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spk04: Good day, ladies and gentlemen, and welcome to today's Chenier Energy Q3 2022 earnings call and webcast. Today's call is being recorded. At this time, I'd like to turn the conference over to Randy Bathia, Vice President of Investor Relations. Please go ahead.
spk07: Thanks, Operator, and good morning, everyone. Welcome to Chenier's third quarter 2022 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'd 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 for Q&A. I now turn the call over to Jack Fusco, Cheniere's President and CEO.
spk03: Thank you, Randy, and good morning, everyone. Thanks for joining us today, and thank you all for your continued support of Cheniere. I'm pleased to be here this morning to highlight our third quarter 2022 results and achievements and discuss our positive outlook for the remainder of this year and into next, all of which continues to demonstrate Cheniere's market leadership and excellence throughout our business. Since our capital allocation update in September, we have remained laser focused on our operations, ensuring reliable LNG production and supply for our customers amidst global energy shortages and challenges. In fact, just last week, we had a daily production record for the company, producing well north of seven TBTU of LNG, and also a daily record at Sabine Pass of approximately five TBTU of LNG. My congratulations to the Schneer professionals for a job well done. Additionally, in conjunction with Bechtel's engineering and construction, we are off to a great start at corpus stage three. We have rolled up our sleeves, hit the ground running and have already seen some early signs of potential acceleration on that project. Across the LNG market, volatility continues to dominate, driven by short-term supply-demand pressures. Recently, from record-breaking warmer weather, near-term prices have retreated from the highs we saw barely two months ago. Nevertheless, we are largely insulated from these price swings, given the highly contracted nature of our business and we remain focused on long-term value creation as our priority, with short-term market dislocations only serving to accelerate our long-term plans, as you heard from me and Zach in September. Now, please turn to slide five, where I will review some key operational, financial, and strategic highlights from what was yet another very successful quarter. For the third quarter, we generated, consolidated, adjusted EBITDA of approximately 2.8 billion and distributable cash flow of approximately 2.0 billion as margins in the LNG market remain significantly above historical norms and our focus on execution and our operational excellence program continue to be rewarded. Today, we are reconfirming our full year 2022 EBITDA and cash flow guidance, both of which were recently increased by over a billion dollars when we announced our capital allocation plan in September. In transit LNG shipments and commodity price volatility increased the degree of difficulty in pinpointing the forecast, but we are tracking to the upper half of the EBITDA and DCF ranges currently. Later on this call, Zach will provide you with a few early data points on how 2023 is shaping up ahead of providing full year guidance on our February call. As we've discussed, the reliability of our LNG operations is more critical than ever, given the volatility present in today's market. During the third quarter, we produced and exported 156 cargoes of LNG from our facilities. Of that, approximately 70% of that volume landed in Europe. By comparison, during the third quarter of last year, less than 30% of the volume produced by Chenier landed in Europe. Not only did this shift underscore the value of our destination flexible LNG, which can quickly respond to market signals to reach end users of the greatest need, but is also providing meaningful energy volumes to Europe at a time when the region is facing significant challenges. The fact that these challenges could persist for a number of years has hastened a renewed focus on the criticality of energy security as governments and utilities the world over advance strategies to mitigate energy supply risks for the long term. Anatol will provide further insight into the current market dynamics in a few minutes. During the quarter, we announced our 2020 Vision Capital Allocation Plan, a revised comprehensive long-term capital allocation plan designed to maintain investment grade credit metrics through cycles. further return capital to shareholders over time, and continue to invest in accretive organic growth. The plan envisions $20 billion of available cash through 2026 and over $20 per share of run rate distributable cash flow. Zach will review some of the key features of the plan in a few minutes, but we believe our new 2020 vision is an excellent capital allocation framework for our stakeholders, and the plan follows our significantly accelerated execution under the long-term capital allocation plan we implemented just over a year ago. Before moving on, I also want to highlight important organizational announcements I made during the quarter. Organizational clarity and operational excellence are two of my key priorities, and as Cheniere has grown and evolved, so too must our organization in order to maintain the incredibly high operating standard we have set for ourselves. In September, we announced the promotion of Corey Grindle, currently Executive Vice President of Worldwide Trading in London, to serve as Chenier's inaugural Chief Operating Officer, effective January 2023. Corey has been at Chenier for nearly a decade, and his leadership and contributions have been an integral part of building the exceptional operating platform we enjoy today. Prior to his role overseeing worldwide trading in London, Corey was SVP of gas supply and was the architect behind Chenier's gas procurement program, which today is one of the largest holders of pipeline capacity and purchasers of natural gas in the United States. We look forward to Corey's continued leadership as COO, building upon our Safety First culture and reputation as a leading reliable supplier of LNG in the world. I'm pleased to welcome Corey back to Houston in his elevated role as COO. You all will begin to hear from Corey directly as he participates in investor conferences and these earnings calls next year. Turn now to slide six. I'll give you a brief update on construction and execution across our Sabine Pass and Corpus Christi sites. First, last week, commissioning was completed for the third marine berth at Sabine Pass and consistent with our track record, the third berth achieves substantial completion ahead of the guaranteed schedule and within project budgets. The third berth will not only provide increased flexibility to our marine loading operations, particularly during suboptimal conditions like fog events, but also serves as a brownfield infrastructure that we can economically leverage as we develop our expansion plans at Sabine Pass. Now moving to Corpus Christi Stage 3. As I mentioned before, we are off and running, and the project is making excellent progress. Inclusive of the early limited notice to proceed we utilized at the start of the year, we've invested approximately $1 billion to date on Stage 3. The LNTP not only provided cost benefits, enabling us to lock in prices early, but also provided some significant construction schedule advantages with early site work, such as accelerating placement of piles and soil stabilization. Long lead time equipment orders have been placed with suppliers and key equipment manufacturing is expected to start before year end. We recently held a groundbreaking ceremony at the Stage 3 site, and it was exciting to see such overwhelming support for the project across a broad spectrum of stakeholders who helped make the project possible, from regulators, government officials, to our long-term customers, EPC and equipment providers, banks, and of course, our employees. As we work towards first LNG from Stage 3 in late 2025, I look forward to upholding Chenier's stellar reputation on safety and execution in partnership with Bechtel. Thank you all again for your continued support of Chenier. I'll now turn the call over to Anatole who will provide an update on the LNG market.
