Q1 2023 Cheniere Energy Inc. Earnings Call
Speaker 1: Please stand by.
Speaker 2: Good day and welcome to the Cheniere Energy first quarter 2023 earnings call and webcast. Today's conference is being recorded. At this time, I'd like to turn the conference over to Randy Bautia. Please go ahead.
Speaker 3: Thanks, operator. Good morning, everyone, and welcome to Cheniere's first quarter 2023 Earnings Conference call. The slide presentation and access to the webcast for today's call are available at Cheniere.com.
Speaker 3: Joining me this morning are Jack Fusco, Cheniere's President and CEO , Anatole Fagan, Executive Vice President and Chief Commercial Officer, Zach Davis, Executive Vice President and CFO , and other members of Cheniere's Senior Management.
Speaker 3: 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.
Speaker 3: Slide two of our presentation contains a discussion of those forward-looking statements and associated risks.
Speaker 3: 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.
Speaker 3: As part of our discussion of Cheniere's results, today's call may also include selected financial information and results for Cheniere Energy Partners LP or CQP. We do not intend to cover CQP's results separately from those of Cheniere Energy Inc.
Speaker 3: The call agenda is shown on slide three.
Speaker 3: Jack will begin with operating and financial highlights. Anatole will then provide an update on the LNG market and Zach will review our financial results in 2023 guidance. After prepared remarks, we will open the call for Q and I. I will now turn the call over to Jack Fusco, Senior's President and CEO .
Speaker 4: Thank you, Randy. Good morning. Everyone. Thanks for joining us this morning as we review our 1st quarter results and improve 2023 outlook.
Speaker 4: As you can see from the results, we have continued our exceptional performance from 2022, and our improved outlook for the rest of this year is reflected in our increased guidance ranges. The first quarter was highlighted by excellent performance across Cheniere's platform.
Speaker 4: From operations to project execution, to capital allocation and origination.
Speaker 4: While we are not yet able to share specific details, last week we executed a new long-term SPA with an investment grade Asian end user that is linked to the SPL expansion project.
Speaker 4: This is an exciting signal that we are already gaining early commercial momentum on our recently announced expansion plans. It's being passed.
Speaker 4: We look forward to providing more detail on this SBA in the near future.
Speaker 4: Please turn to slide 5, where we will review key operational and financial highlights from the first quarter of 2023 and introduce our upwardly revised annual financial guidance.
Speaker 4: This first quarter benefited from a number of discrete factors which drove EVA.DA and DCF higher, which Zach will address in a few minutes. During the first quarter, Zach and his team continued to make excellent progress on our capital allocation plan. We paid down nearly $900 million of debt and solidified investment grade ratings across the Cheniere complex, as we discussed on this past February call. We bought back over 3 million shares for about $450 million and paid our quarterly dividend of $0.39.5.
Speaker 4: So in total, almost $1.5 billion in capital return during the quarter, plus another approximately $550 million invested at stage 3 for our future growth. Operationally in the first quarter, we picked up right where we left off last year, further reinforcing Cheniere's status as a leading global operator, reliably producing LNG with safety at the foundation of every action we take. We set a new quarterly record, exporting 167 cargos of LNG in the first quarter, surpassing our prior record, which was set in the fourth quarter of last year.
Speaker 4: and preemptively answer your questions on guidance in a few minutes.
Speaker 4: Turn now to slide 6, where I will update you on the status of our expansion projects.
Speaker 4: Corpus Christi stage 3, which is under construction.
Speaker 4: Corpus Christi mid scale trains 8 and 9, which is now in the FERC process, and SPL extension, which is in the pre-filing with FERC.
Speaker 4: 1st, a Corpus Christi stage 3. Destructions ramping up as its head count on the site, which is now approximately 750 workers. And we expect this to grow rapidly as we begin to transform from site preparation and groundwork into mechanical works over the coming months.
Speaker 4: Over 7,000 piles have been driven and soil stabilization is effectively complete. Foundations are beginning to be poured.
Speaker 4: Piping and spools have begun to arrive and we expect to receive the first cold box at site next month.
Speaker 4: And its installation is an important construction milestone for stage 3. Overall, EPC progress is currently 28.7%, which is well ahead of plan. While construction is only 3.4% complete, early construction activities are already tracking ahead of schedule, increasing my confidence in schedule outperformance.
Speaker 4: And potentially having more volumes in 2025 and possibly the entire 7 train project. Being completed by the end of 2026 months ahead of the guaranteed schedule.
Speaker 4: Next, on Corpus Christi mid-scale trains 8 and 9, in line with what we told you last year when we pre-filed this project, we submitted the full application to FERC on trains 8 and 9 in late March. We are optimistic about the permitting process for this project, given its distinct advantages of being identical to the stage 3 trains, being fully commercialized with credit-worthy counterparties.
Speaker 4: and not requiring significant supporting infrastructure, and the synergy of Bectal already being mobilized on the site.
Speaker 4: We look forward.
Speaker 4: to working with FERC and all relevant stakeholder agencies and regulators on a smooth and transparent review process.
