Q4 2023 Cheniere Energy Inc Earnings Call
Joining me. This morning are Jack Fusco, <unk>, President and CEO, Anatol Fagan Executive Vice President and Chief Commercial Officer, Zach Davis, Executive Vice President and CFO and other members of <unk> Senior management.
Before we begin I would like to remind all listeners that our remarks, including answers to your questions may contain forward looking statements and actual results could differ materially from what is described in these statements.
Slide two of our presentation contains a discussion of those forward looking statements and associated risks.
In addition, we may include references to certain non-GAAP financial measures such as consolidated adjusted EBITDA and distributable cash flow.
A reconciliation of these measures to the most comparable GAAP measure can be found in the appendix to the slide presentation.
As part of our discussion of <unk> results. Today's call May also include selected financial information and results for Cheniere Energy partners L. P or <unk>, we do not intend to cover <unk> results separately from those of Cheniere Energy Inc. The.
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 and 2024 guidance. After our prepared remarks, we will open the call for Q&A.
I'll now turn the call over to Jack Fusco, <unk>, President and CEO.
Jack A. Fusco: You Randy good morning, everyone. Thanks for joining us today as we review our successful 2023 and discuss our outlook for what is setting up to be a very busy and promising 2024.
Jack A. Fusco: In 2023, we drove exceptional results across the key strategic priorities of the company and we did so while reinforcing our track record on safety execution and operational reliability Im extremely.
Jack A. Fusco: Really proud of by 1600 generic colleagues across operations engineering, and construction origination and others, who continue to be driven by excellence and take pride and solidify engineer is best in class across our platform we have.
Made significant strides despite some persistent macro headwinds and increased uncertainty in 2023.
Jack A. Fusco: Each largely driven by conflict geopolitics and the evolving regulatory landscape, particularly right here in America.
Jack A. Fusco: I'll touch on the ladder in a moment, but the macro backdrop for LNG today provides a black yet clear reminder of the criticality of secure and stable energy supply and the value of a reliable.
Jack A. Fusco: And customer focused operator, who consistently delivers on its promises to.
Jack A. Fusco: <unk> global stakeholders.
Jack A. Fusco: Please turn to slide five while our renew some key operational and financial achievements from the fourth quarter and full year 2023, and introduce our 2024 financial guidance.
We generated consolidated adjusted EBITDA of approximately $1 $65 billion in the fourth quarter, bringing our full year total to approximately $8 8 billion.
Jack A. Fusco: High end of our most recent guidance range.
Jack A. Fusco: We generated approximately $1 $1 billion of distributable cash flow in the fourth quarter and $6 5 billion for the full year, which is above the high end of our guidance range.
Jack A. Fusco: Looking back at the original guidance provided for 2023, we beat the midpoint of each of those guidance ranges by over $500 million.
Jack A. Fusco: Once again illustrating the volatile nature of current global natural gas markets and the value of <unk> platform to monetize that volatility last year.
Jack A. Fusco: For the fourth quarter regenerated, approximately $1 4 billion and net income, bringing the full year total to approximately $9 9 billion.
Jack A. Fusco: Strategically 2023 was another year marked by significant accomplishments across the entire platform and I'll highlight just a few of them here.
Jack A. Fusco: First and foremost we continue to execute on the company's long term objectives with.
Jack A. Fusco: With safety at the foundation of our actions and a 2023, we once again demonstrated this by achieving a total recordable incident rate of 0.10.
Jack A. Fusco: Which is well within the top decile for industrial producers.
Jack A. Fusco: We achieved this while simultaneously operating the second largest LNG platform in the world.
Jack A. Fusco: And being deep in construction on a 10 plus million tonne per annum expansion project.
Jack A. Fusco: These safety results are a source of tremendous pride for me.
Jack A. Fusco: And that price should be felt by all the company's stakeholders.
Jack A. Fusco: We produced and recorded a record 169 LNG cargoes in the fourth quarter, bringing the total to a record 600.
Jack A. Fusco: 37 cargoes for the full year.
Jack A. Fusco: Total production was in line with our forecast of about 45 million tonnes <unk>.
Jack A. Fusco: Inclusive of the successful major maintenance turnaround at Sabine pass over the summer.
Jack A. Fusco: Europe remains a premium market for U S cargoes across 2023% to 73% of the volume produced at our facilities was delivered to Europe.
Jack A. Fusco: Five new long term customer contracts commenced over the course of 2023, representing approximately $3 7 million tonnes per annum.
Jack A. Fusco: And earlier this month, we commenced our $1 1 million ton per annum, Petro <unk> contract, which was tied to train six on the very first day of the <unk> window holding to our standard of always meeting our customer commitments.
Jack A. Fusco: On the E&P front Corpus Christi stage, three is progressing on an accelerated timeline and we continue to forecast first LNG production from train one at the end of this year.
Jack A. Fusco: In 2023, we advanced total project completion to over 50% I am extremely pleased with the progress we continue to make together with back on stage, three and I'm optimistic for further schedule improvements over time.
Jack A. Fusco: Some important steps lost share in preparation for stage III to commence commissioning and operations.
