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spk10: Please stand by. We are about to begin. Good day and welcome to the Chenier Energy second quarter 2024 earnings call and webcast. Today's conference is being recorded. At this time, I'd like to turn the conference over to Randy Boutier, Vice President of Investor Relations. Please go ahead, sir.
spk13: Thanks, operator. Good morning, everyone, and welcome to Chenier's second quarter 2024 earnings conference call. The fly 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, Anna Fulfagan, Executive Vice President and Chief Commercial Officer, Zach Davis, Executive Vice President and CFO, and other members of Chenier Senior Management. Before we begin, I would like to remind all listeners that our remarks, including answers to your questions, may contain forward-looking statements. and actual results could differ materially from what is described in these statements. Slide 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 to these measures for 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 LT 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 increase 2024 guidance. After prepared remarks, we will open the call for Q&A. I'll now turn the call over to Jack Fusco, Cheniere's President and CEO.
spk18: Thank you, Randy. Good morning, everyone. Thanks for joining us today as we review our second quarter results, which exceeded our expectations thanks to the success we have achieved across the entire Cheniere platform. Before I address the quarterly results and guidance increase, I hope you saw our contract announcement earlier this week. we have entered into a new long-term SBA with the Portuguese multinational integrated energy company, GELP, for approximately half a million tons for 20 years. And the SBA is tied to the date of the second train of the SPL expansion project. This contract demonstrates not only further progress and continued momentum on the development of the SPL expansion project, but also the important role US LNG fulfills in the European energy system for decades to come. The SPA represents our longest-dated contract with the European counterparty, as the deal is expected to extend beyond 2050. We continue to be very excited about the market's response to the SPL expansion project and are working diligently across multiple work streams to advance the project towards FID. we're focused on being the world's LNG supplier of choice from the US, differentiating ourselves with a safety-first culture, superior reliability, and a customer focus that demonstrates our long-term commitment to excellence in LNG operations. Please turn to slide five, where I'll highlight our key accomplishments for the quarter and introduce our increased guidance for 2024. In the second quarter, we generated consolidated adjusted EBITDA of approximately $1.3 billion, distributable cash flow of approximately $700 million, and net income of approximately $880 million. These excellent financial results are once again the product of our maniacal focus on operational excellence. During the quarter, we produced and exported 155 LNG cargoes from our facilities. Total LNG production across our platform was up slightly year over year for both the quarter and the first half of the year. On the maintenance front, during the second quarter, we executed our major maintenance programs at both Sabine Pass and Corpus Christi, and I'm extremely proud of the outcomes of each of those turnarounds. I'll come back to these programs in a minute, but their safe and successful execution further reinforces our operating track record and sets Chenier further apart from the competition. During the second quarter, we announced an update to our capital allocation plan highlighted by a $4 billion increase in our share repurchase authorization through 2027, as well as a planned increase in our dividend to $2 per share annualized next quarter. As Zach will speak to further, our capital allocation plan provides investors with an excellent framework in which they can take confidence, a proven, disciplined approach, that provides for cash flow visibility, capital management, and long-term value creation. Looking ahead to the balance of 2024, today we are raising and tightening the ranges of our full year guidance to $5.7 to $6.1 billion in consolidated adjusted EBITDA and $3.1 to $3.5 billion of distributable cash flow. The primary drivers of the increase are portfolio optimization activities and excellent maintenance execution at both our sites, particularly at Corpus, where we expect to make up some of the lost production we had in the first quarter as a result of freeze-related gas composition issues that I discussed on our last call. Even accounting for the increased volume in the forecast, we continue to have an immaterial amount of unsold volume remaining for the balance of the year. will have more to say on the guidance increase in his remarks in a few minutes. Please turn to slide six, where I'll update you on the growth at Stage 3 and Trains 8 and 9 at Corpus. On the construction execution side, Bechtel continues to progress our Stage 3 project at Corpus Christi on budget and on an accelerated schedule, once again demonstrating to the LNG market the reliability of execution and visibility on volumes from Chenier. In June, Stage 3 reached over 62% completion, and the headcount is ramped to about 4,000 construction workers today. As you can see from the photos on the slide, Stage 3 is very much taking shape, especially the first few trains for which construction is well advanced. All equipment for the first two trains has been delivered to the project site, and last week, Train 5 coal boxes were shipped, and Train 6 coal boxes are ready to ship. We continue to target first LNG from Train 1 by the end of the year and to bring the first three trains online by the end of 2025. To that end, recently, we commenced the process of turning over utility systems from