Speaker 4: Commercially, the project is already gaining traction. As I highlighted earlier, last week we executed an SBA of approximately 0.4 million tons per annum for over 20 years with an investment grade agent end user for LNG volumes delivered through 2047. Most of the volumes associated with the SBA are subject to FID of Train One of the Sabine Pass expansion project. We're excited to have already signed an SBA linked to the project and to be building commercial momentum as we progress development.
Speaker 5: I will now turn the call over to Anatole, who will provide an update on the LNG market. Thanks, Jack, and good morning, everyone. Please turn to slide 8. LNG production in the first quarter reached new highs as global reliability improved, with record monthly exports of 36 million tons in March. Following a period of outages across various plants worldwide, year-over-year increases in production were achieved in Norway, Australia, and Qatar in particular. In Norway, the Hammerfest facility was offline in Q1 last year, and Australia's prelude was shut down after loss of power in December 21.
Speaker 5: and did not restart until April of last year. And in Qatar, two megatrains were undergoing major planned maintenance in Q1 last year. Exports from the US were broadly flat year over year as Freeport LNG restarted production in February after having been offline since June of last year.
Speaker 5: Until then, we expect supply and demand to remain precariously balanced and sensitive to supply disruptions, weather, and demand shocks. We remain optimistic that the U.S. will continue to be a critical source of flexible supply in the market. U.S. flows to Europe continued to remain strong in Q1, helping ease market pressures and contributing to moderating prices. In fact, approximately 80% of cargos produced by our two sites were delivered to Europe in the first quarter. For more information, visit www.usda.gov
Speaker 5: Similarly, the JKM average settlement price decreased by 16% year-on-year to an average of approximately $26 per MMBtu. While both pricing indices are markedly lower than last year, global gas benchmarks remain at elevated levels. T1 marked an inflection point for average quarterly global gas prices as JKM surpassed TTF for the first time since Russia invaded Ukraine last year. Cheniere's value proposition, built on market-leading reliability, is of course further enhanced by a stable and affordable commodity.
Speaker 5: In the U.S., in March, the Henry Hub Front Month contract price fell below $2.00 in MMBTU for the first time since September of 2020.
Speaker 5: Henry Hub averaged approximately $3.40 in Q1 and the front month contract is now trading in the mid-$2 per MMBtu. Following the elevated pricing in North American gas markets last year, a production response led to a more normalized pricing environment.
Speaker 5: underscoring the abundance and relative affordability of Gulf Coast LNG.
Speaker 5: Europe has closed out this winter with gas inventories at or near the high end of its five-year range, thanks in part to record mild weather and sustained LNG flows. LNG imports remained robust, increasing 8% year-over-year despite labor strike activity affecting several French terminals in March. U.S. exports to Europe increased approximately 4% year-on-year in Q1 and about 15% quarter-over-quarter. The addition of five FSRUs over the past few months across the Netherlands, Germany, and Finland helped increase LNG import capacity and reduce locational price spreads.
Speaker 5: However, mild weather coupled with significant demand reduction efforts by European consumers resulted in a 12% year-on-year decline in gas demand in Europe's key gas markets in Q1. Gas burn in the power market remained suppressed in Q1, down 15% year-on-year, although elevated coal and emissions pricing could present opportunities for fuel switching.
Speaker 5: As mentioned, with storage levels above the five-year average this year, Europe is positioned well as it looks to replenish supplies ahead of the 2023-24 winter season.
Speaker 5: While further reductions in Russian pipe gas remain a risk, much of this volume was already lost in the demand response last year.
Speaker 5: Nevertheless, despite the European market's advantaged position coming out of the second warmest winter on record, the shortfall in Russian supply should remain an ongoing challenge for the global balance until new supply is dispatched.
Speaker 5: Longer term, forecasts indicate European LNG imports will remain stable at elevated levels, despite net-zero rhetoric and policy-induced pressure on the demand outlook for European gas. Leading LNG consultants predict that LNG demand in Europe will increase through the end of the decade before stabilizing above the 100 million tonne level through 2040.
Speaker 5: India, Pakistan, Bangladesh, and China, to name a few, has narrowed considerably as spot prices continue to moderate this quarter.
Speaker 5: demand response in these price-sensitive markets, especially with further moderation in prices, normalized weather, and a pickup in economic activity, will be a key determinant of market tightness in the medium term.
Speaker 5: As shown in the middle chart, Korea's imports were up 7% in Q1 due to nuclear maintenance, foretailed coal burn, and LNG inventory replenishment.
Speaker 5: However, elevated storage levels and the expected start-up of a new 1.3-gigawatt nuclear plant in Q4 could impact spot buying from Korea in the upcoming months.
Speaker 5: In Taiwan, imports rose 4% in Q1, driven by reduced coal-fired generation during the winter, and the decommissioning of a nuclear reactor in March.
Speaker 5: Thailand also grew imports 7% in Q1 in order to cover declines in both domestic output and pipeline imports from Myanmar.
Speaker 5: In contrast, LNG imports in Japan remained weak amid high inventory levels and improved nuclear availability year on year.
