Cheniere Energy Partners LP (CQP) 2023 Q1 法說會逐字稿

Good day, and welcome to the Cheniere Energy first-quarter 2023 earnings call and webcast. (Operator Instructions) At this time, I'd like to turn the conference over to Randy Bhatia, please go ahead.

Thanks, operator. Good morning, everyone, and welcome to Cheniere's first-quarter 2023 earnings conference call. The slide presentation and access to the webcast for today's call are available at cheniere.com.

Joining me this morning are Jack Fusco, Cheniere's President, and CEO, Anatol Feygin, Executive Vice President, and Chief Commercial Officer, Zach Davis, Executive Vice President and CFO, and other members of Cheniere's 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 of these measures to the most comparable GAAP measure can be found in the appendix to the slide presentation.

As part of our discussion of Cheniere results. Today's call may also include selected financial information and results for Cheniere Energy Partners L.P., or CQP. We do not intend to cover CQP results separately from those of Cheniere Energy, Inc. The call agenda is shown on slide 3.

Jack, will begin with operating and financial highlights. Anatol, will then provide an update on the LNG market, and Zach, will review our financial results and 2023 guidance. After prepared remarks, we will open the call for Q&A. I will now turn the call over to Jack Fusco, Cheniere's President, and CEO.

Thank you, Randy, and good morning, everyone. Thanks for joining us this morning. As we review our first quarter results and improve 2023 outlook. As you can see from the results, we have continued our exceptional performance from 2022, and our improved outlook for the rest of this year as reflected in our increased guidance ranges.

The first-quarter was highlighted by excellent performance across Cheniere's platform, from operations to project execution to capital allocation and origination. While we are not yet able to share specific details. Last week, we executed a new long-term SPA with an investment grade Asian end user, that is linked to the SPL expansion project.

This is an exciting signal that we are already gaining early commercial momentum on our recently announced expansion plans at Sabine Pass. We look forward to providing more detail on this SPA in the near future.

Please turn to slide 5, where I will review key operational and financial highlights from the first-quarter 2023 and introduce our upwardly revised annual financial guidance. We generated consolidated adjusted EBITDA of approximately $3.6 billion in the first-quarter and distributable cash flow of nearly $3 billion. This first quarter benefited from a number of discrete factors, which drove EBITDA and Bcf higher, which Zach, will address in a few minutes.

During the first quarter, Zach, and his team continue to make excellent progress on our capital allocation plan. We paid down nearly $900 million of debt and solidified investment grade ratings across the senior complex. As we discussed on this past February call, we bought back over 3 million shares for about $450 million and paid our quarterly dividend of $0.395.

So in total, almost $1.5 billion in capital return during the quarter plus another approximately $550 million invested at stage 3 for future growth. Operationally, in the first quarter, we picked up right where we left off last year, further reinforcing senior status as a leading global operator reliably producing LNG with safety at the foundation of every action we take, we set a new quarterly record, exporting 167 cargoes of LNG in the first quarter, surpassing our prior record, which was set in the fourth quarter of last year.

Looking ahead to the balance of 2023, as I mentioned before, our forecast has improved. We are raising full year guidance by $200 million on both EBITDA and distributable cash flow. Our new ranges are $8.2 billion to $8.7 billion in EBITDA and $5.7 billion to $6.2 billion in Bcf.

The increase is mainly driven by the team capturing and locking in higher margins, both upstream and downstream of our facility. Zach, will provide more color on the increase in primarily answer your questions on guidance in a few minutes.

Turn now to slide 6, where I will update you on the status of our expansion projects, Corpus Christi stage 3, which is under construction, Corpus Christi, mid-scale trains eight, nine, which is now in the process and SPL expansion, which is in the pre-filing with work.

First on Corpus Christi Stage 3, destructions ramping up as its headcount on the site, which is now approximately 750 workers, and we expect this to grow rapidly as we begin to transform from site preparation and ground work into mechanical works over the coming months.

Over 7,000 piles have been driven in soil stabilization is effectively complete. The foundations are beginning to be poured. Piping and spools have begun to arrive, and we expect to receive the first call box at site next month and its installation is an important construction milestone for Stage 3.

Overall, EPC progress is currently 28.7%, which is well ahead of plan. While construction is only 3.4% complete. Early construction activities are already tracking ahead of schedule, increasing my confidence in schedule outperformance and potentially having more volumes in 2025, and possibly the entire seven train project being completed by the end of 2026, months ahead of the guaranteed schedule.

Next on Corpus Christi, mid-scale trains eight-nine in line with what we told you last year when we profiled this project, we submitted the full application of work on trains eight and nine in late March. We are optimistic about the permitting process for this project, given its distinct advantages of being identical to Stage 3 trains, being fully commercialized with creditworthy counterparties and not requiring significant supporting infrastructure and the synergy effect of already being mobilized on the site. We look forward to working with first and all relevant stakeholder agencies and regulators on a smooth and transparent review process.

Moving on to the Sabine Pass expansion project, which we revealed on our call back in February. I'm extremely excited about developing this major 20 million ton expansion, which has the ability to leverage our massive infrastructure position at Sabine Pass for economically advantaged incremental capacity.