ENC to the commissioning teams, with approximately 35 such systems having already been turned over. And in June, Bechtel energized the Train 1 liquefaction and utility substations. a critical step which will enable power at the project site. In addition, we have begun to make some necessary regulatory filings in preparation for the start of commissioning activities on Train 1. We expect to begin taking FIRST gas into Train 1 in the next couple of months, which will begin the commissioning and startup process and will give us added visibility into the end-of-the-year target for FIRST LNG. Speaking of regulatory matters, during the second quarter, we received a positive environmental assessment from FERC on Corpus Christi Trains 8 and 9. This critical regulatory milestone helps to solidify our expected timeline for us to be in a position to reach FID on Trains 8 and 9 in 2025, which should enable us to realize project efficiencies of having Bechtel already on site for Stage 3. Our ability to navigate the numerous regulatory bodies and obtain the required permits has been a key to our success to date and is essential to our growth plans for both Corpus and Sabine. Now, turn to slide seven, where I'm pleased to cover some highlights of the maintenance program we're executing at both Sabine Pass and Corpus Christi since our last earnings call, and how our execution exemplifies Chenier's cultural foundations of safety and operational excellence. As I've discussed previously, this year's major maintenance work would look a little different than last year's in that we wouldn't need extended periods of full outages at either facility. Rather, we would be able to complete our required maintenance programs under shorter outages or while operating at reduced rates, with a net impact to the total annual production from maintenance being about the same as a major SPL turnaround in 2023. Major maintenance was concentrated at Sabine Pass last year, whereas this year we performed major maintenance across both facilities. In the second quarter of Sabine Pass, we conducted a planned major turnaround for Trains 3 and 4, and at Corpus Christi, we completed a turnaround of Train 3 in the second quarter and a turnaround of Train 2 last month. I'm proud to say these turnarounds were all completed on or ahead of schedule, on budget, had zero reportable environmental incidents, and most importantly, zero recordable or lost time injuries. To be clear, we will have major maintenance programs to execute at our sites every year. Maintenance turnarounds are part of our normal operations. So to have these successes on our major annual programs, is critical to maintaining and reinforcing our reputation for safe and reliable operations as many of you know this is predicted to be a very busy hurricane season we have already had a significant storm hurricane barrel made landfall on the texas gulf coast in advance of the storm we activated our hurricane preparedness plans at both facilities these plans provide for operations risk assessment and mitigation before, during, and after a storm event. The storm made landfall south of Houston, right in between Sabine Pass and Corpus Christi. We had uninterrupted, safe, and reliable production of LNG at both facilities throughout the storm. To that point on safety, I'd like to recognize the personnel at both sites for having achieved major safety milestones during the quarter that are worthy of acknowledgement and celebration. Corpus Christi surpassed 6 million man-hours work without a single lost time incident, and Sabine Pass surpassed the 10 million man-hour mark. Those are exceptional achievements, and I'd like to congratulate my Chenier colleagues at both sides for a job well done. And finally, before turning the call over, I'd just like to say a brief word relating to the upcoming presidential election. At Cheniere, we have developed, built, and operated our assets under multiple administrations across both parties for the last decade plus. We believe our business and our product to be bipartisan, helping achieve policy priorities across the political spectrum. Economic impact job creation, global decarbonization, energy independence, or international trade. Chenier and our LNG deliver on each in scale. The numerous and significant benefits of our LNG are proven. In addition, our LNG platform consists of assets that we believe will operate for many decades, transcending any single election cycle. We look forward to maintaining our constructive presence and working relationships in Washington, regardless of the outcome in November, and to continue being a reliable supplier to our customers and to the overall global energy balances and energy security. With that, I'll now hand the call over to Anatole to discuss the energy markets. Thank you all again for your continued support of Chenier.
spk06: Thanks, Jack, and good morning, everyone. Please turn to slide nine. With the extreme volatility in prices of 22 now well in the rearview mirror, JKM and TTF were down 24% and 16% respectively year-on-year in the second quarter. However, both benchmarks increased during the quarter due to a series of supply outages at LNG facilities in Australia and the U.S., as well as upstream facilities in Norway. These supply disruptions coupled with stronger demand pull from Asia due to a hot early summer and restocking efforts led to TTF and JKM each jumping approximately 25% from April lows to June. In the U.S., month-end Henry Hub settlements averaged $1.89 an M in the second quarter, but prices strengthened with the June contract settling at $2.49 at MMBTU and July at $2.63, as the domestic market absorbed the impact of price-driven production cuts, along with strong early summer cooling demand and the return of Freeport LNG for maintenance. Throughout the quarter, the supply-demand balance remained delicate in the LNG market. Looking at the center charts, global LNG trade growth was constrained