spk11: Thanks, Jack, and good morning, everyone. Please turn to slide eight. Despite it being a shoulder season in many regions, the turbulence in the global gas and LNG markets continued throughout the third quarter with only a few brief stretches of relative stability. While geopolitical conflict and the related curtailment of Russian gas flows are largely responsible for the supply shock in Europe this year, We believe that some cyclical dynamics also played a role in laying the groundwork for today's market conditions of elevated prices and volatility. In fact, we've signaled for some time that the rate of new liquefaction capacity coming online would decelerate significantly during the 2020 through 2024 period, given the lack of FIDs taken in years prior. As you can see in the chart to the left, we estimate current capacity growth rates to be near 2%. a level not seen since 2012, when the market was also out of balance and prices clearly signaled the need for new LNG capacity. As a result, given the long lead time required to develop LNG projects, we expect market balances to potentially remain tight for the next several years, exacerbated by the crisis in Europe and the reduction of Russian supply to the European market. As shown in the middle chart, LNG imports from the U.S. have been the primary resource to offset the removal of over 50 BCM of Russian gas imports from the European market this year, further reinforcing Jack's earlier point on the ability of U.S. LNG to respond quickly to market signals. As the primary source of global LNG supply growth for the past four years, the U.S. has surpassed Australia and Qatar to become the world's largest supplier measured by installed capacity this year, and this growth could not have come at a more critical time for Europe, given that inherent destination flexibility. The U.S. has become Europe's top LNG supplier, and Chenier's facilities at Sabine Pass and Corpus Christi have been significant contributors to this growth, helping provide secure and reliable natural gas supply to the European market, which I will detail further in a minute. Despite the steady increase in LNG flows to Europe, TTF continued to rally in the third quarter, hitting an all-time high of about $99 per MMBTU in late August, as concerns surrounding adequacy of supply reached new levels. Since then, TTF prices have come off considerably, settling October at about $54 in MMBTU, despite no sign of Nord Stream flows resuming. JKM futures have traded at a discount to TTF for much of this year, as European buyers have kept netbacks higher into the region compared to Asia, in order to fill storage ahead of winter heating demand. In the U.S., Henry Hub prices have generally dropped since late August, settling October at $6.87 in MMBTU, as temperatures and forecasts moderated and gas production continued to rise. Let's now turn to page 9 to address regional dynamics in more detail. As I just mentioned, Europe has been utilizing LNG to try to offset as much of its gas supply deficit related to the Russian gas cuts by increasing its LNG imports by 65% this year, with approximately 87 million tons imported through the third quarter, making 2022 an all-time high year for LNG imports into Europe. Imports from the U.S. represented 44% of that total. In fact, Chenier alone was responsible for approximately a quarter of Europe's LNG imports this year. As the top middle chart illustrates, U.S. LNG volume surged over 200% year-on-year in the third quarter, as Nord Stream flows came to a halt by the end of the quarter. Nevertheless, the European market appears well prepared for winter, as shown, with storage levels exceeding their five-year average, on the back of milder weather, some level of industrial demand management, and aggressive buying by European utilities. As such, we've recently seen prices moderate as the market waits for winter demand to kick in. We've also seen the congestion at certain European regas terminals continue to grow. Once again, evidencing the need for development of additional import capacity and related infrastructure in order to provide relief and allow greater volumes of LNG to access the market, particularly in Northwest Europe. Fortunately, the new Eemshaven import terminal in the Netherlands recently began operation. The terminal, one of the few FSRUs expected to start in Europe in the coming months, received its first cargo in September, which was produced and delivered from our facility at Sabine Pass. In Asia, LNG imports declined by 14.5 million tons year-to-date, with nearly 5 million tons of the decline realized in the third quarter. 90% of this decline is attributable to China as a result of reduced industrial sector demand and weak gas burn, which could remain a trend throughout this winter. In China, industrial gas demand decreased by 3 BCM in the third quarter, representing an 8.7% drop year-on-year. And low hydro levels supported thermal use and power generation, with coal generation increasing by 11% year-on-year in the third quarter, while gas grew only 4%. However, overall gas-fired power generation dropped 8% year-on-year from January through September, as high spot LNG prices and robust renewables generation in the first half of the year disincentivized domestic use and actually encouraged cargos to be redirected to Europe. Much of the demand growth in Asia in the third quarter occurred in Thailand, Japan, and Taiwan as a result of inelastic consumption needs. As we mentioned in previous calls, Thailand continues to call on LNG to supplement dwindling domestic gas production. Japan plugged a 2.7 gigawatt deficit in nuclear availability in the third quarter, and Taiwan continues to offset the decline in coal generation. Let's move to slide 10. Last quarter, we discussed LNG contracting trends and the growing commercial success that U.S. projects were garnering. That contracting momentum continued in the third quarter, reaching a total of 40 million tons per annum of long-term transactions signed with U.S. projects year to date, that's through mid-October, highlighted by our long-term deals with PetroChina and PTT. As you can see on the left chart, the aggregate volume is approximately 80% higher than what was signed in all of 2021, and represents more than 75% of global contracts signed year-to-date. In fact, the first nine months of 2022 alone make 22 a record year for US LNG contracts signed. This commercial success is owed largely to several key advantages of US LNG, destination flexibility, competitive and stable pricing, a mature upstream and midstream footprint, and time to market. These advantages, coupled with elevated market prices, have provided tailwinds for the development of additional LNG capacity in the U.S. However, most of those U.S. projects still have yet to make FID, given the rigorous commercial, financial, regulatory, and technical hurdles projects are required to overcome in order to raise financing and move forward with construction. And those hurdles are only getting higher given volatility, inflation, and rising interest rates. For our part, as we discussed last month, we plan to continue to pursue growth of our 55 million ton platform, starting with our near-term plans to add approximately 5 million tons per annum via the CCL Trains 8 and 9 mid-scale project and some de-bottlenecking at Stage 3, along with the long-term potential to add an incremental 30 million tons per annum of volume across our two sites, volume that will continue to ensure security supply and sustainable economic growth for our long-term customers and end-use communities. We're hard at work on these opportunities, and we'll keep you informed on them as they achieve project development milestones. And now I'll turn the call over to Zach to review our financial results and guidance.