We have submitted a prefiling documents of work. We recently signed a contract with Bechtel, for the FEED work related to this large scale project including for the carbon capture components. Commercially, the project is already gaining traction.

As I highlighted earlier last week, we are executing SPA of approximately 0.4 million tons per annum for over 20 years with an investment grade Asian end user for LNG volumes delivered through 2047. Most of the volumes associated with the SPA, subject to FID of Train one of the Sabine Pass expansion project.

We're excited to have already signed an SPA linked to the project and to be building commercial momentum as we progress development we progress these project developments in an environment marked by cost inflation, rising interest rates and extremely competitive LNG markets.

These realities not only underscore the importance of Cheniere's competitive advantages, but also our resolute commitment to the investment parameters that guide our disciplined approach to capital investments.

As you have heard me say before, we are not in the FID business, our focus is on long-term value creation. We are developing these projects with the same discipline, rigor, and high standards that form the foundation of our existing infrastructure platform.

We are extremely excited about our organic growth prospects, and we continue to target market leading project returns on a risk-adjusted basis that our investors and stakeholders have come to expect from Cheniere.

Thank you, all again for your continued support of Cheniere. I will now turn the call over to Anatol, who will provide an update on the LNG markets.

Thanks, Jack, and good morning, everyone. Please turn to Slide 8. LNG production in the first-quarter reached new highs as global reliability improved with record monthly exports of 36 million tons in March, following a period of outages across various plants worldwide, year-over-year increases in production were achieved in Norway, Australia, and Qatar in particular.

In Norway, the hammer fest facility was off-line in Q1 last year and Australia, prelude was shut down after loss of power in 21 December, and did not restart until April, of last year. And to encode two mega trends were undergoing major planned maintenance in Q1 last year.

Exports from the US, were broadly flat year over year, as freeport LNG restarted production in February, after having been offline since June of last year. While the uptick in global LNG production over the past few months has helped to balance the market and further stabilize price levels throughout the first quarter.

We expect limited overall supply growth this year as few new projects is scheduled to come online next 18 months. Until then, we expect supply and demand to remain carefully balanced and sensitive to supply disruptions weather and demand shocks. We remain optimistic that the US, will continue to be a critical source of flexible supply in the market.

US, flows to Europe, continued to remain strong in Q1, helping ease market pressures and contributing to moderating prices. In fact, approximately 80% of cargoes produced by our two sites were delivered to Europe, in the first quarter.

The TTF monthly settlement prices averaged approximately $19.50 per MMBtu in the first quarter of 23, 35% lower year on year. Similarly, the JKM average settlement price decreased by 16% year on year to an average of approximately $26 per MMBtu. While both pricing indices are markedly lower than last year, global gas benchmarks remain at elevated levels.

Q1 marked an inflection point for average quarterly global gas prices as JKM surpassed TTF for the first time since Russia invaded Ukraine last year, Cheniere's value proposition built on market-leading reliability is, of course, further enhanced by a stable and affordable commodity.

In the US, in March, the Henry Hub front month contract price fell below $2 per MMBtu for the first time since September of 2020, Henry Hub averaged approximately $3.40 in Q1, and the front month contract is now trading in the mid $2 per MMBtu.

Following the elevated pricing in North American gas markets last year, our production response leads to a more normalized pricing environment, underscoring the abundance and relative affordability of Gulf Coast LNG.

Now let's turn to Slide 9, to address current European dynamics in some more detail. Europe, has closed out this winter with gas inventories at or near the high end of its 5-year range, thanks in part to record mild weather and, of course, sustained LNG flows.

LNG imports remained robust, increasing 8% year over year, despite labor strike activity affecting several French terminals in March, US exports to Europe, increased approximately 4% year-on-year in Q1, and about 15% quarter over quarter.

The addition of five FSRUs over the past few months across the Netherlands, Germany, and Finland helped increase LNG import capacity and reduced locational price spreads. However, mild weather, coupled with significant demand reduction efforts by European consumers, resulted in a 12% year-on-year decline in gas demand in Europe's key gas markets in Q1.

Gas burn in the power market remains suppressed in Q1, down 15% year on year, although elevated coal and emissions pricing could present opportunities for fuel switching, as mentioned, with storage levels above the 5-year average this year, Europe is positioned well as it looks to replenish supplies ahead of the 2023, '24 winter season.

While further reductions in Russian pipe gas remain a risk, much of this volume was already lost in the demand response last year. Nevertheless, despite the European market advantage position coming out of the second warmest winter on record. The shortfall in Russian supply should remain an ongoing challenge for the global balance until new supplies dispatched.

Longer-term forecasts indicate European LNG imports will remain stable at elevated levels despite net zero rhetoric and policy induced pressure on the demand outlook for European gas. Leading LNG consultants predict that LNG demand in Europe will increase through the end of the decade before stabilizing above the 100 million ton level through 2040, and possibly beyond.

Let's now turn to slide 10, to discuss Asia. Demand in Asia remained stable with overall LNG flows flat relative to Q1 last year and up 4% quarter-on-quarter. The demand decline observed over the last year in certain key Asian markets, India, Pakistan, Bangladesh, and China to name a few, has narrowed considerably as spot prices continue to moderate this quarter.

