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spk11: Good day and welcome to the Chenier Energy Fourth Quarter 2021 Earnings Call and Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Randy Batia.
spk15: Please go ahead.
spk12: Thank you, Operator, and good morning, everyone. Welcome to Chenier's Fourth Quarter and Full Year 2021 Earnings Conference Call. The slide presentation and access to the webcast for today's call are available at Chenier.com. Joining me this morning are Jack Fusco, Chenier's President and CEO, Anatole Fagan, Executive Vice President and Chief Commercial Officer, and Zach Davis, Executive Vice President and CFO. Before we begin, I would like to remind all listeners that our remarks, including answers to your questions, may contain forward-looking statements, and actual results could differ materially from what is described in these statements. Slide 2 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 Chenier's results, today's call may also include selected financial information and results for Chenier Energy Partners LP or CQP. We do not intend to cover CQP's results separately from those of Chenier Energy Inc. The call agenda is shown on slide three. Jack will begin with operating and financial highlights. Anatole will then provide an update on the LNG market, and Zach will review our financial results and guidance. After prepared remarks, we will open the call to Q&A. I now turn the call over to Jack Fusco, Cheniere's President and CEO.
spk06: Thank you, Randy, and good morning, everyone. Thanks for joining us today, and thank you for your continued support of Cheniere. I'm pleased to be here this morning to review our 2021 results and successes, discuss our improved 2022 outlook, and share my excitement about Cheniere's future. 2021 was a transformative year for Cheniere. First, we completed the construction of our initial nine-train platform and increased our run rate production to 45 million tons per annum. Second, we reached a meaningful cash flow inflection point. And third, we successfully executed a variety of long-term contracts to put Stage 3 on a path to FID this year. And the contract with EOG we announced this morning effectively completes the commercialization of Stage 3. While 2020 proved our resilience, 2021 showcased the power of the Chenier platform. The many competitive advantages I've discussed on these calls over the past close to six years were on full display throughout the year, each contributing to the results and the increased 2022 guidance we're providing this morning. We begin 2022 in an extremely supportive LNG market environment The extended period of volatility and elevated prices driven by an underinvestment in infrastructure and geopolitical tensions underscore the vital need for reliable, affordable, secure, and environmentally competitive energy supplies on a long-term basis. Please turn to slide five, where I will review key operational and financial highlights from the quarter and the year and introduce our upwardly revised guidance. For the fourth quarter of 2021, we generated a consolidated adjusted EBITDA of $1.3 billion and distributable cash flow of approximately $549 million on revenue of approximately $6.6 billion. We exported a record 153 cargoes during the quarter, bringing our 2021 annual total to 566 cargoes of LNG shipped We have now exported over 2,000 cargoes to 37 countries and regions around the world. Throughout the year, we repeatedly raised full-year EBITDA and DCF guidance after announcing the initial ranges in November of 2020, ultimately raising EBITDA and DCF guidance by $700 million and $600 million, respectively. I'm pleased to report today that we delivered on the increased guidance, generating approximately $4.9 billion and consolidated adjusted EBITDA and $2 billion in distributable cash flow for the full year 2021. Today, we're raising full year 2022 guidance to $7 to $7.5 billion in consolidated adjusted EBITDA and $4.3 to $4.8 billion in DCF. This significant guidance increase is driven primarily by three factors. First, The earlier than forecast substantial completion of Train 6, which occurred in early February of this year. Second, the further improvement in market margins since our November earnings call. And third, the timing of some cargoes that were shipped around year-end 2021, a variable which we mentioned last November. In addition, we're raising our 2022 CQP distribution guidance range to $4 to $4.25 per unit and introducing a revised distribution plan. Today at CQP, we announced the initiation of a quarterly distributions to be comprised of a base amount plus a variable amount, which we are expected to begin with the distribution with respect to the first quarter of 2022. This distribution approach enables a more efficient distribution of CQP's cash which is warranted given the completion of Train 6. Zach will cover the financial results and guidance updates in more detail in a few minutes, but clearly we expect to build upon our success in 2021 and have an even better 2022. Turn to slide 6, where we'll take a victory lap on a transformative 2021. During the fourth quarter, Our commercial momentum continued as we signed long-term SBAs with Sinocam and Foran, which built upon the long-term agreements we signed earlier in the year with Tourmaline, EMN, and Glencore, and brought our aggregate long-term commercial volume signed in 2021 to approximately 80 million tons equivalent and over $11 billion of fixed fees over the next 20 years or so. Both SBAs with SinoChem and Forum feature early or bridging volumes, further reinforcing the value of our tailored solutions in the market. Our commercial success in 2021, coupled with the continued momentum demonstrated by the EOG agreement we just announced, as well as recent market dynamics, has brought Stage 3 even more into focus. And we remain confident in a midyear FID. I'll speak more about stage three in a few minutes. The excellent financial performance has enabled us to accelerate the execution of our comprehensive all of the above capital allocation strategy announced in September. For the full year, we exceeded our goal of $1 billion