars. Just in 2022, Theres, probably about $2 billion plus of buybacks on a relative basis to debt paydown that needs to happen over the next year or two so we'll be keenly focused on that and obviously not a bad time.
To be buying back at lower levels than we thought we would be at this point.
And it will just help us solidify that 2020 vision that we remain on track for.
Great I'll leave it there thanks for the feedback and enjoy the rest of the morning.
Sure.
And we'll take our next question from the line of Jeremy Tonet with J P. Morgan. Please go ahead.
Good morning.
Good morning, Jeremy.
I just wanted to start off here on Sabine pass at.
At the risk of putting the cart ahead of the horse here just wondering if we could get any more color about how this commercialization process could look down the road and specifically if you're looking for gas sourcing would this likely come from the Permian New pipe. There, we think about financing with TTP be issuing equity.
Type of timeline for contract commercial commercialization will be thinking just.
Any bits of information you can provide as far as thoughts on what this can look like would be super helpful.
Thanks, Jeremy as you could tell from our prepared remarks, we are so excited about the Sabine pass expansion.
If you look at.
I'm trying to see what slide number it was Randy seven.
Of ours, you can see the rendition from <unk> <unk> of what it would look like that property is currently being utilized right now is lay down area. So it's been it's it's primed and ready to go which is one of the advantages that we have as a brownfield site. The infrastructure is there at the facility.
And there is a huge push in.
Pool from the customer base worldwide. So you all remember back in 2016, when I started we had 13 foundation customers. We now have over 33 those are customers that would take at least a cargo of month and and have a tenure of over 20 years.
And that customer diversity is has grown dramatically as our contract structures have grown between Fob def's, ipm's et cetera, and who knows what's next but that anatol on Ramsey have in their back pocket, but.
I will turn it over to Zach to talk about some of the more specific details.
Sure and then I'll hand, it off to Anatol can give you a little update on how he's thinking about contracting the project going forward, but basically we're just starting that permitting process and engineering work with bechtel.
And it's going to be quite some time before we spend even more than $100 million as we develop that over the coming year or so.
But obviously since its brownfield that should be cost advantage, but it is 20 million tons. So you can imagine we'll approach it like we've approached everything likely even in stages.
As we've done on previous projects just to be more efficient with the bank debt capital raises and spreading out the equity over time, but the key component for us as we think about financing. It is the fact that we now have this base plus variable distribution policy at <unk>.
So we can go through a major expansion at Sabine maintain the base distribution, which is over $3 $3 10.
And live within our cash flows and stick to the same amount of 50% give or take of leverage and make it work, which is a pretty nice place to be now CQ.
<unk> works as is and we will obviously it goes without saying that we will hold to our investment parameters to make sure that it's accretive not just on a value basis, but a credit basis too.
And have all the other bells and whistles that youre accustomed to having with us when we have a project and.
Just two.
Diving a little bit to your question.
As you know the integration of upstream infrastructure solutions and gas supply has been a key success factor of hours and be one of our main kind of structural advantages. So we take that extremely seriously and we will have robust solutions for that and the customer mix the crystal ball is.
Fairly similar to what we have experienced over the last.
Three to four years in a very healthy credit worthy mix, but that does include.
Producer customers of which.
Partially to your question includes not only the liquefaction fee, but also the gas supply component and the opportunities to optimize those volumes flexibly downstream so.
Youre going to see from the commercial side.
<unk> youre going to see.
European and Asian buyers and I think everyone is excited about this opportunity.
<unk> to continue to serve the market with this growth.
Got it that's very helpful. Thank you and just wanted to kind of touch on some of the other points you listed on that slide as far as it relates to the boil off gas <unk> location unit and a combination for waste heat removal and Tcs just wondering if you could talk a bit more about these projects what type of economics to these capex to these projects.
Does it compete versus.
The facilities themselves and did things such as 45, Q I guess, possibly help economics here.
Yes, Jeremy so on the boil off gas right now the boil off gas to the facility gets re redirected back into back into the trains and gets reprocessed and that takes that takes up space and the train to our production numbers take.
Look the same but but our feed gas flows arent.
Arent as high as it otherwise would be and we you have.
And then Matt and figured that the boil off gas.
<unk> unit.
Would substantially help us increase the production throughout the rest of their facility. So that's a that's an added benefit that we don't currently have it at either of the sites.
And then secondly, you mentioned.
Some of the heat recovery units as you know I've been in power in my whole life.
I think <unk>.
Being able to capture the heart flue gas out of the end of the gas turbines run them.