by minimal supply growth during the quarter, with Asia's increased demand met by attracting cargoes from the Atlantic Basin via higher prices. This demand pull from Asia is further evidenced by U.S. LNG export flows, which continued to shift from Europe to Asia during the quarter. The growth in global supply was partially offset as Egypt flipped back to an LNG importer, and other export facilities suffered protracted outages. With limited incremental supply, Asia's consumption growth was primarily dominated by China and India, leaving little volume for relatively new market areas such as Hong Kong, Vietnam, and the Philippines, which actually became our 40th delivery market last week. We expect this seemingly fragile market balance to continue until additional LNG export capacity comes online. Let's address the regional dynamics in the next page. In Asia, LNG imports grew 11% or 6.7 million tons year on year in the second quarter. Extreme temperatures across the region lifted gas power demand, while relatively lower prices in the first quarter and early second quarter spurred spot buying, resulting in significant increases throughout the first half of the year. China's LNG imports grew 16% or 5.2 million tons in the first half of 24 with a lower growth rate in the second quarter as prices strengthened. A 10% year-on-year increase in the country's overall gas demand in the first half of the year underpinned this LNG import growth, particularly when prices were conducive to LNG spot buying. Roughly a quarter of this gas demand growth was met by pipeline imports, consistent with a planned ramp-up in Russian gas deliveries through Power of Siberia, and the remaining 75% of the growth was evenly split between indigenous production and LNG imports. Elsewhere in Asia, India's imports reached over 7 million tons in the second quarter, a 21% increase year-on-year. This growth propelled South and Southeast Asian imports to new highs, resulting in 6.4 million tons, or 23%, of cumulative growth through the first half of the year. Other markets in the region also saw similar optics, including Pakistan, Thailand, as well as Singapore, which saw increased use of LNG in bunkering operations. This growth in demand resulted in steady competition for cargoes among markets across Asia and sustained a JKM premium over TTF. In Europe, imports were lower by about 13.4 million tons year-on-year in the first half. Despite a modest 5% uptick in industrial sector demand in the six key markets we track, total gas demand in the region remained 4.3% below the comparable period last year. As shown on the chart on the lower right, strong seasonal generation from hydropower and wind and healthy nuclear power generation suppressed gas-fired power across the key European markets, resulting in an 18% year-on-year drop in gas burn in the first half of the year. In addition, mild temperatures for most of the quarter further limited heating demand. These dynamics enabled Europe to refill storage inventories at just above last year's levels. EU gas storage stood at approximately 83% full as of July 20th, almost meeting the previous record of 84%, except for the comparable periods during the pandemic back in 2020. In the absence of weather-supported demand in Europe and amid delays in new LNG facility startups, EU's demand growth trajectory will likely serve as the main factor impacting availability of LNG to Europe and its storage fill track. Let's move to the next slide for a longer-term perspective. After nearly two full years of focus on Europe and its energy crisis, Asia has, in the first half of 24, regained a spotlight in the LNG marketplace. We believe this rebound is supportive of our long-term market thesis, namely that as the supply curve pushes out and to the right and market liquidity continues to increase in the coming years, we will see incremental demand growth in both Europe and Asia. Market analysts agree that Asia remains the primary driver of LNG demand growth over the longer term. As you can see from the chart to the left, we expect Asian demand to nearly double by 2040, so long as supply availability is not constrained. However, Europe will still need significant volumes of LNG now and in the long term, and it will continue to compete with Asia as domestic production and regional pipe imports continue to decline. As Jack highlighted earlier, we signed a new long-term SBA with GALP, which is expected to extend beyond 2050. Since the beginning of 22, we have signed over 5 million tons per annum of long-term contracts with European counterparties who value the reliability and flexibility of our LNG, further reinforcing the long-term role of LNG in Europe's energy mix. On the right side, we delineate expected growth by region. This highlights that growth in Asia is not driven by China alone, but rather is spread across numerous markets in Asia, enhancing the durability of growth in the region over the coming decades. On previous calls, we have highlighted the significant growth potential of South and Southeast Asian markets and believe that these stand to particularly benefit from the coming increase in LNG supply, supporting grid stability and ensuring system flexibility and resilience. Ahead of this supply cycle, we expect the market to continue to balance primarily on the demand side. The expectation of growing supply from 2026 onwards should alleviate the constraints on demand growth, especially as moderate prompt LNG and gas prices prevail. This should help both Europe and Asia equally in realizing security of supply, as Europe will be better able to meet its requirements to replace Russian gas while backstopping growth and renewables, and Asia will be better equipped to displace coal and offset regional production declines while underpinning investments in gas infrastructure in high-growth developing economies. With that, I'll turn the call over to Zach to review our financial results and guidance.