Speaker 5: Nevertheless, lower Japanese imports and reduced demand in China and India balance the gains in Korea and other parts of Asia.
Speaker 5: In China, Q1 LNG imports were down 3%, or half a million tons year on year, but we have observed some green shoots in leading indicators for demand growth as economic activity continues to pick up post lockdowns.
Speaker 5: With GDP expanding 4.5% year-on-year in the first quarter, China's gas demand grew 5.6% year-on-year in March, and LNG imports rose 14% year-on-year in March, marking the first positive increase in over a year.
Speaker 5: A potential increase in industrial gas demand from a 56% month-on-month rise in new home sales could provide further tailwinds for LNG demand later this year.
Speaker 5: Despite the recent weakness in Chinese LNG consumption, we believe China's long-term fundamentals remain strong and the nation is on track to become the first 100 million ton LNG market before the end of the decade.
Speaker 5: China's significant investment in natural gas infrastructure, from pipelines to regas terminals to gas-fired power generation capacity, coupled with its active role in the long-term contracting market, has demonstrated the region's commitment to natural gas as a long-term solution.
Speaker 5: As we've discussed before, we expect the immense economic growth and energy evolution forecasted for the Asia region to underpin decades of growth in LNG demand, driving the need for substantial investment in new liquefaction capacity.
Speaker 5: The over 20-year SBA, recently signed with an investment-grade Asian buyer, that Jack mentioned, is linked to the SPL expansion project and further evidences the global need for long-term reliable gas supply.
Speaker 5: The SPL expansion project is a major source of prospective new LNG supply, and we look forward to building on this commercial momentum, developing the project according to our high standards, and ultimately enhance Genier's capabilities to provide the market with reliable, flexible, and cleaner burning LNG supply for decades to come.
Speaker 5: With that, I'll turn the call over to Zach to review our financial results and guidance.
Speaker 6: Thanks Anatole and good morning everyone.
Speaker 6: I'm pleased to be here today to review our first quarter 2023 results and key financial accomplishments and to update you on our upwardly revised outlook for the full year.
Speaker 6: Once again, the outstanding financial results we reported today are the product of our team's unwavering commitment to operational excellence, execution, and financial discipline as we continue to create value for our stakeholders.
Speaker 6: Turning to slide 12, for the first quarter, we generated net income of approximately $5.4 billion, consolidated adjusted EVADA of approximately $3.6 billion, and a distributed cash flow of approximately $2.9 billion. As Jack mentioned, we added no health benefitsEG, no income, and and
Speaker 6: Our first quarter results were aided by our marketing team's proactive selling forward of some of our first quarter open exposure starting last year at margins higher than current market margins. As well as a contribution of 16 cargos loaded at year end 2022, but delivered in 2023. The majority of which were CMI spot cargos.
Speaker 6: and only 11 cargos in transit at the end of Q1. In addition, we benefited from a higher contribution from certain portfolio optimization activities from our IPM deals as well as vessel sub-chartering.
Speaker 6: These benefits were partially offset by a higher proportion of our volume being sold under long term contracts. And a lower lifting margin due to lower Henry Hub prices compared to the first quarter last year.
Speaker 6: During the first quarter, we recognized an income of 619 TBTU of physical LNG, all of which was produced at our two projects.
Speaker 6: Approximately 84% of these LNG volumes recognized in income were sold under long-term SBA or IPM agreements with initial terms greater than 10 years.
Speaker 6: As we've noted in prior earnings calls, a reported net income is impacted by the unrealized non-cash derivative impacts to our revenue and cost of sales line items, which are primarily related to the mismatch of accounting methodology for the purchase of natural gas and the corresponding sale of LNG under our long-term IPM agreements.
Speaker 6: The further decline in sustained moderation and volatility of international gas price curves throughout the first quarter served to benefit the mark to market valuation of these agreements.
Speaker 6: driving a negative cost of sales number for the quarter, and increasing our net income line item for the second quarter in a row.
Speaker 6: Excluding the impact of $4.7 billion of total unrealized non-cash derivatives, net income for the first quarter would still have been over $2 billion.
Speaker 6: and cost of sales would have been around positive $3 billion instead of negative $1.5 billion.
Speaker 6: With today's results, we have earned cumulative net income of over $7.7 billion for the trailing 12 months. And have now reported positive net income on a quarterly and cumulative trailing four-quarter basis two quarters in a row.
Speaker 6: Throughout the quarter, we continued to strategically pay down debt, pre-paying approximately $900 million of consolidated long-term indebtedness, and bringing our total debt pay down to approximately $7.5 billion since launching our original capital allocation plan in 2021.
Speaker 6: As noted on our last call, in the first week of January , we redeemed the remaining almost $500 million of outstanding principal of the CCH notes due 2024. And throughout the quarter, we continue to utilize our open market repurchase program, opportunistically repurchasing nearly $400 million in principle about standing CCH notes.
Speaker 6: with maturities ranging from 2027 to 2039.
Speaker 6: These transactions represent some of the tools we have utilized to address our consolidated leverage and strengthen our balance sheet over the past few years. And these actions have been recognized by the rating agencies.
