Q3 2023 Cheniere Energy Inc Earnings Call
Please standby were about to begin.
Good day and welcome to the Cheniere energy third 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 Bhatia. Please go ahead.
Thank you operator, good morning, everyone and welcome to <unk> third quarter 2023, the earnings conference call Slide presentation and access to the webcast for today's call are available at Cheniere Dot com.
Joining me. This morning are Jack Fusco, Cheniere, as President and CEO Anatol Vegan Executive Vice President and Chief Commercial Officer, Zach Davis, Executive Vice President and CFO and other members of the Cheniere 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 a slide presentation.
As part of our discussion of <unk> results. Today's call May also include selected financial information and results for Cheniere Energy Partners LP or <unk>, we do not intend to cover <unk> results separately from those of Cheniere Energy Inc.
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 prepared remarks, we will open the call for Q&A.
I'll turn the call over to Jack Fusco, <unk>, President and CEO.
Thank you Randy and good morning, everyone. Thanks for joining us today as we review our third quarter results and improved full year 2023 outlook.
Before we get started I would like to acknowledge the tragedies of war taking place around the world.
Our thoughts and prayers are with those whose lives have been and continue to be impacted by these devastating and heartbreaking event.
These events are contributing to disruption risk uncertainty and volatility in the energy markets around the world International gas supply sources, and the critical infrastructure, enabling cross border trade have become focal points with risks to this supply and its access increasingly reflected in price and volatility.
Across international gas benchmarks in recent weeks.
As the operator, the second largest LNG platform in the world stable and reliable operations at our facilities have arguably never been more critical than it is today.
As you all know ensuring stable and reliable operations at our facilities with safety as a foundation thats been my central focus since becoming CEO in 2016.
When I joined generic just begun LNG operations, producing its first LNG cargo that February.
Today, we produced about two cargos every single day.
During the third quarter, we produced our 3000th cargo of LNG, becoming the fastest LNG producer in history to achieve that milestone.
I'm extremely proud of the work we do at Cheniere as a result of that work are providing tangible benefits in the lives of millions of people around the world.
Our customers can take comfort knowing that my focus and the focus of my approximately 1600 Cheniere colleagues remains on maintaining best in class operations to help ensure energy security for a 30 plus customers throughout five continents.
Turn now to slide five where I'll review key operational and financial highlights from the third quarter 2023, as well as cover another long term SBA, we announced this morning.
We achieved successes across the generic platform during the third quarter generated consolidated adjusted EBITDA of approximately $1 7 billion distributable cash flow of approximately $1 2 billion.
And net income of approximately $1 7 billion.
We exported a total of 152 cargos and increase relative to the second quarter as we had lower maintenance in the third quarter.
As I just mentioned, we also produced our 3000th cargo during the quarter and maintained our perfect track record a foundation customer cargo deliveries.
These operational milestones are a tremendous source of pride for Cheniere and served to further distance our reputation from the competition.
Looking ahead to the balance of 2023, our forecast has improved slightly.
And while we are raising our full year guidance today.
We are currently tracking to the high end of the eight three to $8 8 billion of consolidated adjusted EBITDA and $5 $86 3 billion of DCF ranges.
The improvement to our outlook is mainly driven by portfolio optimization activities.
Timing of some expenses to a lesser extent from higher marketing margins than previously forecasted.
Zach will provide more color on the guidance, but.
But we have excellent visibility into the balance for the year and are confident in our ability to finish the year at the high end of the ranges.
On the commercial front Anatol and his team continue to build momentum for the SPL expansion projects as we signed a long term contract with BSF in August.
Volumes under the off take agreement will begin in 2026 ramping to that full 8 million tons with commercial start of the first train seven of the SPL expansion projects and extending until 2043. This contract illustrates the rapid evolution of LNG into Europe.
It's a long term contract executed directly within industrial consumer and Germany.
Which only a year ago didn't have a single LNG import terminal.
And I Hope you saw earlier this morning, we announced our second 20 year agreement with Forest Bill.
Building upon the SBA, we executed with it in late 2021 that commenced earlier this year.
The almost 6 million tonnes of long term offtake executed year to date.
Over 75% of that annual total is contracted with repeat customers, who clearly value their long term partnership with Cheniere.
Testament to the reputation and trust, we have earned with our long term customers.
This foreign contract is for approximately 0.9 million tonnes will extend until 2050, and notably marks the first SBA tied to the second train at the SPL expansion train eight.
As commercialization on the first train has effectively been completed.
We are extremely excited about the market's response to the SPL expansion project and demand for additional capacity from Cheniere since announcing the project in February we have signed nearly 6 million tons per annum of long term contracts.
Support of the project.
And our best in class long term contracted portfolio.
All with investment grade Counterparties and I am confident we have more to do this year as always we remain laser focused on developing that project to meet or exceed our disciplined capital investment parameters in order to deliver the world class contracted infrastructure returns our shareholders.
Accustomed to.
While on the topic of return Zach and his team continue to progress on our comprehensive 2020 vision capital allocation plan during.
During the third quarter, we paid down another $50 million.
Long term debt, we bought back approximately two 2 million shares for $357 million and we increased our quarterly dividend by 10% to $43 five.
For the third quarter.
On stage three we continue to equity fund that project investing over $300 million.
During the quarter with a total of over $2 5 billion invested to date.