spk12: Thanks, Anatole, and good morning, everyone. I'm pleased to be here today to review our third quarter 2022 financial results and key financial accomplishments. all of which continue to reflect our team's tireless efforts to ensure safe and reliable operations and seamless execution throughout this period of prolonged volatility in the global energy markets. Turning to slide 12. During the third quarter, we generated adjusted EBITDA of approximately $2.8 billion, distributable cash flow of approximately $2 billion, and a net loss of approximately $2.4 billion. Our third quarter results once again were supported by the sustained higher margin environment across global gas and LNG markets, higher lifting margins due to higher Henry Hub prices across the quarter, and incremental margin achieved from certain portfolio optimization activities. Our quarterly results were achieved despite a couple of CMI cargoes moving into Q4 from Q3. In addition, in the third quarter, we recognized a portion of the payment from Chevron related to the early termination of their regasification TUA, which we expect to receive before year-end. We recognized in income 560 TBTU of physical LNG during the third quarter, including 556 TBTU produced from our Sabine Pass or Corpus Christi projects and 4 TBTU sourced from third parties. Approximately 82% of these LNG volumes recognized in income were sold under long-term SBA or IPM agreements with terms greater than 10 years. Once again, the net income line continues to be impacted by the unrealized non-cash derivative impact related to our long-term IPM agreements, as we have discussed on prior earnings calls. In the third quarter, we recognized $4.9 billion of these unrealized non-cash derivative losses attributable to the continued growth of LNG margins and commodity price volatility. As a reminder, because GAAP requires mark-to-market accounting of these long-term gas supply agreements but does not permit the mark-to-market of the associated and offsetting sale of LNG, it results in a mismatch of accounting methodology for the purchase of natural gas and the corresponding sale of LNG, which drives this quarterly variability in net income from period to period. That is why we would expect, as margins stabilize, and price volatility subsides over time, that these unrealized non-cash derivative moves will become much less pronounced in our quarterly results. Thanks in large part to the significantly accelerated progress on our capital allocation plan announced in September of 2021, during the quarter we rolled out our revised long-term capital allocation plan, our 2020 vision of over $20 billion of available cash through 2026, as well as over $20 per share of run rate district rule cash flow. Built upon the foundation of our previous plan, this plan is designed to achieve and maintain investment-grade metrics through cycles, further return capital to shareholders over time, and continue to invest in accretive growth beyond Corpus Christi Stage 3. As part of the revised plan, we increased our share repurchase authorization by $4 billion for an additional three years, beginning October 1, 2022, lowered our consolidated long-term leverage target to approximately four times, and increased the dividend by 20% beginning in the third quarter of 2022, targeting a 10% annual dividend growth rate through the construction of Stage 3 into the mid-2020s. Our accelerated progress in terms of capital allocation, coupled with our revised plan, demonstrates the power of the Schneer platform through market cycles and solidifies Schneer's position as a leading global LNG operator and a preeminent North American infrastructure company. During the quarter, we repaid over $1.3 billion of consolidated long-term indebtedness, bringing our total debt pay down to over $4.4 billion through the third quarter since launching our capital allocation plan last year. And in the first nine months of this year, we have repaid over $3.2 billion of debt. Just in the third quarter alone, we prepaid nearly $800 million of outstanding borrowings on the CCH term loan facility And notably, we repurchased over $530 million in principle of senior notes at both CEI and CCH at price levels under par, under an open market repurchase program that was initiated during the quarter. This past month, we have also redeemed $300 million of the 2023 Senior Secured Notes at SBL, pursuant to an early redemption notice issued in September. We are clearly demonstrating our commitment to our balance sheet by utilizing multiple avenues to efficiently reach those target leverage metrics, and we will continue to be opportunistic as we optimize the debt across the Schneer complex to achieve resilient and sustainable investment grade credit metrics. Our accelerated deleveraging efforts towards an investment grade consolidated balance sheet have been reflected in ratings upgrades by multiple agencies recently. In September, Moody's upgraded CEI two notches to BA1 and CQP and SBL one notch to BA1 and BAA2, bringing all S&P and Moody's ratings in sync across the Schneer complex. Also in September, Fitch upgraded CQP to BBB- and SBL to BBB-. Fitch's upgrade of CQP to BBB- is significant as it marks the first ever unsecured investment grade rating at one of our corporate parent entities and is an important milestone in Schneer's continued evolution. We will continue to execute on our 2020 vision plan and expect further positive ratings momentum and migration to investment grade over time. In terms of shareholder returns, during the third quarter, we repurchased over a half a million shares for approximately $75 million, bringing our total shares repurchased to approximately 5 million shares for a little over $600 million. The upside share repurchase authorization we announced as part of our new capital allocation plan didn't commence until the fourth quarter, and I can tell you we are off and running under the new authorization. Having already repurchased over a million shares just in October, as we have now recalibrated our debt pay down to share repurchase ratio through 2026 on a long-term cumulative basis from four to one to one to one to further enhance shareholder returns while further solidifying our long-term investment grade credit metrics. During the third quarter, We also declared and paid our fourth quarterly dividend of 33 cents per common share, bringing our total dividends paid to $1.32 per common share. Under our new capital allocation plan, we increased the