of debt pay down by $200 million, and in 2022, we are already off to a fast start on debt reduction and expect to be able to significantly outperform the $1 billion target this year. Additionally, we paid our first-ever quarterly dividend in the fourth quarter of 2021, and we repurchased over 100,000 shares of LNG stock since we resumed share repurchases last year. And of course, on execution, we continue to reinforce our market-leading reputation and track record on reliability, which has never been more important given the market's recent volatility and the critical need for energy security across the globe. Substantial completion was declared on Corpus Christi Train 3 in the first quarter of 2021, and we just announced substantial completion on Sabine Pass Train 6 earlier this month. With the addition of these two trains, we have now completed our initial nine train platform safely, ahead of schedule, and on budget. We now process over 7 BCF per day, or approximately 7% of the total gas production in the U.S., and we do so every day with near-perfect scheduling efficiency. Finally, and more importantly, our safety metrics improve year over year in an especially impressive feat, considering we were commissioning and completing trains at both Sabine Pass and Corpus Christi during the year. Safety is the foundation of our success, and I'm proud that our continued focus on safety and operational excellence continues to yield tangible benefits for all Chenier stakeholders. Turning now to slide seven. As I usually do on these year-end calls, I'd like to lay out some of my key goals for the Chenier team to accomplish in 2022. This is not an exhaustive list. of what I expect us to achieve this year. As the team in this room will certainly attest, but I wanted to highlight some of my top priorities for the year. First and foremost, we intend to deliver on the upwardly revised financial guidance we provided this morning. We are excited about our significantly improved outlook for the year. Energy markets remain volatile, but we have a high degree of visibility into our ability to deliver results within the ranges provided. given how we manage our exposure to the market. Second, to get our Corpus Christi Stage 3 project to FID. Corpus Christi Stage 3 is a very competitive expansion project, which meets our financially disciplined growth capital investment parameters and achieves the kind of accretive growth we target as part of our long-term capital allocation plan. As I said a moment ago, the project is well positioned to be sanctioned. And it is fair to describe our remaining steps to FID as dotting our I's and crossing our T's. We are working closely with Bechtel to finalize the EPC contract and expect to conclude that soon. We had great success in getting Corpus Christi Train 3 and Sabine Pass Train 6 underway with limited notices to proceed, or LNTPs, which de-risked the projects and got them ahead of schedule early. we would look to do the same on Stage 3. So that's something that could happen in the near term as we progress towards a full FID and full NTP on all seven trains sometime this summer. On the commercial front, we are now working to finalize the contract portfolio for Stage 3, both in regard to potentially new long-term agreements as well as with existing agreements at CMI. The enhanced EOG IPM agreement effectively completes the required commercialization support for Stage 3. In addition, we have recently assigned the E&N and Glencore SPAs from CMI to Sabine Pass and expect to further optimize CMI's long-term contract portfolio in support of our projects, including additional support for SPL and the assignment of CMI contracts in support of Stage 3. On the financing side, Zach and his finance and treasury teams are preparing to kick off the financing process with the banks. So it's all coming together, and we look forward to continuing to deliver world-class execution on Stage 3. Lastly, I want to highlight ESG as a priority goal for 2022. We made major strides on our ESG initiatives in 2021, specifically on climate and sustainability, where we demonstrated our leadership through several major programs announced last year. Our initiatives from our cargo emission tags to our QMRV study with our producer and shipping partners are all the result of a multi-year effort built from our climate and sustainability principles, which we announced back in 2018. These programs demonstrate our approach to climate and sustainability issues and opportunities, which center around transparency, science, our supply chain, and operational excellence. We're pleased to see our efforts on this front being recognized by our communities and stakeholders. Earlier this year, we were named a Just 100 Leader by Just Capital, which ranks companies on corporate behavior issues, such as climate, job creation, and community development. We are proud to be the top ranked company in our sector and 35th overall out of nearly 1,000 companies. And just last week, we were ranked among America's most responsible companies in Newsweek's annual ESG performance ranking for the first time. My goal for 2022 is to advance our leadership position within our industry on these crucial efforts. Our ESG strategy is focused on being actionable, not aspirational. And the initiatives I detailed in 2021 are evidence of that. In 2022, we aim to further integrate ESG into our business and strategy. We believe it improves our competitiveness and enhances the long-term sustainability of our LNG. And these aren't just empty promises. We are putting our money where our mouth is. In 2022, 30% of our annual compensation scorecard, which applies to every Chenier employee, will be based on ESG metrics and milestones. 2021 was truly a transformational year for Chenier. Our successes are the product of a dedicated and results-driven workforce that continues to inspire me. We begin 2022 with tremendous momentum and look forward to executing and delivering on the high expectations we set for ourselves year after year. And now I'll turn the call over to Anatole, who will provide an update on the LNG market. Thanks, Jack, and good morning, everyone.
