Cheniere Energy, Inc.

Good day and welcome to the Chenier Energy Incorporated 1Q 2020 earnings call and webcast. At this time, I would like to turn the conference over to Mr. Randy Batia, VP of Investor Relations. Please go ahead, sir.

Thank you, Operator. Good morning, everyone, and welcome to Chenier's first quarter 2020 earnings conference call. The slide presentation and access to the webcast for today's call are available at Chenier.com. Joining me today are Jack Fusco, Chenier's president and CEO, Anatole Fagan, executive vice president and chief commercial officer, and Michael Wortley, executive vice president and CFO. Before we begin, I would like to remind all listeners that our remarks, including answers to your questions, may contain forward-looking statements. and actual results could differ materially from what is described in these statements. Slide two of our presentation contains a discussion of those forward-looking statements and associated risks. In addition, we may include references to certain non-GAAP financial measures, such as consolidated adjusted EBITDA and distributable cash flow. A reconciliation of these measures to the most comparable GAAP financial 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 Michael will review our financial results and guidance. After prepared remarks, we will open the call for Q&A. I will now turn the call over to Jack Fusco, Schneer's President and CEO.

Thank you, Randy. Good morning, everyone. I'm pleased to be here today in downtown Houston to review our results from the first quarter of 2020. While we usually host these earnings calls with a room full of executives and an office building full of employees, today it's just the four of us in a large conference room as we are complying with the CDC recommended guidelines and our headquarter professionals, our telecommuting. The first quarter of 2020 was a historic period for us, and the global outbreak of COVID-19 has impacted our personal and professional lives in many ways. Our daily routines from commuting to work, educating our children, interfacing with colleagues, to visiting with friends and family, and everything in between has been upended. And we've all been forced to embrace a new reality. Watching this pandemic spread with lethal force across the globe has been an unbelievable experience. Likewise, the response to stop the spread and focus on ultimately finding a solution to eradicate this virus has been unprecedented. I want to personally thank all of the medical professionals who care for us and the first responders who test us, feed us, and provide for our safety for their tireless efforts. and we pray for their good health. Turn now to slide five. At Cheniere, we have built a strong, resilient, customer-focused business, which is capable of weathering volatility in both the energy and financial markets. While skeptics may question this at times, we find ourselves in this historic volatility and uncertainty in both of these markets, and the resilience of our business model is on full display. For the first quarter of 2020, we generated a record amount of consolidated adjusted EBITDA of $1.04 billion and distributable cash flow of approximately $250 million on revenues of $2.7 billion. And we generated net income attributable to common stockholders of $375 million. Despite both supply and demand driven near-term weakness in the LNG market, I am pleased today to reconfirm our 2020 full-year guidance ranges of $3.8 to $4.1 billion in consolidated adjusted EBITDA and $1.0 to $1.3 billion of distributable cash flow. The highly contracted nature of our business, the proactive risk management of our market exposure, and our maniacal focus on operational excellence are key enablers of these results in a weak market environment. Our first quarter financial results and the reconfirmation of our full year 2020 guidance are testaments to the resilience of our operational, contractual, and financial foundations. We repurchased $155 million of stock under a repurchase program during the quarter, And as we disclosed in our previous earnings call, we paid down $300 million of the CCH whole code convertible notes with cash. Michael will address our financial results and guidance in more detail in a few minutes. During the first quarter, we produced and exported 128 cargoes of LNG, including the 100th cargo from Corpus Christi and the 1,000th cumulative cargo. Since the startup of operations, We have produced and exported more than 75 million tons of LNG from our projects, which has reached 35 countries and regions worldwide. Looking ahead, the long-term SBAs tied to Train 2 at Corpus Christi are set to commence tomorrow. We have been in the process of onboarding those customers, and we welcome them to the Chenier Complex. Construction on Corpus Christi Train 3 and being passed Train 6 continues to progress on accelerated schedules. Corpus Christi train three is approximately 84% project completion, and Sabine Pass train six is around 54% project completion. And both trains are forecast to be significantly ahead of their guaranteed completion dates. Now turn to slide six, where I will spend a few moments describing Cheniere's response to COVID-19. as it has been significant. We recognize the risk of COVID-19 and began implementing response measures early prior to many government-imposed requirements. We have activated various emergency response teams, including an executive management team, a business support team, and a site management team, all of whom are focused on employee safety and welfare, business continuity, and maintaining operations at our liquefaction sites. These teams monitor status, develop and implement policies and protocols specific to each office location and site. In addition, they enforce protective measures, and most importantly, regularly communicate with all the relevant personnel. In early March, we began consulting with a medical advisor and implemented social distancing to revise shift schedules, isolating work groups, work from home policies, and restricted non-essential business travel, just to mention a few proactive items. In addition, we instituted minimum staffing levels at our sites, isolated our critical operating personnel, and began utilizing temporary onsite housing for our workforce at our sites. I'm extremely grateful and proud of our employees and their performance throughout this pandemic. On the engineering and construction side, we and our EPC partner, Bechtel, have implemented significant safety and emergency response protocols at both Sabine Pass and Corpus Christi to ensure workplace safety and business continuity. We've implemented many changes at the sites in pursuit of these priorities. That said, we do not currently expect these measures of COVID-19 to have a material impact on our project cost or schedule for either Corpus Christi Train 3 or Sabine Pass Train 6. I applaud our engineering and construction team and the Bechtel Group for their swift and effective implementation of these protocols to ensure a flawless execution. The impact of COVID-19 to our country, communities, and those countries of our foundation customers has been unprecedented. As a company, community involvement, and paying it forward is in our DNA. Today, Cheniere has pledged over a million dollars to global COVID-19 relief efforts. Our commitments and contributions are focused on the communities where we live and work. Texas, Louisiana, Oklahoma, Washington, D.C., London, Singapore, and China. We're proud to do our part during this global outbreak to help reduce food insecurity for those most in need and provide provisions and equipment for first responders and frontline healthcare workers. I'm extremely proud of our success of the personal protective equipment drive in partnership with Houston, the Astros Foundation, and Project CARE. Now turn to slide seven. Before I call over to Anna's call, I want to quickly discuss certain aspects of our long-term contracts. In the wake of the dislocations we've seen in both the financial and energy markets over these last few weeks, we've received countless investor inquiries regarding our long-term contracts. First, regarding our contract sanctity, I remind you that our long-term contracts do not include provisions for renegotiation. We intend to meet all of our contractual obligations. And in return, we expect our customers to do the same. Second, regarding cargo lifting elections, as I mentioned on our call in February, we won't make it a practice to describe the details of ordinary interactions with our customers for the market, including their decisions regarding lifting of cargoes. But as you all know, One of the primary flexibilities granted to our long-term customers within their contracts is their right to cancel or suspend cargoes with appropriate notice. In instances where that occurs, the fixed liquefaction fee is still paid to us, and our marketing affiliate has the option to market the volume into the global marketplace. As global markets remain weak, we have had customers elect to cancel some additional cargoes. We won't quantify the amount, but we reiterate that our customers value the flexibility inherent in the contract structure, and our visibility to achieving our financial guidance for the year is unchanged. Similarly, regarding speculation and confusion around force majeure or FM, which we addressed in our prior call as well, FM clauses in our FOB contracts specifically exclude such events as the unavailability of or any event affecting downstream LNG facilities, changes in the customer's market factors, or other commercial, financial, or economic conditions. As such, depressed gas prices globally or economic fallout or decreased gas demand from COVID-19 do not provide a valid legal basis on which a counterpart can claim FM. And now I'll turn the call over to Anatole, who will provide an update on the LNG market.