Produce steam use that to make power just makes the whole process more efficient makes us much more competitive.
Overall, so we need to utilize that waste heat and it helps with our environmental profile.
So you should expect us.
To do to do what's right and that and that would be utilizing that waste heat and and reinjecting or sequestering.
The AGR use stream that comes off the gas stream.
Efficiently.
Got it thats great to hear about further optimization and squeezing every penny out Jack Thank you.
We will take our next question from the line of Mark Sollecito with Barclays. Please go ahead.
Hi, Thanks, good morning, with the formal upgrade to <unk> could you talk about some of the benefits that come with that are there commercially <unk> on the operational side with respect to the other working capital management or collateral requirements related to hedges or forward. So.
Sure so getting to IAG is yes more than just symbolic we actually have lower pricing now on our working capital facilities and revolvers and both the corporate revolvers are now officially unsecured which gives us even more flexibility going into the future. So so that's all helpful.
In addition to that all the optimization that CMI does sometimes even sourcing from third parties.
We're not posting nearly as much as we used to do with Lcs and things like that we can just use a parent guarantee that considering <unk> wholly owned <unk> cei. So that's pretty helpful. And then in terms of open credit we're getting more that's a work in progress as we speak.
Basically when it comes to financial derivatives and hedging that's still all about liquidity, yes, we might have a little open open capacity, but as we saw with the volatility of this past year, that's still a liquidity thing and what I mentioned on the call.
We literally have $10 billion of total liquidity with the term loan that's available the revolvers and cash on hand, so we have lagged a bit on financial hedging and thats been helpful.
Partially to why we're down to only 50 Btu really open going forward.
Great. That's helpful. And then following up on this call on a potential expansion at SPL.
Should we think about the key potential cadence there could you do those one train at a time and then for the 20 million tons of expanding capacity is there the potential for some additional debottlenecking on the existing capacity with some of the investment in the ancillary infrastructure.
My operating team never ceases to stop Amazing me with what Theyre able to do.
As far as our Debottlenecking and optimization efforts so.
I'd say, yes, and yes, it's our intent that we would commercialize these trains like we have in the past.
And and then.
Zach said could potentially build them in.
Virtually or in stages.
Great I appreciate the time.
If you find that your question has been answered you may remove yourself from the queue by pressing the star key followed by the digit too we will take our next question from the line of Jean Ann Salisbury with Bernstein. Please go ahead.
Hi, Good morning, just one more follow up on the commercialization of the Sabine pass expansion Anatol can you give some color on how much of a disadvantage. It is to not have the FERC approval in hand, when you are out trying to commercialize versus all these other approved untested operators in the market today, maybe it doesn't matter because generic reputation etcetera.
Just wondering.
Yes, what you said Jean Ann.
So we.
Very fair question, and we've thought about a lot as you know and.
And we've discussed over the years, what what that opportunity could potentially bias and as you saw last year as we're commercializing <unk>.
Corpus stage three.
We ended up commercializing things that.
We're well beyond stage, three and are sitting in an enviable position of having that portfolio of offtake in hand was almost 3 million tons at our option to convert to SBA. So.
It's great to have this.
Maps and renderings of course helped but as you said that that reputation and what what the Cheniere platform has armed us with on the commercial side is.
Is that a great track record and execution that.
Really is unmatched in the in the LNG market. So it's great to have this in hand, but but it is not a we don't see it as a disadvantage that we don't have the full 20 million tonnes approved today.
Great. Thank you and then can you kind of discuss the pros and cons that you weighed on your decision to return to full size trends for your next project rather than mid scale.
Yes.
Jinan now we have all the tools in our toolkit.
And when we looked at Sabine pass and looked at potential.
Potential different power solutions.
The most economical trains there are the large scale conocophillips trains versus.
The smaller mid scale.
Units and as you know when you look at your lifecycle analysis from from start to finish you have to consider what the power mix is and could be and unfortunately at Sabine pass the power would come from Texas, which is as you know predominantly coal fired power generation most of the year and.
That's more.
Not quite as clean on our lifecycle analysis as having gas fired turbines due to the compression for us.
There so that that's what led to our decision.
On larger trains it just made sense for Sabine.
Great. That's all for me thank you.
And we will take our next question from the line of Spiro <unk> with Citi. Please go ahead.
Thank you operator.
First question is just on EPC costs CNS.
<unk> escalation I guess, a broad just just given all the inflation seen labor shortages as well lingering theme here and really across the rest of energy historically <unk> had a great track record they are managing costs and timelines. We're just curious as you.
