Cheniere Energy, Inc. (AMEX:LNG) Q2 2023 Earnings Call Transcript

Cheniere Energy, Inc. (AMEX:LNG) Q2 2023 Earnings Call Transcript August 3, 2023

Cheniere Energy, Inc. beats earnings expectations. Reported EPS is $5.61, expectations were $2.37.

Operator: Good day, and welcome to the Cheniere Energy’s Second Quarter 2023 Earnings Call and Webcast. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Randy Bhatia. Please go ahead, sir.

Randy Bhatia: Thanks, operator. Good morning, everyone, and welcome to Cheniere’s Second 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.

World Economic Recession of Oil and Gas Industrial Sector From Coronavirus Covid-19, Global Stock Investment Downturn of Fuel Energy Oil/Gas Industry. Corona Virus Epidemic Crisis, Financial Economy

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’s results, today’s call may also include selected financial information and results for Cheniere Energy Partners LP, or CQP. We do not intend to cover CQP’s 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 to Q&A.

I will now turn the call over to Jack Fusco, Cheniere’s President and CEO.

Jack Fusco: Thank you, Randy. Good morning, everyone, and thanks for joining us today as we review our second quarter results and improved full-year 2023 outlook. Following a record-breaking year for the LNG industry, activity levels particularly in the U.S. remain elevated with significant commercial momentum and multiple projects having reached FID this year as energy consumers worldwide look to secure cost competitive, reliable natural gas supply in pursuit of achieving evolving energy, economic and environmental policies and goals. Such activity confirms liquefied natural gas as a preferred clean energy solution underscoring its critical long-term role in the global energy mix. Recently, the short-term global gas benchmarks have been volatile as markets try to adjust to a multitude of factors like weather, storage and economic growth that drive all commodity businesses.

With over 150 million tons under construction globally and expected to come online over this decade, we expect pockets of volatility in the future as the market adjusts and absorbs this new supply. Cheniere is built to thrive in this volatility as a highly contracted nature of our cash flow profile ensures visibility in our returns, while maintaining some exposure to the upside when markets dislocate like they did last year. At Cheniere, our focus is centered on the long-term fundamentals for natural gas worldwide and today, those fundamentals remain as strong as ever, with the global LNG market expected to nearly double by 2040, hundreds of millions of tons of new LNG capacity will need to be developed to meet this demand and our platform is ideally set up to enable us to accretively capture our fair share.

Please turn to Slide 5, where we will review key operational and financial highlights from the second quarter 2023 and introduce our upwardly revised full-year financial guidance. The second quarter was once again highlighted by excellent performance across the Cheniere platform. First and foremost, our relentless focus on operational excellence continues to set us apart and the successful completion of our planned maintenance at both Sabine Pass and Corpus Christi during the quarter further reinforces our execution capabilities and our stellar operating reputation that our long-term customers expect and appreciate. Also during the quarter, our commercial momentum on the SPL expansion project accelerated with three new long-term SPA in support of that project.

And on project execution, Bechtel continues to progress Corpus Christi Stage-3 well ahead of schedule, increasing my optimism for that project being completed ahead of the guaranteed date. We have generated consolidated adjusted EBITDA of approximately $1.9 billion in the second quarter, distributable cash flow of approximately $1.4 billion and net income of approximately $1.4 billion. These outstanding financial results are the product of our safe, stable and reliable operations at our facilities. Those operations resulted in the export of 149 cargoes in the second quarter, down from the record levels we have set in recent quarters due to the planned maintenance that was performed. And I will review the major turnaround at Sabine Pass in more detail in a minute.

Looking ahead to the balance of 2023, our forecast has improved slightly. And today, we are raising our full-year guidance ranges by $100 million to $8.3 billion to $8.8 billion of consolidated adjusted EBITDA and $5.8 billion to $6.3 billion of DCF. The increase is mainly driven by the release of the remaining few cargoes that have been reserved for origination this year as well as some optimization and subchartering activity. Zach will provide more color on the guidance, but we have excellent visibility into the balance of the year, and we are confident in our ability to finish the year within these new ranges. During the second quarter, Zach and his team continued to progress on our comprehensive capital allocation plan. We paid down another $200-plus million of long-term debt.