spk14: Please turn to slide nine. Let's start with a quick look at the full year numbers for 2021. Last year saw 5% growth in LNG imports compared to 2020, taking total trade to 374 million tons. This 18 million ton year-over-year growth took LNG trade figures to well above pre-pandemic levels. Virtually all the supply growth came from the U.S., which exported an additional 23 million tons year-over-year. Impressively, Chenier was responsible for over half of that U.S. volume growth. Despite the relatively healthy overall growth in total LNG trade, The increase in supply was more than matched by demand growth in Asia and Latin America, while imports into Europe declined by 9% year over year. Low storage inventories in Europe following a period of cold weather early in the year and lower LNG and pipeline imports as compared to 2020 resulted in spot gas prices in Europe and Asia rising throughout the year as the market became increasingly concerned about adequacy of storage fill levels approaching winter in both regions. The rising geopolitical tensions in Europe in the fourth quarter compounded market uncertainty, leading to unprecedented price levels and extreme volatility during what is arguably the most inelastic demand period of the year. As such, competition between Europe and Asia for LNG supplies led to a sharp inversion in the two regional price benchmarks of TTF and JKM, with Europe outbidding Asia to attract LNG cargoes in the fourth quarter. Both TTF and JKM reached record daily highs in December of last year, with TTF trading at $59.60 in MMBTU, more than $10 in MMBTU higher than JKM at $49.30. More recently, an increase in LNG flows into Europe, predominantly from the U.S., has helped alleviate some of the extreme market tightness we saw in the fourth quarter. TTF settled January at $28.90, while JKM settled at $35.70 in MMBTU. Still, of course, high by historical standards, but well below the peak levels at year end. Please turn to slide 10. With the resurgence of LNG imports in the fourth quarter, LNG represented 43% of all Europe's gas imports in December, with the U.S. providing over a third, or 36%, of all LNG receipts. That share rose to 45% in January, reflecting the highest share of LNG volumes ever imported into Europe from any single country. European LNG imports reached 22.6 million tons in the fourth quarter, up 36% year-on-year, as the storage deficit continued to widen. European storage levels started dipping below the five-year lows around the middle of 21, with the deficit reaching about 19 billion cubic meters in December, over triple the deficit during the same period last year. This period of low storage levels during 21 was caused by a number of factors. Lower domestic production, coupled with lower pipeline imports from Russia into continental Europe, constrained gas availability for injections and LDC demand throughout the year. In addition, low renewables output and a drop in nuclear generation further exacerbated the fuel shortage. Nevertheless, countries in Europe pressed ahead with planned coal and nuclear phase-outs last year. Germany, for example, shut down 7.3 gigawatts of coal capacity and 4.3 gigawatts of nuclear power capacity just prior to year-end. We believe these dynamics, along with the recent geopolitical tensions impacting European gas prices, continue to signal that LNG will remain a critical component of Europe's energy mix for the long term. At the same time, Asian LNG demand remained robust throughout 21, while policy and infrastructure investment signals continued to reinforce future demand growth in the region for the long term. Despite increased nuclear generation in Japan, overall Asian imports increased 8% to 273 million tons in 2021. Nuclear outages and retirements in both South Korea and Taiwan, along with restrictions on coal burn in the winter, supported LNG import growth, while both continued to show policy commitments to increased use of natural gas as a primary energy source, what we have long described as the structural shift to natural gas. Accordingly, Taiwan cleared the way for a new LNG import terminal, confirmed its plans to be nuclear-free by 2025 and committed to increase its use of LNG in its power mix from 36% currently to 50% by 2025. Similarly, in its 14th gas plan and carbon neutrality roadmap, South Korea pledged to reduce the use of coal and nuclear and designated LNG as a green fuel in its taxonomy, supporting further near-term investment in natural gas infrastructure and and underscoring the important role of natural gas as a primary fuel for South Korea in the long term. China was the largest single contributor to demand growth last year, adding over 11 million tons of demand year over year, and overtaking Japan as the world's largest LNG importer for the first time. China's significant economic rebound in 2021, which saw GDP growth of 8.1%, fueled higher demand for virtually all energy products. Last year, China announced plans to be carbon neutral by 2060, and reinforced its intention to reach peak carbon emissions by 2030. Both pledges are constructive for gas and LNG, as China's plans to grow its gas demand are concrete and already in progress. The country is currently building about 22 gigawatts of gas-fired power generation, adding over 100 million tons per annum of LNG import capacity by 2025, and has ramped up its gas and LNG term contract activity in recent months, including recent long-term contracts with ENN Sinochem, and Foran. Moving on to slide 11, I'd like to highlight the rise in long-term contracting activity in the second half of 2021 and into 2022, which Cheniere has certainly participated in with the deals we signed last year and the one we announced this morning with EOG, effectively completing the commercialization of Stage 3. There was a notable increase in commercial transactions during the year with U.S.-sourced LNG in high demand. which is intuitive given the relative stability and affordability of Henry Hub versus international gas hubs. International prices began to send that price signal mid-year, with U.S. Gulf Coast margins moving above our long-term assumptions in the second quarter. The inexorable upward shift in mid-term forward margins has continued to offer a tailwind to our commercial offering, which, as Jack highlighted, often includes bridging volumes. Firm contracts with mid- and long-term tenors increased almost 80% year-on-year, surpassing 50 million tons in 2021. U.S. projects made up about 45% of total firm contracts, which is nearly double the amount of U.S. price deals last year. This surge in activity was underpinned by strong demand from Asia, particularly China. About two-thirds of all contracts signed in 2021 were executed with Asian buyers, 45% of which in turn were from China. Cheniere is proud to have added several new customers in 2021, including our new buyers in China. The ongoing evolution of the Chinese gas market, including the expansion of non-NOC regas capacity access in China, should facilitate terminal access and increase the exposure of emerging buyers to the international LNG market. Chenier's ability to execute these contracts efficiently while providing buyers energy solutions tailored to the needs and constraints of their markets demonstrates the competitiveness and flexibility of our offerings and the attractiveness of our product in providing support to policy decisions and other fundamental drivers impacting the energy landscape of the future. In addition to organic market growth, the LNG market continues to undergo a transformation as legacy contracts begin to expire, providing additional tailwinds to new contracts. Over 200 million tons are expected to expire over the next decade, and we estimate that for the period between 2026 and 2030, roughly 100 million tons of LNG contracts will need to be replaced. While some of these could be renewed with existing suppliers, There are significant uncertainties surrounding feedstock availability, price indexation and direction, environmental profile, and other geopolitical issues brought to the forefront by the recent market turmoil. We see an increase in opportunities for new demand and long-term contracts emerging, as we believe a portion of these deals will form the basis of the next contracting cycle, and Chenier continues to be well-positioned to capture a segment of this demand, along with new contracts that underpin demand growth. Now, I'll turn the call over to Zach to review our financial results and guidance.