Thanks, Jack, and good morning, everyone. Please turn to slide nine. We'll start with an overview of the global LNG market during the first quarter, which was quite eventful before looking in more detail at ongoing trends in Europe and Asia. The LNG market continues to grow during the first quarter, with output at a record level of almost 100 million tons. About 10 million tons of new LNG supply were added in Q1, with about 70% coming from the U.S. This came on the heels of the approximately 40 million tons of new LNG supply in 2019. While some new trains started up in the first quarter, Cameron Train 2 and 2 units at Elba, much of the capacity added last year is also now fully ramped up and contributing to higher supply. The continued supply surge entered an already amply supplied global market, which is now also trying to cope with the pandemic. The coronavirus affected several LNG importing countries sequentially during the first quarter. It temporarily reduced demand for LNG in China and will ultimately impact demand in other countries in similar ways. Amid reports of lockdowns and delays in cargo deliveries in China, the year-on-year reduction in imports was relatively benign at less than 1 million tons in Q1. However, the total impact on demand in Europe and South Asian countries is still uncertain. We observed a quick recovery in China in March and a return to demand growth in the JKT area during the quarter led by South Korea and Taiwan. We also observed a marked increase in demand in South Asian markets as a result of attractive price levels with India leading the charge during the quarter. In total, Asia's LNG imports increased 7% or over 4 million tons year on year. Meanwhile, Europe continued to import record quantities of LNG 25% higher year-on-year as supply growth provided ample residual LNG to flow to Europe. Europe absorbed most of the quarterly incremental LNG deliveries from the U.S., while flows to Asia remained flat quarter-on-quarter. U.S. deliveries to Europe increased more than 40% quarter-on-quarter to over 8 million tons during Q1. These LNG supply and demand dynamics, the coronavirus, and the precipitous drop in oil prices since early March have continued to exert pressure on global gas prices. TTF averaged $3.35 during the first quarter, over 50% lower year-on-year. Similarly, JCAM averaged $4.82 in Q1, more than 40% lower than the first quarter of 2019. After a $58 a barrel settlement in March, Brent futures tumbled to below $25 in the days following a lack of agreement by OPEC Plus on March 6th. Henry Hub's March contract settled at $1.82, significantly lower than the $2.86 March 2019 settlement. This confluence of bearish factors and uncertainty about economic growth has led many companies to rationalize capital spend and force several developers to reconsider the viability of their planned LNG projects. both domestically and abroad. We have already seen announcements of FID delays and cancellations from projects totaling over 100 million tons per annum of capacity. The chart on the far right of this slide shows our perspective on projects thought to be most likely to reach FID in 2020 and 21. In early 2019, we expected projects totaling approximately 100 million tons per annum of capacity to have a reasonable chance of FID in 2020 and another 30 million tons of capacity in 2021. After the demand and supply shocks, which began during the first quarter, we anticipate that FIDs in 2020 will be much lower, totaling under 15 million tons per annum of capacity, with some projects shifting to a 2021 FID and others delayed even further. We now expect FIDs for the two-year period to total approximately 65 million tons, or about half of our previous forecast. Supply and demand dynamics are tightening the competitive landscape, driving some LNG projects with higher break-even thresholds out of the probable FID stack. We do include our Corpus Christi Stage 3 expansion in these expected FIDs, which will be dependent upon, among other things, obtaining sufficient commercial agreements to support the project. We remain confident in our competitive position and ability to leverage existing infrastructure and other competitive advantages, to provide cost-effective supplies to the market to satisfy growing long-term LNG demand. Please turn to slide 10 to review the European market in more detail. I mentioned earlier that soft market conditions through the first quarter led to record levels of US LNG flowing into Europe. Over 55% of US LNG deliveries in the first quarter, or over 8 million tons, flow to Europe. In total, over 27 million tons of LNG landed in Europe during the quarter, an increase of approximately 25% year-on-year. The growth in LNG imports was partially accommodated by