We bought back over two million shares for $337 million, and we paid a quarterly dividend of $0.395. In addition, we opportunistically refinanced our next debt maturity enabling further financial flexibility and doing so in a cost-efficient manner. On Stage-3, we continue to equity fund that project, investing approximately $200 million during the quarter and over $2 billion to-date. As I mentioned on the last earnings call, certain construction activities on Stage-3 are taking place ahead of plan, and I remain optimistic and schedule outperformance and potentially having more LNG volumes in 2025 and possibly the entire Seven Train project complete by the end of 2026. Stage-3 is over 38% complete, and the construction activities continue to ramp up as we now have nearly 1,000 personnel on site.

In fact, during the second quarter, the first structural still was erected, an important milestone for Stage-3 as construction activities advanced and the project begins to take shape. Anatol and his team were also extremely busy in the second quarter as we signed 3 new long-term SPAs, which are expected to support the SPL expansion project. The SPAs are with Korea Southern Power and repeat customers Equinor and ENN and represent a mix of FOB and DES terms. The SPAs aggregates to just under four million tons per annum, each with a certain amount of volume tied to an FID of the First Train of the SPL expansion project. While it is early the diversity of this growing, creditworthy contract portfolio speaks to not only the strength and the long-term fundamentals of the LNG market, but also the value of the LNG marketplaces on Cheniere specifically.

Turn now to Slide 6. You might recall last year, we sanctioned Corpus Christi Stage-3 with a diverse portfolio of FOB, DES and IPM contracts signed with customers from Asia to Europe to North America, featuring utility end users and portfolio players alike. Our customer portfolio is a result of continuous commercial innovation, in a customer-focused strategy that prioritizes collaboration and tailored energy solutions for our customers. We expect the contract portfolio on the SPL expansion project to reflect similar diversity and our early progress with KOSPO, Equinor and ENN, all investment-grade counterparties certainly support that. We are extremely excited about the commercial momentum we have gained on the SPL expansion project in such a short time, and I’m optimistic there is more long-term business to do in support of the project this year.

We look forward to continuing to build on the contract portfolio that features the breadth, depth and scale that sets us apart from the competition. Turn now to Slide 7. I will provide some details around the major maintenance turnaround we completed on Sabine Pass Trains 1 and 2 during the quarter. This was the largest maintenance turnaround we have completed yet at Cheniere. And first and foremost, I’m proud to say the event was completed successfully on schedule and most importantly, with zero recordable or loss time injuries. The turnaround was successful, not only in terms of the important maintenance work executed under Trains 1 and 2, but also as it provides a foundation and some significant lessons learned as we conduct planning for future large-scale maintenance turnarounds.

During the month of June, Trains 1 and 2 at SPL were offline for about 25 days. In approximately a 25-day span, we had an incremental approximate 1,400 personnel on site at Sabine Pass. Those personnel completed approximately 10,000 total tasks across 2,000 work orders with all of that work requiring over 2,250 permits to be issued. To have an effort like that completed in under four weeks, speaks to the enormous amount of planning and preparation ahead of time as well as an excellent execution and coordination throughout the event. I would like to recognize all those involved, especially our Cheniere personnel and our long-time equipment partners at Baker Hughes for delivering outstanding results and further reinforcing Cheniere’s reputation for successful execution and demonstrating our safety-first culture from start to finish.

The success of this major turnaround provides enormous benefits to Cheniere as well as our customers as we will use our experiences to inform maintenance planning in the future as well as with the goal of remaining a world-class operator in the eyes of the LNG industry, employees and stakeholders alike. Stable and reliable operations have never been more critical as energy security concerns have become a significant priority around the world, and our dependable operations continue to grow as a distinct competitive advantage. Last month at the LNG 2023 Industry Conference in Vancouver, energy security and reliable LNG operations were primary themes in the hallways and in the presentations on the main stage. I was proud to hear many of our long-term customers acknowledge and thank Cheniere specifically for being such a reliable and responsible LNG supplier.

The value of that track record is clearly being demonstrated evidenced by not only the financial results and guidance we reported this morning, but also by the four million tons per annum of contracts we signed this quarter. We will continue to press this and our many other competitive advantages as we commercialize additional capacity on the Sabine Pass expansion project. On that note, I will hand it over to Anatol to further address the LNG market and our commercial strategy. Thank you all again for your continued support of Cheniere.