Speaker 6: During the quarter, we received our second investment grade rating of BBB- at CEI from Fitch, and S&P upgraded SPL from BBB to BBB Plus with a stable outlook.
Speaker 6: Thanks to our team's ability to deploy capital to address our leverage both opportunistically and efficiently, we are officially investment grade and index eligible across our corporate structure, with our next step maturing not until next year.
After the achievement of IG across our corporate structure during the quarter, we have begun to shift our capital allocation weighting to our buyback program.
During the first quarter, we repurchased approximately 3.1 million shares for approximately $450 million as we continue to recalibrate our future cumulative debt pay down to share repurchase ratio from 4 to 1 to 1 to 1.
As I mentioned on our last call, over the coming year or two, there's likely a catch-up trade on the buyback since we were so aggressive on debt pay down late last year and into Q1 in order to get to investment grade throughout the complex.
Our share repurchase program is designed to be flexible in order to take advantage of dislocations in the market, like we saw at certain points these past couple quarters.
We will continue to target the 1 to 1 long term ratio we introduced last fall as we deploy the remaining 3.2Billion dollars under our current buyback authorization and attempt to buy back over 10% of our market cap in the coming years.
We also declared our seventh quarterly dividend of 39 and a half cents per common share for the first quarter last week.
We intend to follow through with our previous guidance of growing our dividend by approximately 10% annually into the mid 2020s through construction of stage 3. With the next step up planned for later this year.
And for the final pillar of our comprehensive capital allocation plan, Discipline Growth, we funded approximately $550 million of CapEx at our Stage 3 project during the quarter with cash on hand. Thank you.
As Jack mentioned, construction is well underway and we are tracking ahead of the schedule.
Going forward, we will continue to fund Stage 3 CapEx efficiently with internally generated cash flow and the over $3 billion still available on our CCH term loan today.
As of March 31st, we had over $10 billion of consolidated available liquidity, even after the deployment of nearly $2 billion towards our capital allocation during the quarter.
The financial strength afforded by our accelerated progress across all 4 pillars of our capital allocation plan has become one of our key competitive advantages as we continue to procure and process over 7 BCS of natural gas on a daily basis deliver 45 million tons of LNG per year.
and develop further accretive brownfield growth at both our sites. Turn now to slide 13, where I will discuss our 2023 guidance and update you on our open capacity for the remainder of the year.
Today we are increasing our 2023 financial guidance by 200M dollars. To 8.2 to 8.7 billion dollars in consolidated adjusted EBITDA.
and $5.7 to $6.2 billion in extruded cash flow.
While we don't provide guidance by quarter, obviously given the full year guidance, we are forecasting lower EBITDA across the 2nd, 3rd, and 4th quarters compared to our first quarter results. The guidance increase is enabled primarily due to selling some of our open CMI cargos opportunistically at higher margins than previously forecast.
The release of a couple of the origination placeholder cargos to CMI to sell into the spot market, higher than originally forecast gas supply lifting margins, and further contributions from optimizing our shipping portfolio. These increased guidance ranges continue to reflect current international gas price curves.
as well as our increasingly limited open position for the remainder of the year, given the start of several long-term contracts this year and our planned maintenance at Sabine Pass this summer.
Currently, we have approximately 35 TBTU of unsold LNG remaining this year, 15 of which are reserved for long-term origination, and we currently forecast that a $1 change in market margin would impact EBITDA by approximately $20 million for the balance of 2023. Considering how proactive the team has been in securing margin this year, we are looking
However, the guidance provided today is based on the current IRA tax law guidance in which we do not qualify for the minimum corporate tax of 15% this year.
However, as noted previously, both of these dynamics would mainly affect timing and not materially impact our cumulative cash flow generation through the mid 2020s, as we think about our overall capital allocation deployment.
Despite our limited remaining open exposure this year and moderated international gas prices.
Our 2023 guidance ranges are well above the 5.7 billion dollar high end of our 9 train run rate guidance. And we remain on track to achieve our 2020 vision of generating over 20 billion dollars of available cash by 2026. And over 20 dollars of DCF per share on a run rate basis.
With every dollar deployed by our team, we are positioning Cheniere for a resilient and profitable future, and it is the visibility of our future cash flows that enable us to meaningfully return capital to our stakeholders and pursue further disciplined growth through cycles, while continuing to reliably and responsibly
deliver affordable, cleaner burning energy to our customers worldwide. 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.
questions.
Thank you. If you would like to signal with questions, please press star 1 on your touchtone telephone. If you're joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Please limit yourself to one question and one follow-up question at a time.
Again, that is star one if you would like to signal, star one. Our first question will come from Jeremy Tonnett with JP Morgan.
Hi, good morning. Good morning, Jeremy. Just wanted to start off with the SBA contracting market out there. Good to see that contract for SBL expansion as you noted there. But just wanted to get a feeling of what you guys can share with regards to competitiveness. It seems like there's a number of people who are interested in SBL expansion.
I believe it goes hand in hand with our exceptional operational performance.
So, the fact that we haven't missed the foundation customer cargo is not being unrecognized by the end user community, worldwide community out there.