spk04: Thanks, Anatole, and good morning, everyone. I'm pleased to be here today to review our second quarter 2024 results, key financial accomplishments, and increase guidance for the year. Turn to slide 13. For the second quarter 2024, we generated net income of approximately $880 million consolidated adjusted EBITDA of approximately $1.3 billion, and distributed cash flow of approximately $700 million. With these second quarter results, we have now reported positive net income on a quarterly and cumulative trailing four-quarter basis, seven quarters in a row. Compared to last year, our second quarter 2024 results reflect a higher proportion of our LNG being sold under long-term contracts, as well as further moderation of international gas prices relative to last year. Compared to the first quarter this year, our production was lower in the second quarter due to the planned maintenance at both Sabine Pass and Corpus Christi, which Jack detailed, as well as warmer ambient temperatures at Sabine. During the second quarter, we recognized in income 552 TBTU of physical LNG, all of which was produced by our facilities. Approximately 93% of these LNG volumes recognized in income were sold under long-term SBA or IPM agreements with initial terms greater than 10 years, which makes this past quarter our most contracted quarter to date. Thanks to the team's focus on execution and operational excellence, we have generated over $3 billion of consolidated adjusted EBITDA and nearly $2 billion of distributable cash flow in the first half of 2024. boosting our confidence in the increased forecast for the remainder of the year, which I'll address further on the next slide. The strong financial results enabled our team to deploy another approximately $1.2 billion under our comprehensive capital allocation plan towards shareholder returns, balance sheet management, and accretive growth during the second quarter alone, bringing total cash deployed towards our 2020 vision to over $11 billion, with over $3 billion in the first half of 2024. This accelerated progress prompted us to increase our share repurchase authorization by another $4 billion through 2027, along with plans to increase our quarterly dividend by 15% next quarter to $2 per share annualized, as well as extend the dividend's annual growth target going forward of 10% through the decades. These announcements demonstrate continued follow-through of our stated objective to deploy at least $20 billion to further reduce share count and enhance capital returns while retaining financial flexibility to fund accretive growth in order to generate over $20 per share of run rate distributable cash flow for our shareholders later this decade. The Capital Allocation Update in June was a powerful statement about Tenure's performance, capital allocation today, and our outlook to grow cash flow per share in the future. At the foundation of our 2020 vision plan is our multi-decade fixed fee contracts with investment grade customers, coupled with our excellence in LNG operations, which gives us significant visibility into the billions of dollars of annual cash flow for the long term. Perhaps just as important as visibility is flexibility. Maintaining and enhancing our ID ratings Instead of only growing the dividend to a reasonable payout over time, provide ideal financial flexibility, which enables us to maintain a robust buyback plan while simultaneously funding accretive brownfield growth within cash flow, which will improve both the numerator and denominator of our run rate DCF per share goals. As Jack mentioned, the capital allocation plan is designed to provide investors with a framework in which they can take confidence thanks to our cash flow visibility and financial flexibility to enable sustainable long-term value creation. During the second quarter, we repurposed over 3.1 million shares for approximately $500 million, helping bring our total shares outstanding to approximately 226 million today. The buyback program continues to work as designed, deploying allocated capital into the stock, which can increase significantly in periods of sustained dislocation, as we saw in the first half. While the amount of shares repurchased in the second quarter trails that of the first quarter, it's important to remember that the first quarter's nearly $1.2 billion of share repurchases was enabled in part by the accumulation of some cash in the plan over the preceding several quarters, which was unlocked as the stock underperformed in Q1 and into Q2. With the upside share repurchase optimization commencing at the start of the third quarter, We remain committed and on track to reach our goal of approximately 200 million shares upstanding later this decade and opportunistically complete the upsized $4 billion buyback program by 2027. Moving to the balance sheet, we issued our second investment grade bond at CQP in May. And in June, we used the $1.2 billion of proceeds from the 5.75% senior notes to redeem approximately $1.2 billion of the 5.65% senior secured notes at SBL due 2025. Consistent with prior issuances, this transaction extends our maturity profile while further desecuring and desubordinating our consolidated balance sheet by moving secured project debt from SBL to unsecured corporate debt at CQP. During the quarter, we also fully retired the 2024 SBL notes repaying the remaining approximately $150 million of outstanding principal with cash on hand. Over the next few quarters, we'll focus on our debt paydown on the remaining outstanding principal of the SBL 2025 notes, after which point we will not have any debt maturing until the middle of 2026. The rating agencies continue to recognize our progress on the balance sheet. In May, in conjunction with the CQP issuance, Moody's upgraded both CQP and SBL to BAA2 and BAA1, respectively, representing a double upgrade at CQP. And in July, Fitch upgraded CCH to BBB+. These positive ratings actions reflect our balance sheet management to date and our commitment to opportunistically delever and desubordinate going forward as we target long-term leverage of under four times run rate EBITDA and BBB corporate credit ratings at both LNG and CQP. The corpus upgrade specifically is also a recognition of the significant progress achieved at Stage 3 today. For the second quarter, we've maintained a dividend of 43.5 cents per common share. As announced in June, we plan to increase the dividend by 15% to $2 annualized next quarter. Beyond this year, we remain committed to our guidance of growing our dividend by approximately 10% annually, not just through 2026, but through the decade, at which point we'll be at a payout ratio of only about 20%, enabling us to maintain the financial flexibility essential to our comprehensive and balanced long-term capital allocation plan and growth objectives, with investment-grade metrics and internally generated cash flow funding at both Sabine and Corpus. During the quarter, we funded approximately $400 million of CapEx on Stage 3, bringing