Anatol Feygin: Thanks, Jack, and good morning, everyone. Throughout the second quarter, international gas benchmarks continue to moderate briefly returning to single-digit territory as global inventory levels reach historic highs amid mild weather and tepid macroeconomic activity in most of the key demand centers. Although the extreme prices and volatility of 2022 appear to be in the rearview mirror, prices remain above historical norms and the market continues to react to news of any potential disruption. TTF contract settled at $7.75 in MMBtu, the lowest monthly settlement since April of 2021, but it is higher more recently, selling July at $11.30 due to extended maintenance in Norway. Similarly, JKM delivery prices dropped from about $14 an MMBtu for April to settle around $9.60 for July and back up around $11.90 MMBTU for August thanks to cooling demand load, LNG outages and summer maintenance.

In the U.S., mild weather and production growth kept Henry Hub prices below $3 during the quarter, incentivizing coal-to-gas switching, which, along with lower renewable generation and coal retirement have significantly increased power sector demand, helping balance the market. Strong summer cooling demand along with the return of LNG facilities for maintenance has provided milder support to prices with the August contracts settling just below $2.50. While concerns about near-term market tightness have moderated amid softer near-term fundamentals and continued uncertainty around the pace of China’s recovery, we still view the market to be structurally tight and delicately balanced over the next few years as very limited new supply is set to enter the market globally, leaving further potential for upside risks going forward.

With that in mind, let’s now turn to Slide 9 to address regional dynamics in more detail, starting with Europe. During the second quarter, Europe’s LNG imports continue to grow year-on-year despite ongoing efforts to reduce gas consumption. LNG flows to Europe grew 9% year-on-year or 2.7 million tons for the second quarter on the back of strong U.S. growth in April and May. June imports were relatively flat driving TTF prices near precrises levels before picking up again on news on an extended outage at Hammerfest LNG and other gas processing facilities. Reduced gas consumption coupled with elevated gas processing facilities. Reduced gas consumption coupled with elevated storage levels at the top of the five-year range, continue to weigh on the European market with data from the IEA suggesting the total European gas demand fell by more than 30 BCM in the first half of 2023.

Total electricity generation has declined considerably, falling 9% in the first half of 2023 relative to historic averages, largely as a result of the Russian and Ukraine war and slower economic growth throughout the region. This decline, coupled with notable gains in renewable power generation, resulted in lower demand for thermal generation further contributing to the decline in total gas consumption. However, we started to see a deceleration of these trends in the second quarter as gas burn economics improve. Once overall energy demand levels are gradually restored in Europe, we expect natural gas to regain its share in the supply stack and maintain its critical role in Europe’s power mix. Furthermore, the coal, lignite and nuclear base load capacity retirement is currently underway in Germany and other European countries should increase demand for gas capacity to maintain grid reliability and flexibility in the power supply stack amid increasing renewable capacity.

Let’s now turn to Slide 10 to discuss Asia. While LNG demand across Asia has remained largely subdued year-to-date, increased imports in China, South and Southeast Asia during the quarter were offset by further demand decline in Japan with only 14 million tons of LNG imported by the country in the second quarter, representing an 18% decline year-on-year. In fact, May registered the lowest import levels in Japan in 15-years as consumers were incentivized to conserve energy amid electricity rate hikes. Additionally, nuclear availability impacted gas demand in the power sector. We expect this trend to continue as two additional nuclear reactors in Japan are scheduled to restart in the third quarter. Similarly, we expect to see nuclear pressures on LNG spot buying in Korea too where LNG imports were flat in Q2 with the start-up of the 1.4 gigawatt Shin Hanul 1 nuclear plant last year and the expected startup of the similarly sized Shin Hanul 2 in the third quarter of this year.

In India, imports during the quarter trended slightly higher compared to last year, increasing by about 4% year-on-year. Despite the further decline in JKM, prices remained too elevated during the quarter to elicit a meaningful response from price-sensitive South Asian buyers. Southeast Asian demand showed significant growth during the quarter as imports increased 31% year-on-year. Thailand, the main driver of the region’s demand grew imports 43% or one million tons in Q2 amid a heat wave that sent temperature soaring. Southeast Asia is expected to be an important growth market in the future as it expands its import infrastructure. The region added a new market in the second quarter as the Philippines imported its first cargo in April. And just last month, Vietnam started commissioning its first regas terminal to service a new 1.5 gigawatt gas-fired power plant.