So those folks that we've talked about in the past with the trillions of dollars being invested. And natural gas infrastructure want to make sure that they have gas to fill up that infrastructure. Those are the folks that we're targeting for our long term contracts. We're not going to change our business model either. We're going to commercialize. The new investments.
We're going to lock in the price, the performance, the schedule. With with with Bechtel, and then we'll build the infrastructure, but I'll turn over to Anna on what. Competition he sees.
we're going to lock in the price, the performance, the schedule with Bechtel, and then we'll build the infrastructure. But I'll turn it over to Anatole on what competition he sees in the SPA market.
Yeah, thanks Jeremy. Well, as Jack said, over the last couple of years it's become apparent to everyone the value proposition, as the guy said, built on our reliability and safety and performance. And we have never been and clearly aren't today in a race to the bottom for a commodity product and we're very selective with whom we transact as a commodity product.
as Jack already mentioned, the end users, the counterparties that value that reliability and we extract the premium for that and we'll continue to do that in what is still a very competitive market as you know. So we'll stick to our knitting and have this great base business meeting those financial objectives.
expose ourselves to the upside as we outperform.
Got it, that's helpful and maybe just want to kind of level set results today versus your expectations. Clearly beat the street median by a big number, but the guidance didn't move up by the same number and just wondering, I think it's important. How did 1st quarter stack up versus your expectations and maybe the street median.
Even a guidance is like mixing apples and oranges.
because by the time we came out with guidance on the last call, which was late February , literally two months ago,
I would say we are not off a billion dollars from what we thought Q1 would be. If anything, Q1 was pretty big by the end of February for us because going into the year, we locked in a significant amount of our open capacity with those margins well over 20 bucks. We are not off a billion dollars from what we thought Q1 would be.
to create such a robust quarter in Q1. So Q1 was always going to be weighted in terms of our EBITDA and it's going to be in our guidance around 40% of the EBITDA for the year. And we knew that considering our open capacity or spot volumes for the year, 50% of them were not going to be able to get their EBITDA.
we're going to be in Q1. Over 50% of our CMI contribution came in Q1.
So, I think some of the disconnect is basically a lot of folks maybe spreading out more evenly, our EBITDA quarter to quarter. We did have a good amount of in-transit and we do make a bit more production in Q1. But basically all of those 20+, 30+, even some 40 plus cargos that we locked in...
That's really a testament to the team here that we were able to
secure a higher lifting margin upstream in the plants, took advantage of some of our length on our shipping portfolio by delivering more to Europe and sub-charted a bit more. And then clearly we still beat the market on some of the cargos that we sold in the open market for Q2 and Q3 coming up for the rest of the year. Got it. That's very helpful. I'll leave it there. Thanks.
down how much the outperformance is maybe attributable to those components and perhaps some of the pull forward on some of that optimization. And then in the context of the $200 million guidance raised, should we view that as a base business kind of positive outlook at this time?
how much the outperformance is maybe attributable to those components, and perhaps some of the pull forward on some of that optimization. And then, you know, in the context of the $200 million guidance raised, should we view that as a base business kind of positive outlook at this time?
Yeah, around the 200 million dollar guidance rates, like we don't forecast in our EBITDA things that aren't locked in, realized at this point. So, at this point, when we gave guidance that. Look, the open capacity is 35 TBTU and the dollar move is only 20 million bucks.
We're talking about 1 to 2 percent of our total production. We're talking about 2 percent of our annual EBITDA and and when this share price that we love to look at fluctuates with TTF or oil, we kind of scratch our heads when we are this locked in already going into the rest of the year.
So basically, I wouldn't assume anything is baked in in terms of further upside from optimization, but in terms of sub-chartering, that's locked in. It's either realized or the team has already sold those charters out and have locked in a profit for ourselves.
So we feel real good about the new guidance range and yeah, there could be some upside but we'll just have to see how things play out for the rest of the year. Great, really appreciate that incremental color. Maybe another question for you Zach on capital allocation. You know, Cheniere bought back 450 million this quarter, but reduced.
cadence of call it you know 750 to a billion quarterly you know assuming there was no debt paid on this quarter. Thanks.
Sure, I don't think I have ever said we're going to do 750 to a billion quarterly. What we have said is like, look, we have a $4 billion buyback program for three years. In the last two quarters alone, we thought back almost $1.2 billion.
There's going to be even more robust allocations to buybacks, including this quarter and going forward. As we go through that 4 billion, ideally within 3 years, or well within 3 years, but the deployment is still going to fluctuate a bit. We are not dollar cost averaging on our buyback program. It's more opportunistic.
So you can imagine we're active today on the buyback. And then in terms of the debt pay down, we actually bought back in terms of debt $900 million in Q1, but $500 of that was in the first week. I think people have to remember we weren't actually officially investment grade and index eligible until early.
reset that 1 to 1 cumulative ratio, meaning there's quite a bit of catch up to do on the buybacks going forward, at least 2 billion dollars through the rest of this year and into next. So, we're pretty optimistic in terms of the allocation to buybacks and
Yeah, over time we'll get back to one-to-one and eventually buy back over 10% of the market cap. Great, I appreciate all that incremental context. Enjoy the rest of your morning.