Speaking of stage III now turn to slide six where I'm pleased to provide an update on the accelerated progress we are seeing.
Since activities on the projects move more heavily into the construction phase a few quarters ago, we indicated that certain of these construction activities were taking place ahead of plan as we are now over 44% complete overall across engineering procurement and construction.
While we remain in single digits in terms of percentage of completion on construction for the overall project.
It's becoming increasingly clear that the project is tracking months ahead of the guaranteed schedule.
Im optimistic we will be commissioning of train one with first LNG production by the end of 2020 for pork.
Forecast all seven trains to achieve substantial completion by the end of 2026.
We are extremely excited about the progress factor was making on stage III, we look forward to maintaining and accelerating progress in order to again deliver LNG to the market well ahead of schedule and increasing our operating capacity again, starting in 2025.
On the earnings call in August I mentioned stage III was beginning to take shape.
The first structural steel was erected and our train one coal boxes that arrived on site.
One can certainly appreciate the progress thats been made.
Then from the photos on this slide.
All train one coal boxes have been set in place.
Structural steel installation is advancing and piping and electrical installation has commenced.
With the excellent progress made to date.
Head count of over 500 personnel on site each day and the one team culture firmly established between Cheniere and backfill.
I am confident in the team's ability to maintain focus continue on the accelerated schedule to deliver corpus Christi stage III safely and ahead of schedule.
With that I'll hand, it over to Anatol to discuss the LNG market.
You again for your continued support of Cheniere.
Thanks, Jack and good morning, everyone, while the LNG market kicked off the third quarter with prices, reflecting the relatively subdued demand of the shoulder season unprecedented early winter gas procurement in Europe, coupled with threats of potential supply disruptions globally resulted in increased volatility and higher pricing throughout August and September.
<unk>.
Prices remain elevated relative to pre 'twenty, one as the market is still precariously balanced sensitive to any signs of disruption given the lack of spare supply capacity in the system, which is expected to continue for the next few years.
Proposed strikes at the Australian LNG export facilities, representing approximately 10% of the global LNG market garnered significant coverage during the quarter as market try to gauge the scale and length of any potential disruption to global quotes.
Fortunately these risks were largely reverted and LNG exports continued to slow through the end of the quarter. Nevertheless, even the threat of disruption led to significant volatility in LNG prices, which was further exacerbated by the about 48% decline in Norwegian pipe gas to Europe in September following the extensive maintenance at the troll field.
And the closeness gas processing plant.
As a result, despite elevated storage inventories throughout the region volatility persistent as CTF spot prices experienced some fairly significant swings throughout the quarter.
The maintenance in Norway supported prices from early June with July settling at $11 30 of them on Btu, while August settle over 25% lower at 830, a M. As Norwegian volumes returned only to rebound this September which settled at 11 $5 amid concerns around the Australia strikes as well as.
<unk> unplanned Norwegian maintenance.
Bill Tcf prices remained at pre Russia, Ukraine war levels during the quarter and continued to edge higher with futures settling October above $12 in them.
Meanwhile, J cam prices largely track CTF throughout the third quarter ultimately settled September slightly below DTF at $11 20.
However, more recently Jacob Futures settled October higher at $13 30, due to the uncertainty around the potential industrial action in Australia, as well as increased demand from China and India.
Prices have since time further as indications of winter demand started to emerge towards the end of the quarter with <unk> in November trading around 14% to $15 an M. This.
This is in Stark contrast to Henry hub prices, which averaged $2 55 and M. During the quarter as inventories held above the five year average.
These price levels continue to support the attractiveness of U S LNG globally.
Unfortunately threats of further disruptions in global gas markets remain ongoing exposing key risks to an increasingly susceptible market generating last 12, BS a day of Russian pipe gas last year.
Furthermore, the recent lease at the Baltic connector add to market apprehension, highlighting the critical need for the development of sufficient capacity globally in order to meet elastic demand and ensure the security of supply globally for the long term.
Let's address the regional dynamics on the next page.
During the third quarter and for the first time in two years, Europe's LNG imports were lower year over year imports were nearly 7% or $1 8 million tons lower in the third quarter due largely to the same fundamental reasons, we discussed previously including high storage levels reduced gas use across sectors due to price elasticity as well.
Conservation efforts plus increased renewables generation.
<unk> gas storage levels continued to grow nearing full as of early October while lower economic activity put downward pressure on both industrial demand and electricity generation.
Demand for gas fired power dropped by nearly 20% in Europe's key markets amid renewable power generation, which was 12% higher year on year.
As a result, the reduced gas storage fill requirements, coupled with the lower gas demand year on year more than compensated for the further reduction in Russia on pipe supply and the extended maintenance, Norway, allowing Asia to reenter the market and pull some additional LNG cargoes from the Atlantic Basin as shown in the upper middle and right charts.
However, the cross based on price spreads throughout the quarter, we're not wide enough to drive meaningful volume away from Europe towards Asia.
Total LNG imports in Asia grew over 4% or $2 7 million tonnes year on year in the third quarter, driven by a rebound in imports to China, and India as prices soften in high summer temperatures boosted spot purchases.
However, lower imports across the JK tea markets, largely offset the significant gains seen in China and other emerging Asian markets as shown in the lower left chart.
In fact imports into the key growth markets of China, and India were 21% and 27% higher in Q3, respectively in.