Jack A. Fusco: Construction on the ADC pipeline being built from Aqua dosing to support stage three is progressing well and the pipeline is expected to be in service in the third quarter in advance of train one's accelerated startup.
Jack A. Fusco: In addition in the second half of last year, we purchased for approximately $100 million in existing 400 megawatt power plant in Corpus Christi, which is located on our property.
Jack A. Fusco: In order to help mitigate risks associated with our increased power purchasing needs once stage III commences operations.
Jack A. Fusco: These milestones coupled with the construction progress on the project reinforces my confidence in stage III timeline, improving overtime with first LNG this year and meaningful LNG production.
Jack A. Fusco: Added to our portfolio in 2025.
Jack A. Fusco: Our commercial momentum continued in 2023 as LNG buyers the world over help get the commercialization of the SPL expansion project off to an incredibly promising start we.
Jack A. Fusco: We have signed long term agreements with six Counterparties across Asia, Europe, and Canada for an aggregate of over six 5 million tonnes per annum effectively commercializing all of train seven.
Jack A. Fusco: We are encouraged by the market's early reception, especially since a majority of these counterparties are repeat customers.
Jack A. Fusco: I view it as a recognition of the value of engineers reputation.
Jack A. Fusco: We are focused on furthering development of the project in 2024 across commercialization.
Jack A. Fusco: Tori and financing work streams with a focus on submitting our full permit application with the FERC before the end of this quarter.
Jack A. Fusco: Throughout 2023, Zach and his team continued to execute on the 2020 vision capital allocation plan.
Jack A. Fusco: Significant progress across the key pillars of the plan debt reduction capital return and disciplined growth investments.
Jack A. Fusco: We've paid down over $1 billion of debt and achieved investment grade ratings throughout our structure. We bought back almost 10 million shares for approximately $1 5 billion and declared dividends of $1 66 per share and we invested approximately $1 5 billion.
Jack A. Fusco: Into stage three we've made great strides on the comprehensive plan since announcing it in late 2022.
Jack A. Fusco: And now turning our focus and attention to 2024 I am pleased to introduce our 2024 financial guidance of five 5% to six point out $1 billion and consolidated adjusted EBITDA.
Jack A. Fusco: Two nine to $3 4 billion and distributable cash flow and $3 15 to $3 $35 per unit.
Jack A. Fusco: Distribution of CQ P.
Jack A. Fusco: We again are forecasting annual results that are above the midpoint of our run rate <unk> guidance and our expected results. This year have a tremendous amount of visibility.
Jack A. Fusco: Given on how our highly contracted we are on.
Jack A. Fusco: On the CTV distribution guidance consistent with our prior messaging, we intend to maintain the 310 base distribution and adjust the variable component beginning in 2024 in order to begin preserving some cash and fortifying <unk> balance sheet as the SPL expansion project gains momentum.
Jack A. Fusco: Zach will provide more details on the 24 guidance in a few minutes.
Jack A. Fusco: Turn now to slide six.
Jack A. Fusco: I will address the Doe news and our response.
Jack A. Fusco: Europe, all aware the department of Energy recently announced it would spend making determinations on authorizations for LNG exports to non free trade agreement countries pending an update to the economic and environmental analysis underpinning is public interest determination that the.
Jack A. Fusco: <unk>.
Jack A. Fusco: While this decision does not currently impact our expansion projects or farsi processes at Sabine pass and Corpus Christi, It does introduce regulatory and permitting uncertainty into the U S LNG industry as a whole.
Jack A. Fusco: I firmly believe that a fair and transparent regulatory framework is essential for the future development of natural gas infrastructure in the United States.
Jack A. Fusco: Particularly liquefaction capacity given the scale of investment commercial support and time required to bring these projects online.
Jack A. Fusco: With that said, we believe we will secure all necessary regulatory approvals for mid scale trains eight nine and the SPL expansion project within our expected timelines as we have for more than a decade under multiple administrations.
Jack A. Fusco: To be clear the deal reaction has not slowed down our expansion projects at either site.
Jack A. Fusco: We are full steam ahead on Corpus Christi trains 89, and the Spo expansion project development.
Jack A. Fusco: We expect to file the FERC application for SPL, very soon and Corpus Christi trains 89 or in advanced stages, and the FERC approval process the.
Jack A. Fusco: The environmental assessment for trains eight nine is schedule for receipt by the end of March.
Jack A. Fusco: And we just received a letter of determination from FEMSA at key agency and the FERC process last week.
Jack A. Fusco: We remain confident.
Jack A. Fusco: Our previous timelines won't be materially impacted and we will maximize the efficiency with having back to on site already through stage three.
Jack A. Fusco: Having spent the last eight years at Cheniere.
Jack A. Fusco: I've never been more confident in the critical role of U S LNG and the global energy market and I firmly believe the dose studies will come to the same conclusion, given one the importance of long term energy security.
Jack A. Fusco: The opportunities for global de carbonization through coal to gas switching for power generation and the critical role that dispatched for gas fired power plants plays and Backstopping intermittent renewables.