Are you guys thinking about those challenges on some of your upcoming projects are you balancing the ability to offer a competitive liquefaction fee.
So maintaining your target returns on these future growth projects.
No I look.
Sure.
We have a very strong relationship with backfill that's been built over the last decade.
They stay with us have gotten together.
We've used limited notices to proceed.
We've paid at.
At risk money early to lock in materials and supplies and we have been able to manage the inflation in that.
An escalation very effectively to meet our returns that we all have.
We have told you about in the past.
So I would expect us to be able to do the same here in regards to labor shortages, we haven't seen it.
We alluded to the fact that backfill as.
Is ahead of schedule on Corpus stage three.
It's my expectation that they continue to deliver well ahead of the guaranteed dates.
That are in the in the contract and.
I am witnessing again.
As we look at as we look at stage three so I think for the right employer for the right cost and backfill as a great employer on the Gulf Coast.
They are able to attract and retain some very <unk>.
Productive.
Gulf Coast workers.
Great.
Second question is just on spot volumes, you put away quite a bit on that side since the last update.
I'm curious if that level of activity has continued and as you think about placing the remaining 50 btu open for spot PTC value and waiting a little bit longer just getting some of those green shoots you mentioned or could we actually see you close out that remaining book even before the next earnings call.
Despite.
It's a great question and I have Corey Grindal setting.
Next to me Corey and the team.
As you know Cory as our new Chief operating officer as of this year, but prior to that he was in London and in Korea in the London team have done a great job of putting away some of these.
These cargos for so I'll, let corrine answer the question.
I think the simplest answer Spiro as we're going to have to wait on some of them because.
With our operational track record and the reputation that we've tried to keep we're going to have to keep some behind for later in the year possible activities like Hurricanes.
Well as we have some planned maintenance that we're going to do this summer that we've been very clear about.
We keep some.
And just in case.
Our maintenance takes a little bit longer so as we have opportunities in cargos get firmed up we'll continue to sell them, but what we sold is pretty much all of our firm cargoes right now and we will just continue to place it throughout the year.
And I'll just add Spiro as people think about the guidance and clearly people were pretty focused on how much did we proactively sell going into this call.
<unk> team did an incredible job.
Selling probably over 20 Bucks last year going into this year and still over $10. This year and as you think about the eight to $8 5 billion and EBITDA.
With only 50, <unk> really outstanding that's priced right now on the curb sub $10. So it's less than $5 billion in the whole Grand scheme of things. So it just shows how locked in things are right now.
I imagine kory and the team will will sell that as they can efficiently and.
And we will will.
We will come up with a smaller number than 50 on the next call on the call after that.
Great I appreciate the color guys. Thanks again.
We'll take our next question from the line of Sean Morgan with Evercore. Please go ahead.
Hey, Thanks, guys for taking the question.
So I think one thing that.
Obviously, the market has been a little bit surprised by the scale and scope.
In the past and I think thats going to be a positive surprises mechanic.
Go through the next couple of weeks in terms of people sort of reevaluating CPP growth, but <unk> historically been very attuned to the investors theyre attuned to sort of the distribution it looks like.
With the guidance now you are basically maintaining.
Most of this variable distribution component along with your sort of base distributions. So how do you sort of thinking about how you're balancing future capex.
To scope out and growth Sabine pass, what's kind of the distribution.
Mandate that you have.
Sure so.
<unk>.
Earlier on but the fact that we came out last year with the base plus variable GPU.
What was was for this purpose to give us the flexibility that it won at some point down the line.
We can go back to the base distribution in and decide how much is variable that we're willing to.
Distribute out and hold onto the rest as we build accretive projects that clearly clearly meet all our investment parameters.
So right now we're talking about a four to 425 GPU for 'twenty three our base distribution as three tenths, so theres at least a dollar or so in there.
Our variable distribution thats, because look we're not going to be spending all of that much money on this project during development and maybe 100 plus million dollars.
And if you count for a few hundred million dollars of debt pay down we could pay over four box.
When it comes down to it in a few years say 'twenty five 'twenty six 'twenty seven timeframe, yes, we had ramped down that dollar of incremental variable distribution. So that we can live within cash flows and just fund the projects steadily over time with that cash flow and the debt.
Thanks, that's really helpful and then on.
On the expansion I think this is pretty exciting for LNG industrials as well sort of puts that growth catalysts back on the table, that's maybe been a little bit lacking.
Stage III kind of wanted everyone's models so.
A question on the existing CMI marketing agreement with SPL and.