In China gas demand ticked up during the quarter, primarily due to the year on year recovery in gas fired power generation following a drought that reduced hydro generation. Despite.
Despite the higher demand gas demand recovery in the industrial sector remains subdued with consumption still below 2021 levels.
Long term fundamentals remain bullish for the Chinese market due to favorable policy targets and a massive gas infrastructure build out as we described in previous calls.
This year alone China has added 9 million tons of re gas capacity across three new terminals, bringing the total to 110 MTP eight with another 95 MTA under construction.
Similarly, the country continues to expand its gas fired power generation fleet with 46 Gigawatts currently under construction on top of the existing 121 Gigawatts.
In India, a prolonged heat wave and below average rainfall during the annual monsoon season increased the region's call on LNG.
India imported 6 million tons in the third quarter, $1 3 million tons higher year on year as spot LNG prices moderated incentivising downstream gas used in the fertilizer and power sectors.
It's fired generation was up 48% year on year in July and August leading domestic players to issued tenders for cargoes to feed power demand.
The new six five MTA dominant LNG terminal the first in Indias East coast ramped up to <unk> 10, cargos since starting commercial operations in may adding to total imports in the quarter.
Terminal, which raised the country's re gas capacity to 44, MTA should enhance gas availability in northeastern India as connections to the grid improve making gas more accessible to city gas distributors as well as refineries and fertilizer facilities.
India's re gas capacity is expected to reach 63 million tonnes and that along with the additional 11000 kilometers of pipeline under development could make the country a top three LNG importer before 2040.
In contrast, JK imports dropped 11% or $3 7 million tons during the quarter following previous declines and offsetting much of the gains in Asia year to date <unk> imports are seven 5 million tons lower versus last year due largely to increased nuclear availability in Japan and Korea are structural factor we have disk.
<unk> previously.
Fans nuclear availability reached its highest level since the Fukushima disaster, and we expect this to present headwinds for gas power generation and LNG demand growth going forward.
Meaningly Japan's long term gas demand is expected to decline gradually through 2040.
Let's now elaborate on our updated expectations for long term supply and demand on the next slide.
As noted previously the energy trilemma, especially with the market's heightened focus on long term energy security has led to significant long term LNG contracting in the past 18 or so months.
These contracts signal the need for further investment in liquefaction capacity and serve to underpin some of the recent project if it.
As a result, we now see a significant amount of new capacity currently under construction.
While this is expected to help reverse the systemic market tightening that has resulted from the curtailment of Russian volumes over the last two years, we believe that further LNG supply is needed to fully meet demand in 2028, and beyond which we expect to be fulfilled with some of the proposed <unk> export projects of course, including our own expansion plans at Sabine pass.
<unk> and Corpus Christi.
The concentration of Fid's, taking place this year next along with the startup of delayed projects in Eastern West Africa should help make LNG more accessible to price sensitive markets. While also making the industry more resilient in the face of supply disruptions or major geopolitical upsets such as those threatening the market balances today.
Just as liquefaction development has been active this year. The same is true for the re gas side of the business marketplace continues to develop important capacity across Europe, and Asia, which in total is expected to increase by nearly 50% by 2030.
We continue to forecast healthy demand for LNG over the coming decades with Europe sustaining its growth through the midterm in Asia driving future growth over the long term.
As we've discussed before we expect south and southeast Asia, as well as China to drive future demand growth as LNG plays a critical role in the economic prosperity energy availability and de carbonization efforts in these regions.
Overall, we estimate that by 2040 more than a 130 <unk> CPA of additional supplies needed beyond what is under construction today, which is due in part to the decline in production from legacy projects, where feedstock availability and upstream developments appear limited going forward.
For all these reasons, we believe overall market conditions remain constructive for Gulf Coast, LNG, and it's Cheniere will remain resolute and building on the commercial successes of recent years to support our capacity growth.
In 2023 alone we have signed almost 6 million tonnes per annum with customers across Europe, and Asia, including today's announcement of our second 20 year SBA with Forum.
This contract could very well extend into the second half of this century further evidenced in our customers and the market's conviction in the long term role of natural gas in the global energy mix and the need for further development of LNG capacity globally.
With that I'll turn the call over to Zach to review, our financial results and guidance.
Thanks, Anatol and good morning, everyone.
I'm pleased to be here today to review, our third quarter 2023 results and key financial accomplishments, which are the result of our team's commitment to operational excellence and financial discipline. The long term outlook as we continue to deliver upon our stated objectives of supply in the world with much needed LNG, while creating long.
<unk> value for our stakeholders.
To slide 12.
For the third quarter, we generated net income of approximately $1 7 billion.
Consolidated adjusted EBITDA of approximately $1 7 billion.
And distributable cash flow of approximately $1 2 billion.
Our third quarter results continued to reflect a higher proportion of our LNG being sold under long term contracts with less volumes being sold into short term market as.
As well as the further moderation of international gas prices relative to last year.
Once again these impacts were partially offset by certain portfolio optimization activities upstream and downstream of our facilities during.
During the third quarter, we recognized an income 555, btu, a physical LNG, including 545 Btu from our projects and 10 TVT sourced from third parties.
Approximately 89% of these LNG volumes recognized in income were sold under long term SBA or IPM agreements with initial terms greater than 10 years.
As a reminder, our reported net income is impacted by the unrealized noncash 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 a long term IPM agreements.