dividend by 20% for the dividend related to the third quarter to 39.5 cents per common share and maintain our commitment to increasing the dividend by approximately 10% per year through Stage 3 construction, which will grow us into around a 20% payout ratio over time. Turn now to slide 13, where I'll provide additional detail around guidance and our open capacity for the remainder of 2022 as well as for 2023. We are reconfirming our full year 2022 guidance ranges of $11 to $11.5 billion in consolidated adjusted EBITDA and $8.1 to $8.6 billion in distributable cash flow. These ranges were each already increased by approximately $1.2 billion since our last earnings call in September. and we can now highlight that we are currently tracking into the upper half of both ranges, as well as to the high end of our CQP distribution guidance of $4 to $4.25 per unit. Our guidance ranges illustrate what an incredible year 2022 has been for Chenier. Since our initial guidance ranges for 2022 were provided 12 months ago, we have increased the midpoint of our EBITDA range by approximately 85%, ECF by approximately 150%, and CQP distribution by approximately a third. With respect to the EBITDA sensitivity for the remainder of 2022, we are approaching the end of the year, and therefore we have sold much of our total expected production for the remainder of the year and have approximately 20 TPTU unsold remaining. We currently forecast that a dollar change in market margin would impact EBITDA by approximately $20 million for the balance of 2022, as we have released the remaining volume that had been reserved for long-term origination back to CMI. Our results could also be impacted by those year-end cargoes we mentioned back on our call in September. With the volatility and evolving market dynamics, these cargoes could be drawn to Asia, which would push the timing of recognition of some of these cargoes into 2023. With that being said, as we look to 2023 and our sensitivity to market margin, currently we forecast approximately 150 TBTU of open volumes in 2023, and we expect a dollar change in market margin to impact 2023 EBITDA by approximately $130 million, as a portion of our forecasted unsold volume for next year is being reserved for potential long-term origination negotiations. We do have some term contracts commencing over the course of the year. There is likely a slight weighting of that open volume to the first half of the year. In terms of major capital expenditures, I would mainly highlight we forecast spending approximately $1.5 billion in CapEx related to Corpus Christi Stage 3 in 2023. which is a similar amount to what we expect to have funded this year, including our LNTP payments since the start of 2022. As we mentioned in September, we will provide our full-year EBITDA, DCF, and CQP distribution guidance ranges for 2023 on the fourth quarter call in February. Our unsold position in 2023 is expected to be lower than 2022, as 2022 benefited from the early completion and ramp-up of Train 6 and the maintenance optimization we disclosed in May. Certain long-term contracts are scheduled to commence over the course of 2023, and we have higher planned maintenance scheduled for the next year at Sabine. Without a new train coming into service next year, we wouldn't expect a material change to the production forecast from here. The current state of global gas markets, which have featured elevated market margins for nearly a year now, underscore the global call for meaningful investment in natural gas infrastructure, which Chenier is leading with our recent sanctioning of Corpus Christi Stage 3. During this prolonged period of heightened volatility, we've been deliberate and prudent stewards of capital, accelerating progress in our capital allocation objectives and positioning Chenier for resilient success in the decades to come. And we expect to lead with a sustainable investment-grade balance sheet, creative growth projects, and meaningful and growing shareholder returns. That concludes our prepared remarks. Thank you for your time and your interest in Chenier. Operator, we are ready to open the line for questions.
spk04: Thank you. Ladies and gentlemen, if you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We ask that you please limit yourself to one question and one follow-up question to give everyone an opportunity to ask questions. Thank you. Again, star 1 to ask a question. We'll pause a moment to give everyone an opportunity to signal for questions. We'll take our first question from Michael Lapid with Goldman Sachs. Please go ahead.
spk09: Hey, guys. Thanks for taking my questions. Just real quickly, can you talk, Jack, a little bit about timeline? You hinted at it a little bit for Stage 3 in terms of potentially being able to move things forward a little bit, how much, how material. And then can you talk about the maintenance that's being passed in 2023? I assume it's probably more shoulder month, but let me know if that's wrong. Is there a way to quantify the impact on volume?
spk03: Hi, Michael. Thanks. So first on construction of Stage 3, I'm extremely pleased at the progress to date. You can tell from my talking points that I'm I perfectly expect my staff and Bechtel to have under promised and will over deliver on my expectations. It's a little early at this point for us to revise our schedule, but I would stay tuned if we continue to have this favorable weather and we continue to execute the way the plan has developed. As far as Maintenance, you're right. We try to do maintenance in the shoulder months where LNG prices typically are lowest. It's a six-year cycle at Sabine, so it's an unusual year for us where we have two trains coming down basically at the same time to do maintenance on them. As far as quantities of the maintenance, I'll turn it over to Zach, and he can give you more detail on that part of it.
spk12: Hey, Michael. As we think about 22 versus 23, we're going to be slightly up year over year on total production, and that's really mainly due to the train six. We had about 11 months of production hitting P&L this year with a little ramp up in Q1. We have a full year of train six for 23, but that will be offset a bit by this major maintenance that is definitively planned for next year. So basically, I'd say we are probably rounding down to 44 million tons for the year this year, and we'll be right around 45 million tons where the rest of the seven trains that won't have the maintenance will pick up the slack to an extent.