spk03: Thanks, Anatole, and good morning, everyone. I'm pleased to be here today to review our fourth quarter and full year 2021 financial results, as well as our key financial accomplishments, our increased 2022 guidance, and our 2022 financial priorities. Turning to slide 13, during the fourth quarter, we generated adjusted EBITDA of $1.3 billion and distributable cash flow of approximately $540 million as our marketing and portfolio optimization teams continued to take advantage of our portfolio volumes in a sustained higher margin environment in global LNG markets. Adjusted EBITDA was partially offset by an increase in realized losses from financial derivative instruments used to hedge our exposure to the commodity markets in which we have contractual arrangements to purchase or sell physical LNG. We recognized in income 520 TPTU of physical LNG during the fourth quarter, including 513 DPTU from our projects and seven TPTU sourced from third parties. 87% of these LNG volumes recognized in income were sold under long-term SPA or IPM agreements. We generated the net loss of $1.3 billion in the fourth quarter. The net income line continues to be impacted by the unrealized derivative impact mainly related to our long-term IPM agreements as we have discussed on prior earnings calls. The derivative accounting coupled with the long-term duration and international price basis of our IPM agreements result in fluctuations in fair market value from period to period as LNG curves move. While IPM agreements may contribute to this variability, those agreements provide us with the stable, long-term cash flows that help support our infrastructure platform. And as such, we will continue to pursue them as part of our strategic growth plans, as we just demonstrated with the EOG IPM agreement. The EOG agreement effectively completes the commercialization of Stage 3, an accretive project which meets our disciplined capital investment parameters related to returns, accretion, and contracting. For the full year, we generated consolidated adjusted EBITDA of approximately $4.9 billion and distributable cash flow of approximately $2 billion. both exceeding our initial guidance ranges and coming in at the high end of the revised ranges we provided in November. Our outstanding performance in 2021 was a result of the hard work and dedication of the entire Cheniere workforce, despite market volatility and continued COVID-related challenges throughout the year. For the full year, we recognized an income almost 2,000 TBTU of physical LNG including over 1,950 TBTU from our projects and just under 50 TBTU sourced from third parties. 83% of these LNG volumes recognized in income were sold under long-term SBA or IPM agreements. Before discussing our financial guidance and priorities for 2022, I'd like to also recap some of our key achievements in 2021. First and foremost, we rolled out our comprehensive all of the above capital allocation plan, which was enabled by the near-term completion of our nine-term platform and the meaningful cash flow inflection point we have reached as a company. Since the announcement in September, we have not only executed on the plan, but the timelines for achieving the goals of our capital allocation priorities have been accelerated due to the sustained higher margin environment. Last year alone, we repaid $1.2 billion of indebtedness, strengthening our balance sheet and outperforming our $1 billion annual debt paydown goals. We raised over $5 billion in aggregate financing last year in support of our long-term balance sheet priorities, further demonstrating our access to capital and Chenier's credibility with capital providers. Among our refinancing transactions in 2021, I'd like to highlight the 2032 unsecured notes we issued at CQP in the third quarter, as this transaction accomplished several key priorities simultaneously. With this transaction, we achieved the lowest price for a 10-year non-Call 5 high-yield issuance in energy at 3.25%, which reduced interest expense by approximately $30 million per year, efficiently migrated project-level debt to the corporate level, and further desecured our consolidated balance sheet. Through our combined refinancing and debt repayment activity in 2021, we extended the weighted average maturity of our outstanding debt by over a year and lowered our weighted average borrowing rate. One of the primary objectives of the Capital Allocation Plan is to achieve consolidated investment grade credit metrics, and we are pleased that our accelerated execution under the plan is being recognized by the rating agencies in the form of continued ratings progression. Just last week, S&P upgraded both CEI and CQP to BB+, one notch away from investment grade ratings, and maintained positive outlook at both companies. S&P cited improved financial metrics due to the progress we've achieved to date and the expectation of continued execution under the capital allocation plan as primary justification for the upgrade and positive outlook. As I mentioned a moment ago, we expect to surpass our $1 billion debt pay down goal again in 2022, as we have already exceeded over a half billion dollars of debt pay down since the beginning of the year with the redemption of the 2045 converts at CEI in January, are generating significant cash flow, and have the fully drawn, freely prepayable credit facility of approximately $1.7 billion at Corpus to flexibly pay down over time. In 2021, we initiated a dividend at CEI for the first time and paid our inaugural quarterly dividend for the third quarter. In addition, we continued to repurchase shares under our newly reset $1 billion share repurchase program. For the year, we repurchased over 100,000 shares for approximately $9 million. Although debt paydown remains our capital allocation priority in the near term, our share repurchase program is designed to be opportunistic and enable us to take advantage of dislocations in the market. As we continue to accomplish our debt paydown goals, we expect to be able to deploy incremental capital to our other capital allocation priorities, including capital return via future repurchase authorizations. Finally, we made significant progress on commercializing Stage 3 to meet or exceed or exceed our disciplined growth capital investment parameters during the year. 2021 was truly a transformative year for Cheniere from a financial perspective, but as Jack mentioned, we expect to build on that and have an even better 2022. Turn now to slide 14, where I'll discuss our significant increase in 2022 guidance. We are increasing the consolidated adjusted EBITDA range to $7 to $7.5 billion, and distributable cash flow range to $4.3 to $4.8 billion. Since announcing our initial guidance ranges for 2022, Train 6 at Sabine Pass reached