The decline in international gas price curves quarter over quarter led to a lower mark to market valuation of the future liabilities associated with these agreements increasing our net income.
With today's results we have earned cumulative net income of approximately $12 4 billion.
For the trailing 12 months.
Now reported positive net income on a quarterly and cumulative trailing four quarter basis four quarters in a row.
Throughout the quarter, we continued to deploy capital pursuant to our comprehensive capital allocation plan, our 2020 vision, increasing shareholder returns strengthening our balance sheet and investing in accretive growth.
During the quarter, we repaid 50 million of long term indebtedness redeeming a portion of the senior secured notes due in 2024 at SPL.
As a reminder, in July we used the proceeds from our inaugural investment grade offering at CGP to refinance and redeem $1 4 billion of the SPL 2024 notes.
Plan to address the remaining balance of the SPL 2024 notes with cash on hand, and <unk> and into the first half of next year.
After which point, we will have addressed all maturities in the complex through early 2025 with currently no refinancing needs across our complex until then.
Since rolling out our revised capital allocation plan last year, we have received 14 distinct rating upgrades throughout our structure are result of our operational track record and capital allocation plan to Opportunistically de lever and efficiently refinance.
Short amount of time.
Which is not only strengthened our balance sheet for through cycle resilience, but it's also positioned cheniere for our next phase of growth.
Most recently S&P upgraded CCH to Triple B in mid October and in August Moody's upgraded cei to be double a three and CCH to be <unk> to <unk>.
While Fitch upgraded SPL to Triple B plus.
With the Moody's upgrade our parent entity is now investment grade across all three agencies, a major milestone for Cheniere, considering where it started financially on this LNG export journey over a decade ago.
As we've previously discussed now that we have achieved investment grade ratings across our corporate structure. We are targeting a one to one ratio of deleveraging and share buybacks on an aggregate basis through 2026.
During the third quarter, we repurchased approximately $2 2 million shares of common stock for approximately $357 million, which reinforces our intent for the catch up of buybacks compared to the amount of capital deployed towards deleveraging going forward.
We expect to continue to work towards achieving that one to one ratio over the next year as we continue to initially target buying back approximately 10% our market cap over time.
We expect to deploy the remaining just under $2 5 billion of the repurchase authorization ahead of the three year plan.
Recognize there may be variability quarter to quarter as we aim to be opportunistic and are subject to the parameters of our <unk> pipeline program for the third quarter. We followed through earlier this week by announcing an increase of our quarterly dividend by 10% to $43.05 per common share were $1 74 annualized.
Which is consistent with our 2020 plan of growing our dividend by approximately 10% annually into the mid 2020 through the construction of stage III.
We intend to steadily increase our payout ratio over time, while maintaining financial flexibility with a balanced capital allocation plan and the ability to fund brownfield growth with internally generated cash flow.
And for the final pillar of our comprehensive capital allocation plan disciplined growth refunded.
We funded approximately $312 million of Capex at our stage III project during the quarter with cash on hand.
We still have over $3 billion available on our CCH term loan and we plan to utilize the beginning in the second half of 2024 as the project progresses and the total capital spend to date continues to grow.
By primarily funding the 50% equity component of the project ahead of the drawing down on the construction loan.
We have saved considerably on interest expense, while retaining all of our liquidity flexibility for the coming years.
Funding of the full project by 2026.
Turning now to slide 13, where I will provide additional detail around 2023 guidance and our open capacity for 2024.
Today, we are reconfirming, our full year 2023 guidance ranges of 83 to 88 billion and consolidated adjusted EBITDA and five 8% to six 3 billion and distributable cash flow.
But as Jack noted we are tracking to the high end of those ranges.
Improved outlook is driven by portfolio optimization activities, primarily in gas procurement and vessel sub chartering and to a lesser extent the timing of certain expenses moving into 2024 and higher marketing margins on the minimal on the opening capacity for CMI, we still had available to sell since the last call.
With respect to our EBITDA sensitivity for the remainder of the year. We now have an immaterial amount of unsold LNG remaining we are confident in our ability to deliver financial results at the high end of the ranges.
As always our results could be impacted by the timing of certain cargos around year end as well as incremental margin from further optimization upstream and downstream of our facilities.
Our distributable cash flow for 2023 could also be affected by any changes in the tax code under the IRA.
However, the guidance provided today is based on the current IRS tax law guidance in which we would not qualify for the minimum corporate tax of 15% this year.
However, as noted previously 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 our overall capital allocation plan and our 2020 vision goals.
Looking ahead to next year 2024 will be our most contracted year to date is all of the contracts underpinning. The initial nine train platform will have commenced as well as some bridging volumes for contracts tied to our growth.
Additionally, our team continues to put away the few remaining uncontacted volumes, leaving us with approximately 50 Btu unsold for the full year as of today's call.
Or about 2% of our 2020 for production capacity.
The open volume is based upon our production forecast of approximately 45 million tonnes, which is similar to our production. This year and takes into account planned maintenance activities for the year.
But such minimal open exposure to the market 2024. It is expected to look the most like nine train run rate year as any we will have with results that should largely reflect the economics of a long term fixed fee take or pay style cash flow business model.
With that said.
Currently forecast at a $1 change in market margin would impact EBITDA by approximately $50 million for the full year.
And with market margins currently elevated through the next year compared to our run rate CMI assumption of $2 25 per <unk>.