In China, LNG imports picked up in the second quarter, increasing 20% year-on-year. A warm and dry summer triggered a rebound in spot buying activity as a persistent heat wave and low hydropower generation output increased demand for natural gas. China’s hydropower dropped 28% year-on-year in the first half of 2023, helping boost electricity demand from other sources, including gas. In fact, during the quarter, overall gas demand grew 10% year-on-year despite some macroeconomic headwinds in China. Let’s now turn to Slide 11 for some thoughts on the market for long-term contracting. Despite some of the near-term market dynamics discussed earlier, pointing to potentially softened demand for LNG in the front of the curve, which as Jack noted, we are largely insulated from, over the last 12-months to 18-months, we have witnessed record levels of long-term contracting, particularly for U.S. volumes as the long-term trade outlook continues to call for further growth in LNG supply.

In aggregate, the level of long-term Henry Hub linked contract signed in 2022 alone far exceeded the total signed over the six preceding years combined and the market looks to be on track to potentially repeat this level of contract activity this year. As we previously discussed, we expect demand from China and other fast-growing Asian economies to underpin the next LNG supply wave, representing over 70% of the LNG demand growth through 2040. Asian demand, coupled with Europe’s desire to replace Russian supply has driven recent commercial activity. Although Asian customers and portfolio players have been the largest and most active buyers of long-term volumes globally over the past 18-months, European counterparties have certainly stepped up, signing contracts representing over 20 MTPA of which 18 MTPA is tied to U.S. projects or about a quarter of the total U.S. volumes signed since 2022.

At Cheniere, we have signed over 15 million tons of long-term contracts in just the last 18 months, 30% of which are expected to underpin our future growth at both Corpus and Sabine Pass. While mid-scale Trains 8 and 9 are fully commercialized, the origination team is hard at work constructing the portfolio for the SPL expansion project. As Jack mentioned, our success to date has been a direct result of our resolute commitment to operational excellence and financial discipline across everything that we do. Our contract portfolio today is comprised of a diverse mix of contract structures with varying terms and tenors, all of which were signed with high-quality, creditworthy and geographically diverse counterparties who value the flexibility and reliability of our products.

In fact, several of our recently signed contracts were signed with repeat customers, ENN and Equinor most recently, but also EOG, ENGIE and Petro China last year, signaling the mutual commitment to quality we share with our long-term customers. As we continue to commercialize our growth projects, this commitment will remain steadfast. With that, I will turn the call over to Zach to review our financial results and guidance.

Zach Davis: Thanks, Anatol and good morning, everyone. I’m pleased to be here today to review our second quarter 2023 results and key financial accomplishments, all of which are products of our team’s dedication to operational excellence, seamless execution and financial discipline as we continue to serve our customers across the world while creating long-term value for our stakeholders. Turning to Slide 13. For the second quarter, we generated net income of approximately $1.4 billion, consolidated adjusted EBITDA of approximately $1.9 billion and distributable cash flow of approximately $1.4 billion. Relative to recent quarters, our second quarter results reflect a higher proportion of our LNG being sold under long-term contracts, less volumes being sold into short-term markets, continued moderation of international gas prices as well as the operating cost and production impact from the major turnaround at SPL during the quarter.

Once again, these impacts were partially offset by the proactive locking in of a large portion of our open cargoes for the quarter, late last year and earlier this year and margins above what is in the market today. During the second quarter, we recognized in income 561 TBtu of physical LNG, including 547 TBtu from our projects and 14 TBtu sourced from third parties. Approximately 85% 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 have noted in prior earnings calls, our reported net income is impacted by the unrealized, non-cash derivative impacts to our revenue 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.