total unlevered spend on the project to approximately $3.8 billion. Front-loading the equity spend has enabled considerable interest savings, and we still have over $3 billion available on our CCH term loan as additional liquidity for CEI in the coming years through construction. We expect to spend between $1.5 to $2 billion in Stage 3 CapEx this year before accounting for any draws on the CCH term loan. We maintain significant total liquidity in addition to our DCF forecasts and therefore flexibility, with almost $3 billion of cash on hand plus over $3 billion of available term loan at CCH, as well as open revolvers across the Chenier complex. Turn now to slide 14. where I will discuss our upwardly revised 2024 guidance. Today, we are raising and tightening our full year 2024 guidance ranges to $5.7 to $6.1 billion in consolidated adjusted EBITDA from $5.5 to $6 billion and $3.1 to $3.5 billion in distributable cash flow from $2.9 to $3.4 billion. Several factors contributed to our improved forecast for the year. primarily from additional production layered into the forecast post our turnarounds, as well as optimization activities achieved upstream and downstream of our facilities since the last call. As Jack noted, our maintenance programs not only minimize production impacts to both sites, but also unlock deficiencies at CCL that should offset the impacts to production from the winter storm we experienced in the first quarter into the second half of this year. Of course, we are still in hurricane season on the Gulf Coast, and while we had no impacts to our production from Hurricane Beryl last month, we keep a very close eye on potential hurricane impacts, as our expected results could be impacted by future weather events at our sites. However, we decided to tighten the guidance, considering we are now more than halfway through the year, we've completed our major maintenance at both sites, and a decent portion of the optimization has been locked in on top of this being our most contracted year ever on a percentage basis. We still expect to produce approximately 45 million tons of LNG this year, inclusive of the planned maintenance downtime at both sites, and our guidance continues to reflect only contributions from completed or locked-in portfolio optimization activities, as we do not forecast potential contributions from future optimization opportunities. And, of course, our results could be impacted by the timing of certain cargos around year ends. Our DCF for 2024 could also be affected by changes in the tax code. As noted on prior calls, we qualify for the corporate alternative minimum taxes here. However, upcoming guidance related to the implementation of this tax, which is expected later this year, specifically regarding the taxing of unrealized derivatives, could impact the timing and amount of our cash tax payments this year and going forward. We would expect any impacts to primarily be a matter of timing and should not impact our ability to generate over $20 billion of available cash through 2026. We do not forecast any contribution to revenues or EBITDA from Stage 3 volumes this year. We look forward to updating you on our 2025 volume projections, inclusive of Stage 3 contributions, on our Q3 call. We continue to target First LNG at the end of the year and the first three trains to reach substantial completion by the end of 2025, reinforcing our view that 2024 is expected to be a trough year, and 2025 will begin the step up of our run rate production above the nine-train 45M TPA. As we look out beyond the next few years, our conviction in the long-term role of our LNG in global energy markets and Chenier's position in it have only strengthened. At Chenier, we lead with our safety track record operational and commercial reputation, and financial discipline to generate and deploy accretively the billions of dollars of cash flow year after year. We are leveraging all of those advantages to continue to create sustainable and growing long-term value for our shareholders and supply our global customer base with our flexible, reliable, and affordable LNG for decades to come. That concludes our prepared remarks. Thank you for your time and your interest in Schneer. Operator, we are ready to open the line for questions.
spk10: Thank you. If you would 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. In order to ensure everyone has a chance to interact with today's speakers, we ask that you limit yourself to one question with one follow-up question. If you have more than one question, you may signal to rejoin the queue. And our first question comes from Teresa Chen with Barclays. Please go ahead. Your line is open.
spk00: Good morning. With the progress we've made year-to-date, would you be able to provide any additional color on the drivers that underlie the low versus high end of the updated guidance range?
spk02: Sure. Thanks, Teresa. This is Zach.
spk05: I'd say going into the last call, We were already tracking to the upper half of the range, so we were in good position. And now we're able to not only raise it, but tighten it by $200 million on the low end. So at this point, we're comfortably in the middle of the range, if not better. And the reason for that is that there was probably another incremental $100 million added to the EBITDA thanks to production going up post the major maintenance at Corpus, helping Corpus catch up from some of the feed gas quality issues that it had in Q1, and then just more optimization across the board from upstream and downstream and subchartering. So to go from there, there's still a little variability. We won't account for most of the optimization that could happen in the second half of the year, in particular on the upstream side on basis differentials. And then Henry Hub is a variable just on lifting margin. Every 50 cent move in Henry Hub probably affects our lifting margin in EBITDA by about $30 million still for the rest of the year. And then we're still in a hurricane season. So weather permitting, if things go as smoothly as they've gone to date, maybe there'll be some incremental production. And if not, we could also lose some production if we have incremental downtime above and beyond what we normally budget or give ourselves coverage for. And then there's a little variability at the end of the year just on year-end timing of deliveries. We don't bake into the forecast late, late deliveries in the year. So that might add a bit, but shouldn't materially affect us on the downside. Things are pretty big this year, as it was already our most contracted year ever.
spk00: Thank you for that detailed answer. And maybe turning to the permitting side, we'd love to get your updated view on the regulatory and permitting landscape. Specifically, what industry read-throughs, if any, are there to glean from the D.C. Circuit's recent decision to vacate permits at a couple of competitor projects? environmental opposition and what is your view on the permitting process for your own expansion projects?