Thanks Brian . And our next question comes from Mark Salsia with Barclays.
Hi, good morning. Maybe just to pick up on 23 guidance, obviously largely locked in at this point with 20 TBT remaining open, but I was wondering if you could just talk about some of the factors that could put you at the upper or lower end of the revised range. Sure. So, again, as I mentioned, it would…
With about 200 million dollars worth of CMI contribution not locked in today, we're talking about, yeah, like 2% of the EBITDA still floating out there. So what's the upside? There could be some upside from selling those cargos at higher margins, depending on where markets settle through the rest of the year.
even though our open capacity is definitely coming down. As I said before, half of our open capacity was in the first quarter. We have new contracts coming online this year that are starting up, and we also have the major maintenance turnaround at Sabine this summer. So there's a few things there that just...
we're always baked into our guidance in terms of having more open capacity earlier in the year. The other upside could be basically we still have 15 TBTU reserved for long-term contracting.
If those over time are released to our short-term team, they'll be able to sell those at market prices. There could be a little upside there. And then on production, we're already estimating around 5 million tons per train. And that's with the major maintenance embedded in all of that.
So that's going to take some time to give you any update on production increases. Let's get through the major maintenance turnaround this summer. Let's get through the hurricane season and we'll see where we are later this year on that. That could provide a little bit of upside. And then lastly, we don't bake in any optimizations upstream or downstream of the plants that aren't already locked in. So, Lynn, might content capacity go outside that type of situation sort of thing? Heroes will just fall short again. Thanks.
So we'll see how that flushes out through the year. We feel real good that at the very least, even with extreme pressures on margins for the rest of the year potentially in a hypothetical, we'll make our guidance. But besides that, we're in a good spot.
Got it. Appreciate all the color there. And then EU gas inventory levels, obviously, tracking above seasonal averages coming out of the winter. But with LNG now priced close to energy equivalency parity with other fuel sources and green streets of recovery and price sensitive demand in both Europe and emerging markets, curious how you see those factors interplaying in terms of the LNG commodity price outlook over the summer.
counterparties with our affordable, stable, and environmentally attractive product, and the amount of infrastructure that's being added today is just staggering. The world is going to add over 120 million tons per annum of regas capacity just in Q1.
Europe added over 13, China alone added over 13, and even though you're of course right that European storage is around the high watermark, it's actually now slightly below where it was in 2020. Not that we want a repeat of that, but it just tells you that...
infrastructure should not be a constraint and as you mentioned we're seeing green shoots of incremental tenders from the price-sensitive markets like India in March very active Chinese market weak PMI for last month a manufacturing PMI but we're optimistic that the second half will
we'll show a meaningful turnaround. So we're optimistic, we think these price levels are great, coal prices are still elevated, emissions prices are still elevated as you mentioned, so we feel very good about the hand we're dealt.
a meaningful turnaround. So we're optimistic. We think these price levels are great. Coal prices are still elevated, emissions prices are still elevated, as you mentioned. So we feel very good about the hand we're dealt. Great. Appreciate the time.
And our next question will come from Spiro Dunas with Citi. Thanks, operator. Morning, guys. First question, maybe for you, Zach, just starting with this Sabine Pass expansion. Still early days here, but just wondering if you can walk us through a little bit about the general plan to fund that expansion. I don't believe a lot of that capex was factored into the 2020 vision.
y'all laid out in the fall. So just curious how should we be thinking about that funding relative to the capital allocation plan in place? Sure. So the 2020 vision capital allocation plan really only goes through 2026.
And in that, we still had billions of dollars for new developments. That was mainly the incremental mid-scale trains at Corpus, but there was still money above and beyond that that is baked in, and we'll be spending some money to get ahead of that SBL expansion. Again, it's going to take a couple years to get everything ready.
flows there and continue to pay out at the very least the base and have more than enough equity cash flow there to fill it within the cash flows.
And as we develop these projects and think about cap backs at, say, 6 to 7 times, unlevered returns, highly contracted at 10%,
50% leverage which gets you to under four times on a debt to EBITDA basis, it all pencils out just fine. So we'll be well placed for that and I guess it'll be in our next capital allocation plan where we're making that in it probably just won't be for the third September in a row this year.
Got it. That's a good color. Thanks, Zach. Second one, maybe for you, anethologists, thinking about SPAs, Martha really kind of focused in on the tenor. You mentioned over 20 years on this recent SPA, and the over kind of caught my ear.
Just given that this is supplied, it's really not starting up until closer to 2030. So I'm just curious, is that a general trend you're kind of seeing across other commercial discussions? Are tenders actually increasing this time around? And then just curious, sort of in that context, how much things like – or features like carbon capture are playing a role in these discussions now versus maybe a year or two ago?
Yeah, thanks for, you know, we were never in the camp that the 20 year deal is dead. Obviously, over the last couple of years, the market. Has largely absorbed that. And and you're seeing, but that said, you're clearly seeing the average 10 or over whatever period extending. So we're.