year-on-year declines in indigenous gas production and lower imports from pipeline gas. Pipeline gas flows declined by about 6 BCF a day during the quarter, equivalent to approximately 165 LNG cargos. However, power generation from wind, solar, and other renewables was up approximately 20% year-on-year in Q1, keeping some pressure on European storage inventories, which in the absence of a cold winter retained their surplus, ending March over half a trillion cubic feet higher than the prior year. While it remains too early to gauge and isolate the impact of the coronavirus on European balances, we're seeing its impact on overall gas demand in some of the continent's major gas markets. as gas demand in Europe's six main gas markets declined year-on-year in Q1. However, longer term, we continue to be constructive on gas demand in Europe as the energy landscape changes due to the region's decarbonization goals. Countries in Europe plan to either retire, decommission, and or cut approximately 100 gigawatts of coal and nuclear capacity in aggregate by 2030. We believe that gas will be an important part of the transition away from solid fuels and will continue to play a role in ensuring Europe is in a good position to manage grid reliability needs. Please turn to slide 11 to look at LNG market dynamics in Asia. Despite the coronavirus pandemic, LNG imports in Asia increased by about 7% year-on-year to 68 million tons in the first quarter. While this growth is not insignificant, the demand response to lower LNG prices would have likely been more pronounced if not for the impact of the virus. Soft prices along domestic infrastructure de-bottlenecking allowed price sensitive buyers in South and Southeast Asia to offer support to the market when Chinese demand was soft. However, as we've seen in China, lockdowns and the resulting decline in economic activity could place a limit on demand growth in the coming months. Strict virus containment measures resulted in a steep economic contraction in China in February. This resulted in reduced imports of LNG, and Central Asian gas by 0.9 million tons and half a BTF a day, respectively, year on year. However, as most large industrial enterprises resumed work across the nation, Chinese LNG imports started recovering in March. In the JKT region, a year-long decline in imports was reversed as both South Korea and Taiwan continued to take a tough stance on coal burn, offering support to gas-fired power generation demands. South Korea's mandated maintenance at coal plants decreased coal-fired power generation in January and February by 15% versus last year, and Taiwan's coal-fired power generation dropped 4.5% year-on-year. In Japan, weak power demand and mild temperatures reduced the need for LNG imports despite lower nuclear availability compared to last year. In the coming few months, we do expect three nuclear reactors to go offline as a result of not meeting anti-terrorism requirements, in addition to the Sendai No. 1 nuclear reactor that was taken offline recently. These outages are expected to offer some upside for LNG demand in the coming weeks and months. Fundamentally, we could also see upside to LNG demand as a result of various stimulus packages that are being rolled out. In China, for example, several provinces announced 2020 infrastructure expansion plans as the nation reopens the economy. Some of these plans include LNG regasification projects and gas-fired power generation projects. which would contribute more firmly to expectations that China could double its current gas fired power generation fleet by 2030. China's gas fired power capacity is expected to reach 200 gigawatts in the coming decade, more than doubling from about 90 gigawatts currently, as the country seeks to reach peak CO2 emissions by 2030. To conclude, the market is currently experiencing extremely unusual conditions that are exerting bearish pressures across the entire commodity complex. Gas storage levels in Europe are high, Spot prices there are likely to remain weak until storage levels normalize. While the demand impact of the coronavirus remains uncertain in the near term, we expect that many concerns will be alleviated in the coming months as the world recovers from the pandemic, lockdowns are lifted, and economic activity resumes. Looking beyond the current market events, we believe that long-term fundamentals have not changed and that LNG remains a reliable, competitive, and flexible solution for the energy needs of both Asia and Europe. And finally, we believe that the current market and economic conditions, although challenging, are improving our competitive position over the medium to longer term. Thank you for your time and attention. I'll now turn the call over to Michael.