We should be able to still beat the midpoint of our nine train run rate of $5 5 billion of EBITDA before any further volatility in commodity prices.
2024 results are expected to come down from this year as our opening capacity narrows until stage III starts ramping up our operational capacity again in 2025.
Thanks to our cash flow visibility 2024 was always assumed to be a heavily contracted year and consistently baked into our financial plan.
Including in our 2020 vision to generate over $20 billion of.
Available cash through 2026 provided back in September 2022.
As Jack noted given the progress made by the Bechtel engineer teams on stage three we remain optimistic and hope to be in commissioning with first LNG from train one by the end of next year, which would provide additional LNG supply to the delicately balance market Anatol discussed earlier and increased our operating.
<unk> LNG capacity again in 2025.
However, as a reminder, commissioning volumes would not impact our revenues or EBITDA for the year and instead show up in our financials as a reduction in our capital costs.
With the meaningful progress achieved to date, we expect to invest between one $5 billion to $2 billion of Capex towards stage three in 2024 consists.
Consistent with this year as we still expect to fund another approximately half a billion of equity into the project this quarter.
While the last few years have proven <unk> ability to respond to market signals and optimized throughout our business our conviction in our highly contracted business model rooted in longer duration fixed fee cash flows from creditworthy Counterparties has only been reinforced as we look forward to internally funding further growth as well.
<unk> is even more meaningful shareholder returns that can be relied on over time.
These dependable cash flows form the foundation of the $40 billion.
Natural gas infrastructure platform, we have developed over the last decade plus.
We remain focused on maintaining reliable and safe operations to ensure we can continue delivering affordable LNG as well as meaningful long term value to our stakeholders around the world for decades to come.
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'd like to ask a question. Please signal by pressing star one on your telephone keypad.
Our next speaker phone. Please make sure your mute function is turned off to Larry military equipment.
Asking you to limit yourself to one question and one follow up if you wish to ask additional questions. Please re enter the queue.
Press Star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
We will take our first question from Michael Blum with Wells Fargo.
Thanks, Good morning, everyone.
First question I, just wanted to make sure I understood.
This quarter, you have a pretty big variance in volume at <unk> and at the <unk>.
<unk> level, just wanted to confirm that that was really just the maintenance.
Taking that taking that facility all Florida is there anything else.
To flag over there.
This is Zack and I would say, there's not much to flag there basically the major maintenance on trains one and two it's the bean were in June.
And with that that ramp up then begun and it takes time to eventually deliver those volumes so.
It reduced the amount of in transit going into Q3.
And then on top of that it was a really warm summer.
So with with the ambient temperatures.
We had a little less volume than than you would have if it were a bit cooler. So regular course still still still on track with our forecast.
Okay got it that makes sense and then on the <unk>.
Being passed expansion.
Obviously by our math here.
Roughly 30% contracted on the on the total size of the project, but you're almost at <unk>.
Contracted on the first train. So my question is would you consider going ahead with <unk>.
Just one train.
Capacity are you going to wait till you get some percentage of the total project before you do the entire project.
No I think.
Michael This is Jack.
And Youre right.
It would be our goal too.
And whatever fashion that made the most financial sense and if it makes sense to build it in phases do train seven first and then train eight later, we're going to do it that way. So we're currently working through backfill not only on a fixed price for the entire project, but also on.
Implementation and execution and.
So thats the way, we think about our also but we're going to continue to do it the way we've done it in the past, which is we're going to commercialize a project, we're going to get a fixed price.
And we're going to work with <unk> to make sure that there are.
We're locked in with price schedule on budget.
Perfect. Thank you.
We will go next to Ben Nolan with Stifel.
Yes. Thanks.
Congrats on the good quarter guys.
And I'll put both of my questions into one if I could.
Year.
Well effectively.
With the with the new contracts, including the two that are here.
You're assuming I suppose a certain level of.
Economics, and cost inflation, and I know exactly who you and I have talked that youre not going to do something that's not economic but inflation continues to go higher.
Really my question is some of these have bridging volumes. So how does how does the mechanism work such that if inflation goes up and you are already committed and are already in some degrees selling on volumes. How do you adjust for that if the cost ended up coming in higher than what you thought it was going to.
Hey, this is Jack so.
It basically say anything thats firm, we're assuming is going to be.
Part of the operations of the nine trains plus stage three.
The economics work, we're making the margins that we want to make and we're being covered for inflation and that let's say, 15% to 20 plus percent range to the fixed fee over time, which is really attractive and uncovering what what we've experienced over the last.
Few years.
In terms of the rest those RSVP to the <unk> of those projects and we're just going to be disciplined I think you've seen that in every <unk> that we've done.
And if we can target that around let's say seven times capex to EBITDA get to 10% Unlevered returns and always hold it up to beating the returns just embedded in buying back more of the stock without the growth, we're going to do that and with inflation and cost of capital going up that should be embedded in the stock price to an extent.
So we will keep ourselves honest and make sure it's clearly accretive to cheniere.
That makes sense and just.
Maybe as a follow up.
In your conversations as far with Bechtel on the expansions.
Are you starting to see some stability with respect to price any sort of early indications as to whether or not things are leveling off of that.
Yes, yes. This is Jack.
And we are and I'm glad to say that some of the steel prices.
And in cement in rebar and everything else structural still.
Some have come back down off their highs.