The further decline in sustained moderation and volatility of international gas price curves throughout the second quarter serve to benefit the mark-to-market valuation of these agreements, increasing our net income line item for the third quarter in a row. With today’s results, we have earned cumulative net income of approximately $8.4 billion for the trailing 12-months and have now reported positive net income on a quarterly and cumulative trailing four quarter basis, three quarters in a row. Throughout the quarter, we continue to deploy capital pursuant to our comprehensive capital allocation plan, increasing shareholder returns, strengthening our balance sheet and pursuing accretive growth. In June, we refinanced and replaced our existing secured credit facilities at CQP and SPL with a new $1 billion senior unsecured facility at CQP and a $1 billion senior secured facility at SPL.

These transactions extended the original maturities, migrated some capacity from the project to parent, desecured some of our borrowing capacity and further enhanced our liquidity with more flexible terms. These new facilities, combined with the CEI and CCH credit facilities, and our cash on hand, provide ample consolidated available liquidity, affording us even greater optionality as we continue to execute on our long-term capital allocation plan while effectively operating and constructing the second largest LNG platform in the world. During the quarter, we repaid a little over $200 million of long-term indebtedness through our open market repurchase program. Substantially all of which was used to repurchase a portion of the senior secured notes due in 2024 at SPL.

In June, we further addressed these notes opportunistically with our inaugural investment-grade offering at the parent level, $1.4 billion of 5.95% senior unsecured notes at CQP. The net proceeds from this offering were used to further refinance and redeem approximately $1.4 billion of the SPL 2024 notes, not only extending our maturity but also desecuring and further desubordinating our balance sheet, all three of which are key tenets to the balance sheet strategy set forth in our capital allocation plan. As discussed on previous calls, we plan to address the remaining balance of the SPL 2024 notes with cash on hand later this year and into next, after which point, we will have addressed all maturities through early 2025. In the meantime, you can expect we will continue to opportunistically delever utilizing our open market repurchase program.

On the ratings front, just last week, Fitch upgraded CCH to BBB from BBB-, bringing our project level ratings in line at Fitch. In April, Moody’s announced that CEI and CCH were under review, which, if upgraded, would further solidify our corporate structure as investment grade. As noted on the last call, now that we have achieved investment-grade ratings across our corporate structure. Going forward, we are targeting a one-to-one ratio of deleveraging and share buybacks on an aggregate basis. During the quarter, we repurchased approximately 2.3 million shares of common stock for approximately $337 million. As we have previously noted, there will likely be a catch-up trade over the next year or two in order to achieve that one-to-one ratio, where our opportunistic repurchase plan will outpace debt repayment over that time.

We are confident that we will deploy the remaining $2.8 billion of our share repurchase authorization to complete our $4 billion plan ahead of schedule, as our goal to repurchase approximately 10% of the company remains intact. We also declared our eighth quarterly dividend of $0.395 per common share for the second quarter last week. Later this year, we expect to be able to step up the dividend in line with our previous guidance of growing our dividend by approximately 10% annually into the mid-2020s through construction of Stage-3. And for the final pillar of our comprehensive capital allocation plan, disciplined growth, we funded approximately $200 million of CapEx at our Stage-3 project during the quarter with cash on hand as this remained the most efficient form of funding during the quarter.

However, we will have over $3 billion available on our CCH term loan that we plan to utilize in the coming years. As Jack mentioned, the Bechtel and Cheniere teams have made meaningful progress year-to-date, so we are optimistic on the timing of those volumes and our ability to bring another over 10 million tons to market ahead of schedule. Turning now to Slide 14, where I will discuss our 2023 guidance and update you on our open capacity for the remainder of the year. Today, we are raising our full-year 2023 guidance ranges by $100 million to $8.3 billion to $8.8 billion in consolidated adjusted EBITDA and $5.8 billion to $6.3 billion in distributable cash flow. With respect to our EBITDA sensitivity for the remainder of the year, we have an immaterial amount of unsold LNG remaining.

So we have excellent visibility of delivering results comfortably in these ranges for the year and in cargoes originally reserved for origination. Combined with the incremental margin from optimization activities, this gives us further clarity around our expected financial results for the year and supports the increase to our ranges today. As always, our results could be impacted by the timing of certain year-end cargoes heading into 2024 as well as incremental margin from further optimization of upstream and downstream of our facilities. Our distributable 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 would 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-2020 as we think about our overall capital allocation plan and our 2020 Vision goals. Similar to this past year, we look forward to providing additional insight on our 2024 production profile and open capacity on our next call in November, with official 2024 financial guidance to come out with our Q4 and full-year 2023 results in February. As we have consistently forecasted, including in our 2020 vision, 2024 may end up being our most contracted year ever on a percentage basis, ahead of Stage-3 coming online in 2025 and 2026, which is expected to grow our operating LNG portfolio to over 55 million tons per annum.