spk18: Thanks, Teresa. This is Jack. I'll take a crack at that one. So, first, a similar outcome can't happen with our permits at SPL on Trains 1 through 6 or CCL 1 through 3, including Stage 3 at CCL, because all of our permits are no longer subject to appeal. On our expansion projects, which is CCL 8 and 9 and SPL Stage 5, as you all know, we dedicate a significant amount of time and resources just developing our projects and associated permit applications in a manner that we feel satisfies federal, state, local regulatory requirements. And we've done this over the course of more than a decade through multiple administrations, and we feel very confident in our ability to continue to perform that way. There's a significant amount of work that we do with the regulators to ensure that we have a robust record underpinning all of our permits, and we're thoughtful and accurately responding to their information requests as well as comments from affected stakeholders. And that's what you see happening right now for 8 and 9 with all of our public hearings, that we listen to the neighborhood, we listen to their concerns with EJ or air quality, and we respond appropriately to those concerns. So I feel very good about our position versus what we saw transpire with some of the
spk03: other folks in the LNG industry. Thank you very much.
spk09: And we'll take our next question from Jerry Toney with J.P.
spk10: Morgan. Please go ahead.
spk17: Hi, it's Jeremy Tenet from J.P. Morgan. Good morning, all. Hi, Jeremy. Hey, Jeremy. Just wanted to touch on commercial discussions. Great to see the Gallup contract earlier. And just wanted to see, I guess, you know, how the state of commercial discussions are going with customers right now, given changes in the LNG market, and especially the impact of competitor delays out there, you know, the pause, election uncertainty. Just wondering how, you know, these things all come together to impact, I guess, commercial discussions for SPL expansion at this point.
spk06: Hey, Jeremy. It's Anatole. Thanks for the question. No great fireworks. A very similar answer to last few quarters. Obviously, after 22-23, there's a period of reassessing, digesting, thinking through portfolios, but in your question and partially in Jack and Zach's answers, we have continued to differentiate ourselves from a reliability standpoint, from a commercial behavior standpoint, and As we've said, we expect the engagement to bear fruit that very much rhymes with what you've seen in the past. I cannot tell you, even with TTF rallying back into the 40 euro range, kind of highest levels year to date, I still don't expect a rush of European long-term counterparties. We've always said that there will be opportunities, 5 million tons that we've done to date, including GALP, but the drivers will continue to be Asian demand growth and North American production growth, and those discussions are healthy. They appreciate the differentiation. They appreciate Teresa's question on how we navigate various uncertainties, and I think all of those are tailwinds for the commercial team.
spk17: Got it. That's very helpful there. I was wondering if we could turn to capital allocation for a minute and, you know, it's good to see the dividend increase there. I was just wondering if you could talk a bit more, I guess, on the size of the step up at that, you know, at that point, you know, versus more versus less and, you know, how that influences your thought process going forward.
spk05: Sure. This is Zach. And obviously everything we do needs to go through and be approved by the board before we announce it. But let's put it this way. $4 billion isn't going to be it, and 200 million shares outstanding isn't our final target. So we're going to just continue to work it down, and we need to just right now follow through on the 2020 vision and getting to that point where on a run rate sustainable basis, even at $2 margins, not like the $7, $8 margins we're seeing on the screen for the next year and a half, we're comfortably in the in the 20s on DCF per share. But how we look at it, that $4 billion should get us pretty close to 200 million shares, really just depends on share price. And then we look at our cash flow forecast and ensure that we can meet those commitments of finishing a $4 billion incremental buyback program by 2027 or sooner, with on top of that, being balanced on our capital allocation and achieving all the other goals we want to achieve which is not just finishing up stage three in 25 and 26, but FID and the expansion there and getting Sabine ready, having the balance sheet get to triple B across the board by being proactive on that. And obviously we increased the dividend by 15% and committed to a 10% growth rate for the rest of the decade. So a balance of all of that is how we got to $4 billion, but I wouldn't think too much about that because We've been known to increase it over time.
spk03: Got it. That's helpful. Thank you for that.
spk10: And our next question comes from John McKay with Goldman Sachs. Please go ahead. Your line is open.
spk01: Hey, thanks for the time. This is probably one for Anatol. You guys have been pretty positive on the demand picture for a while now. I'd just be curious to hear a little more from you on if we're looking at your outlook for Asia demand, how sensitive this could be to kind of like the broader macro cycle. We've seen China a little slower recently. Maybe just a little sensitivity there versus I think your argument on a lot of this is kind of baked in growth at this point. Thanks.
spk06: Thanks, John. Again, very boring. Really hasn't changed much. We see the dedication to gas writ large being very sustained and durable across Asia and across Europe, in fact. The investments that are being made, we're going to approach something like 1,500 million tons of regas capacity by the time all is said and done. And yes, there's some price sensitivity in some markets, but actually we've been pleasantly surprised, A, at what levels, and B, how much seemingly price inelastic demand in the short term is manifesting itself. So we see these emerging markets in South and Southeast Asia as being very hungry for gas. It still is going to be a very small piece of their primary energy mix and will perform a lot of grid reliability and balancing functions that modern grids expect. So continue to be just as constructive. In fact, what we're seeing now, as we touched on, is a supply-constrained market. And everything we've seen play out in North America and the rest of the world, again, just like in previous cycles, continues to move that supply constraint further and further out. And you're seeing kind of 26, 27 now being the period of that supply entering the market, as opposed to a year ago when most were penciling it in 12 to 18 months earlier. So, We think as that supply comes in, you'll see some very dramatic growth numbers as various economies avail themselves of this moderately priced and reliable resource.