spk09: Got it. Thank you, guys. Much appreciated.
spk10: We'll take our next question from Michael Bloom with Wells Fargo.
spk04: Please go ahead.
spk02: Thanks. Good morning, everyone. So just wanted to go back to your comments on CapEx in 23. So you flagged the Corpus Christi Stage 3 spending, so that's clear. Anything else you flagged, Major? I know you talked in the past about prep work on Mid-Scale 8 and 9, so just wanted to see if there were any other major items.
spk12: That's about it, Michael. I mean, the billion five is the, let's say, all-in levered cost that we would deploy next year. And honestly, that's kind of what we expect this year. We've spent about a billion dollars already pre-FID and post-FID and have another four to 500 million to go this quarter as we're like 12% progressed at stage three. On other CapEx, we're going to be spending money, let's say hundreds of millions of dollars across the board on things to continue to optimize, but also develop at Corpus and Sabine. And you're just not going to notice it as clearly we'll have billions of DCF next year when we come out with it officially in February.
spk02: Okay, got it. That makes sense. And then just wanted to ask kind of between your debt and equity allocation decisions quarter by quarter, Third quarter, buybacks are a little bit lower. Debt purchase was higher. Clearly, buybacks were picked up in Q4. Just trying to see if there's any patterns we should be aware of or what's behind the decision process there. Thank you.
spk12: Sure. So clearly, you could see in Q2, we bought back over $500 million of stock and during that June period specifically, the stock had a little pressure on it and we were opportunistic. And then if you just look at Q3 from 6.30 to 9.30, the stock went up like $35. So you can imagine as the stock is going up, we're obviously being less opportunistic. But when things are a little bit more stagnant or obviously there's pressure on the stock, we're hitting it harder. And then the other thing I'd add is We clearly had to wait until the announcement on capital allocation in mid-September, just with all the MNPI that came with that, to officially set up the 10b-5-1 for Q4. And that's why the new plan with the upsized allocations started in earnest in Q4, and we've already bought back over a million shares just in October.
spk02: Perfect. Thank you.
spk04: Thank you. We'll take our next question. from Jeremy Tonnet with JP Morgan. Please go ahead.
spk16: Hi, good morning.
spk03: Good morning, Jeremy.
spk16: I just want to kind of reconcile against the last update that we heard from you guys a bit over a month ago with the September update. You gave guidance, lifted guidance, and since then, spreads came in and Europe faced logistical issues, yet you now point to the high end of the EBITDA guide. Just wondering what positives materialized and will they carry into 23?
spk12: Hey, Jeremy, it's Zach. So a few things materialized for us in terms of I think there was an extra cargo at Corpus. Optimization, I mentioned in the prepared remarks. We had higher subchartering revenue as we really positioned the whole portfolio going into the winter. And with elevated pricing on shipping, that added some money. And then we obviously were a little proactive on selling into the market even in September before the market came down a bit and now is now just over $10 for the rest of the year. And that was offset a bit even by some crossover cargoes that we've pushed out again into 23. They're moving back and forth depending on whether they're going to hit Europe or Asia. So it only took a few hundred million there. And that's not to mention we released those final origination cargos. We pretty much rolled those over into 2023 to keep that in the arsenal for the long-term origination team. But with all that, yeah, we feel pretty good. We'll be in the upper half of the guidance range.
spk16: Got it. Makes sense. I bet a little Schneer conservatism was baked in there as well. So always good to see that. And just kind of continuing with this, we These European logistics issues carrying forward into 2023, just wondering if you see that kind of impact in your outlook now. And also just broadly macro question here, Russia is sending much less gas into Europe in 2023. How do you think Europe fills storage next year?
spk11: Hey, Jeremy. It's Anatole. Thanks for the questions. You know, the good news on the Europe front is it is moving very aggressively to resolve these infrastructure issues. We spoke about our honor to inaugurate Eameshaven. That facility will double. We do expect that throughout 23, about 60 million tons of additional regas capacity will be added. That number will probably get over 70 million tons in 24. But we agree with you. We think Europe is in no way out of the woods without that pipeline flow. It is really for most of this year, it is next winter that we were more worried about because obviously this winter did have the benefit of a substantial amount of flow even in the first half of this year before Nord Stream was fully shut off. It will be a challenge. The infrastructure issues will be addressed over the next really six to 12 months. You've already seen a dramatic decrease in the amount of floating storage into Europe, and we think that with a little bit of weather and this additional infrastructure solutions will get cleaned up quickly. But the molecules for Europe will be very difficult to come by over the coming years.
spk16: Got it. So just to be clear, in that last point, you're saying the winter fill next year looks like it could be as tight as it was this year?
spk11: Weather dependent, of course, as always, but entirely possible that it will be more difficult to reach these, you know, 80 plus percent full storage levels.
spk16: That's very helpful. Thank you.
spk04: We'll take our next question from Mark Lucido with Barclays. Please go ahead.
spk08: How are you? Good morning. In terms of the liquefaction fee environment and the marginal cost of new supply, it wasn't too long ago where it seemed like the industry might have been trending towards the lower half of that 2 to 250 CMI margin assumption range. So just wondering with interest rates now at the highest they've been at in over 15 years and EPC costs trending higher, where do you see the marginal cost of new supply and liquefaction fees trending today?