It's all moving in the right direction and I feel really good about the timing of the project and we have time to wait to see.
C L.
This all works out before we lock in.
Got you I appreciate it thanks sure and me in guys.
We'll go next to Jeremy Tonet with J P. Morgan.
Hi, good morning.
Good morning, Jeremy.
A question, maybe somewhat more operational or construction development in nature here, but just curious if we look back I guess on the history of LNG development, both domestically and internationally, there's been just a long list of projects.
Been delayed and not come online on time, yet cheniere is not just hitting the timelines up bringing them forward early just wondering.
Specifically, if you could help us understand how cheniere is able to bring these <unk>.
Facilities online earlier than expected and I guess is there room for more.
Yeah, So Jeremy I mean, thats, where our relationship with backfill has really paid off.
And when we talk about the one team approach between Cheniere and backfill, we really mean that we do everything together, we walk the site together, we try to we try to execute on.
Different.
Different construction plans to see which one will work better for us be more efficient more effective.
He is a win win between the two companies.
And I can't say enough about how appreciative I am of back door for working so collaboratively with us over these.
At least for me close to last eight years.
So.
It's no more or less than that.
Got it.
That's helpful. Thank you for that and then maybe just kind of pivoting towards capital allocation all over here Jack if I could.
Just wondering current thoughts here I guess on the on the pace of buybacks has each year as it relates to debt pay down and also financing the corpus expansion latest thoughts on how you see that all balancing of what looks like on the balance sheet. There is a mountain of cash Thats pretty high. So just wondering what your current thoughts are.
Hey, Jeremy was expecting that question from you.
Basically yes.
Over $3 billion of cash sitting at Cei, specifically and.
And you should assume over time, as we fund corpus and there's still about $1 2 billion of equity funding to go on stage three.
And obviously pick up on the buyback that that'll trend to $1 billion in annual run rate phase once we get really through stage three.
And in terms of the buyback you just look at the last two quarters and you are starting to see that the buyback.
Deployment is higher than that than the debt paydown.
And just in Q3, it was $300 million higher seven times as much.
And at this point buybacks for the year are about to eclipse the amount of debt Paydown. We did mainly earlier this year to get to IAG.
And for everyone to just be tracking the buyback it will be lumpy volatile quarter to quarter as we try to be opportunistic.
But what you can track it to is basically we have already deployed over $3 $5 billion to debt Paydown and the updated capital allocation plan and just over 1 billion and a half.
Buybacks, so far in the same plant.
So there's basically a $2 billion plus catch up trade that needs to occur really through 2024. So you can imagine we're pretty focused on funding the corpus stage three growth as it accelerates.
And to catch up on the buybacks with that yes at least $2 billion to go.
And the next year or so.
In the meantime, we will focused on soybean growth getting ready with all of US commercialization that we have done by likely ramping down the variable GPU next year to start being in a position to fund that project.
Once we can fit that in the next few years and in terms of the stage three expansion upon that for trains eight or nine.
Yes, we might fund that that there's going to be plenty of equity up there as well with the 20 plus billion of available cash through 'twenty six.
Got it very helpful that makes sense and also looking forward to corpus coming online early some extra marketing margins there helping out even more so thank you for all the color and we will be.
<unk> see you at the conference.
Thanks, Jeremy.
We'll go next to John Mckay with Goldman Sachs.
Hey, good morning, everyone. Thank you for the time.
Why don't we pick up on those CQ P variable distribution comments there.
I figured that would be our fourth quarter call conversation, but thanks for kind of flagging that would just be curious on kind of where you think that needs to go at the CGP level, and then kind of more broadly where do you want to see the kind of <unk> specific balance sheet go to to be able to fund the SPL expansion if that moves forward.
Sure. So we'll provide guidance for EBITDA and DCF for Ci and on the Q4 call in February and we will provide guidance on the GPU for <unk> at the same time as we work that through with our partners in Brookfield Blackstone.
And the board there.
But basically <unk> is going to be focused on the growth and focused on the catch up on the buyback in the billions.
<unk> is going to be focused on our robust distribution.
And really trending their debt to EBITDA metrics.
During closer to four times or under basically fee as a consolidated entity and why its investment grade is is because we're already under four times on a run rate basis with lower margins than today.
<unk> slightly above.
So how we think about it is basically if we can retain some of that cash flow over the next couple of years get the metrics down a bit lower.
We're going to give ourselves a lot of flexibility financially to really re up the leverage when we have the Sabine expansion.
At the very least but probably more than the base distribution going.
And yet keep the ratings and everything intact, while growing that GPU overtime to something closer to over $5.
So so yeah, we're still pretty comprehensive across the board in terms of debt paydown buybacks and growth.
It's just going to be mixed between LNG and <unk>.
Alright, I appreciate that maybe just picking up on one thing we haven't talked about.
I guess more recently just the TCE.
Potential for some of the expansions.
Just be curious to hear how much your guess.
Getting asked by your customer base to kind of include that I know you've been able to sign a couple of different types of customers without necessarily moving forward on that but would be curious kind of where broader sentiments at sir thank you.
Yes, Thanks John.
I'll talk about the Cc U S capabilities or what we've been doing at Sabine and Corpus. We've spent an enormous amount of time on engineering.
Looking at ways to capture whatever carbon our greenhouse gases, we care and we think they are a bill going from $50 to $85 was a step in the right direction.