spk01: All right, that's great. I appreciate that. Maybe just for my second one, with the GALP deal announced and you guys kind of continuing to make progress on some of the expansion projects, Can you just remind us kind of what you're thinking about in terms of what you have now and targets you'd like to get to for the two incremental corpus strains and then the broader Sabine expansion?
spk06: Yeah, maybe I'll start and tag team with Zach. But, you know, in terms of quantum of commercial support, we're right around 10 million tons. We've got about just under 3 million tons with three customers that are CP'd to the mid-scale expansion, and with Gallup, about seven kind of beyond that. So, as always, we're navigating all of the levers, commercial, of course, being one of them, to think about what the right way to get to the appropriate project is.
spk05: And I'll just add, with all the success that the team, that the origination team has had, in the last year or two, if we wanted to be, we could be 100% contracted, even with the mid-scale expansion of 8 and 9 and de-bottlenecking. That's how many contracts we have. So we're in a really good spot where now with the EA at Corpus for mid-scale 8 and 9, targeting FID next year once we have the permits, and we can make that fully contracted. And with the contract at Gallup and everything else that we've signed tied to Train 7 or Train 8, we have more than enough to even FID in a couple years or so a first phase of a Sabine expansion. So that's in mind, too, as we continue to do value engineering there and work on it with Bechtel. All right.
spk03: Appreciate the time. Thank you.
spk10: And we'll move to our next caller, Ben Nolan with Stiefel. Please go ahead, sir. Your line is open.
spk12: Yeah, I appreciate it. Thanks. I wanted to maybe start with the cost side. We saw, I guess, earlier this week, PICTO come out with a new EPC contract and appreciating that there's probably some differences. But I was curious if that's sort of came in line with how you're thinking about the expansions that you're working on and contemplated with the pricing of the gas that you've sold?
spk05: I'll answer that. We can't speak for what's going on at these other projects, obviously, and it doesn't really matter. Because if we're not going to hit our financial standard, why are we going to take undue risk and dilute the returns that we're already providing all our shareholders that we can easily get by just buying back more stock and letting investors own more of Sabine and Corpus already in place? So that's their brownfield, like, best, I guess, and that's for them to figure out. Whereas for us, we think we can do even better, and that'll allow us to achieve seven times CapEx to EBITDA, 10% unlevered returns, and that's just contracted, nothing more than 225 on CMI and a fully wrapped EPC. Anything beyond that in terms of early completion, Higher CMI levels, optimization, that's just upside to us all, but never baked in when we FID these projects.
spk12: Okay. Well, maybe another way to ask that is, to the extent that you got similar pricing, the math still works fine. Is that maybe a different way to get to the same place?
spk05: We're working with Bechtel. clearly now thinking about limited notices to proceed even later this year, and then to be in a position to have full notice to proceed next year, we have a decent sense of where pricing is shaking out, especially for the nine, and it's all looking good.
spk12: Perfect. And then as sort of a follow-up or second question, I appreciate your comments on the FERC things going on. But as you're getting closer to Corpus Christi, any updated thoughts on the DOE non-FTA? Any sense as to if we're getting closer to an unpause there?
spk18: No, I think, Ben, you probably have seen that they filed an appeal on the ban of the ban. I think, again, this is This probably is not going to get settled until after November, but it's not going to impact what we do here at Chenier.
spk12: Got you. All right. I appreciate it. Thank you.
spk10: And we'll move to our next question from Keith Stanley with Wolf Research. Go ahead, sir.
spk15: Hi. Good morning. Just one question. Can you touch on potential plans to add gas power plant capacity with your old friends at Cal Pine under the Texas Loan Program, just strategic rationale for that cost and what you're hoping to achieve?
spk18: Thanks, Keith. As you know, with our Stage 3 increase at Corpus, our demand for electricity increases dramatically because those are electric compression, not gas compressors. So we wanted to manage that risk. We were able to do that very efficiently and effectively and cheaply by buying an existing power plant facility that was on the outskirts of our site. That's the old GPP plant. And we have partnered with CalPi to make that a reliable combined cycle power plant, which they've done a very good job at to date. The plant has run almost every day since we bought it last year, very efficiently and reliably. But it's our intent to grow that facility to match our demand profile. And then that way, it'll be a financial hedge to our power exposure at Corpus Christi. So that's the intent of the relationship with Calpine and our ownership in that power plant. And as you also know, we own our own power plant at Sabine Pass that's not connected to the grid. But we have power generating facilities there already, so we're perfectly comfortable with owning and operating those facilities.
spk02: That makes sense. Thank you.
spk10: And our next question comes from Craig Shear with TUI Brothers. Please go ahead. Your line is open.
spk16: Hi. Thanks for taking the question. Just one for me. Sounds like your de-bottlenecking is making a lot more progress. It's obviously been going on for years. Barring a hurricane risk, is it fair to say that your average multi-year legacy train output is already notably and systemically over 5 MTPA at this point? And what would it take for you to guide to something higher in the coming quarters?
spk02: I guess we should have expected that question from you.