spk11: Yeah, thanks, Mark. Again, you know, we We expect that trend to play out, but I have to tell you, kind of in the trenches, you haven't seen much of that. There are the competition among U.S. developers is still one that is anchoring expectations, buyer expectations in that low end of the range. I will say that it has been coming up somewhat, but, you know, in the aggregates, between these aggressively priced offtake deals by some of the early stage developers, as well as the EPC inflationary pressures and the interest rate environment, that's a tough equation to solve. And we think that that's, of course, part of the reason why you haven't seen more projects breast the FID tape. Zach, you want to add some thoughts on inflation?
spk12: Sure. So just to acknowledge the inflation out there that's clearly happening for everybody. And we think about our operating expenses or even our SG&A. Our SBAs, which we have over 30 of with different counterparties all over the world, they all have a built-in annual escalator based on CPI for, let's say, approximately give or take 15%. And if you just bake that in and with how much we have in fixed fees going into the new year, we're more than covering any inflation on O&M and SG&A for the company, which just highlights the stability of that run rate cash flow.
spk08: Got it. That's very helpful. And then as it relates to 150 TBT open for next year, have you started to lock in some of your open exposure for 2023? And would that be included in that reference to open capacity number?
spk12: Yes. So what we acknowledged in the prepared remarks and in the presentation is we actually have 150 TBTU truly open. And of that, we're reserving 20 TBTU for origination placeholders. So that $130 million, give or take, for a dollar move in margin, that's open today. However, I'd say we have probably sold onward and locked in fixed margins for around 20 TBTU for 2023 at this point. Clearly, the liquidity is pretty tough with how volatile it's been, but we're making a dent there, and we'll give an even more robust update next year.
spk08: Got it. Appreciate the time.
spk04: We'll take our next question from Jeanann Salisbury with Bernstein. Please go ahead.
spk01: Hi, good morning. Anatol, I wanted to get your view on the medium-term LNG market. Obviously, some large moving pieces and whether more U.S. projects go forward and whether Russian gas keeps flowing. But seeing everything that you can see now, do you think it's more likely that LNG will be overbuilt or underbuilt in the back half of the decade?
spk11: I really don't see this overbuilt dynamic even in that 26, 27, 28 timeframe. There's such an enormous amount of latent demand, if you will. We've been shying away from the term of demand destruction, right? We've termed it demand management. Even as prices pulled back in Europe modestly over the last month, month and a half, you've seen a fairly dramatic resumption in industrial demand, right? So those numbers don't go away for a very long time. And yes, you know, BASF and others may build facilities in the U.S. and in Qatar, But fundamentally, the demand picture in Europe just isn't going to change that much. And we still see a tremendous demand growth story out of Asia and EM in general. So we, of course, as you know, fully believe that the Qatari mega trades will continue to come on. The four under construction now, plus two more, plus two more. There just aren't enough solutions. And now with this very robust contracting, but relatively slow process to FID US project, that's just going to make the market that much tighter through the back half of this decade. So we see years and years of this dynamic before you can see a truly balanced market.
spk03: And Jean-Anne, this is Jack. I always track, you know, how much capital is being invested in natural gas infrastructure around the world. And there's over a trillion dollars right now of nat gas projects around the world with with pipelines and power plants and regas facilities. So that to me is the signal that gas is here, it's here to stay for the long term, and that the LNG side of it will continue to grow.
spk01: Great. Thank you. I appreciate all that. As a follow-up, I'm just wondering what the waiting time for a new LNG FERC filing is these days. I think earlier this year, you kind of estimated two years, but said maybe if the U.S. focused on it, it could be a lot faster than that. So I'm wondering if two years is still a good number or faster than that or possibly slower than that.
spk03: Yeah, no, Jean-Anne, I'll tell you, over the last six years, we've doubled our business here at Chenier. And today, more than ever, that permitting strategy I believe is essential, right? Because it's more and more difficult with the current regulatory environment to make any mid-course changes, whether they're on design or construction. So, you know, we filed, we pre-filed for Mid-Scale Trains 8 and 9. That got accepted not too long ago. There's a six-month period after pre-filing that we need to wait. It's our expectation that we will file immediately thereafter, so early next year with 8 and 9, and then hopefully my goal is to make those trains contiguous. So right after train 7 is commissioned, I want to go to train 8 and then to train 9. So we're trying to move quickly. I think that just strategically the whole permitting strategy part and making sure that you've crossed the T's and dotted the I's in your application is more important than ever today.
spk04: Great.
spk01: Thanks a lot. That's all for me.
spk04: We'll take our next question from Brian Reynolds with UBS. Please go ahead.
spk14: Hi, good morning, everyone. Maybe just to follow up with Jeanne Ann's question on the FERC permitting process. Any insights on whether we could see further growth, you know, at Corpus or Sabine? Are there any signposts that we should be looking for in terms of preference? And, you know, when should we expect maybe a pre-FERC filing process to begin there? Thanks.
spk03: No, look, you know from our talking points that in Anatol's talking points that that we're looking at 30 plus MTPA of growth across the portfolio. I would expect Sabine to be first. I'd expect sometime next year that we do a pre-filing for additional growth there at Sabine. But again, like I said, we're making sure that we understand everything it is to know about that growth and that that filing is complete so it gets accepted and moved through the process appropriately. And then right after that, hopefully Trains 8 and 9 will be done at Corpus, and we can focus on whatever additional expansion plans we have there.