And will that be enforced for $20 million.
Sabine pass expansion as well and sort of.
That's the case what are we looking at in terms of sort of incremental volumes too.
C&I on a run rate basis, something like three to five mg per year, once it sort of commercialized and done and dusted.
Paul.
Hi.
A few things there in that question, but.
The agreement between CMI and both projects are are consistent and it would be the same for the expansions at Sabine and the expansions at corpus that would pay up to $3.
To take the volumes.
Around the world.
So that's answer number one and then the second question was.
How much volume this year in terms of how much volume.
Going to stick to our parameters.
We're not going to if we don't hold ourselves to the same parameters. We have done in the past. So we're talking about 90% contracted when it's all done and dusted.
Meaning that yes, they are because there's going to be a couple million tons two to three let's say.
Of open capacity added to the CMI coffers to manage overtime, but thats about it.
Okay.
Okay. Thanks.
Yes.
Obviously, we don't want to over promise for future Debottlenecking, that's kind of where I was getting to that higher range.
Understood that you guys don't like juul to over promise. So we'll just leave it that thanks, so much for taking the questions.
Thanks, Sean.
And we'll take our next question from the line of John Mccain with Goldman Sachs. Please go ahead.
Hey, Thanks for the time, maybe just thinking about the.
I guess, new kind of boil off unit proposed for this expansion and then also the Ccs so youre going to tie into it as this are both of those options at corpus.
<unk> existing footprint and kind of want to stage three is on liner and if not maybe why not maybe difference between two sites or something.
They are they are at corpus corpus is little bit a little bit different it's not currently in our plans.
Neither the Ccs or the boil off gas unit.
Right now, but so it would require us to file with FERC and <unk> and.
And get approval for those but.
But we hope to.
Get the technology down at Sabine get comfortable with it.
All aspects of it and then and then roll it out to the rest of our facilities in corpus would be that would.
Would be nachman, our next choice.
Alright, thanks for that and you touched on this a little bit earlier, but just going back.
For getting all this gas to Sabine.
And that kind of require longer.
Higher pipeline access just are your customers and I know, it's early days, but are your customers kind of looking at that and your ability to secure that feed gas before they're willing to commit to it or.
No John correct or kind of get enough there.
John today.
We bought seven five Bcf from 70 different producers.
Throughout all of North America, including Canada, we delivered to our facilities and it'll be Prost and loaded up on two tankers and shipped off.
So this is a blip in the Grand scheme of things.
We as you know we're the largest.
Purchaser of physical gas in the U S and the largest holder of gas transport pipeline.
We like touching all of the basins.
Does we have to deliver the molecule. So you should expect us to come up with a creative solution.
Okay.
Alright Crystal clear thank you.
Right.
And the last question comes from the line of Craig Shere with Tuohy Brothers. Please go ahead.
Thanks for fitting me in.
I just have one.
We think longer term about this one to one range.
The ratio for capital allocation.
When when Youre doing projects, perhaps three times, EBITDA, which which.
<unk>.
Our balance sheet stabilizing.
Does that particularly if they are large projects would that alter the longer term need for the one to one ratio.
I just want to correct that three times EBITDA first most it is around three times give or take when we can build on.
Capex to EBITDA at six times, and we do 50 50.
But again that that alone is going to be pretty helpful to delever. The story over time as we get through construction, but mind you construction's going to take four to five years, where we're going to have the debt before the EBITDA shows up so we're going to be pretty mindful of that that we continue to look just as good on a balloon.
<unk> screen as we do today.
As we build these projects the one to one is going to continue clearly we need to catch up on the buyback over the coming quarters and year plus to.
To get back to one to one.
And then you could see us follow through with that cadence through that 2026 timeframe that was the capital allocation guidance.
In September .
And we'll go from there.
This way we can build these multibillion dollar projects Accretively and still look pretty darn good on an LTM basis.
Gotcha, and I guess as a follow up.
You mentioned.
About four to five years.
Given these are larger size trend and you've ever built before.
<unk>.
These are the most brownfield can we see the first liquefaction and still under four years, that's going to take longer.
Hi.
I would imagine that technology is the same Craig it's just a little bit bigger.
So.
I would imagine that the E&C team can deliver like they have in the past.
<unk>.
And where.
Where the guarantee dates may be four years.
The actual first LNG will be significantly faster than that.
Great. Thank you.
Thank you.
Okay.
And thank you everybody.
We appreciate all the support.
And we hope to see you all soon.
This concludes today's conference. Thank you for your participation and you may now disconnect.
Okay.