Jack A. Fusco: Three low and stable domestic natural gas prices and of course for the incredible economic benefits created in the communities, where we live and work.
Jack A. Fusco: Global energy markets are calling for additional LNG supply.
Jack A. Fusco: The U S has significantly advanced the answer this call with our abundant and low cost natural resources flexibility and affordability of U S volumes NHL.
Jack A. Fusco: And until recently, the reliability and certainty of the U S regulatory regime.
Jack A. Fusco: Gulf Coast LNG positions the U S as a leader in facilitating energy security and worldwide emissions reductions.
Jack A. Fusco: This is a generational opportunity.
Jack A. Fusco: We should be proud of.
Jack A. Fusco: And working to maximize not restrict with that.
Jack A. Fusco: I'll hand, it over to Anatol to discuss the LNG market. Thank you all again for your continued support of Cheniere.
Anatol Feygin: Thanks, Jack and good morning, everyone. The global LNG market continues to rebalance throughout 'twenty three is Europe navigated its energy crisis in Asia adapted to the delicate new market equilibrium amid some regional economic headwinds.
Anatol: Global LNG trade grew by approximately 3% from 22, adding $10 5 million tons of supply to the overall market.
Anatol: Aside from 2020 global supply growth has not been this low since 2011 through 2015 period. Nevertheless, this increase in supply was broadly matched by an increase in Asian demand, which grew approximately 4% year over year to approximately 263 million tons per annum is the region furthers its poe.
Anatol: Pandemic return.
Anatol: On the supply side, while the one new train came online in 'twenty three globally. The third train of Tango LNG in Indonesia.
Anatol: Most of the growth in LNG output last year actually came from the continued ramp up of existing projects in the U S.
Anatol: The U S exported 86 million tons last year, becoming the world's largest exporter in 2023 ahead of Australia and Qatar for the first time.
Anatol: More than half of those volumes were produced by Cheniere in.
Anatol: In the fourth quarter alone U S exports reached record highs of nearly 24 million tonnes contributing to the global markets rebalancing. Despite persistent geopolitical address globally and the continued phase out of Russia and pipe gas in Europe spot price levels have decreased this winter compared to last year due to a combination of mild weather.
Anatol: Macroeconomic fundamentals high storage levels and sufficient LNG supply availability in.
Anatol: In the fourth quarter <unk> averaged $13 66 in EM and Jae Kim $14 97.
Anatol: Both significantly lower than levels seen in the previous two years and both have continued to trend down through the first quarter of this year.
Anatol: Henry hub benchmark also decreased in the fourth quarter falling to an average of $2 88, <unk> for the full year 2023, Tcf monthly settlement prices averaged $13 73, and that one btu over 66% lower year over year, and four 6% lower than 2021.
Anatol: Similarly, the 'twenty three average settlement price for <unk> decreased 53% year over year to an average of $16 13.
Anatol: While the Henry hub average settlement price was $2 74.
Anatol: Approximately 59% from $6 64 in 2022 during the height of the energy crisis in Europe.
Speaker Change: Let's address the regional dynamics on the next page.
Speaker Change: With more than 65% of all U S. LNG volumes in 2023 flowing in Europe. The region's underground storage inventories remained elevated throughout the year easing concerns about physical market tightness image further reductions in all other sources of gas supply to the region.
Speaker Change: On gas supply to Europe fell 56 bcm of year on year due mostly to the continued reduction in Russia and flows as well as heavy upstream maintenance in Norway further affecting pipe gas supply.
Speaker Change: Nonetheless storage levels ended the calendar year at 86% for the second highest level for the periods and storage data became available in 2011 <unk>.
Speaker Change: Meanwhile, gas demand in the region's key markets continued to drive declining by 9% year on year in 2023, following a 12% reduction in 2022.
Speaker Change: The power sector accounted for nearly half of these reductions amid relatively mild temperatures continued conservation efforts, improving nuclear performance and growth in renewable generation.
Speaker Change: And aside from Germany, industrial demand reductions appear to have bottomed out in 'twenty three throughout the region.
Speaker Change: In Asia as I mentioned, LNG demand grew by 4% or <unk> 9 million tonnes year on year, thanks to a resurgence in demand from China and other emerging economies throughout Asia.
Speaker Change: Of the uptick in Asia as demand was largely due to a rebound in China's economy, which resulted in the seven 5% year on year increase in gas consumption. It was up 27 bcm.
Speaker Change: Despite a 13 Bcf increase in domestic gas output and the scheduled seven bcm ramp up in the power of Siberia flows last year, China's reliance on LNG remained high at 25% of total gas supply.
Speaker Change: The country's imports rebounded by about 12% to 71 million tons last year about $8 5 million tons below the peak 2021 levels.
Speaker Change: We continue to expect gradual but continued growth in gas consumption that will increase the call him LNG going forward.
Speaker Change: In addition to China, and approximately $8 5 million ton year on year increase in South and Southeast Asia as imports also contributed to growing global demand last year.
Speaker Change: And in India led the charge as LNG spot prices moderated in demand for gas fired power generation reached record levels in India.