spk14: Great. That's super helpful. Maybe as a follow-up, you know, the ability to sell cargoes forward in the market, you know, the time seems shorter and shorter relative to years past, just given pricing and liquidity. Can you just talk about, you know, how that market is now? Is it improving in terms of being able to sell those cargoes
spk12: forward and you know could you be in a situation um you know middle of next year going into you know the tight winter that we that was alluded to earlier um to where you know you'll be selling those cargos basically at you know spot spot prices at that time thanks sure so this is zach and i've mentioned this previously on calls but it's just a totally different world than it was let's say 18 to 24 months ago where you could lock in a cargo and maybe tie up capital for I don't know, $10, $15, $20 million. We're tying up cargoes now into the end of the year. And that potentially requires us to reserve capital of almost $200 million. And we start talking about tying up cargoes financially into next year or a quarter plus away. That's over a half a billion dollars still. So the volatility is just so elevated. And even with I guess a drop in LNG prices to an extent, even though we're still talking about $10-plus this year, $20-plus next year and onward. It just doesn't make it too tenable to handle 130 TBTU that are open for us. What the CMI team has done tremendously well this year and is already doing as we speak is selling physical cargoes on a fixed-price basis or even on a Henry Hub Plus basis. And that's how we've been able to give you these guidance updates with confidence, even though there's been just so much volatility. So for the time being, yeah, we don't see financially hedging as a large tool for the company, but it will be a tool. I mean, you see there's still margin deposits on the balance sheet of over $200 million for the quarter. So we're using it, but we're being quite selective.
spk14: All right. That's super helpful. Enjoy the rest of your morning, everyone, and thanks for the time. Thank you.
spk04: We'll take our next question from Julian Dumoulin-Smith with Bank of America. Please go ahead.
spk05: Hey, good morning, Jack and team. Thanks for the time. Just to come back to try to quantify some of this, in terms of improving returns, if only simply because of the higher rate environment, can you try to speak to that a little bit more in terms of what you're prospectively seeing in your counterparty conversations? I know that, Anatole, you tried to provide some context in terms of the off-take prices themselves, but maybe reframe that in terms of returns, if you can elaborate on that initially, and maybe speak a little bit to the pace of contracting. Obviously, you've retained a certain portion in 23, but what are you seeing in terms of your own commitment pace next year as well?
spk12: All right. This is Zach. I'm going to try to answer some of that, and I'll hand it off to Anatole. But basically, what a lot of these folks are experiencing as they try to FID really don't pertain to us today. I mean, we started locking in our costs earlier this year, and then we have a lump sum turnkey contract where I can still say to you that we're building stage three at six times capex to EBITDA, and it's under a lump sum turnkey contract with Bechtel, and we have hundreds of millions of dollars of contingency that were baked into that cost that we haven't touched. So we feel very good that we were able to be competitive in our 2 to 250 range for long-term contracts, and we're going to make double-digit unlevered returns on Stage 3. We're in the process of permitting Trains 8 and 9 on top of that. Obviously, they're going to be incredibly cost-effective, considering we're not using tanks, berths, or pipelines to expand there. And we'll see where those prices shake out. but we think it's going to be extremely competitive and we'll be able to offer a really competitive price out there without elevating prices all that much, if at all. I'll hand it off to Anatole, though.
spk11: Yeah, Julian. So, you know, we've felt comfortable with this 2 to 250 range, as you heard some of the previous Q&A. I mean, the market overall for U.S. projects has firmed up a bit, but it is still very much anchored in those, early stage developer proposals. We've always felt like we extract the premium for the operational excellence and the performance that we now have a track record of. We don't participate in the race to the bottom and we have a lot of components to our contractual agreements like the inflation mechanism that Zach spoke to earlier that are heavily negotiated and we think will stand the test of time much better than most of the other proposals that are in the market. So we're still very comfortable with the returns responsible for the top line of that exact equation. I think we can continue to deliver those types of economics. And yes, we cheat with this brownfield advantage and operational excellence and cargoes that are incrementally available from the bottlenecking as part of that commercial value proposition, but the numbers that we're giving you today, we still feel very good and strong about.
spk12: And it's nice to add that we're not really issuing debt all that much these days. We're just paying down billions of dollars of debt. So we're just in a different world than we would have been 10 years ago in a rising rate environment. Totally.
spk05: Understood, right? It sounds like return... Disclosures that you guys are writing are largely unchanged, albeit elevated nonetheless. If I can just come back and clarify from earlier on pre-filing, should we expect a regular cadence? As you think about your regular deployment of new liquefaction out in the decade, as you alluded to a moment ago, you would expect next year some pre-filing. Should we expect them to sort of overlap in a similar and regular cadence Or do you think that because you say you need to dot your I's and T's here, that you can't have as much of an overlap? I know that was a little bit of a thought earlier. But just coming back to clarify that.
spk03: No, I think, Julian, you should expect some overlap between the two sites. We're not going to have overlap on one site.
spk10: Got it. Okay. All right. Fair enough. Thank you, guys. Thanks, Julian.
spk04: We'll take our next question from Ben Nolan with Stiefel. Please go ahead.
spk13: Thanks. Hey guys. And I'm surprised that nobody has mentioned this yet, but how about Christian Javier and those Astros yesterday? My goodness.
spk03: Oh man. Thank you for mentioning that because the night before was a bad night and last night got paid up for it. So we're very excited to have them come back home and, bring home the World Series right here in Houston.
spk13: Absolutely. I'm with you. So my two quick questions here is, first of all, I'm curious where you stand as it relates to LNG shipping. Obviously, we've seen these shipping rates just explode here recently, and I know a lot of what you do is fully contracted, but maybe just any update on sort of how you're positioned in that respect.
spk11: Yeah, thanks, Ben. You know, we operate a long-term business that has long-term commitments and lots of flexibility within that. We learned our lessons really before we started in the market and are not in a position to risk being short shipping. So we're well protected. Our delivered contracts and our producer contracts have a lot of embedded in them that are paid for by our customers, and we take advantage of that, as Zach mentioned earlier, and some of the optimization opportunities we've experienced over this year. So we're in good shape, and the markets give us on that side at the moment.