substantial completion considerably earlier than expected, enabling LNG sales from Train 6 to contribute to both EBITDA and DCF for almost two months longer than originally forecast. In addition, the global LNG market continued to strengthen since November, providing an uplift in value to our remaining open volumes. And as we mentioned in November, the timing of a few cargos around year-end 2021 also provides some tailwind to our forecast for 2022. Thanks to the team's execution and the market fundamentals, this elevated guidance should provide us momentum to achieve record DCF per share levels in 2022 in the high teens, as well as be a catalyst to achieving investment-grade credit metrics throughout the complex sooner than previously expected. With respect to EBITDA sensitivity, we have sold over 95% of our total expected production for this year and have less than 100 TPTU unsold. We currently forecast that a $1 change in market margin would impact EBITDA by approximately $50 million for 2022, after accounting for the long-term origination volume placeholders. This morning, we also announced an evolution in the CQP distribution plan. whereby the distribution is expected to be comprised of a quarterly base amount equal to 77.5 cents per unit, or $3.10 annualized, plus a variable amount equal to the remaining available cash each quarter after first taking into consideration amounts reserved for debt repayment and other capital allocation priorities, including anticipated cash-funded CapEx and cash reserves needed as part of the ordinary course of business. This plan is expected to commence with the distribution related to the first quarter of 2022. As a result, we are raising full year 2022 distribution guidance range at CQP to $4 to $4.25 per common unit. This updated distribution plan is enabled by the completion of Train 6 and is dynamic, flexible, and long-term. We believe it is an efficient way to accelerate cash returns to unit holders while retaining flexibility for future debt pay down within CQP as well as growth opportunities that Sabine passed. In short, a win-win for both CQP unit holders and CEI shareholders. That concludes our prepared remarks. Thank you for your time and your interest in Cheniere.
spk02: Operator, we are ready to open the line for questions.
spk11: Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question, and please limit yourself to one question and one follow-up. And we'll take our first question from Janine Salisbury with Bernstein. Please go ahead.
spk10: Hi. Congrats on the quarter. My first question is for Anatole. I keep hearing from our European analysts and clients that even with all that's happened, European utilities are really hesitant to sign long-term gas deals above kind of 10 to 15 years because gas contracts are supposed to end by 2049. That duration obviously makes it hard to get financing for new trains. So I guess my question is, has that been what you've seen in your experience, and how do you see that mismatch shaking out over the medium term?
spk14: Thanks, Gina, and thanks for the kind comments. You know, Europe is, we think, evolving in a healthy direction now after some meaningful challenges that were a function of regulatory compacts and kind of Brussels direction. Including gas in the green taxonomy is a key issue. As you know, we've had some success with midterm and long-term deals that were on the kind of 10 to 15-year range. We expect to see more of that traction going forward and, you know, whether we will see kind of a foundation customer commitment of 20-plus years out of a European load-serving entity. It's too early to tell, but given the recent developments, I think the trend is in the right direction, and clearly we've demonstrated our ability to meet their objectives in terms of having the right environmental credentials for our product as well.
spk10: Great, thank you. And then I think my second question is for Zach. Depending on how things go, it's possible that you could hit investment grade and be poised for S&P inclusion sometime next year. Can you talk about what it would take for Chenier to get into the S&P, and are you actively positioning for that?
spk03: We're doing the best we can on that, but it's not really in our control. We had met all the requirements for quite some time in previous years. whether it be market cap, sufficient free float, and net income. And it's kind of hard to believe we wouldn't be the most logical energy candidate at this point, considering I believe we're larger than a third of the energy constituents in the S&P 500. However, with some of the unrealized derivative moves mainly related to the IPM agreement that are marking to marking those long-term deals based on the curves that keep on going up since last summer, We've had some negative net income quarters in a row, and we'll have to, I guess, wait to an extent until we're positive net income on a cumulative four-quarter basis. But at that point, yeah, we check all the boxes, and we think it would be logical to happen later this year.
spk17: Great. Thanks. That's all for me.
spk15: And we'll take our next question from Michael LaPaglia with Goldman Sachs.
spk11: Please go ahead.
spk01: Hey, guys. Congrats on a good quarter and start to 22. One short-term question, one longer-term question. Short-term question is I know you have a lot less open exposure in 2023 than you do in 22 just because you have so many contracts starting up. But with the futures curve having moved a ton, would you say you're being pretty active in the 2023 market for that open position? That's the first question. Second question, more longer term, would love your thoughts on the FERC policy statement about the evaluation of future gas infrastructure projects, pipelines, liquefaction, et cetera, and GHG emissions and what that means potentially for either getting new assets, stage three, stage four type assets, or new pipelines to serve those type of assets built.
spk06: Thank you, Michael. This is Jack. So I'll start. And as you know, we don't like to give a lot of guidance beyond 2022 at this point into 2023. But as you say, the market continues to get healthier, but it's extremely volatile. And you should expect us to be opportunistic out there. And I'll let Anatole, who's biting at the bit, jump in.
spk14: Thanks, Jack. Thanks, Michael. I'll just add to Jack's comments that, as you know, one of the more valuable components of our value proposition for long-term commitments are these bridging volumes. So that is a component that is increasingly becoming more valuable and more important in these discussions. So on top of the volatility that Jack mentioned, husbanding those volumes to get us the long-term commitments that supports our long-term investments is a top priority.