Speaker Change: Additionally, three new receiving terminals started in this region given the nascent import markets of the Philippines, and Vietnam access to LNG, which we believe will help power their economies for years to come.
Speaker Change: LNG demand growth in Asia was partially offset by the reduced demand for LNG in Japan, due to lower electricity demand and increased nuclear availability.
Speaker Change: In Japan, two nuclear reactors restarted in 'twenty, three increasing available nuclear capacity to the highest level since the Fukushima disaster in 2011.
Speaker Change: This is a structural trend in Japan that we expect will continue to impact gas fired power generation and consequently, LNG imports over time.
Speaker Change: Let's move to the next slide we will consider the outlook for gas and these and other economies.
Speaker Change: As discussed global gas demand in 'twenty three remained relatively flat growing.
Speaker Change: Growing by 20, bcm or one half of 1% amid tight global supplies and historically elevated prices in.
Speaker Change: In contrast, global demand for coal was up one 4% on the back of increased use in emerging and developing economies.
Speaker Change: Given the Doe action related to climate, the Jack already discussed it's worth highlighting here. The simple fact that for the second year in a row global coal consumption hit a new all time record.
Speaker Change: Coal fired power generation increased 23, despite continued coal to gas switching in the U S.
Speaker Change: Notable declines in Europe, and significant growth in renewable generation overall, which rose over 22% globally.
Speaker Change: As shown in the lower left more than half of the power demand growth in China, and India and 23 was supplied by coal.
Speaker Change: Coal fired generation from these two nations alone increased by 419, Terawatt hours, which is roughly equivalent to the total power generation for the entire country of brands and more than 80% of the entire growth in renewable power generation seen last year.
Speaker Change: While China, and India remain committed to growing gas as a primary energy source in their respective economies type gas supplies and higher than normal global LNG prices in recent years have impacted the pace of potential gas consumption growth in these developing economies.
Speaker Change: More broadly coal remains the largest source of power generation globally and represents about two thirds of power sector emissions and about a quarter of total emissions globally.
Speaker Change: With power demand expected to double by 2050, any hope of achieving global de carbonization and clean energy targets will require further displacement of coal use wherever possible, especially in countries like China and India.
Speaker Change: As Jack noted natural gas holds a critical role in helping achieve these goals over the coming decades, which we expect will result in robust increases in demand for natural gas over that period as shown by the outlooks on the Central chart.
Speaker Change: The fast growing economies in the Asia Pacific region are expected to play the greatest role empowering gas demand beyond the 2040.
Speaker Change: When demand from Europe, and the developed world could possibly be in modest decline and regional gas supplies in Asia further deplete.
Speaker Change: The outlook for global gas demand should remain robust going into the second half of this century.
Speaker Change: Natural gas is an affordable reliable and sustainable solution that will serve to displace coal and support the deployment of intermittent renewable energy sources.
Speaker Change: As such in 'twenty three alone we have executed over six 5 million tons per annum of long term agreements representing over 119 million tons in aggregate volume of LNG between 2026 and 2050.
Speaker Change: We have a majority of which are with repeat customers and are structured to meet each customer's unique long term objectives.
Speaker Change: These investment grade Counterparties include North American producers portfolio players and Asian, and European end users, all of which seek secure cleaner and affordable and flexible supply.
Speaker Change: Our customers sign up for decades of LNG from Cheniere, because they believe in the long term role of natural gas and they believe engineers' ability to deliver the LNG reliably and responsibly.
Speaker Change: Looking ahead to 'twenty four as the market continues to stabilize and achieve the stable pricing necessary to ensure market access and adoption. We anticipate our premium product will continue to have broad based appeal.
Speaker Change: With that I'll turn the call over to Zach to review, our financial results and guidance.
Zach Davis: Thanks, Anatol and good morning, everyone.
Zach Davis: I'm pleased to be here today to review, our fourth quarter and full year 2023 results and key financial accomplishments and introduce our financial guidance for 2024.
Zach Davis: Turning to slide 12.
Zach Davis: For the fourth quarter and full year 2023, we generated net income of approximately $1 4 billion and $9 9 billion.
Zach Davis: Consolidated adjusted EBITDA of approximately $1 65 billion.
Zach Davis: And $8 8 billion.
Zach Davis: And distributable cash flow of approximately $1 1 billion.
Zach Davis: And $6 5 billion respectively.
Zach Davis: With today's results our full year consolidated adjusted EBITDA results were at the high end of our most recent guidance range and we exceeded the high end of the range on distributable cash flow, mainly attributed to higher margin captured on open capacity and optimization upstream and downstream of the plant.
Zach Davis: In addition, we have now reported positive net income on a quarterly and cumulative trailing four quarter basis five quarters in a row.
Zach Davis: As compared to 2022 or.
Zach Davis: Our fourth quarter and full year 2023 results continued to reflect a higher proportion of our LNG being sold under long term contracts with less volumes being sold into short term markets as well as the further moderation of international gas prices relative to what we experienced in 2022.
Zach Davis: These impacts were partially offset by certain portfolio optimization activities that our teams were able to achieve throughout the year.