Demand response in these price-sensitive markets especially with further moderation in prices, normalized weather and a pickup in economic activity will be a key determinant of market tightness in the medium term.

As shown in the middle chart, Korea's imports were up 7% in Q1, due to nuclear maintenance curtailed coal burn and LNG inventory replenishment. However, elevated storage levels and the expected startup of a new 1.3 gigawatt nuclear plant in Q4, could impact spot buying from Korea in the upcoming months.

In Taiwan, imports rose 4% in Q1, driven by reduced coal-fired generation during the winter and the decommissioning of the nuclear reactor in March. Thailand also grew in parts 7% in Q1 in order to cover declines in both domestic output and pipeline imports from Myanmar.

In contrast, LNG imports in Japan remained weak amid high inventory levels and improved nuclear availability year on year. Nevertheless, lower Japanese imports and reduced demand in China, and India balanced the gains in Korea, and other parts of Asia.

In China, Q1 LNG imports were down 3% or 0.5 million tons year on year, but we have observed some green shoots in leading indicators for demand growth as economic activity continues to pick up post lockdowns, with GDP expanding 4.5% year-on-year in the first quarter, China's gas demand grew 5.6% year on year in March, and LNG imports rose 14% year on year in March, marking the first positive increase in over a year.

If potential increase in industrial gas demand from a 56% month-on-month rise in new home sales could provide further tailwinds for LNG demand later this year. Despite the recent weakness in Chinese LNG consumption. We believe China's long-term fundamentals remain strong and the nation is on track to become the first 100 million ton LNG market before the end of the decade.

China's significant investment in natural gas infrastructure from pipelines to recast terminals to gas-fired power generation capacity, coupled with its active role in the long-term contracting market, has demonstrated the region's commitment to natural gas as a long-term solution.

As we've discussed before, we expect the immense economic growth and energy evolution forecasted for the Asia region to underpin decades of growth in LNG demand. Driving the need for substantial investment in new liquefaction capacity.

The over 20-year SPA recently signed with an investment grade Asian buyer, as Jack, mentioned is linked to the SPL expansion project and further evidences the global need for long-term reliable gas supply. The SPL expansion project is a major source of prospective new LNG supply, and we look forward to building on this commercial momentum, developing the project according to our high standards and ultimately enhanced engineering capabilities to provide the market with reliable, flexible and cleaner-burning LNG supply for decades to come.

With that, I'll turn the call over to Zach, to review our financial results and guidance.

Thanks, Anatol, and good morning, everyone. I'm pleased to be here today to review our first quarter 2023 results and key financial accomplishments and to update you on our upwardly revised outlook for the full year. Once again, the outstanding financial results we reported today are the product of our team's unwavering commitment to operational excellence, execution, and financial discipline as we continue to create value for our stakeholders.

Turning to slide 12, for the first quarter we generated net income of approximately $5.4 billion, consolidated adjusted EBITDA of approximately $3.6 billion and distributable cash flow of approximately $2.9 billion.

As Jack mentioned, our first quarter results were aided by our marketing team's proactive selling forward of some of our first quarter open exposure starting last year at margins higher than current market margins, as well as a contribution of 16 cargoes loaded at year end 2022, but delivered in 2023, the majority of which were CMI spot cargoes and only 11 cargoes in transit at the end of Q1.

In addition, we benefited from a higher contribution from certain portfolio optimization activities from our IPM deals as well as vessels sub chartering. These benefits were partially offset by a higher proportion of our volume being sold under long-term contracts and lower lifting margin due to, hence lower Henry Hub prices compared to the first quarter last year.

During the first quarter, we recognized an income 619 TBtu of physical LNG, all of which was produced at our two projects, approximately 84% of these LNG volumes recognized in income were sold under long-term SPA or IPM agreements, with initial terms greater than 10 years.

As we've noted in prior earnings calls, our reported net income is impacted by the unrealized noncash derivative impacts to our revenues and cost of sales line items, which are primarily related to the mismatch of accounting methodology for the purchase of natural gas and the corresponding sale of LNG under our long-term IPM agreements.

Further decline and sustained moderation in volatility of international gas price curves throughout the first quarter served to benefit the mark-to-market valuation of these agreements driving a negative cost of sales number for the quarter and increasing our net income line item for the second quarter in a row.

Excluding the impact of $4.7 billion of total unrealized non-cash derivatives. Net income for the first quarter would still have been over $2 billion and cost of sales would have been around positive $3 billion instead of negative $1.5 billion.

With today's results, we have earned cumulative net income of over $7.7 billion for the trailing 12 months and have now reported positive net income on a quarterly and cumulative trailing four quarter basis two quarters in a row.

Throughout the quarter, we continued to strategically pay down debt, prepaying approximately $900 million of consolidated long-term indebtedness, bringing our total debt paydown to approximately $7.5 billion since launching our original capital allocation plan in 2021.

As noted on our last call, in the first week of January, we redeemed the remaining almost $500 million of outstanding principal of the CCH notes due 2024, and throughout the quarter, we continued to utilize our open market repurchase program, opportunistically repurchasing nearly $400 million in principal of outstanding CCH notes with maturities ranging from 2027 to 2039.

