Cheniere Energy, Inc. (AMEX:LNG) Q4 2023 Earnings Call Transcript

Cheniere Energy, Inc. (AMEX:LNG) Q4 2023 Earnings Call Transcript February 22, 2024

Cheniere Energy, Inc. beats earnings expectations. Reported EPS is $5.85, expectations were $2.7. Cheniere Energy, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

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

Randy Bhatia: Thanks, Operator. Good morning, everyone, and welcome to Cheniere’s fourth quarter and full year 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 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 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 three. Jack will begin with operating and financial highlights, Anatole will then provide an update on the LNG market, and Zach will review our financial results and 2024 guidance. After prepared remarks, we will open the call for Q&A.

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

Jack Fusco: Thank you, Randy. Good morning, everyone. Thanks for joining us today as we review a successful 2023 and discuss our outlook for what is setting up to be a very busy and promising 2024. In 2023, we drove exceptional results across the key strategic priorities of the company and we did so while reinforcing our track record on safety, execution and operational reliability. I’m extremely proud of my 1,600 Cheniere colleagues across operations, engineering and construction, origination and others who continue to be driven by excellence and take pride in solidifying Cheniere as best in class across our platform. We made significant strides despite some persistent macro headwinds and increased uncertainty in 2023, each largely driven by conflict, geopolitics and the evolving regulatory landscape, particularly right here in America.

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Q&A Session

I’ll touch on the latter in a moment, but the macro backdrop for LNG today provides a blunt yet clear reminder of the criticality of secure and stable energy supply and the value of a reliable and customer-focused operator who consistently delivers on its promises to its global stakeholders. Please turn to slide five, where I’ll renew some key operational and financial achievements from the fourth quarter and full year 2023 and introduce our 2024 financial guidance. We generated consolidated adjusted EBITDA of approximately $1.65 billion in the fourth quarter, bringing our full year total to approximately $8.8 billion, the high end of our most recent guidance range. We generated approximately $1.1 billion of distributable cash flow in the fourth quarter and $6.5 billion for the full year, which is above the high end of our guidance range.

Looking back at the original guidance provided for 2023, we beat the midpoint of each of those guidance ranges by over $500 million, once again illustrating the volatile nature of current global natural gas markets and the value of Cheniere’s platform to monetize that volatility last year. For the fourth quarter, we generated approximately $1.4 billion in net income, bringing the full year total to approximately $9.9 billion. Strategically, 2023 was another year marked by significant accomplishments across the entire platform, and I’ll highlight just a few of them here. First and foremost, we continue to execute on the company’s long-term objectives with safety at the foundation of our actions, and in 2023, we once again demonstrated this by achieving a total recordable incident rate of 0.10, which is well within the top decile for industrial producers.

We achieved this while simultaneously operating the second largest LNG platform in the world and being deep in construction on a 10-plus million ton per annum expansion project. These safety results are a source of tremendous pride for me and that pride should be felt by all the company stakeholders. We produced and recorded a record 169 LNG cargoes in the fourth quarter, bringing the total to a record 637 cargoes for the full year. Total production was in line with our forecast of about 45 million tons, inclusive of the successful major maintenance turnaround that’s being passed over the summer. Europe remained the premium market for U.S. cargoes across 2023, as 73% of the volume produced at our facilities was delivered to Europe. Five new long-term customer contracts commenced over the course of 2023, representing approximately 3.7 million tons per annum.

And earlier this month, we commenced our 1.1 million ton per annum PETRONAS contract, which was tied to Train 6 on the very first day of the DFCD window, holding to our standard of always meeting our customer commitment. On the E&C front, Corpus Christi Stage 3 is progressing on an accelerated timeline and we continue to forecast first LNG production from Train 1 at the end of this year. In 2023, we advanced total project completion to over 50%. I’m extremely pleased with the progress we continue to make together with Bechtel on Stage 3, and I’m optimistic for further schedule improvements over time. We took some important steps last year in preparation for Stage 3 to commence commissioning and operations. Construction on the ADCC Pipeline being built from Agua Dulce to support Stage 3 is progressing well and the pipeline is expected to be in service in the third quarter in advance of Train 1’s accelerated startup.