And we continue to look for opportunities to make our operations cleaner and more sustainable.
Which is a real focal point of myself and the team.
And our customers as you know quite a few of them are from western Europe, and and and there are asking us as many questions as.
As you are and ill turn it over to Anatol.
Thanks, Jeff Thanks for the question John.
The customers engage with us on this front and obviously its a growing percentage of Jack mentioned some of the key European partners that are probably in more advanced stages of developing these strategies.
It is a comprehensive approach and we partner with them.
A number of dimensions nothing is proscriptive, but one of the reasons. We have these engagements and have the opportunity to to proceed is because of all of the things that we're doing to improve our lifecycle emissions profile Ccs is part of it as well as all of our programs with producers pipeline shipping companies that <unk>.
And ultimately report our emissions we have the only program to date that issues cargo emissions with every cargo that we've had in place for a little over a year. All of those are critical components to these engagements. None of it is so prescriptive as to say we will work on axon, we will deliver y.
If you haven't already seen it it's posted on our website. Our CR report went live.
About two months ago.
Alright, I appreciate the thoughts thank you.
We'll go next to Jean Ann Salisbury with Bernstein.
Hi, good morning, and Theres been some news articles recently highlighting that <unk> administration is moving extremely slowly improving non FTA LNG export permit and could this become a gating issue for <unk> 809.
And is there any flexibility that you might have in your portfolio.
And even if you are waiting for that permit.
Yeah.
I don't think its going to be a gating issue at all we are already commercialized the repeat customers eight nine are backed by Chevron.
<unk>.
And Petro China, yes, so.
I feel pretty good about about where <unk> I'm also very optimistic.
Chairman Willy fill upset FERC.
He is he has been moving things along I mean, he's been acting in a bipartisan manner, we've seen good signs coming out of there recently.
I am hopeful that.
Energy Security now is on top of everybody's mind, and our allies need need more not less from the U S.
And I'll just add.
Basically we need to get going on construction of train data nine at Corpus in 2026 as the first seven trains complete.
And our goal is definitely well ahead of that to get going.
In the meantime, with the cash that we have the flexibility we have in our AR revolvers and term loans are long lead items Opportunistically, we'll lock that in in the coming year or so.
When possible. So yes, we don't see issues there we have quite a bit of a buffer.
Just with trains one through seven coming online in 'twenty five 'twenty six.
Okay, Great. That's helpful. It sounds like the news reports here that I'll ever stated and then as a follow up and my understanding is that most or all of the recent contracts that you've signed that are linked to the Sabine pass expansion and can be kept and even if you delay the expansion.
You the option to be close to 100% contracted on your volumes exiting path expansion.
Am I thinking about this correctly, it's sort of the base case for Cheniere here. If you can ultimately get to the numbers that you bought for the Sabine pass expansion.
Hey, Jude I guess, we'll tag.
Tag team this to some extent, but yes, youre absolutely right in the sense that the.
The contracts that we enter into give us tremendous flexibility on where they ultimately wind up and what projects. They ultimately support now of course for and we're very proud of the fact that.
Unlike most projects to date it does not have bridging volumes. It is linked initially to Sabine train eight our first contract that supports trained eight but ultimately we have full flexibility on where that contract ends up so yeah.
Youre absolutely right in your assumption of kind of an extreme case that can be the decision to keep the contracts. If we so choose and and not proceed for example, yes.
So basically depending on the timing, yes, we might have to bridge.
Some of these contracts with existing capacity and we'll have that with our 55 plus million tons when stage III comes online.
And in these other scenarios that you just can't see when Youre seeing out on the curve still $5 $6 margins in a few years.
Yeah, we could be 100% contracted in a in a downside scenario.
But thats not the plan, we're moving forward with the development at both both of the site and we're going to try to stick to that 90% give or take contracted level.
Great. Thank you so much.
We'll go next to Keith Stanley with Wolfe Research.
Okay.
Hi, good morning on the 2024 volumes, so realize its only 50, <unk> unsold and youre closer to the run rate EBITDA.
Is there any way to think about or quantify if if any material amount of next year's production was sold as bridging volumes for stage three or a shorter term contracts that are more linked to to what forward curves where at the time or should we think of it as 98% of productions effectively sold that at long term SBA type prices.
And I'd say almost so some of the numbers that would give you is basically this year, we had over 40 million tons of long term contracts.
Next year once we have full years of some of the contracts that started this year, some step ups and even the start of a contract with Petronas.
It will be over 43 million tonnes of long term contracting.
I will say with 50 Btu open the team.
<unk> has always been proactive.
And they've already sold a few cargoes for next year and the short on a short term basis.
But just a few but in that 9% to $10 range that you can see on the curves today.
So theres a little already embedded in there.
And yes, we'll see where we are in February will probably sold a bit more but this is really our operational coverage.
<unk>.
Really fulfilling our obligations on 43 plus million tons of long term contracts.
That's helpful.
The second one just clarifications on stage three with it running ahead of plan. So.
Can you remind us commissioning cargoes are treated as a reduction of the capital cost, but if you get to substantial completion early those excess volumes should drive higher EBITDA in 2025, and 26 and then Relatedly. If we think about a seven train project.
Should we expect.
If the first train comes on three to six months early is that pretty even then for the rest of the trains as you see it.
Coming on three to six months early or is it is it lumpy.
Basically yes.