These transactions represent some of the tools we have utilized to address our consolidated leverage and strengthen our balance sheet over the past few years. And these actions have been recognized by the rating agencies.

During the quarter, we received our second investment grade rating of BBB minus CEI from Fitch and S&P upgraded SPL from BBB to BBB+ with a stable outlook, thanks to our team's ability to deploy capital to address our leverage both opportunistically and efficiently. We are officially investment grade and index eligible across our corporate structure with our next debt maturity not until next year after the achievement of IG, across our corporate structure.

During the quarter, we have begun to shift our capital allocation weighting to our buyback program. During the first quarter, we repurchased approximately 3.1 million shares for approximately $450 million as we continue to recalibrate our future cumulative debt paydown to share repurchase ratio from 4:1 to 1:1.

As I mentioned on our last call, over the coming year or two, there's likely a catch-up trade on the buyback since we were so aggressive on debt paydown late last year and into Q1 in order to get to investment grade throughout the complex.

Our share repurchase program is designed to be flexible in order to take advantage of dislocations in the market. Like we saw at certain points these past couple of quarters, we will continue to target the one to one long-term ratio we introduced last fall as we deploy the remaining $3.2 billion under our current buyback authorization in an attempt to buy back over 10% of our market cap in the coming years.

We also declared our seventh quarterly dividend of $0.395 per common share for the first quarter last week. We intend to follow through with our previous guidance of growing our dividend by approximately 10% annually into the mid-2020s, through construction of Stage 3, with the next step-up planned for later this year.

And for the final pillar of our comprehensive capital allocation plan, disciplined growth, we funded approximately $550 million of CapEx at our stage 3 project during the quarter with cash on hand, as Jack mentioned, construction is well underway and we're tracking ahead of schedule.

Going forward, we will continue to fund Stage 3 CapEx efficiently with internally generated cash flow and the over $3 billion still available on our CCH term loan today.

As of 31 March, we had over $10 billion of consolidated available liquidity, even after the deployment of nearly $2 billion towards our capital allocation during the quarter. The financial strength afforded by our accelerated progress across all four pillars of our capital allocation plan has become one of our key competitive advantages as we continue to procure and processed over 7 Bcf of natural gas on a daily basis, deliver 45 million tons of LNG per year and develop further accretive brownfield growth at both our sites.

Turn now to slide 13, where I'll discuss our 2023 guidance and update you and our open capacity for the remainder of the year. Today, we are increasing our 2023 financial guidance by $200 million to $8.2 billion to $8.7 billion and consolidated adjusted EBITDA and $5.7 billion to $6.2 billion industrial cash flow.

While we don't provide guidance by quarter, obviously, given the full year guidance, we are forecasting lower EBITDA across the second, third, and fourth quarters compared to our first quarter results. The guidance increase is enabled primarily due to selling some of our open CMI cargoes opportunistically at higher margins than previously forecast.

The release of a couple of the origination placeholder cargoes to CMI to sell into the spot market higher than originally forecast gas supply, lifting margins and further contributions from optimizing our shipping portfolio. These increased guidance ranges continue to reflect current international gas price curves as well as our increasingly limited open position for the remainder of the year, given the start of several long-term contracts this year and our planned maintenance at Sabine Pass this summer.

Currently, we have approximately 35 TBtu of unsold LNG remaining this year, 15 of which are reserved for long-term origination. And we currently forecast that a $1 change in market margin would impact EBITDA by approximately $20 million for the balance of 2023.

Highlighting how proactive the team has been in securing margin this year to guide 2023 EBITDA into the mid $8 billion. As always, our results could be impacted by the timing of certain year-end cargoes heading into 2024.

Our distributed cash flow for 2023, could also be affected by any changes in the tax code under the IRA. However, the guidance provided today is based on the current IRA tax law guidance in which we do not qualify for the minimum corporate tax of 15% this year.

However, as noted previously, both of these dynamics would mainly affect timing and not materially impact our cumulative cash flow generation through the mid-2020s.

As we think about our overall capital allocation deployment. Despite our limited remaining open exposure this year and moderated international gas prices, our 2023 guidance ranges are well above the $5.7 billion high end of our nine train run rate guidance, and we remain on track to achieve our 2020 vision of generating over $20 billion of available cash by 2026.

And over $20 of Bcf per share on a run-rate basis with every dollar deployed by our team, we are positioning engineer for a resilient and profitable future and is the visibility of our future cash flows that enable us to meaningfully return capital to our stakeholders and pursue further disciplined growth through cycles while continuing to reliably and responsibly deliver affordable, cleaner burning energy to our customers worldwide.

That concludes our prepared remarks. Thank you for your time and your interest in Cheniere. Operator, we are ready to open the line for questions.

(Operator Instructions) Jeremy Tonet, J.P. Morgan.

Hi, good morning.

Morning, Jeremy.

Just wanted to start off with the, I guess, the SPA contracting market out there. Good to see the contract for SPA expansions you noted there, but just wanted to get a feeling of what you guys can share with regards to competitiveness.

It seems like there's a number of players that are maybe a bit more aggressive in their attempt to get a contract at this point? And just wondering how you see the balance of maintaining your financial hurdles versus securing contracts for the expansion?