Thanks, Anatole, and good morning, everyone. Turning to slide 13, for the first quarter, we generated net income of $375 million, consolidated adjusted EBITDA of $1.04 billion, and distributable cash flow of approximately $250 million. We exported 453 TBTU of LNG or 128 cargoes from our liquefaction projects during the first quarter. LNG production levels were relatively flat as compared to fourth quarter 2019. For the first quarter, we recognized an income 459 TBTU of LNG produced at our liquefaction projects and 14 TBTU of LNG sourced from third parties. Approximately 79% of the 473 TBTU of LNG recognized an income during the first quarter was sold under either long-term SBAs or IPM agreements, and the remaining 21% was sold by our marketing affiliate, either into the spot market or under short and medium-term contracts. Volume sold under SBA or IPM agreements increased by approximately 20 TPTU compared to the fourth quarter of 2019, driven primarily by seasonality of volumes under certain SBAs and by the commencement of our IPM arrangements with EOG, which occurred in January. Income from operations for the first quarter was approximately 1.3 billion, an increase of over 300 million compared to the fourth quarter. This increase was primarily due to increased net mark-to-market gains from changes in fair value of commodity derivatives. Income from operations for the first quarter also includes revenues of approximately 50 million associated with canceled LNG cargoes, which are recognized upon notice of cancellation. Volumes of LNG recognized in income were materially consistent for the first quarter, as compared to fourth quarter 2019, and realized margins for MMBTU of LNG decreased only slightly, approximately 2%, quarter over quarter. Net income attributable to common stockholders for the first quarter was $375 million, or $1.48 per share, basic, and $1.43 per share, diluted, a decrease of over $500 million from fourth quarter 2019. Net income in the fourth quarter of 2019 was was positively impacted by a tax valuation allowance release of over 500 million, which did not occur in the first quarter. Net income for the first quarter also decreased as compared to the fourth quarter of 2019 due to losses on derivatives related to our interest rate swaps partially offset by increased operating income. During the first quarter, we repurchased an aggregate of 2.9 million shares of our common stock for a total of 155 million. under our share repurchase program. As of the end of the first quarter, we had approximately 600 million of remaining capacity under the share repurchase program. Additionally, as we disclosed on a previous earnings call in March, we amended the note purchase agreement for the Corpus Christi Holdco convertible notes, enabling us to pay down 300 million of the outstanding balance with cash and allowing us the option to pay down the remaining outstanding balance in cash until September. This transaction reduced our total notional debt and prevented equity dilution of over 6 million shares. Turn now to slide 14. Liquidity and financing-related questions have been central topics among our investor base recently, and understandably so given recent disruptions in the global financial and energy markets. Chenier is in a strong financial position. With more than adequate liquidity, strong cash flow generation capability through the remainder of this year and into future years, and multiple options to address our upcoming debt maturities, the earliest of which doesn't occur until next year. We had approximately $4 billion of liquidity available for general corporate purposes as of the end of the first quarter, including cash on hand and undrawn balances under the working capital facilities and revolvers across our structure. In March, SPL entered into a new $1.2 billion working capital facility, which effectively refinanced the prior working capital facility, lowered the interest rate, improved flexibility under certain covenants, and pushed out the maturity date from 2020 to 2025. The undrawn capacity under this facility, as well as under the CQB revolver, corpus working capital facility, and parent level revolver provides a liquidity backstop should one become necessary. That said, we do not anticipate the need to draw on our facilities as a result of recent market conditions. Additionally, we do not currently have any concerns regarding our ability to comply with our debt covenant. We do not have any external financing needs for the completion of construction of Corpus Train 3 or Sabine Pass Train 6. Those trains were financed approximately 50-50 debt equity, and the debt financing of both trains has been completed. Remaining equity commitments are expected to be funded using cash on hand and cash flow generated through the completion of construction. The nearest term debt maturity across our corporate structure is the $2 billion outstanding SBL 2021 notes, which mature in February of next year. Our team has been working on addressing that maturity since before recent market disruptions, and as we have said previously, we expect to use some combination of both SBL, the investment-grade market, and CQP in the high-yield market to refinance these notes. Sizing and timing, of course, will be dependent upon bond market conditions, which dislocated in March but have since stabilized considerably. Also in 2021, at the LNG level, we have approximately $1.4 billion of outstanding convertible notes, which mature in May and have a conversion share price of approximately $94. As with the SBL bonds, we began strategizing on addressing these converts earlier this year and are evaluating options to redeem those notes, including refinancing options. It's too early in the process to discuss specifics, but we expect to have multiple options to redeem or refinance these convertible notes. We're also considering financing options to redeem the remaining outstanding balance of the Corpus Christi Holdco convertible notes due 2025 I mentioned a moment ago, depending on market conditions. As Jack mentioned, despite headwinds and weakness in the global LNG market, we remain confident in our ability to generate financial results within our guidance ranges this year and today, We are reconfirming our 2024 year guidance of consolidated adjusted EBITDA of 3.8 to 4.1 billion and distributable cash flow of 1 to 1.3 billion. So, we continue to track to the lower end of the EBITDA guidance range. Adjusted EBITDA and DCF guidance exclude the impact of one-time costs associated with our COVID-19 response efforts that Jack summarized. As we mentioned on the last call, we have pre-sold the large majority, over 95% of our LNG production for 2020, leaving our financial results less exposed to fluctuations in market pricing this year. Since the last call, we've continued to put away unsold volumes for the remainder of 2020. And today, a $1 move in market margin would result in approximately $60 million change in consolidated adjusted EBITDA, with that sensitivity weighted to the upside given today's market margins. With regard to capital allocation for the balance of the year, we designed our capital allocation framework to provide us with flexibility. With both energy markets and financial markets recently dislocating, and considering the debt and convert maturities next year I just discussed, we'll likely take advantage of that flexibility and take a more conservative approach with respect to our capital allocation decisions, at least until those markets stabilize and visibility improves. That concludes our prepared remarks. Thank you for your time and your interest, engineer. Operator, we are ready to open the line for questions.

Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. And if you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Please limit yourself to one question and one follow-up. And then if you have additional questions, we ask that you get back in the queue. Again, press star 1 to ask a question. And we'll go to our first question from of UBS.

Hi. Good morning, everyone. Thank you for today's update.

Maybe just a couple of quick questions here. First off, you know, we're kind of seeing clearly an atypical pricing environment right now when thinking about international spreads with respect to U.S., Asia, and Europe and so forth. Obviously, it's a function of inventory imbalances and so forth. But, you know, the one big change that has occurred is the associated gas issue in the United States. Henry Hutt is now higher. What does your analysis tell you about whether there'll be a long-term market structure change due to the higher U.S. pricing? Or at the end of the day, will there always be a call for U.S. LNG? And as the market will just reprice accordingly, and the spreads will go back to normal once, you know, COVID and inventory balances clear out. Well, thank you. Thanks for the question. I think we'll have Anatole address the long-term, his view of the long-term draft market.

Good morning, Sharon. Thanks for the question. Yeah, we obviously, we've had a large decline, and we think we'll continue to see a decline in oil-directed drilling activity. that will have an effect on associated gas production. We think that over the medium term, that will be modest. And as prices normalize in North America, you've already seen the big response in Cal 21 trading over $2.70 will be very attractive for gas directed drilling and the production that will come from that. We obviously are at the very tail end in terms of the infrastructure build-out for phase one of LNG facilities, so that large demand driver will ebb, and we fully expect to see a relatively stable NYMEX going forward between $2.50 and $3 is where the curves are today. Even in these unprecedented times, I'll just point out that the volatility, realized volatility on NYMEX has been substantially lower than on crude or even JKM. we do expect that North American gas production and pricing will be attractive relative to global levels and the opportunity over the medium to longer term to safely, reliably, and economically supply our customers will be very attractive.

Yeah, I appreciate the color. Thank you for that.

And maybe it's just some quick follow-ups here. Is there any opportunities, just given the structure in the market right now for CMI or Shager to actually And I know that in terms of financing, you can't make too many comments, but could you comment on whether you think the market is open or not for the convertible notes? Yeah. Hey, it's Michael. I'll take the second question and then the first one. But, you know, as we said, we have two maturities, the SBL maturity, and we have no maturities this year, but the first one is in February of next year. You know, if you look at the SPL complex, you know, that entire mark, that entire complex is above par and trading well below 5%. So, that market is, we think, certainly open to us, and we'll deal with that, you know, sometime over the balance of the year. In terms of CEI, you know, we're working on several options to deal with that convert, which, again, is not until the summer of next year, but as I said in the prepared remarks, we've been thinking about that already. And I think some combination of the bank market, the bond market, current liquidity, and prospective cash flow or some combination of thereof will allow us to deal with those converts. So I wouldn't speak specifically to is the convert market open to us. I mean, we're looking at a lot of options. I'm fairly certain the bank market is open to us. It's just a question of quantum. And so we're working through that right now to deal with that convert in the summer of next year. you know, if we can get the right quantum, go ahead and deal with the EIG. Note that Corpus Christi hold code two, which aren't pending maturity, but is, you know, highest cost paper in the complex. So, we'll see how that plays out here over the coming months and, you know, be pretty proactive in picking some combination of those alternatives to sort that out.

Yeah, sure. To the first part of your question, NYMEX has been less volatile, but all sides, as you know, have been quite volatile. I just want to thank the teams that we haven't seen in a couple months, but talked to on a regular basis for their tireless efforts in taking advantage of some of those opportunities. So no one is sitting on their hands, and as market opportunities present themselves, as you would expect, Chenier Marketing is taking advantage of those. But clearly we won't give you any specific details around that.

I appreciate that, guys. Thank you very much, and stay safe. Thank you.

We'll go to our next question from Jeremy tonight of JP Morgan.

Hi, good morning.

Just wanted to touch base with regards to how everything's working out. I guess this is the first time the business model has seen a number of cancellations and non-rifts and just want to see if everything is kind of functioning the way that you guys expected? Is there any kind of unexpected surprises there? If there's a large quantum, would that stress anything in your network as far as, you know, putting the gas back into the market or any thoughts that you can share on that process? Hey, Jeremy, this is Jack. And thanks for the question. And thanks for your support and involvement here at Cheniere. I just have to say, I'm extremely proud of the organization. Our ability, even when we're separated, to communicate and coordinate has been fantastic. Their ability to actually assemble prior to the pandemic and put policies and procedures in place to ensure that our employees were safe and that our business continuity continued has been incredible. Randy gave you some nice pictures in the slides of the camps. I'm so grateful for the employees that were willing to, you know, sacrifice being with their families to live in those camps and ensure that our operations were stable. So I would say that, you know, it's an unprecedented time. As Anatole said, it's extremely volatile out there. Our customers still need gas. We're hopeful for the day when industrial and commercial demand can can come back into the worldwide market. And, and, you know, hopefully, we're seeing some signs of green shoots there. But no, there's been no, no surprises.

Thanks, Jack. And just Jeremy, to add on top of that, as you know, we have obviously very good relationships with our now 20 ish or so counterparties, they value the flexibility in these, in these contracts to To cancel, they give us substantial notice, and, you know, as Jack said, the coordination between all of the functions, including our gas procurement team and that notice has been exceptional, and the teams haven't missed a beat, and our customers are appreciative and obviously respectful of those notices. So far, so good. Thank you.

Great.

Thanks for that. And then maybe just if I could on kind of longer-term strategy, if any thoughts you could share with regards to how far out you're able to hedge, looking to hedge at this point to de-risk cash flows. And I think Michael was talking about capital allocation philosophy a bit there. It seems like the market has maybe a bit more emphasis on free cash flow as opposed to growth. So I don't know if there's kind of been any shift in your overall strategy given kind of the broader changes we've seen in the market and the macro background. No, I think we like our position. Last November when we gave you all guidance, I told you we were materially hedged for the year prior. You should expect us to manage the business conservatively and to not want to take a lot of market risk and have a complete confidence when we convert that market risk to operating risk that my operating staff will be ready, willing, and able to provide. But I don't want to get into our book or or the market, liquidity in this market has been a little bit rough these days, as you can imagine.

And we'll move to our next question from Michael Weber of Weber Research.

Hey, good morning, guys. How are you? Good, Michael. How are you? Good.