We will give you updates as we keep on progressing on each we have goals for each of the trains.
First and foremost is getting train one up and running and hopefully the rest are relatively cookie cutter to there, but it will take.
Through 'twenty six really to complete the seven trains and get them to substantial completion.
And you're right if we get into commissioning you won't see it like you won't see EBITDA in 2024 related to stage three.
At the rate, we're going next november's call for production in 'twenty, five and open capacity will be a lot more interesting than today.
Thank you.
We will go next to Craig Shere with Tuohy brothers.
Alright, and thanks for taking the questions.
So what.
How does it look in terms of further potentially upsizing legacy train capacity beyond five tpa and Khudoni concerted effort in that regard work concurrently with your efforts to contract out.
<unk> your SPL stage five expansion.
Yes.
This is Jack so the team is constantly looking at our Debottlenecking and maintenance optimization program.
I have.
A lot of respected phase for this operating group and their ability to continue to surprise us.
So it's my expectation that that debt.
We will get technically get above five M tpa per train.
But it may take some additional work before we get there.
As far as how it connects to the SPL expansion as <unk> said, our focus is to get that commercialized to get those costs under control and locked in and meet our financial objectives and build those trains.
So while we have a lot of optionality and flexibility we are 100% focused on construction.
And Craig just just for some numbers that we've talked about before is basically what stage three will be a little over 55 million tonnes.
And then with trained data nine those are 3 million, that's 3 million tons, but we'd hope.
Just by adding those trains and some debottlenecking from stage three and even maybe some from trains one through three there we're going to get to 60 million tonnes.
And then as we think about some of the efforts that we're doing and the development at Sabine.
We're thinking of things like oil off re liquefaction of the gas.
So so that could add incremental capacity as well so.
We're pretty focused on the Debottlenecking today, we're still at 5 million tons per train and we will update you when we make more progress there.
Thanks.
The second question more for Anatol.
Beforehand.
The agreement seems comparatively more of the middle of that in your prior.
Spill stage, five offtake agreements and related agreements.
<unk>.
Would you say that the market is starting to with higher interest rates would worry about cost of capital and execution in large infrastructure projects.
The progress you've already made.
<unk> stage five.
The obvious historic execution and worries about peers are starting to make.
<unk> market off takers.
Yes look out say being expansion with <unk>.
Greater value even.
Without all the bells and whistles of.
Yes, or early cargoes and things like that.
Yes, Greg.
I will not take offense to your comments on behalf of the origination team, but yes.
As we've said in the past, we do expect as we move forward that.
The contractual support will largely rhyme with what we've done in the past there will be a mix of Fob dead.
The complexity in these transactions is as you guys know.
Stage, five and especially train eight is quite far out so.
There is nothing that is valuable in the market today is prompt volumes you can see that obviously in the curve and when we're talking about a contract that will start in.
And most likely early next decade and continue for 20 years.
There is complexity in that right. So that is the that is the key issue there, but youre absolutely right on the second leg of Europe complement.
<unk> said 3000, plus cargos perfect delivery track record at a time when other facilities in the U S globally, our globally the utilization rate for liquefaction is in the mid eighties and of course, we don't even count the olympias in the yemen's in those numbers right. So our track record and the team's performance.
<unk> is a standout relative to our <unk>.
<unk> globally and that is being reflected in our commercial engagements.
Great. Thank you.
We'll go next to Brian <unk> with UBS.
Hey, good morning, everyone I'll keep it to one question knowing that will be our Zach. Thanks for the clarification on the follow up on the nine train run rate guidance and the commentary there.
But cheniere has made a lot of money on optimization on the portfolio, whether it's gas sourcing re gas or shipping. So just kind of curious if you can just update us. If this is included in kind of the nine train run rate guidance is there a way to kind of capitalize this number going forward just given that it seems pretty ratable in the last 24 months or should we think about more cargoes going to Asia over the long term.
May be biting into some of that optimization.
Yeah.
Sure.
Basically I mean, you can even look at like other revenue, where the sub chartering River revenue comes in in that that that goes all over the place quarter to quarter, just depending on the dynamics of how much length, we have in our shipping portfolio Steven.
Sublease out.
These types of things they wouldn't be in our run rate numbers whatsoever, theyre not even it usually in our guidance until it's locked in because we just can't rely on it.
It's another reason why we wait for guidance in February because there is a good amount of variability for in transit between 23 and 'twenty four.
Those are the types of things, we don't want to count on.
With the guidance and somehow missed for just the timing reason. So that's why we'll come out with guidance in 'twenty four and you can assume when we give you guidance maybe on the high end, we're taking advantage of some of the optimization not just in sub chartering out our length on the shipping side and using third party volumes.
To deliver some of our.
D S deals, but our upstream of the sites as well we've been really successful this year, taking advantage of basis differentials and lifting margin and enhancing that lifting margin that we've made at both facilities. So not baked into our run rate guidance and we'll see where we are in February.
But usually a tailwind.
Two our guidance quarter to quarter.
Great makes sense I'll leave it there. Thanks for the reminder, on the Capex to EBIT swap for commissioning cargos enjoy the rest of your morning.
Thank you. Thank you.
At this time there are no further questions I will now turn the call back to management for additional or closing remarks.
I just wanted to thank everybody for their continued support of <unk> and we'll talk soon.
This does conclude today's conference we thank you for your participation.
Okay.