We've done some 15-year deals, we've done some well over 20-year deals over the last couple of years, and we like those transactions, again especially when it is an end user and it is a building block to a relationship that we expect will last for decades and will lead to incremental volume.
The other component of your question, like since it is starting, the sort of the 20 year piece, if you will, is starting in the back half of the decade, there are some early volumes incorporated into that, as Zach mentioned, in part some of the volumes we reserve in the portfolio for that.
opportunity and we're navigating that using the portfolio. So you kind of have a 20-year plus structure that we like and are reliable customers like and that's what we've done a fair amount of in Asia and expect to do more.
Great. Super helpful color. Thanks, Angel. Our next question will come from Jean Ann Salisbury with Bernstein.
Morning, I just have 1 I wanted to get your thoughts on the new policy, making it harder to get permit extensions. If you're not under construction. How do you see this policy affecting the pace and size of the US build out if at all? And does that have any kind of secondary impact on. Hi, Gina, thanks for the question. So.
I actually view the policy in a positive way. That, you know, much like what we do today, which is we commercialize. Our projects before we fully go into construction or finance. They want to make sure that there's a need.
basis for what they've permitted. So I think it will help with some of the projects that have been on the books for a while that maybe they have allocated gas flows to, that they help them, help move them along. So...
Some of these projects surpassed my timeline here at Cheniere, which is seven years. I've been on the books for over a decade and it's...
It's quite frankly, it's time to either either build the project or not. And so I, I, I, I view relatively positively. In fact, all of the administration, whether it's deal we are for. Have start begun to embrace that natural gas is here to stay. It's going to be. A very, very important transition fuel for clean energy. And and beyond quite frankly, so we're starting to see some movement there on all of all the infrastructure projects.
Great, thanks. That's all for me.
And the next question will come from Shawn Morgan with Evercore. Hey guys, thanks for taking the question. Hi, everyone.
Regarding the issue with the formaldehyde, I think you guys said that you tested 41 or 44 turbines to be compliant with the government standards. What's the plan for the remaining three and are there sort of low price patterns and never see something like this before? Yeah. When Roger Jackson BroadARI came back today, he Research Lab affirmatively gave me a top tier van and I ripped and Michel Martin is so much better than a non ordinary van. Right now my van loads up locally.
some parts from Baker Hughes and when those parts get installed during planned downtime then we will retest them but it's our belief and we've got enough data now that we are well within compliance.
And okay.
And as you know, this is not an issue at all at Corpus. It's only been at Sabine with the water injection.
But it will be immaterial and you all want. Okay, and then I think Zach might have mentioned something about eligibility now for the index. I assume you mean the S&P 500. Have you guys met all of the criteria that's required for?
inclusion at this point? The eligibility I was talking about was investing grade index eligibility, but in terms of your question, yes, we meet it and we've met it now for two quarters in a row. Our LTME net income is over $7 billion. Our market cap is over $2.7 billion.
is large enough that we're probably in the top five largest companies in this country that qualify that are not in the S&P 500?
So, it should be a matter of time, but obviously. Okay, that's that's helpful. Thanks guys.
So should be a matter of time, but obviously out of our. Okay, that's that's helpful. Thanks guys. Thanks.
And the next question is from Michael Bloom with Wells Fargo. Thanks. Good morning, everyone. I just had a market question. Q1 looks like most, about 80% of your cargos went to Europe , which frankly surprised at least me a little bit given storage levels in Europe and China reopening. So I'm wondering if you could just talk to.
the dynamics there and then how do you think the rest of the year plays out? Yeah, thanks Mike Sanitol. Look, the pricing was more attractive in Europe than it was in Asia during Q1 and it's as simple as that. We obviously don't control the vast majority of the volume that we produce and our customers took advantage of the destination flexibility.
As did we, which as Zach and Jack discussed had led to some chartering out of shipping length that we had penciled in for Asia, but ultimately did not materialize. So just the benefit of this product that reliably goes to the market of highest net backslash most need. And we're seeing a very delicate balancing act today between Asia and Europe .
volumes tend to go to Asia more so than to Europe given its recovery. Okay, great. And then just
I'm wondering if there's been any change in the tenor of discussions with Europe . I know politically it's been more or less called more challenging to sign long-term contracts. I'm wondering if there's been any change in that dynamic.
No, I mean the bottom line is that you'll see kind of similar dynamics that you saw last year and you're absolutely right that most counterparts in Europe have a difficult time going beyond 15 years. Doesn't mean that those are transactions that we would not entertain, but as we've always said.
We expect that the fundamental demand driver to be Asia and we're seeing much more comfort with multi-multi-decade commitments out of that theater than out of our European counterparties. But we expect to see some success in Europe as well.
fundamental demand driver to be Asia and we're seeing much more comfort with multi multi-decade commitments out of that theater than out of our European counterparties but we expect to see some success in in Europe as well. Great, thank you.