Yes, Jeremy, I believe it goes hand-in-hand with our exceptional operational performance. So the fact that we haven't missed a foundation customer cargo is not being unrecognized by the end user community worldwide community out there.

So those folks that we've talked about in the past with the trillions of dollars being invested and natural gas infrastructure, want to make sure that they have gas to fill up that infrastructure. Those are the folks that we're targeting for long term contracts.

We're not going to change our business model, either. We're going to commercialize the new investments. We're going to lock in the price, the performance, the schedule and with that, and then we'll build the infrastructure. But I'll turn it over to Anatol on what competition, he sees in the SPA market today?

Yeah, thanks, Jeremy. Well, as Jack said, over the last couple of years, it's become apparent to everyone the value proposition is the guys said built on our reliability and safety and performance. And we have never been and clearly aren't today in a race to the bottom for a commodity product, and we're very selective with whom we transact.

As Jack already mentioned, the end users, the counterparties that value that reliability and we extract a premium for that and we'll continue to do that in what is still a very competitive market, as you know. So we'll stick to our knitting and have this great base business meeting those financial objectives and expose ourselves to the upside as we outperform.

Got it. That's helpful. And maybe just want to kind of level set results today versus your expectations and you clearly beat the street median by big number, but the guidance didn't move up by the same number. And just wondering,

I think it's important how did first-quarter stack up versus your expectations? And maybe the street wasn't shaping the timing of CMI being open across the year and that kind of led to some of the disconnect. But just curious for your thoughts there?

Hi, Jeremy, it's Zach. And I guess trying to compare a Bloomberg estimate for Q1 with our annual EBITDA guidance is like mixing apples and oranges, because by the time we came out with guidance on the last call, which was late February, early two months ago. And I would say we're not off $1 billion from what we thought Q1 would be, if anything, Q1 was pretty baked by the end of February for us because going into the year, we locked in a significant amount of our open capacity with those margins well over $20 to create such a robust quarter in Q1.

So Q1 was always going to be weighted in terms of our EBITDA, and it's going to be in our guidance around 40% of the EBITDA for the year. And we knew that considering our open capacity, our spot volumes for the year, 50% of them were going to be in Q1, over 50% of our CMI contribution came in Q1.

So I think some of the disconnect is physically a lot of folks maybe spreading out more evenly our EBITDA quarter to quarter. We did have a good amount of in-transit and we do make a bit more production in Q1, but basically all of those 20 plus, 30 plus even some 40 plus cargoes that we locked in in the past year.

Those were delivered in Q1 and created that outperformance and to say in the next place last two months, we've been able to increase guidance again by $200 million after all of that accounted for on the last call. That's really a testament to the team here that we were able to secure a higher lifting margin upstream in the plants took advantage of some of our length on our shipping portfolio by delivering more to Europe, and some chartered a bit more.

And then clearly, we still beat the market on some of the cargoes that we sold in the open market for Q2 and Q3 coming up for the rest of the year.

Got it, that's very helpful. I'll leave it there, Thanks.

Brian Reynolds, UBS.

Hi, good morning, everyone. Maybe to follow up on the guidance question, based off the quarterly outperformance, Zach, you did discuss the forward sale of cargoes, some charting and optimization, just kind of curious if you could just break down, how much the outperformance is maybe attributable both to those components and perhaps some of the pull forward on some of that optimization and then in the context of the $200 million guidance raise, should we view that as a base business kind of positive outlook at this time?

Yes, around the $200 million guidance range that we don't forecast in our EBITDA. I think that aren't locked in realized at this point. So at this point, when we gave guidance that look the open capacity is 35 TBtu in the $1 move is only $20 million. We're talking about 1% to 2% of our total production. We're talking about 2% of our annual EBITDA.

And when this the share price that we love to look at fluctuates with TTF or oil, we kind of scratch our heads when we are this locked in already going into the rest of the year. So basically, I wouldn't assume anything is baked in terms of further upside from optimization.

But in terms of sub chartering, that's not locked in. It's either realized or the team has already sold those charters out and have locked in a profit for us. So we feel really good about the new guidance range. And yes, there could be some upside, but we'll just have to see how things play out for the rest of the year.

Great, really appreciate that incremental color on maybe another question for you, Zach, on capital allocation. The notion you bought back $450 million this quarter, but reduced, you know, another $400 million in debt. You know, you talked about in your prepared remarks that there could be some more cash available for buybacks.

Looking forward, how should we think about maybe debt retirement, what are your plans for paper perhaps this year and next that could maybe impact that share buyback cadence of, call it, you know, 750 to a billion quarterly, you know, assuming there was no debt paydown this quarter, thanks.

I don't think, I have ever said we're going to do 750 to a billion quarterly, what we have said is like, look, we have a $4 billion buyback program for three years. In the last two quarters alone, we bought back almost $1.2 billion. There's going to be even more robust allocation to buybacks, including this quarter and going forward as we go through that $4 billion, ideally within three years are well within three years, but the deployment. It's still going to fluctuate a bit.

We are not dollar cost averaging on our buyback program. It is more opportunistic. So you can imagine we're active today on the buyback and then in terms of the debt paydown, we actually bought back and in terms of debt, $900 million in Q1, but $500 million of that was in first week.