First one, Jack, is for you, and maybe Antal as well. But, Jack, you mentioned and you kind of addressed kind of some of the FM buzz that kind of comes up any time there's a market disruption. And the notion of canceling a cargo versus, you know, interrupting a 20-year contract are very different things. And the market's already litigated this to some degree for Chenier. But I'm curious if we kind of look, if we just assume that Chenier is going to get insulated and we kind of

look at the broader market. Do you think you've got other counterparties or peers?

If you think about contracts that might not be papered up to the same degree that the yours are, do you think this is something where we could see some FM claims on long-term contracts elsewhere kind of bubble to the surface? I know BP preemptively declared FM on a project in Mauritania on the back of 2022 market conditions. Obviously, it's a very, very different scenario than Sabine or Corpus, but I'm just curious to You know, obviously you guys don't like dealing with those questions because the answer has been the same for as long as I've covered the company, but I'm just curious whether, you know, if you look at this across the entire industry, do you think this is something that could kind of percolate elsewhere? So, Michael, as you know, I'm relatively young in this industry, so I'll take the first part of it and I'll hand it over to Anatole to help with the more longer term on some of the other SPAs that you've highlighted. We feel very comfortable with our customer base and with our SBAs that our customers have been given the flexibility to cancel the cargoes with, as Annalise said, long-term notice. And it lets us plan around what we need to do. It gives them a good option. They value that option. And, you know, we're seeing them utilize it the way they would utilize it. we don't see that risk of FM in the portfolio for Chenier. As far as other entities, other projects, I'll let Anna to address that part.

Thanks, Michael. Obviously, we can't comment on others and what's embedded in the SBAs, but clearly there has to be some ability to manage some kind of a relief valve. In our case, it is it is those cancellations. In other cases where there are fixed volumes to fixed estimations, other tools apply. And it's not surprising that FM is a path to manage that exposure. Can't obviously comment on anyone in particular, but clearly the FOB SPA is a very different animal than than something you would traditionally see that has a lot less flexibility embedded.

Okay. I appreciate you swinging at that. That's helpful. Jeff, another one that I think I and other people kind of asked before, but the market conditions are obviously different now. You guys have been hyper-focused on building out your existing footprint the past several years. You're obviously still in kind of an extended commercialization process for for Corpus Phase 3. But if I kind of look around at some of the, you know, some of the greenfields around you are starting to flounder. You're seeing people pull back from the market.

And all things considered, you guys are in a pretty advantageous and strong position. I'm just curious, what would you need to see for you to take a serious look at adding some particularly cheap optionality by kind of stepping into kind of a

you know, the green fields, you know, shelving it for a couple years and saying, look, it's there if we want to expand at some point, maybe adding some geographical diversity or some other component that's on your portfolio now.

How close are you to just seriously looking at something like that?

Yeah, well, Michael, we have enough organic growth to satisfy our needs for many, many years to come, both at Corpus Christi and at Sabine Pass. And we have the existing infrastructure there. And as you mentioned, you know, we already have permitted expansions at Corpus that we're ready, willing, and able to do. I think, you know, the first thing I would need to see is the airlines open back up. and that's to be able to travel. These are associations for long-term energy contracts that require face-to-face combat, for lack of a better word. I mean, you have to get close to the customer and look each other in the eye. And, you know, for the foreseeable future now, at least initially, that looks like it's a little ways away for us. But I don't know, Michael, do you have anything to add? I mean, it's not for lack of effort. I mean, we have a team that kind of spends a lot of time looking at what's going on around us and around the world, and we've looked at a lot of things. But as Jack said, you know, I mean, we've got to come back and compete with our own organic projects, you know, not only economically, but from an execution standpoint and certainty of execution. I've not really found anything that was any better than what we have. So now I would just echo Jack's sentiments in that regard.

All right. That's helpful. All right. I'll turn it over. Thanks for the time, guys.

And moving on, we'll go to a question from Christine Tell of Barclays.

Good morning. So maybe just operationally, when we think about the full year, how would you characterize the SKA listings over the four quarters when all the trains are up and running? Meaning, you know, how are the listings in 1Q and 4Q relative to 2Q and 3Q under a normal scenario?

Hey, Christine, it's Anatole. So in terms of operations... If I could first.

Yeah. Christine, you're not asking me to give you quarterly guidance, are you, on this call?

No, no, no. I'm just trying to think, like, maybe, like, percentages, because, I mean, I've noticed that the SPA listings seem to be higher in 1Q and 4Q, and I'm just trying to get a sense of, like, you know, how we should be thinking about that on like, you know, under normal scenario, like, you know, long term.

Yes. So, as you know, the plants, Sabine especially, has a little bit of seasonality from the standpoint of production. In terms of the SPAs, they are fundamentally ratable, but we do have some additional volumes that are in accordance with the SPAs that are winter loaded. So you do have, in terms of the SPAs, you have a little bit more contractual, you know, third-party sales in the winter. And in terms of plant production, you have a little bit more, but it's not very meaningful across the year. The big step function change, of course, as you know, is the May 1st DSCDs of Corpus Train 2. So in terms of SPA'd if you will, as of May 1, there's another step function change to get our full seven train platform contracted.

Right. But I was just talking, you know, under a scenario where all of the trains are operating, I'm not necessarily looking for, like, this year. But, I mean, it does seem like the SPA customers do have flexibility to skew more pickups in 1Q and 4Q, even though you said it's minimal. Okay, just a little bit. Okay. Okay. And then a clarification question, Michael, I think in your commentary. Did you say that you book revenue tied to a cancellation cargo when you receive the cancellation notice?

That's right. So the accounting rules say that when our obligations are satisfied under the contract, we recognize the revenue. The payment terms are still the same. We don't get paid until we book the revenue because we have no other obligations under that contract once we get the cancellation notice. So that's right.