spk12: Yeah, I'll just add, I mean, at this point, we're basically the second largest charter of ships in the world, and we've been proactive on this as we sign up these DES deals or IPM deals. We're typically almost simultaneously locking in long-term charters. So going into this winter, even going into this year, we've had a large portfolio that's well under $100,000 a day when prices have been doubled, tripled, sometimes quadrupled or more. So that's been part of the tailwind to EBITDA this year, and even part of how we got to the upper end of the guidance range at this point in just the last month is some of the subchartering that we've been able to do. as we haven't used all our ships to get to Asia, but are directing them towards Europe.
spk13: That's great, Collar. I appreciate that, Zach. And then as my follow-up, it's interesting to hear you guys talk about sort of beyond the next phase of Corpus Christi and looking to potentially do something that's being passed. I'm curious how you're thinking about the way that's done. Obviously, here lately, you're doing the mid-scale versions. Is that is that just because they happen to be a good fit for where, you know, what you're trying to do is stage three? Or are you thinking that, you know, whatever the mid-scale model is probably the way that you're going to be moving forward with all your incremental development going forward?
spk03: No, we're looking at all the technologies. So we're looking at gas compression. We're looking at large electric compression. We're looking at mid-scale electric compression. So we're We're doing a complete evaluation. I like the mid-scale solution for stage three. It helped control the inflationary pressures that we see on the large trains with a lot of, you know, nine nickel and precious metals. But it doesn't mean that's where we're going to stay for the rest of the portfolio. So we'll develop a solution that is appropriate for the sites.
spk10: Okay, I appreciate it. Thank you. We'll take our next question from Alex Kenia with Wolf Research. Please go ahead. Alex, your line's open. Please check your mute button.
spk15: Oh, sorry about that. Mute. Thanks for taking the time. Can you talk a little bit more maybe just about the broader landscape of these partially contracted LNG projects? Do you think that ultimately that a fair amount of those may not end up moving forward? And if so, do those represent commercial opportunities for you to discuss contracting with some of these parties that are already on board some projects that may end up not moving forward?
spk11: Yeah, Alex, I'll try that first and see if anyone else wants to chime in. But look, with the loss of Arctic Russia as a major supply node to meet the LNG demand, U.S. was the next logical choice. You saw this rush to contract 40 million tons year to date, and 30 million of that has yet to be performed on. And like with all of these, there isn't a simple answer for these questions anymore as the market becomes large, diverse, has multiple participants. There are a lot of load-serving entities in that 30 million tons that need the LNG, and there are a lot of opportunistic buyers in those 30 million tons that are just out there to see what can possibly get over the finish line and offer the kind of attractive economics that were too good to pass up. There's some of each. We certainly think that we're in a great position to continue to grow our platform, do it judiciously, and potentially benefit from some of the buyers that really need the supply over the coming years.
spk15: Great, thanks. Then maybe just to follow up on the rating agencies. I know they've had some time to digest the capital allocation. and they've had already some rating updates. Do you kind of have a sense, though, broadly about how maybe that trend towards the investment grade goal may look heading into next year or so? Just getting a sense of what else the rating agencies need to get you kind of uniformly into the BBB range.
spk12: Sure. This is Zach again, and I'll just say we feel quite confident that our balance sheet strategy has been validated even recently. with the momentum on the ratings upgrade finally starting to catch up to the momentum on the debt pay down, on the credit metrics that are at this point under three times even on an LTM basis. But I guess how I'll put it is we're on the, in the spirit of the Astros being in the World Series and the no-hitter last night, we're in the home stretch on getting to the IGE. And basically, the game plan is we're going to inundate or overwhelm them with a little more debt pay down and EBITDA growth. And yes, it's just going to be too evident when you add on to that the execution from operations and construction and just the contracts. I mean, we have over 30 counterparties, average rating A, remaining life of the contracts is 17 years for over 90% of our capacity. So when you add all that up, yeah, we're pretty confident we're going to get there by the first half of 2023, if not sooner. And yeah, seeing all the agencies provide upgrades already this year, we're just getting started there.
spk10: Great. Thanks so much. Take care.
spk04: We'll take our last question from Craig Shear with Tua Brothers. Please go ahead.
spk06: Thanks for fitting me in. Just kind of picking up a little on the last question about contracting. Note that long-term SPAs from perspective in actual U.S. projects kind of materially trailed off the last couple months. Given that brief hiatus, I wonder, Anatole, if you can opine on your confidence that the Europeans will step up to the table again into the first half next year. And if you could give us a sense to the degree you think Chenier is being shortlisted by the Europeans on prospective new long-term commitments due to a combination of your bridging cargoes, a desire to reward those who helped this year, and a desire to work with partners that can make clean energy investments in the medium and long term in CCUS and hydrogen a priority.
spk11: Thanks, Craig, for the leading question. If I ever gave you the impression that we feel confident that there will be an armada of European load-serving utilities as counterparties, I misspoke. I think that those will be few and far between. We, of course, have done the transactions with Equinor Engie, as you know, this year, and we are optimistic that European-based buyers will be part of the portfolio and part of the solution going forward. But we do see the Asian market as the primary growth driver and the primary long-term contracting opportunity. Year-to-date, there have been precious few, I think, what you would call European buyers that have come to the table. You'll see them here and there. We're obviously in those discussions. As you said, we bring a lot to the table, but they are... There are few and far between, and even though we have been a critical part of rebalancing Europe last year and this year, and we'll continue to do our best to support its efforts to meet its energy demands, we don't expect a lot of load-serving European utilities to be in that 30-plus counterparty list going forward.
spk10: Understood. Thank you. Thanks, Craig. Thank you, everybody. Thanks for your support of Chenier.
spk04: Ladies and gentlemen, this does conclude today's conference. We appreciate your participation. You may now disconnect.
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