I think people have to remember, we weren't actually officially investment grade and index eligible until early January. So we went into the year looking to finally finish that up and we really front-loaded late last year and early this year, the debt paydown to get there.

But now that we're there yet, there's a green light to go back the other way, I've reset that one to one cumulative ratio, meaning there's quite a bit of catch-up to do on the buybacks going forward, at least $2 billion through the rest of this year and into next. So we're pretty optimistic in terms of the allocation to buybacks. And yes, over time, we'll get back to one to one and eventually buyback over 10% of the market cap.

Great. Appreciate all that incremental context and enjoy the rest of your morning.

Thanks, Brian.

[Mark Celsio, Barclays.]

Hey, good morning. Maybe just to pick up on '23 guidance. Obviously largely locked in at this point with 20 TBtu remaining open. But wondering if you could just talk about some of the factors that could put you at the upper lower end of the revised range?

Sure. So again, as I mentioned, it was with about $200 million worth of CMI contribution not locked in today, we're talking about, yeah, like 2% of the EBITDA still floating out there. So what's the upside, but there could be some upside from selling those cargoes at higher margins, depending on where markets settle through the rest of the year, even though our open capacity is definitely coming down, as I said before, half of our open capacity was in the first-quarter.

We have new contracts coming online this year that are that are starting up. And we also have the major maintenance turnaround at Sabine this summer. So there's a few things there that just we're always baked into our guidance in terms of having more open capacity earlier in the year.

The other upsides could be basically we still have 15 TBtu reserve for long-term contracting. If those overtime are released to our short term team, they'll be to sell those at market prices. There could be a little upside there. And then on production, we're already estimating around 5 million tons per train, and that's with the major maintenance embedded in all of that.

So that's going to take some time to give you any update on production increases, let's get through the major maintenance turnaround this summer. Let's get through the hurricane season and we'll see where we are later. This year on that, that could provide a little bit of upside.

And then lastly, we don't bake in any optimizations upstream or downstream of the plants that aren't already locked in. So we'll see how that fleshes out through the year.

So we feel really good that at the very least even with extreme pressures on margins for the rest of the year, potentially in a hypothetical, we'll make our guidance. But besides that were, we're in a good spot.

Got it. Appreciate all the color there. And then you guess inventory levels, obviously, tracking above seasonal averages coming out of the winter, but with LNG now price close, energy equivalency parity with other fuel sources and green shoots of recovery and price sensitive demand in both Europe and emerging markets. Curious how you see those factors into your planning in terms of the LNG commodity price outlook over the summer?

Yeah, thanks, Mark. This is Anatol. I mean we're watching the same things as you and Zach, went through. We have relatively minimal exposure to those dynamics. But we learned from them. Obviously, our commitment is to supplying our long-term counterparties with our affordable, stable and an environmentally attractive product and the amount of infrastructure that's being added today, it's just staggering and the world is going to add over 120 million tons per annum of regas capacity just in Q1, Europe added over 13, China alone added over 13.

And even though, of course, right, that the European storage is around the high watermark. It's actually now slightly below where it was in 2020. Nothing that we want to repeat of that, but it just tells you that infrastructure should not be a constraint.

And as you mentioned, we're seeing green shoots of incremental tenders from the price-sensitive markets like India. In March, very active Chinese market, a weak PMI for last month's manufacturing PMI, but we're optimistic that the second half will show a meaningful turnaround.

So we're optimistic, we think these price levels are great. Coal prices are still elevated emissions prices still elevated as you mentioned. So we feel very good about the handward delt. (Inaudible)

Great, appreciate the time.

Spiro Dounis, Citi.

Thanks, Operator. And I guess first question, maybe for you, Jack, just starting with the Sabine Pass expansion still early days here, but just wonder if you could just walk us through a little bit about the general plan to fund that expansion. I don't believe a lot of that CapEx was factored into the 2020 vision goal laid out in the fall. So just curious, how should we be thinking about that funding relative to the capital allocation plan in place?

Sure. So the 2020 vision capital allocation plan really only goes through 2026. And in that we still had billions of dollars for new developments, but that was mainly incremental mid-scale trains at Corpus. But there is still money above and beyond that that is baked in, and we'll be spending some money to get ahead of that SPL expansion.

But again, it's going to take a couple of years to get everything ready for FID and to officially start deploying meaningful money down at Sabine. And now that we have six trains fully up and running there, we have a base plus variable DPU policy.

We're set up pretty well to live within cash flows there and continue to pay out, at least at the very least the base and have more than enough equity cash flow there to have to live within the cash flows. And as we develop these projects and think about CapEx, I'd say six to seven times unlevered returns, highly contracted at 10%, 50% leverage, which gets you to under four times on a debt to EBITDA basis. It all pencils out just fine.

So we'll be well-placed for that. And I guess it'll be in our next capital allocation plan where we're baking that in it, probably just won't be for the 3 September in a row this year.

Got it, it's a good color. And Jack, second one, maybe for you and apologies in thinking about SPAs market really kind of focusing on the tenor you mentioned over 20 years on this recent SPA and over kind of caught my ear, just given that this is supply that's really not starting up.