And isn't the cancellation – doesn't the cancellation notice have to be given, like, you know, two months in advance? So does that mean there's, like, some accelerated revenue recognition, you know, that we could probably see in 2Q if the level of cancellation sticks up?

Yeah, you got it. I mean, to the extent it flops over into the next quarter, we're recognizing it in the current quarter. Okay.

Yeah. And then for one cue, you said it was $50 million.

That's right.

Okay, perfect. Thank you.

We'll go to our next question from Craig Shearer of Toy Brothers.

Good morning. I've got three quick ones here. So just if you could comment about or something about a temporary NGPL force majeure. Is that a non-event as far as your inventories and keeping a business running at SPL? Outstanding CapEx that you envision through completion at this point for corpus train 3 and SPL T6? The comment, Michael, you said about the asymmetric upside on the spot market price changes, I presume that's because there's a portion of equity cargoes that you assume won't ship this year. And does that effectively mean that there's no practical scenario where you're going to fall below the low end of guidance?

Let's start with the first one first. The NGPL force majeure from the lightning storm that blew through two nights ago.

Non-issue has already been lifted, and I callously did say in a couple of responses that pipelines use FM like popping Tic Tacs. So it's a blunt instrument that they have, which has not been, and we don't expect to be an issue for us.

Okay, great.

And then Michael.

Outstanding our topics on the trains? Yeah, yeah. Q2 forward for train three is about $600 million, largely spent this year. That's before contingency. So maybe a little bit more, depending on how that plays out. And FDL is about $1.4 billion. FDL train six, $1.4, you know, really $3.20, $3.30 at this point. Again, excluding contingency.

And then your last one was Rob. Go ahead.

Well, I mean, we just effectively – margins are low, right? So at some point we have a stop loss and we don't lift. So that's why I face the metric. And it's $30 million to the downside and $60 million to the upside. So, yeah, I mean, we won't miss our guidance range because of marketing. I think that's a fair statement. Great. Thank you very much. Thanks, Greg.

We'll move toward our next question from Spiro Adonis of Credit Suisse.

Hey, morning, everyone.

I just wanted to follow up on one of Shania's questions around potential benefits for CMI. Maybe focus in on June, just given where that's where a lot of these sort of widely reported cancellations have come, not just from you guys, but just generally in the industry. It seems like it has a lot of potential to back up gas into the system here in the U.S. and potentially pinch Henry Hub. So a two-part question there. To the extent that does happen and the ARB does open up, I guess how nimble can CMI be to lift the cargo, you know, effectively immediately or capture that spot price?

if it opens up, and then second, do you even agree with the premise that HUB could actually get a lot of pressure in June because of the reported cancellations?

I got to slow you down just a second, Sparrow. So, Anaconda, did you pick that up?

I think I got a chunk of it. So, as Michael said, we get cancellation notice, our obligation to deliver that cargo to the foundation customer is alleviated. If part of your question is does CMI have the option to lift that cargo, the answer is yes. That is not something that is very easy to do. We, as you know, control a fairly sizable shipping portfolio, but that steps down dramatically as of tomorrow once we hand over train two to those foundation customers. So, it's possible given the volatility that we discussed with Schneer that some bites of that apple emerge as market volatility plays out on both legs of that. But that's not going to be a huge number for us over the balance of the year.

Okay. Sorry. Yeah, no, it answered most of it. And I apologize if I was breaking up. The other part of that question was, do you agree with the premise that Henry Up could actually be under a lot of pressure in June, just given the fact that there's over-reported 20 cancellations out there? which seems like a fairly large number on a daily basis. Just curious, you know, the future is not reflecting that yet, but is that something that you see actually happening?

Yeah, if I knew the answer to that and what's priced in and what's anticipated, I'd be John Arnold and not Anatole Fagin. So it's, you know, the market, you said, has a fair amount of guesstimates and information. So, you know, anybody's guess between the Declines of associated gas production, how industrials come back, you know, that balancing act is clearly what the market is trying to figure out. But if I was a gambling man, I'd say that at least some expectation of reduced flows to LNG facilities is in the market already.

Yeah, okay, that's fair. And then just second question, just around some of the economics of idling some of these trains and maybe running less trains at a higher utilization rate. I'm not saying we're there yet, but just asking in the context of these cancellations, just curious if that would make sense, what environment it would take to get there, and does it carry a high cost to sort of shut down and start back up? Hey, it's Michael. No, you know, we can run our trains at half rates at the same efficiency as full rates, basically. So that doesn't really affect us. You know, as we looked at no lifting economics, we make some money on lifting and lifting margin. But that loss of that revenue is largely offset by, you know, lower variable costs at the plant. So, you know, we have fired hour costs. We pay the GE under the CSA, which we don't have to pay when half the train's not running. and just other consumables, chemicals, refrigerants, all of that. So, it largely offsets, and so we're kind of, it's a small headwind, but I don't think you'll notice it for us.

And we'll go next to Julian Dunlop Smith of Bank of America.

Hey, good morning, team. In fact, let me just pick it up where Cyr left it off. I've got a high-level first question here. Just how do you think about the ability to scale down HOPX and SG&A? And I'm thinking about that, A, in the context of press optimizing the assets themselves in light of market conditions.

And I understand that CMI, obviously, is a flexible piece within how you would think about optimizing your assets.

And then related to that, SG&A, and as time goes on, given the markets,

conditions as they stand, presumably there should be some latitude to ease up on margin potentially on some of the development dollars as well when we think about the cost side of the ledger.