Zach Davis: During the fourth quarter and full year, we recognized an income 618, and 2000 and 353 television to view, a physical LNG, respectively, which included 607 and 2318 TB to you from our projects our record for the full year.
Zach Davis: And 11% and 35 <unk> sourced from third parties respectively.
Zach Davis: Approximately 90% and 87% of these LNG volumes recognized in income were sold under long term SBA or IPM agreements with initial terms greater than 10 years, respectively.
Zach Davis: While we have many significant achievements to highlight from 2023 I'm, particularly proud of my team is focused execution on our 2020 vision capital allocation plan.
Zach Davis: We deployed approximately $5 billion towards balance sheet management shareholder returns and accretive growth in 2023 alone while maintaining strong available liquidity going into this year.
Zach Davis: In aggregate since updating our capital allocation plan in September 2022, with the target of $20 billion of cash deployment through 2026 and $20 per share run rate DCF, we have now deployed over $8 billion.
Zach Davis: Execution under the plan got off to a fast start in early 2023, when we achieved investment grade ratings at both of our parent entities, bringing the entire cheniere complex to investment grade status and.
Zach Davis: And in June we issued our inaugural corporate investment grade bond, placing $1 4 billion of unsecured notes at <unk>.
Zach Davis: These milestones follow approximately $8 billion of deleveraging over the last three years from approximately $32 billion of debt at our peak to now under 24 billion.
Zach Davis: During the fourth quarter, we repaid $50 million of long term indebtedness further redeeming a portion of the senior secured notes due in 2024 at SPL and bringing our total long term debt pay down for the year to approximately $1 2 billion.
Zach Davis: We plan to address the remaining balance of the SPL 2024 notes with cash on hand within Cqb early this year after which point, we will have addressed all maturities in the complex for the year.
Zach Davis: We have already begun strategizing around the 2025 maturities, we have at both SPL and CCH and as always we will evaluate opportunities to efficiently refinance or delever throughout the year.
Zach Davis: The buyback plan is working as designed and enabling us to be opportunistic.
Zach Davis: During the fourth quarter and full year 2023, we repurchased an aggregate of approximately $2 million and $9 5 million shares of common stock for approximately $339 million and $1 5 billion respectively.
Zach Davis: As the share price has provided greater opportunities. So far this year compared to the fourth quarter of 2023 deployment under the share repurchase plan is accelerated and year to date are in just a month and a half or so we have already deployed nearly $500 million.
Zach Davis: Which is more than we did in any quarter in 2023, repurchasing almost 3 million shares so far.
Zach Davis: Bringing our total shares outstanding to under $235 million. Currently we will continue deploying the now under $2 billion remaining under the plan over the next year or so with the expectation we will get to the cumulative one to one share repurchase debt paydown ratio and complete the current four.
Zach Davis: Billion dollar authorization ahead of its three year window.
Zach Davis: At which point the focus will primarily be on updating the buyback plan again with the board, while maintaining our balance sheet across the complex as we prepare for our accretive growth initiatives at corpus and soybean in the coming years.
Zach Davis: We also declared $1 66 per common share and dividends for 2023, nearly 15% increase year over year, having increased our quarterly dividend by 10% in Q3, consistent with our stated target of 10% annual dividend growth.
Zach Davis: Over time, we intend to steadily increase our overall payout ratio as our platform grows while still maintaining the financial flexibility essential to our capital allocation plan and growth objectives.
Zach Davis: During the quarter, we funded approximately $467 million of Capex at our stage three project, bringing total spend to approximately $1 5 billion for the year and a little over $3 billion in total for the project.
Zach Davis: While frontloading the equity spend has enabled considerable interest savings, we still have over $3 billion available on our CCH term loan that we plan to utilize overtime as the project progresses towards full completion in 2026, and we expect to spend between one five and $2 billion in stage III Capex this year.
Zach Davis: Turning now to slide 13, where I will discuss our 2020 for guidance and outlook for the year.
Zach Davis: Today, we are introducing our full year 2024 guidance ranges of five 5% to 6 billion and consolidated adjusted EBITDA and $2, 9% to $3 4 billion and distributable cash flow.
Zach Davis: As we've been clear about on recent calls 2024 represents our most contracted year to date is all contracts signed to underpin our existing 45 million ton platform have commenced as well as some bridging volumes tied to contract signed in support of our growth projects. It's likely 2024 will represent a trough year for <unk>.
Zach Davis: <unk> after being down sequentially since 2022, as we expect to move upward post 2024 as stage III commences and eventually reaches run rate in 2026 and beyond with very little unsold capacity remaining throughout the year. These ranges largely reflect our nine train run rate guidance adjusted for a higher proportion.
Zach Davis: And the volumes sold under long term contracts or bridging volume as well as some forward selling of spot cargos at higher international gas prices.
Zach Davis: These positive adjustments are partially offset by the prepayment and cancellation of the chevron to UA and some incremental O&M costs related to our planned maintenance program.
Zach Davis: We expect to produce approximately 45 million tonnes of LNG. This year inclusive inclusive of planned maintenance at both sites. We remain optimistic we will achieve first LNG from train one of stage III this year, but that would not impact our revenues or EBITDA in 2024, as it will likely remain in commissioning through year.