So closer to 2030. And so I'm just curious, is that a general trend you're kind of seeing across other commercial discussions or tenders actually increasing this time around? And then just curious, sort of in that context, how much things like features like carbon capture are playing a role in these discussions now versus maybe a year or two ago?

Yeah, thanks, Spiro. We were never in the camp that the 20-year deal is dead. Obviously, over the last couple of years, the market has largely absorbed that. And you're seeing that said, you are clearly seeing the average tenor over whatever period extending.

So where we've done some 15-year deals, we've done some well over 20-year deals over the last couple of years. And we like those transactions, again, especially when it is an end user. And it is a building block to a relationship that we expect will last for decades and will lead to incremental volume up.

The other component of your question, like since it is starting the sort of the 20-year piece, if you will, is starting in the back half of the decade of the--there are some early volumes incorporated into that as well. As Zach mentioned, in part, some of the volumes would reserve in the portfolio for that opportunity.

And we're navigating that using the portfolio. So you kind of have a 20 year plus structure that we like and are kind of reliable customers like in that--that's what we've done a fair amount of in Asia and expect to do more.

Great. Super helpful color.

Jean Ann Salisbury, Bernstein.

Good morning, Operator. I wanted to get your thoughts on the new DOE policy, making it harder to get permit extensions if you're not under construction, how do you see this policy affecting the pace and size of the US, LNG build-out, if at all? And does that have any kind of secondary impact on Cheniere?

Hi Jean Ann, thanks for the question. So I actually view the patent policy in a positive way. That much like what we do today, which is we commercialize our projects before we fully go into construction or financed and they want to make sure that there's a need basis for what they've permitted.

So I think it will help with some of the projects that have been on the books for a while that maybe they have allocated gas flows to, that they help them--help move them along.

So some of these projects, surpassed my time line here at Cheniere, which is seven years. I've have been on the books for over a decade. And it's quite frankly, it's time for the there either build a project or not. And so I feel relatively positively.

In fact, all of the administration, whether it's steel, we are first have started begun to embrace that natural gas is here to stay. It's going to be a very important transition fuel for clean energy and beyond, quite frankly. So we're starting to see some movement there on all of infrastructure projects.

Great, thanks. That's all for me.

Sean Morgan, Evercore.

Hi, guys, thanks for taking the question. Regarding the issue with the formaldehyde, I think you guys said that you've tested 41 of 44 turbines to be compliant with the government standards. What's the plan for the remaining three and other sort of CapEx, ability to sort of remediate any problems you have with their site, anything self-standing?

Now the three, the remaining three standards are just matter of, I'll say, supply chain. So we're waiting for some part from Baker Hughes, and when those parts get installed during planned downtime than we will retest them.

It's our belief and we've got enough data now that we are well within compliance and as you know, this is not a not an issue at all at Corpus it's only been at Sabine with the water injection, but it will be immaterial and you all want.

And then I think you might have mentioned something about eligibility now for the index of S&P 500 and you guys met all of the criteria that's required for inclusion at this point.

The eligibility I was talking about was investment grade index eligibility. But in terms of your question, yes, we made it, and we've met it now for two quarters in a row. Our EBITDA and net income are over $7 billion.

Our market cap, it's large enough that we're probably in the top five largest companies in this country that qualify that are not in the S&P 500. So should be a matter of time before it obviously--had a marketing type be by itself. (Inaudible)

That's helpful. Thanks, guys, thanks Jack.

Michael Blum, Wells Fargo.

Thanks. Good morning, everyone. So I was just had a market question on Q1, looks like most of it, 80% of your cargoes went to Europe, frankly, surprised me a little bit given storage levels in Europe and China reopening. So I wonder if you could just talk to the dynamics there and how do you think the rest of the year plays out?

Yes, thanks, Michael. It's Anatol. Look at the pricing was more attractive in Europe than there was in Asia during Q1. And it's as simple as that we obviously don't control. The vast majority of the volume that we produce in our customers took advantage of the destination flexibility.

And as did we, which, as a conjecture discussed has had led to some chartering out of shipping length that that we had penciled in for Asia, but ultimately did not materialize. So just the benefit of this product that reliably goes to the market of highest netback flash most need.

And we're seeing a very delicate balancing act today between Asia and Europe things can shift on a dime and we always on--the May call is always tricky because you're sitting in the shoulder period and that is a global dynamic before things really pick up mid-summer so, we expect that strength to materialize in Asia, kind of the hint in your question and the back half of the year, I would expect that volumes tend to go to Asia more so than to Europe given its recovery.

And then I'm just wondering if there's been any change in the tenor of discussions with Europe? I know politically it's been more or less, call it more challenging to sign long-term contracts. I wonder if there's been any change in that dynamic?

No, I mean the bottom line is that you'll see kind of similar dynamics that you saw last year. And you're absolutely right that that most counterparts in Europe have a difficult time going beyond 15 years. Doesn't mean that those are transactions that we would not entertain.

But as we've always said, we expect that the fundamental demand driver to be Asia, and we're seeing much more comfort with multi multi-decade commitments out of that theater than out of our European counterparties, but we expect to see some success in in Europe as well.

Great. Thank you.

Craig Shere, Tuohy Brothers.