I think I caught that. You know, we're looking at everything, I would say, you know, on the development side and some of the discretionary spending at the plant that's not part of Train 6 or Train 3. You know, we've reworked those budgets and pushed out, you know, a couple hundred, if not several hundred million dollars into next year, just deferrals. I just talked about O&M. It's fairly inflexible. You know, we got to keep our people in the plants ready to operate, even in an lifting scenario. And as I said, our savings on variable cost offset, you know, the lifting margin that we forego when customers don't lift. So that's kind of a push. And then SG&A, the pretty small part of our overall cost structure. And, you know, I was going to say that also. I mean, there's only 1,600 total employees in the whole Chenier worldwide complex. So it's significantly different than I think the way other energy companies may have been talking about it before. Our SGA numbers are small. They're a small expense overall, and they're going to continue to be smaller because a lot of our expenses from traveling around the world to negotiate contracts and visit our customers. And as we talked about earlier, none of that is going on, and everything's been virtual and telecommuted. But as Michael mentioned, you know, we are – making sure we're running the business as effectively and efficiently as we possibly can.

Okay. And to that point, and past this, listening to the scale of LNG you intend to deploy, you know, thinking about optimizing use down the specific trains, given the conditions as we stand, i.e., could you reroute all of your operations to certain trains, not operate others, sort of to bring down all that, but again, I imagine we're not quite there yet. if you will, in terms of market conditions?

No, we're not there yet in the terms of market conditions, but you should rest assured that we are doing scenario planning with operations on every different configuration that you can imagine. And, you know, I, for one, like to keep the optionality available for CMI to make sure that we can respond quickly when or if this market turns around. But, yeah, you should assume that we're doing all sorts of scenario planning.

Thank you all.

And we'll go to our next question from Alonso Garcia of Scotiabank.

Hey, good morning, guys. I guess starting off, obviously, globally, we're seeing countrywide shutdowns. But with China's reemergence and the recent purchase of US LNG cargoes for the first time in a year, Are you seeing more interest for U.S. LNG to China, I guess, as far as them taking more cargoes this year or even potentially entering into new long-term agreements with Chenier?

Hi. Well, it's Anatole. Thanks for the question. As you said, it's been 13 months, technically, since China received a U.S. LNG cargo. So, by definition, yes, there's more interest. And April numbers preliminary are that China is up about 25% to 30% in terms of LNG imports. So we fully expect to have more opportunities to transact and support our friends in China and continue to build our relationships there. You know, as Jack said, in terms of long-term agreements and transactions, it's something that is not – not going to be done over the phone, especially with with counterparties like that. So we would need to have the opportunity to get back in front of people. And we fully expect to have a very attractive medium to long term operating. And as our competitive position continues to improve, we fully expect that to be a market that bears fruit for us in the not too distant future.

Great.

Thanks, Angela. And this follows probably for you too. I think this is the first time I believe that you have put out your expectations for FIDs as shown on slide nine. I wonder if you could share your assumptions or the criteria you use behind the project you still have moving forward and also where you have stage three sitting in there.

Yes. So, we have a team, a cross-functional team that evaluates these projects, as Michael mentioned, in looking across the world at what else might be attractive that those kind of economics and assessments are factored into that analysis. And we take all of the inputs that we have ourselves as well as our friends at Woodmack, Fulton, and others and incorporate them into what we think may make sense and what the dispatch curve of LNG looks like, right? That's how we make our informed decisions. We thought it's important to share that with you guys. You can see very similar numbers out of Woodmax and others. We have some nuanced differences of opinion here and there, but they're not heretical by any means. And as I mentioned, over 100 million tons have been deferred. That's not the delta you see in this 2021 number because A lot of that 100 million tons, neither we nor others included in that dispatch to begin with. So, in terms of where Corpus Christi Stage 3 sits in there, I'll just say that we continue to find a very attractive project. As Jack mentioned, we have this organic growth opportunity that leverages a lot of our footprint and skill sets, and it is a project that we believe will be dispatched in that timeframe.

Thanks a lot, guys.

And our last question comes from Alex Tanya of Wolf Research.

Hi. Good afternoon or morning. I guess a question on marketing. You know, looking at kind of global netbacks, is there an ability or a willingness to do a lot of sort of third-party deals and maybe capture more local spot opportunities, you know, kind of how big of that would you think about that playing into the portfolio? And the second question is, again, just with respect to more uncertainty on the other U.S.-based LNG projects, I mean, is there an ability ultimately to maybe try to find a way to maybe capture that potential demand to the extent that some of those contracts or projects are partially contracted, you know, is there maybe potentially demand that could shift to some of your own projects? Want to go with the first one?

Sure. I think this will be responsive to your question, but if not, please follow up. You know, again, we have a great team that is working remotely but tirelessly, and there's volatility in shipping, there's volatility in local indices, and, you know, and all of the teams in the LNG market globally remain very well engaged. And in the, you know, in the prompt market, there's fairly good liquidity and lots of opportunities to everybody, for everybody to enter into optimizations, and we're taking advantage of those as the teams capture that. So, you know, there's never a dull moment these days, and some of that presents opportunities for us, if that's what you were asking.

And then on the last part of that, Alec, I would say, yeah, I mean, look, we offer a premium product to our customers. We think we're going to come out of this pandemic stronger, and we're going to try to capitalize on that.

Great. Thanks very much.

Thank you. And I want to thank all the participants. It was a record-breaking number for us. It was over 945 participants this morning. We really appreciate the support and the interest of Cheniere. Thank you all.

And so that does conclude the call. We would like to thank everyone for your participation. You may now disconnect.