Zach Davis: And.
Zach Davis: In terms of portfolio optimization activities. We include any such transactions already completed in the guidance, but we do not forecast additional.
Zach Davis: B or higher.
Zach Davis: 2022.
Zach Davis: And remains on track as we continue to execute on the plan this year.
Zach Davis: Credit goes to our commercial team who have.
Zach Davis: Sold our 2% open capacity going into this year, which has come down from 50 <unk> to 15 TV to you since the November call.
Zach Davis: Highlighting that despite the recent drop in global gas indices are EBIT forecast remains above the $5 $5 billion mid point of our nine train run rate guidance 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.
Zach Davis: Our distributable cash flow for 2024 could also be affected by any changes in the tax code under the IRA. However, the guidance provided today is based on the current IRI tax law guidance and assumes we qualify for the minimum corporate tax of 15% this year.
Zach Davis: As the year progresses, we will likely tighten our range is consistent with what we've done in the last two guidance cycles at <unk>. Our full year 2024 distribution guidance range is $3 15 to $3 35 per common unit.
Zach Davis: Which maintains our base distribution of $3 10.
Zach Davis: In a variable distribution of between 5% and 25.
Zach Davis: As we have discussed publicly for the last year by adjusting the variable component of our base plus variable distribution. This year, we are preserving cash and balance sheet capacity at <unk> in anticipation of funding. The 10 plus billion SPL expansion project. According to our disciplined capital investment parameters, which call for financing the <unk>.
Zach Davis: Project, 50% with cash flow, while maintaining investment grade ratings at both SPL in CQ P.
Zach Davis: All within a traditional MLP structure. This CPU guidance keeps us on our previously assumed timeline and should be viewed as an indication of our confidence and the attractiveness and viability of the SPL expansion project in the near term deleveraging at CGP or SPL can be considered early investments in the SPL expansion project.
Zach Davis: Until we are in a position to formally sanctioned the project raise financing and begins construction, which we planned for in 2026.
Zach Davis: We expect a accretive SPL expansion project could increase the run rate distributable cash flow at <unk> to over $5 per unit a.
Zach Davis: A win not only for <unk> unit holders, but LNG shareholders as well since we are in the high splits of the MLP, meaning approximately 75% of the incremental cash flow would accrue to cei and further meaningfully increased our run rate DCF per share target over time as it was not baked into the original 2020 vision looking beyond.
Zach Davis: This year the Cheniere story remains the same our highly contracted business model is built upon long duration fixed fee investment grade take or pay style cash flows, which underpin the $40 billion natural gas infrastructure platform, we operate today.
Zach Davis: As we pursue brownfield expansions our approach will be consistent with that of the first over 55 million tonnes.
Zach Davis: Adhering to our disciplined investment parameters, so that our cash flows and our value proposition remain insulated from whatever transitory supply and demand imbalances may occur over the next decade plus.
Zach Davis: Our company provides investors with exposure to LNG the theme more so than the commodity and it is inherent stability and long term visibility in our contracted cash flows growth and shareholder returns that should enable us to continue to deliver meaningful value to our stakeholders for decades to come.
Speaker Change: 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.
Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone keypad. Please make sure. Your mute function is turned off to allow your signal to reach our equipment. We ask you limit yourself to one question and one follow up to allow as many questions as possible you may rejoin the queue. If you have additional questions.
John Mackay: I'll go first to John Mckay with Goldman Sachs.
John Mackay: Hey, good morning, Thank you for the time.
John Mackay: The color you guys gave on the 24 guide and you're already above that kind of nine train run rate, but maybe you can just spend another minute talking through what kind of gets you to the low end of the range versus the high end of the range. It's about the same.
John Mackay: 500 million ranges you gave for 'twenty three but there were more open.
John Mackay: Volumes on salt at that point, so maybe just kind of walk through those dynamics. Thank you.
John Mackay: Hi, John Exec, and I'll, just say the $500 million range is basically we are keeping the same cadence that we've had for the last couple of years with the $500 million, it's still under 10%.
John: The EBITDA, but it's safe to assume that we're going to start right now around the midpoint of that range.
John: And from there I would say, there's a few variables even though the open capacity is so small and $1 CMI move in margins is only $15 million.
John Mackay: With most of the year still ahead of us $1 move in Henry hub.
John Mackay: Can move EBITDA in the lifting margin by around $100 million.
John Mackay: And just year end timing of deliveries that can move things around $100 million as well, even though a lot of those end of your cargoes or even locked in at pretty attractive rates by the team.
John Mackay: When it comes to the upside and downside to the high end and low end.
John Mackay: On the low end.
John Mackay: It would really have to be something unforeseen today operationally.
John Mackay: That got us that close to that to the low end considering how locked in we are so it would be maybe a longer maintenance cycle.
John Mackay: And then we even had last year, which which we don't foresee or a tougher hurricane season or something of that sort on the upstream on the.
John Mackay: Upside I would just say we've been very clear from the get go we don't guide on optimization upstream and downstream of the plant that is not locked in.