spk05: But I'll just say we've been at around 5 million tons per train on the first nine trains for a while, and now we're still at 5 million tons per train, and we're doing major maintenance every year. So for the next few years, hard to see that moving material up. But we are making investments. We've mentioned before things like FinFans that should eventually help us get closer to the higher end of that range. But not yet. We're not in the business of overpromising on this.
spk18: Craig, I was going to say, as soon as we get comfortable that we can reliably meet the production numbers over a 20-year period, we will let you know.
spk03: Great.
spk19: Thank you.
spk10: And our next question comes from Zach Van Everen with TPH. Please go ahead. Your line is open.
spk14: Hey, guys. Thanks for taking my question. Maybe just to start on the global demand outlook, I know you talked about it on the last call around data centers internationally. We've seen some positive developments here in the U.S. on the midstream side. Has anything come up or anything changed there as far as conversations with potential customers or just increased demand from the global kind of AI data center demand ramp?
spk06: Yeah, thanks, Zach and Sanatol. There are, let's say, roughly two steps away from that, but clearly this is a very nice tailwind for that Asian story as well. We see a dedicated... kind of hyperscaler commitments to Singapore, Malaysia, Japan, other markets where we are working with our counterparts who will ultimately be supplying into that demand. So it is another component of the electrification and the reliability that the grids need that will be driven by this additional gas supply, and it is – It is a component in the global story. But again, we are not the load-serving entity, right? So we're a step or two removed from that.
spk14: Gotcha. That makes sense. And then maybe one on the U.S. kind of gas macro side. You mentioned that stage three will start taking feed gas the next few months. Can you give an idea of the volumes there? Is it a couple hundred MMCF a day or a little bit less than that as you start to commission that first train?
spk18: Yeah, Zach, the way that works is it'll be small first as we dry out the internal piping and the compression and we continue to test things and then it will grow, should grow significantly after that. And the pipeline that provides the gas from Aqua Dulce into stage three is already in operations.
spk02: Got it. That makes sense. Well, I appreciate the time, guys. Thanks.
spk10: And our next question comes from Michael Bloom with Wells Fargo. Please go ahead. Your line is open.
spk08: Thanks. Thanks for squeezing me in here. I just had one question left here. Just in terms of the operational enhancements you talked about, which led to your increased 24 guidance, I just wanted to confirm that these carry forward to future years, or is there anything kind of one time in nature to this second half boost in production? Thanks.
spk05: I would say no commitment yet for the future years. If we go back to the May call, we basically said that production was a little light compared to forecast because after the freeze, we had some feed gas quality issues at Corpus, but we more than made up with it. With the optimization, we were able to do upstream and downstream of the plant. We have more upstream and downstream optimization and subchartering added to the forecast this time around. But on top of that, we're catching back up to where we thought we would be and closer to target for the full year. So hard to say that this is going to be a benefit for the future, but maybe allow us to be more solid on the forecast going forward.
spk03: Thank you.
spk10: And we'll move to our next question from Manav Gupta with UBS. Please go ahead. Your line is open.
spk11: Thank you for squeezing me in. I have one quick question. CCL Stage 3 is about 62.4% complete. It was about, I think, 55.9% last quarter. Is that a good run rate? That's how we should think it comes online? Or it can get very lumpy because of the construction phase kicking in? Thank you.
spk18: Yeah, so there's really... That's an overall construction completion date or percentage. And what I like to look at is trains one and two and three. And those numbers are significantly different, as you can see from the photos that we've provided you. But there's really three things that I look at. One is supply chain. Do we have all the parts that we need, at least for the initial three to five trains? Yes, and so I'm not worried about supply chain messing me up. The next thing is we look at worker availability, and are we adding the workforce that we need with the right skills that we need to hit the critical path of the schedule, and we are. And then thirdly, I look at commissioning activities. Are we turning over systems from E&C construction to commissioning and getting those systems started up, and how many operations employees have been seconded to Bechtel. At this point, we have about 50 operators that are seconded that are doing commissioning activities. Those are all really positive signs to me that Stage 3 trains 1, 2, and 3 are really moving along very well.
spk11: Thank you so much.
spk10: And our last question comes from Alexander Bidwell from Weber Research. Please go ahead. Your line is open.
spk07: Good morning. This is Alex Bidwell on for Greg this quarter. Thanks for taking my question. Looking at CCL stage three, so first LNG on T1 is coming or is expected at the end of the year. Can you guys define first LNG? Are we talking a substantial volume or a small volume, say a few cubic meters?
spk18: We're not in it to play games. We're in it to run a real business. And when we tell you we've achieved first LNG, hopefully after a decade of doing this and 3,700 tankers under my belt, that you all believe us, that we're there making LNG. So I'm not going to try to define it. I hope that I've earned some credibility with all of you over at least my last eight years and Chenier's last 10.
spk03: All right. Thank you.
spk10: And ladies and gentlemen, this concludes our Q&A session on today's call. I will now turn the call back to the Chenier team.
spk03: Thank you all very much for your support and please be safe out there.
spk09: And this concludes today's call. Thank you for your participation. You may now disconnect and have a great day.
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