spk03: Go ahead. Michael, I would just add, this is Zach, that with the 100 TBTU open this year and the dollar move with $50 million, our forecast was assuming, let's say, mid-to-high teens netbacks. So even just this year, and now the curves are moving all over the place today, but we're talking about a billion dollars of contribution to EBITDA just this year. And next year is clearly attractive to us, but at the same time, for the next decade, we're almost 95% contracted on average. And we're really over 90% contracted on nine trains through the early 2030s, which is really why it's time to FID Stage 3 this summer.
spk06: And then in regards to FERC, Michael, in their new policy statements on greenhouse gas emissions for new pipelines, I'm very pleased that we've completed our $32 billion infrastructure project already. I am very pleased that Stage 3 is fully permitted. I do think that we have a slight advantage because we've already completed our – our LCA, as well as our CSR report. So we've been very transparent about our lifecycle analysis and emissions profile for our LNG, and we think that's a competitive advantage when we want to continue to grow, that we can show how it impacts that LCA.
spk17: Got it. Thank you, Jack. Much appreciated. Thanks, Michael.
spk15: And we'll take our next question from Brian Reynolds with UBS.
spk11: Please go ahead.
spk04: Hi, good morning, everyone. I was wondering if you can give us an update on your expectations around the $2 billion in additional cash that you're guided to at a capital allocation day outside of what's accounted for with Stage 3 buybacks and dividends. Just kind of curious if, you know, post the guidance update, if we should be thinking about this number as, you know, $4 to $5 billion through 2024, and, you know, how potential expansions beyond CCL Stage 3 could impact this use of cash. Thanks.
spk03: Sure. So this is Zach again. I'll just say I had thought we'd have a break for a couple years before needing to come out with another capital allocation plan. But at the rate we're going with $4 billion or more of DCF this year and that original $10 billion available cash at this point through 24 is closer to $14 billion. That's literally 22 through 24 is like $12 billion. Our focus right now is really just to think about the $4 billion of debt pay down goal, the billion-dollar buyback program, continue with growing the dividend, which we will grow this year, like we guided you all to. And we're already budgeting $800-plus million to kick off Stage 3 this year with FID. So what you have here is we're likely going to finish those capital allocation plans at the very least. year early and from there we'll likely owe you a plan or an updated plan in the first half of next year or even later this year and it's logical to assume that the base annual amount of debt pay down of a billion dollars that that can come down a bit on a relative basis and that we can be even more aggressive on the allocations to buybacks
spk02: Great. Really appreciate all that color.
spk04: And just to follow up on, you know, future growth plans, it sounds like CCL stage three is going to be mid to summer. And, you know, investors will start looking ahead at, you know, potentially CCL stage four beyond that. Just kind of curious, just from a gas need perspective and particularly from the Permian, you know, what ultimately do you need to see from a gas pipe perspective to support the long-term viability of, you know, an expansion at Corpus? Is it one to two pipes? You know, kind of what are you looking for? What are your customers looking for? You know as you start proceed plans for you know further growth beyond stage three.
spk06: Thanks Yeah, so thank you Brian So when we when we look at both sites, we think that we're in a we're in the pole position So we're in a very very good position with our brownfield expansion capabilities at both facilities I would say with with stage three we build even more infrastructure that helps us in our future growth projects and another pipe, another substation for power down there, more water. So I feel very good about our position to grow. As far as additional pipes coming out of the Permian, I'll ask Anatole if he has an opinion of what we would need going to... Thanks, Jack.
spk14: Yeah, Anatole has opinions. I'll just add to Jack's comments that South Texas is a great place to be, to your point about the Permian. And, of course, that is one of the driving factors behind these IPM transactions and EOG in particular. So we have this symbiotic relationship with the infrastructure partners and the producers. And, fortunately, to the previous question on FERC, the solutions tend to be intrastate solutions, which are – which are, of course, an easier putt these days. So we're very optimistic. The quantum of additional infrastructure, the market will decide on that, but we're optimistic that the producers have the resource and we have the wherewithal, as Jack said, to grow our brownfield platform.
spk02: Great.
spk17: Appreciate the call. Have a good rest of your morning, everyone. Thanks.
spk15: And we'll take our next question from Jeremy Tonnet with JP Morgan.
spk11: Please go ahead.
spk02: Hi, good morning. Good morning, Jeremy.
spk05: Just wanted to touch, you know, somberly on Eastern European geopolitical developments there and wondering any thoughts you could share with regards to how that could impact negotiations over time, you know, for your product or any other thoughts you could share there.
spk06: Jeremy, I mean, it's tragic what's going on in Eastern Europe, and it saddens me to see the satellite images on the news screen, as we've all witnessed this morning. But if of anything, these high prices, the volatility, drive even more energy security and long-term contracting. So I would say that the fact that there's a scarcity of LNG these days is driving more and more conversation on how to increase our infrastructure and secure long-term contracts for our European customers.
spk14: That's great, Jack. Obviously, you've seen the moves by early on Lithuania, Poland, others in the region to build that infrastructure and avail themselves of the supply. And as Jack said, the reliable and flexible product that we put on the water will be a key part of the solution going forward. The human toll and tragedy obviously has our thoughts and prayers.