John Mackay: So as that accrues ideally through the year, even though margins are lower than Henry hub is lower and volatile volatility has moderated.
John Mackay: That should help us get to the upside and then yes, we'll stay optimistic on seeing if we can get a couple more cargoes out.
John Mackay: Through the course of the year.
Speaker Change: I appreciate all that detail, maybe just a follow up and maybe this one's for you.
Speaker Change: A tall theres been obviously a lot of focus in the market.
Speaker Change: On kind of the next three three and a half years.
Speaker Change: For the LNG market with U S and Qatar supply coming online and the demand picture.
Speaker Change: Maybe not warming up as fast as we would have hoped understand that kind of a long term dynamics you talked about earlier on the call, but maybe just spend a couple of minutes walking through what you see is this kind of medium term outlook and maybe what the supply demand balance looks like around the back half of this decade.
Speaker Change: Sure. Thanks, John Thanks for the questions I'll start kind of in reverse order.
Speaker Change: The market will grow what supply allows it to grow so the $10 5 million tonnes was a function of that supply coming into the market and being placed where it was most needed at the margin.
Speaker Change: The things that are encouraging to us and we see as kind of an extra both trends are the commitments to gas and the investments in long dated infrastructure.
Speaker Change: Not a month goes by that we don't add a couple of re gas terminals and.
Speaker Change: Things like gas fired power plants are very difficult to get turbines are difficult to get for years and that is a function of the deployment of that infrastructure globally. So we prefer a world where where LNG is is in those high single low double digit rates where return.
Speaker Change: <unk> for us are attractive, but reasonable and the consumers can get their hands on these attractive btu is and as we mentioned in the prepared remarks are competitive with with coal and other generation sources. So we remain very optimistic youll see volumes going into south and southeast Asia Youll see the the margin.
Speaker Change: <unk>.
Speaker Change: Elastic demand come back into the market, we are already seeing that even in the early days post post the Chinese new year, and we think that these are trends that will last for decades and decades to come and we have kind of those commercial the commercial engagements with those types of counterparties that are continuing a pace. So.
Speaker Change: We think the market will.
Speaker Change: <unk> will enjoy absorbing this this volume and whether it comes on line on schedule or if things are modestly delayed as they have been historically, we think that the market will will show robust growth and ability to absorb this this next wave.
Speaker Change: That's great appreciate the time today. Thank you.
Speaker Change: Thank you we'll go next to Jeremy Tonet with J P. Morgan.
Speaker Change: Okay.
Jeremy Bryan Tonet: Hi, good morning.
Jeremy Bryan Tonet: Good morning, Jeremy.
Jeremy Bryan Tonet: Just wanted to kind of unpack a little bit more on your earlier comments there when you talked about hitting the midpoint of prior guidance range.
Jeremy Bryan Tonet: No.
Speaker Change: Just wondering.
Jeremy Bryan Tonet: What type of optimum.
Jeremy Bryan Tonet: Optimization.
Jeremy Bryan Tonet: Cheniere has been able to.
Speaker Change: Got it.
Speaker Change: Volatility in the market upstream and downstream.
Speaker Change: Operations with that number.
Speaker Change: It's been in the one hundreds of millions of dollars Jeremy in terms of the optimization.
Speaker Change: And I'd say, one hundreds of millions of dollars both in the upstream and downstream side mind, you and re hub was significantly up in <unk>.
Speaker Change: In 'twenty, two moderated a bit last year and it's even further down today. So.
Speaker Change: We'll see how much can be there and then on the on the other side.
Speaker Change: Yes, we have a ton of IPM deals.
Speaker Change: Deals so we'll optimize those as we see fit in and sub charter out any of our length in our in our shipping portfolio, which in the past has added hundreds of millions of dollars mind, you even that market has moderated as well in terms of the volatility, but when you add those two things together it would really take yes.
Speaker Change: Great execution, and some opportunistic moments throughout the year.
Speaker Change: For us to get to the high end of the range.
Speaker Change: Got it so just to be clear there than hundreds of millions of dollars of synergies our optimization, rather upstream and downstream both we've seen historically and that's not really baked into the guidance.
Speaker Change: As we see it today, because the guidance really just locked in.
Speaker Change: What you've already locked down is that the right way to think about things.
Speaker Change: That's right.
Speaker Change: We're pretty clear for quite some time now.
Speaker Change: As we thought about this year would be the closest we would be the run rate and considering how proactive we were going into this year and now that we're only down to <unk>, we're still above the midpoint of the run rate range for nine trains and we don't even have the EUA from Chevron anymore.
Speaker Change: So.
Speaker Change: This is where we expected it to be and it was baked into the 2020 vision in the 20 plus billion dollars of cash flow through 2006, and we will see.
Speaker Change: How things play out on the optimization side, but it's not baked in to this guidance today.
Speaker Change: Got it very helpful. So a lot of upside potential, but not baked into the guide very clear there. Thank you very much.
Speaker Change: Thanks, Jeremy.
Speaker Change: We'll go next to Brian Reynolds with UBS.
Brian Reynolds: Hi, good morning, everyone.
Brian Reynolds: Maybe just talk about just the <unk>.