And the next question will come from Craig Shear with TUI Brothers. Good morning. Thanks for taking the question. First, Anatole, you commented, as usual, about not competing for the lowest cost. And historically, the last couple of quarters, I think, you pointed out that some at least partially time-tracked peers may not be able to reach.
for projects that are unlikely to move forward and some of that demand is structural and we would look to meet that. Other demand is opportunistic and that may not materialize but we do think as the market shakes out to your point we did expect more than two FIDs in 2022 and obviously Q1 saw a number of FIDs here. We continue to expect.
more, but to the extent that some of these relatively well contracted projects at aggressive rates that are difficult to prosecute in the aggregate fall by the wayside, we do think that there is some fundamental demand that could be a good opportunity for us.
Right, that's helpful. And for my second one, now that we're starting to think about the end of the decade and beyond, I thought I had read that the DOE is looking to draw a hard line in the sand about the seven-year export authorization timeline that people haven't actually...
broken ground and gotten financing. And I'm wondering if there's a thought now that so much in total is authorized, you know, for export, though obviously not a good portion of it is not, you know, in the works at the moment. I wonder if there's a thought that by the end of the decade the DOE may be more the governing factor than FERC and those that are
A little more reliable and consistent and the project development and timelines. May have competitive advantages. You know, we haven't seen either agency, the, the, an impact, competitive to anything that we wanted to do. Uh, ourselves, so. You know, look, I've been here for 7 years.
And we have built how many tons of Anatole in my seven years.
Yeah, FID is over 20 million tons, so it hasn't slowed us down. I don't think it will. I do think it will help focus the regulators and the stakeholders on projects that are really going to move forward in a timely fashion.
I think it's a positive, not a negative overall for the industry. Very good, thank you. And the next question comes from Sam Burwell with Jefferies. Hey, thanks for squeezing me in here guys. Wanted to hit on CapEx quickly. Saw a little over $700 million spent in one queue, 550 of that being CCL3. Got it, yeah, that's scary. That's right, no, that's scary. In the interest of time you took a dozen vector bags, chargers,ia driveingiel Bei and W3 years ago, I won't be with a guy who makes the max money from other w3 guys.
term rates or when we might expect it to be back leveraged.
Sure. On the capex for the year, the 550 was more than a typical quarter. We had some milestones during the quarter and that was deployed into stage 3. But stage 3, I think the capex for the year will be around if not a little less than 1.5 billion.
And all in when you start adding in maintenance capex, you add in other growth capex, which is mainly just development or this early work and feed work at this would be an expansion and with mid scale 8 and 9, we'll be well under 2Billion dollars in total capex for the year.
In terms of funding the stage three 50-50, that's still the intent. It's just right now when you think about 6 billion or so DCF and you count for that capex, we're at 4 billion or so of free cash flow. Count for the debt pay down, the dividend. www.lust, saws, revenue for these 23.4 billion dollars, $24.lee
well over $2 billion that could technically be allocated over time to the buyback program going into the end of this year and early next. So we have plenty of money to actually fund the equity component first of Stage 3, retain the flexibility, retain the commitments from the banks that don't expire for another six years.
save hundreds of millions of dollars on interest expense and keep on plugging away. And we'll see if we use that leverage to finish up stage three or even to help us fund the, yeah, the the corpus expansion thereafter. So we do intend to use that money. It's just flexibly.
there for us and pretty cheap to hold onto for the time being. Okay, got it. All makes sense. Thanks, Zach. And our last question will come from Alex Cania with Wolf Richards. Thanks, Zach.
Hi there, how's everybody doing? I just, a question I guess as we're looking in the back half of the decade with just upstream infrastructure just how do you feel like you know the connecting gas pipeline situation is going to look for both Corpus Christi and I guess looking even further out to Spheme Pass Karl Schumacher
Permian and you probably saw that the Permian just in 2022 went from.
just in 2022 went from.
15 and a half to yeah from 13 and a half BCF to 18 and a half BCF. Almost 19 so significant growth in natural gas coming out of the Permian and we intend to take take advantage of it. And you can build pipe in Texas these days.
At Sabine, it's going to be a little more complicated. Because we've never wanted to make ourselves overly dependent on 1 basin. So, we're going to look for opportunities to tap into multiple basins to take care of this Sabine growth, but as you're seeing from FERC, things are moving. Projects are getting
approved and we're hopeful that we'll be able to move swiftly when the time is right. Great, thanks. And maybe just the last question is, with respect to long-term contracting SPA's, are you still getting a lot of interest on IPM sorts of frameworks rather than, you know, kind of the international off-taker as an option? Just, I guess, apart from…
a couple, you know, in recent past we haven't seen a lot of that type recently, but I'm curious if there's still appetite for that. Yeah, I guess in short our forward book of business as we look at it very much rhymes with what we have done in recent history. So expect a healthy mix of IPM and
delivered NFOB contracts. We like the diversity of that. We like a lot of aspects of IPM deals, the gas supply, the optimization opportunities. So expect to see us do more of that. But as we've always said, it is a relatively finite amount of counterparties that we can transact those with.
Thanks very much. Thank you all. And thanks to all of you for your support and your kind words. And be safe out there. Thank you.
Thank you all, and thanks to all of you for your support and your kind words, and be safe out there. Thank you. Thank you.
That does conclude today's conference. We do thank you for your participation. Have an excellent day.