Despite some near-term challenges in the market like cost inflation, higher borrowing costs and competition, the global market is clearly calling for new LNG supplies given the many advantages of natural gas as a primary energy source. At Cheniere, we are well positioned and committed to providing energy solutions for our customers, developing and building projects that deliver appropriate risk-adjusted returns for our investors and stakeholders and operating and maintaining our facilities with the safety first culture in order to be the LNG provider of choice for decades to come. 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.

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Q&A Session

Operator: Our first question comes from Jeremy Tonet with JPMorgan.

Jeremy Tonet: Just want to start off with the balance sheet, if I could. I think there was $4.5 billion of cash on the balance sheet. So a mountain of cash there and just wondering how you think about deploying that. Clearly, there will be some debt paydown and some funding for expansions. But as far as return to capital, just wondering if you might be able to provide a bit more color there, just $4.5 billion being a sizable number.

Zach Davis: Thanks, Jeremy. This is Zach. So as you think about the $4.5 billion of unrestricted cash that had an increment — in that was a $1.4 billion related to the bond proceeds from the CQP bond we did in late June. That was a refinancing that was executed in early July. So you have to take at least $1.4 billion out of that. And then when you think about how much is actually sitting at CEI versus CQP, it is in the mid-2s. So clearly, there is ample liquidity when you consider that our guidance of $6 billion of DCF or so, and we have made around $4 billion of that to date. So when you think about liquidity, we like to keep around $1 billion on the balance sheet at all times, give or take. We probably have around another $1 billion to spend on the Corpus Stage-3 project this year and then the dividend that were set to increase in Q3, like the guidance that we had last year.

So you take all that into account, there is still probably a couple of billion dollars there. And I will just reiterate what we keep on saying is that we are intent to catch up on the one-to-one cumulative ratio between debt paydown and share buybacks over time. And we are on track to do so. So there will be, over time, billions of dollars allocated to our buyback program. We are just going to stick to our opportunistic approach, abide by 10b5-1 rules, and we will follow through and eventually get to that $20 per share of run rate cash flow.

Jeremy Tonet: Got it. That makes sense. A couple of billion dollars of cash, nice to have discretionary on the balance sheet there. Maybe pivoting a little bit and just see the guidance raised again there. Wondering if you might be able to provide a bit more color as far as the optimization opportunities, be upstream, downstream or at the facilities, what they are, how big they are, how sticky they are. Does any of this impact, I guess, run rate EBITDA as you think about it?

Zach Davis: So I guess the good thing on that is no, it doesn’t affect run rate EBITDA because we really don’t guide to it until it is firm. So as we think about run rate EBITDA over time that is just based on the fixed fees, the open capacity at 2.25 and a basic lifting margin. That is it. So these are the types of examples that are the incremental optionality that comes with like the Cheniere platform from our Brownfield growth to the opportunities upstream with lifting margin and being such a big customer to most of the pipes upstream of the plant and the biggest consumer of natural gas in the United States to being a relatively big charter with our DES and IPM deals. So basically, what happened in the quarter was we firmed up the more of the sub chartering, let’s say, of some of our length on our shipping portfolio.

And once that is firm, I see it in the guidance and that helps move the numbers upward. Add to that we released those four origination cargoes. Anatol and the team build another four million tons without meeting needing much in terms of bridging, and we were pretty much obligated to increase guidance by $100 million this quarter.

Operator: We will go next to Jean Salisbury with Bernstein.

Jean Salisbury: Can you speak to what sort of cost inflation you are expecting for Corpus Christi eight and nine, assuming that you do it as you progress there?

Jack Fusco: Jean, I’m not expecting much. We have been very effective with Bechtel on buying materials when we see low points. I think our overall inflationary environment has been around 10% so far from us being working closely and collaboratively with Bechtel on the procurement. So I would expect that to be the same for eight and nine also.