Brian Reynolds: Distribution cut on the variable side, if you could just help talk about sizing and timing of that and ultimately how it relates to.
Brian Reynolds: Translating into the 15 M Tpa expansion, assuming like an 850 build so it seems like there's still a little bit of a variable component in the guidance above that three one kind of run rates I'm just kind of curious how you came to that number and how we should think about pre funding just given it could be $10 billion to $15 billion for four for the SPL expansion. Thanks.
Brian Reynolds: Sure.
Brian Reynolds: As we thought about the variable adjustment.
Brian Reynolds: I'd say over the last two years, we were incredibly efficient with our cash inside of EQT.
Speaker Change: And with the distributions, including the variable being over $4. Both years, we probably distributed out almost $700 million more than even the run rate DCF per unit guidance that we gave.
Brian Reynolds: So now its time as we're getting closer to officially filing.
Brian Reynolds: With the FERC for the Sabine expansion and are targeting that 2026.
Brian Reynolds: That we're going to start retaining some of the cash and bringing down the variable we're saving around let's say $700 million.
Brian Reynolds: And a large portion of that will actually just go into.
Brian Reynolds: Paying down a bit of debt that's coming due.
Brian Reynolds: Giving us this flexibility financially to add leverage capacity once we get the project stay with that let's say 50 50 debt to equity during construction and maintain the base distribution throughout while still being investment grade at Sabine and CQ piece. So we're trying to thread the needle there and to.
Brian Reynolds: Do that we need to start planning now.
Brian Reynolds: And use some of the cash that's retained is also going into the development of supporting the feed and getting Sabine expansion ready for FID.
Brian Reynolds: And there's even a $100 million or so baked in there for debottlenecking purposes, We think we've found some ways too.
Brian Reynolds: Get to the higher end of the $4 90 to 501 range on the first exchanged that hopefully cannot pay dividends to us in the coming years. So theres a few things in there, but it is mainly debt paydown in the near term to add leverage capacity and flexibility in the long term mind, you its still $2 billion of distributions coming.
Brian Reynolds: Out of <unk> this year with.
Brian Reynolds: With $1 2 billion of that going into <unk>.
Brian Reynolds: <unk> going to cei, but if we can pull all this off and build this project and get to that over to $5 GPU.
Brian Reynolds: We're talking about almost $2 billion of consolidated EBITDA, and we're talking about almost a $1 billion of DCF to cei.
Brian Reynolds: It's a win win for all parties.
Speaker Change: Right makes sense I appreciate all of that.
Speaker Change: My second question just around maybe further optimization I know for the SPL expansion. It seems like Theres, some capital efficiency and optimization opportunities at the boil off gas and some other things.
Speaker Change: But as we think about the existing asset base I think you talked about 45 M Tpa kind of being a good run rate it seems like 23.
Speaker Change: Above that as we look ahead to 2024 have we squeezed out all the optimization on the existing asset base or are there. Some new technologies are engines that could help.
Speaker Change: To further drive efficiencies and optimization on the existing asset base going forward. Thanks.
Speaker Change: Brian This is Jack and while we're not going to guide upwards of 45 million tons today.
Jack A. Fusco: I'm always amazed at what my operations folks can can deliver so whether it's optimizing.
Jack A. Fusco: The trains or or our maintenance schedule.
Jack A. Fusco: They are just.
Jack A. Fusco: Constantly outperformed.
Speaker Change: So we're looking now exact mentioned the 100.
Speaker Change: 100, or so million dollars for Debottlenecking and one of the things I find really promising as we're looking at a new technology of our our fin fans. Those are the fans that we used to cool the refrigerant that liquefy the natural the natural gas.
Speaker Change: And we think Theres, a big opportunity there. So we'll be trying that out in earnest this year and I hope to have more news for you on later calls.
Speaker Change: Okay.
Speaker Change: Great I appreciate it have a great rest of your morning.
Speaker Change: Thank you we'll go next to Theresa Chen with Barclays.
Theresa Chen: Good morning.
Theresa Chen: Going back to Jack's comments on the evolving regulatory backdrop and with respect to the daily part I'm, just curious how thats impacted conversations with customers both within the context of commercializing your expansion projects, but also in relation to the broader at.
Speaker Change: That the U S government has two LNG exports and the perception of <unk> global.
Speaker Change: <unk> and the credibility and competitiveness of U S. LNG industry any salient commercial color you can provide would be great.
Speaker Change: Teresa I think I'm going to just start with some overall comments and then I'll turn it over to Anatol, but.
Speaker Change: I have to say this isn't really new we've been through multiple administrations here at Cheniere.
Speaker Change: We've been through multiple studies on the public interest in exporting America's natural gas.
Speaker Change: What is shocking and new is over over the last eight years I think <unk> proven all the benefits to America to our allies over exporting U S LNG and I find it appalling.
Speaker Change: <unk>.
Speaker Change: We need scientist to tell us theoretically using theories and hypotheses.
Speaker Change: The benefits or not.
Speaker Change: <unk>.
Speaker Change: As you know we.
Speaker Change: We know that they are those benefits are factual they're proven.