spk05: Got it. Thank you for that. And then just kind of pivoting towards future growth plans and seeing like a CCL 3 seems like it's in the back pocket after negotiating EPC at this point, and as the market's always looking for what's next. Just wondering if you could frame out a bit more, I guess, how you think about next steps here. It seems like there's a lot of acreage in Corpus, and maybe you could do more there, or looking at other sites for expansion, or maybe I'm off base and returning capital would be a greater option.
spk06: priority at that point just wondering if you could uh you know help us think through what could be next there thanks jeremy and and i gotta say you all are a tough crowd there is a lot of work to be done between fid and then going operational on uh corpus stage three it's a it's over 10 million ton expansion project uh which is equivalent to two of our large trains and uh and um you know i'm
spk03: I am excited to see my team in action and deliver another quality expansion project to the portfolio but having said that Zach you want to talk a little bit about sure hey Jeremy it doesn't hurt having four point three to four point eight billion dollars of DCF this year which just to put in perspective is seventeen to nineteen dollars a share of cash flow I don't think we thought we'd get there this quickly But I think it just shows the value of the platform and honestly the value of our operations and construction teams to be able to give us this opportunity. With those types of numbers and clearly margins above the 250 range for the foreseeable future there's billions of dollars to go around. So we've already budgeted for 800 million on stage three for the next four to five years to get that up and running by 2026 or so. And then there's still billions. So you'll see us taking care of the balance sheet. Buybacks will have a large arsenal ready to go and the growing dividends. So it's really all of the above. It's just accentuated with a few more billions coming our way.
spk17: Got it. That makes sense. Thank you for that.
spk15: And we'll take our next question from Sean Morgan with Evercore.
spk11: Please go ahead.
spk08: Thanks, guys. So just touching, obviously there's been a lot of success this year and markets have kind of trended pretty favorably and the ARB is wide open. So I'm wondering sort of the depth of the U.S. gas markets and maybe it's adaptive relative to exports, but What percentage increase in total export capacity on the water right now from the U.S. Gulf could we see before we started to see an impact on kind of domestic pricing?
spk14: Well, I think it would be unfair to say that there hasn't been an impact on domestic pricing as the LNG industry takes 13 bees a day or so, right, with us well over seven. The market's in a healthy place now. One of the things we're watching for, of course, is how the production function responds. We're back setting records in terms of daily production. We are very comfortable that the resource availability is there. There will be, to some of the previous questions, the supply growth that we saw to the northeast is probably not the bet to make going forward, but that gives us great comfort being in in western Louisiana and south Texas and the resource that can get to us, we think, at the 350 level. And you've seen gas recounts now surpass the pandemic level. So we think that it will respond, but ultimately the market will figure out if there's enough gas that is globally competitive to dispatch.
spk08: Okay. Thanks, Ansel. Regarding the EOG IPM, I think you kind of made it clear that this helps fill out your total required capacity for stage three, but is there sort of a limit in terms of the total notional export capacity that you would want to sign up for IPMs? I mean, is there any sort of puts and takes versus the offtake agreements, or are they not necessarily mutually exclusive?
spk03: I wouldn't say it's mutually exclusive but at the same time at this point we've signed up with say I don't know four or so million tons worth of IPM deals maybe a little more than that and that's in the context of eventually a 55 plus million ton portfolio so it's still a rather small piece of the puzzle here and what you're seeing is we're doing this with the most credible producers which also gives us the benefit of the gas supply for extended periods of time, and then with really strong counterparties credit-wise as well or investment-grade-wise as well. So, yeah, I would say it's not ever going to be a majority of what we do, but I think Stage 3 is really indicative that it's going to be a nice mix of FOB, DES, and IPM deals, just showing the evolution of our commercial offerings.
spk14: Just to piggyback on Zach's comments, the gas supply piece cannot be overstated, right? The fact that EOG, in partnership with us, is going to be delivering over 700 a day to this project that will be a 25 plus million ton project. And the flexibility that we have, as Zach said, with the operational mix of the three products, which allows the operational side of the equation to be as reliable as we've seen in the last five years.
spk17: All right. Thank you, Ansel. That's helpful.
spk11: Our next question comes from Mark Solisito with Barclays. Please go ahead.
spk07: Hi. Good morning. I would also echo the congratulations on the quarter here. Just with the move up in the forward curve today, effectively extending the $20-plus LNG price environment through 2023, I'd be curious to get your latest thoughts on the medium-term price outlook and just the general price responsiveness you've seen from customers as the forward strip has moved higher since the time of your last call.
spk14: Yes. So, again, the tragic events of this morning, notwithstanding, you've seen a a structural shift upwards in that in that curve that you reference right as we progress through the second half of the year and the logistics of not just refilling European storage but also meeting the the inexorable growth out of Asia has been a challenge for the gas market and and that has caused those those midterm margins to respond accordingly so that is obviously a tailwind as we've discussed and and Rest assured that we will take advantage of that either in some of the more prompt transactions or more structurally through bridging volumes in our long-term commitments that obviously at this point of the cycle are a nice tailwind.
spk07: Great. Appreciate the color there. And then recognizing the long-term MPV and strategic considerations in your allocation of bridging cargoes for your open exposure this year, Just wondering if there's a certain price point in the forward strip where you would perhaps allocate a greater percentage to forward spot sales?
spk14: I guess it is a balancing act, and we would always – let me clarify one thing. When we transact for these bridging volumes, these bridging volumes are done at market prices. They're embedded in the long-term deal, but they are – That's the economics that are in the prevailing market when we execute the transaction. So we like the strategic benefit of having those long-term commitments and having that bulletproof, reliable platform. That is kind of first and foremost in our thinking. To the extent that there are real-time opportunities, the team is very good at optimizing the portfolio and capturing that incremental margin that's available to us.