Good morning, thanks for taking the question. First, Anatol, you commented as usual about not competing for the lowest cost and historically the last couple of quarters, I think you've pointed out that some at least partially contracted peers may not be able to reach FID due to financing the competitive pricing of their offtake and other issues, do you think at this point that there could be 5 or 10 mtpa plus of orphan downstream demand that may be looking for a home in the next year?

I mean the short answer is yes, there are different types of counterparties that have contracted for projects that are unlikely to move forward. And some of that demand is structural and we would look to meet that. Other demand is opportunistic and then that may not materialize. But what, we do think as the market shakes out to your point, we did expect more than two FIDs in '22. And the obviously Q1 saw a number of FIDs here.

We continue to expect more, but to the extent that some of these relatively well contracted projects at aggressive rates that are difficult to prosecute in the aggregate fall by the wayside. We do think that there is some fundamental demand that that it could be a good opportunity for us.

Great, that's helpful. And from my second one, on now that we're starting to think about the end of the decade and beyond on, I thought I had read the deal, we is looking to draw a hard line in the sand about the seven year export authorization time lines that people have and actually broken ground and gotten financing and I'm wondering if there's a thought now that so much in total is authorized in for export obviously not a good portion of it is not in the works at the moment.

I wonder if there's a thought that by the end of the decade, the DOE may be more of the governing factor than first and those that are on a little more reliable and consistent in their project development and time lines, may have competitive advantages.

We haven't seen either agency being an imperative to anything that we want to do ourselves. So look, I've been here for seven years, and we have felt how many tons and it's all in my seven years.

Yeah, FID over 20 million tons. So it hasn't slowed us down. I don't think it will, and I do think it will. It will help focus the regulators and stakeholders on projects, but that are really going to move forward in a timely fashion. So I think it's have a positive, not a negative overall for the industry.

All good, thank you.

Sam Burwell, Jefferies.

Thanks for squeezing me in here, guys. I wanted to hit on CapEx quickly. So a little over $700 million spent in Q1, 550 of that being CCL 3. Just curious if both of those are good estimates for like a quarterly run rate for the rest of the year. Anything driving that higher one que and then with respect to CCL 3 funding.

I just wanted to confirm that the plan is still to lever that project 50%. And what the factors driving the funding it from cash on the balance sheet now might be if that's a function of short-term rates or when we might expect it to be back leveraged?

sure, on the CapEx for the year, the 550 was more than a typical quarter. We had some milestones during the quarter, and that was deployed into Stage 3, but Stage 3, I think the CapEx for the year will be around, if not a little less than $1.5 billion and all in when you start adding in maintenance CapEx yet in other growth CapEx, which is mainly just developments or is this early work and FEED work has been expansion and with mid-scale eight and nine will be well under $2 billion and total CapEx for the year.

In terms of funding that Stage 3, 50-50, that's still the intent. It's just right now when you think about $6 billion or so of DCF, count for that, that CapEx we're at $4 billion or so of free cash flow. I count for the debt paydown, the dividend, there's still well over $2 billion that could technically be allocated over time to the buyback program going into the end of this year and early next.

So we have plenty of money to actually fund the equity component first of Stage 3, retain the flexibility, retain the commitments from the banks that don't expire for another six years, save hundreds of millions of dollars in interest expense and keep on plugging away. And we'll see if we use that leverage to finish up stage 3 or even to help us fund the corpus expansion thereafter. So we do intend to use that money. It's just flexibly there for us and pretty cheap to hold onto for the time being.

Okay, got it , all make sense, thanks Jack.

Alex Kania, Wolfe Research.

Hi, how's everybody doing? Just a question, I guess as we're looking in the back half of the decade with just upstream infrastructure, how do you feel like the connecting gas pipelines situation's going to look for both Corpus Christi and I guess look even further out to Sabine Pass on, do you think the industry is kind of caught up with the expected demand that you're seeing? And does that have any other questions about how you're thinking about investment?

No, I think look, Corpus has a little bit of a benefit over to being that it's in Texas, and it's close to the Permian. And you probably saw that the Permian just in 2022, went from 13.5 Bcf to 19 Bcf. So significant growth in natural gas coming out of the Permian.

And we intend to take advantage of it, and you can build pipe in Texas these days at it at Sabine, it's going to be a little more complicated because, we never wanted to make ourselves overly dependent on one basin. So we're going to look for opportunities to tap into multiple basins to take care of this to being growth better.

But you guys your stand from for (Technical Difficulty) things are moving and projects are getting approved, and we're hopeful that that will be able to move swiftly when the time is right.

Thanks and maybe just a last question is with respect to long-term contracting SPAs, are you are you still getting a lot of interest on IPM sorts of frameworks rather than kind of the international off-taker as an option on just I guess apart from a couple of the recent past, we haven't seen a lot of that type recently, but I'm curious if there's still appetite for that.

I guess in short, our forward book of business as we look at it very much rhymes with what we have done in recent history. So expect a healthy mix of IPM and delivered and FOB contracts. We like the diversity of that.

We like a lot of aspects of IPM deals, the gas supply, the optimization opportunities. So I expect to see us do more of that. But as we've always said, it is a relatively finite amount of counterparties that we can transact those with.

Thanks very much.

Thanks a lot, and thanks to all of you for your support and your kind words and be safe out there.

Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.