spk06: And I would say, Mark, that I spent 35 years in the power business, and I've seen this game before in electric power and this type of volatility. And what goes up will come down. So all we're trying to do is secure our production for the long term through contracts with creditworthy counterparties and then help us build additional infrastructure without taking risk. So... I'm not sold on having an entirely merchant portfolio.
spk17: Got it. Thanks for your time.
spk15: And we'll take our next question from Craig Shearer with TUI Brothers. Please go ahead.
spk11: Hi.
spk13: Congratulations on the guidance. I want to pick up on Jeremy's what next question and Michael's FERC question and see if you can perhaps elaborate on opportunities for further trained upsizing efforts and also if the timing may be right in coming quarters to more actively pursue carbon capture.
spk06: Okay, so that's a load, Craig, so I'll start. I'm extremely pleased. With our operational excellence program and the results of that, we've been able to increase our reliable production significantly from where we were back in 2016, 2017. I think there's still more to go there, and I'm excited about that. As far as the expansion goes, I think we're very positive on stage three, as you've heard from us today. We're crossing the T's, dotting the I's. I would expect us to launch full force with full FID sometime later this year. And then at that point, we'll start working on our next growth potential. And as you know, in this industry, it's the worst kept secret. It takes FERC two to three years to do a review on an LNG export terminal. And it's pretty well public and transparent for the market to see. So I would say what I, same thing I told Jeremy, which is you guys are a tough act. Stay tuned. We're not done yet. The second question is on CCF. Yes, we've spent a lot of effort with engineering and planning on CCF, mostly at Sabine Pass now. We see that having the greatest opportunity or the least price, if you will, for some carbon capture. We're not ready to announce anything yet, but we're making good ground on that aspect of it. I'd say I'm totally supportive of The administration's desire to make 45Q a little more economically healthy for those of us in the fossil-fired industry, I think we need it. We need to have a little bit better price signal on what the true price of carbon is going to be in America, and that will help us significantly. But we have some options there at both facilities. We've been focused on Sabine first, and there will be more to come.
spk13: One quick follow-up, if you had the ability with a little CapEx to increase the nine-train portfolio capacity by, say, another 0.2, 0.3 MTPA per train, where do you stand on authorizations to do that?
spk06: No, if I remember right, our authorization now is up to 5.5 million tons per annum per train.
spk17: So that gives us plenty of breathing room. Gotcha.
spk16: Thank you.
spk17: Thanks, Craig.
spk11: And we'll be taking our last question from Julian DeMolin-Smith with Bank of America. Please go ahead.
spk09: Hey, team. Thanks for the time. I'll make this one quick. I think a lot of people have to answer it. But, you know, Jack, just going back to what you were saying a moment ago about, you know, it taking some time to move through the process, whether it's CCS3 or beyond. I mean, how do you think about, you know, potential acquisitions of existing sites just to kind of get a jumpstart on that whole process? And or if you could at least kind of conceptually set kind of a benchmark as to how you think about what you would be able to target next volumes, right? I mean, we're talking... you know, 24, 25 in terms of FIDs for subsequent volumes? Or how do you want to at least kind of set the cadence, if that's the right word?
spk06: Yeah, so I'll take it in two points. One, potential acquisitions. So we're building stage three. It looks like it'll be around six times EBITDA. You've seen where some of these LNG terminals have traded out with some of these infrastructure funds, multiples above the six times EBITDA. So in this case, Julian, just like in power where it would rotate whether it was cheaper to build or to buy, it's definitely cheaper to build than it is to buy and pay somebody else a premium. So I would think initially, at least on my crystal ball, ICS continued to do these brownfield expansions. just from how cost competitive we are today. And now I've forgot about the second half of that question.
spk09: The other part was just saying, yeah, if you're going to go the organic brownfield route, what kind of time?
spk06: Okay. So stage three, just, just stage three won't come in one big, big lump. So, and on Corpus three and Sabine six, right. When, When we took substantial completion, that was 5 million tons. Here it's going to be a train or two every couple months. So if we start construction this year, I would expect sometime in 26 that we'd have the first train online and then every couple months thereafter another train until we're fully up and running on that over 10 million ton portfolio by 2027. So it's a pretty high growth rate. I would expect us to file for additional expansion soon.
spk03: And the goal would be there to, you have these trains coming online from 26 to 27, or even late 25 to 27, and ideally we'll then have some growth to add to the portfolio in 27, 28, 29.
spk09: Got it.
spk17: Okay.
spk09: All right. Fair enough. And then on the acquisitions front, even development assets sound like that's not ideal. I think that's what you were alluding to.
spk06: Yeah. I mean, a Magnolia sold for over $2 million.
spk17: Yeah. All right.
spk16: Excellent.
spk17: Okay. Thank you. Thank you.
spk15: At this time, I will turn the conference back to the speakers for any additional or closing remarks.
spk06: Hi, this is Jack. I just want to say thank you again for all of your support. I feel really good about where we are today. I think overall the industry needs to settle down a bit. Like Anatole said, our thoughts and prayers are with Eastern Europe at this point, but I think what what's showing is the value of natural gas and LNG around the world.
spk17: And I wish you all to be safe.
spk15: And this concludes today's call. Thank you for your participation. You may now disconnect.
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