In addition, in the second half of last year, we purchased for approximately $100 million an existing 400-megawatt power plant in Corpus Christi, which is located on our property, in order to help mitigate risks associated with our increased power purchasing needs once Stage 3 commences operations. These milestones, coupled with the construction progress on the project, reinforces my confidence in Stage 3’s timeline, improving over time with first LNG this year and meaningful LNG production added to our portfolio in 2025. Our commercial momentum continued in 2023 as LNG buyers the world over helped get the commercialization of the SPL expansion project off to an incredibly promising start. We have signed long-term agreements with six counterparties across Asia, Europe and Canada for an aggregate of over 6.5 million tons per annum, effectively commercializing all of Train 7.

We are encouraged by the market’s early reception, especially since the majority of these counterparties are repeat customers. I view it as a recognition of the value of Cheniere’s reputation. We are focused on furthering development of the project in 2024 across commercialization, regulatory and financing work streams, with a focus on submitting our full permit application with the FERC before the end of this quarter. Throughout 2023, Zach and his team continue to execute on the 2020 Vision Capital Allocation Plan, making significant progress across the key pillars of the plan, debt reduction, capital return and disciplined growth investments. We’ve paid down over a $1 billion of debt and achieved investment-grade ratings throughout our structure.

We bought back almost 10 million shares for approximately $1.5 billion and declared dividends of $1.66 per share and we invested approximately $1.5 billion into Stage 3. We’ve made great strides on the comprehensive plan since announcing it in late 2022. And now, turning our focus and attention to 2024, I am pleased to introduce our 2024 financial guidance of $5.5 billion to $6.0 billion in consolidated adjusted EBITDA, $2.9 billion to $3.4 billion in distributable cash flow and $3.15 per unit to $3.35 per unit distribution of CQP. We, again, are forecasting annual results that are above the midpoint of our run rate 9-train guidance and our expected results this year have a tremendous amount of visibility, given on how highly contracted we are.

On the CQP distribution guidance, consistent with the prior messaging, we intend to maintain the $3.10 base distribution and adjust the variable component beginning in 2024 in order to begin preserving some cash and fortifying the CQP balance sheet as the SPL expansion project gains momentum. Zach will provide more details on the 2024 guidance in a few minutes. Turn now to slide six, where I will address the DOE news and our response. As you’re all aware, the Department of Energy recently announced it would suspend making determinations on authorizations for LNG exports to non-free trade agreement countries, pending an update to the economic and environmental analysis underpinning its public interest determination methodology. While this decision does not currently impact our expansion projects or our FERC processes at Sabine Pass and Corpus Christi, it does introduce regulatory and permitting uncertainty into the U.S. LNG industry as a whole.

I firmly believe that a fair and transparent regulatory framework is essential for the future development of natural gas infrastructure in the United States, particularly liquefaction capacity, given the scale of investment, commercial support and time required to bring these projects online. With that said, we believe we will secure all necessary regulatory approvals for mid-scale Trains 8 and 9, and the SPL expansion project within our expected timelines, as we have for more than a decade under multiple administrations. To be clear, the DOE action has not slowed down our expansion projects at either site. We are full steam ahead on Corpus Christi Trains 8 and 9 and the SPL expansion project development. We expect to file the FERC application for SPL very soon, and Corpus Christi Trains 8 and 9 are in advanced stages in the FERC approval process.

The environmental assessment for Trains 8 and 9 is scheduled for receipt by the end of March, and we just received a letter of determination from PHMSA, a key agency in the FERC process last week. We remain confident that our previous timelines won’t be materially impacted and we will maximize the efficiency with having Bechtel on site already through Stage 3. Having spent the last eight years at Cheniere, I’ve never been more confident in the critical role of U.S. LNG in the global energy market, and I firmly believe the DOE studies will come to the same conclusion given, one, the importance of long-term energy security, two, the opportunities for global decarbonization through coal-to-gas switching for power generation and the critical role that dispatchable gas-fired power plants plays in backstopping intermittent renewables, three, low and stable domestic natural gas prices, and of course, four, the incredible economic benefits created in the communities where we live and work.

Global energy markets are calling for additional LNG supply. The U.S. is significantly advantaged to answer this call with our abundant and low-cost natural resources, flexibility and affordability of U.S. volumes, and until recently, the reliability and certainty of the U.S. regulatory regime. Gulf Coast LNG positions the U.S. as a leader in facilitating energy security and worldwide emissions reductions. This is a generational opportunity, something we should be proud of and working to maximize, not restrict. With that, I’ll hand it over to Anatol to discuss the LNG market. Thank you all again for your continued support of Cheniere.

Anatol Feygin: Thanks, Jack, and good morning, everyone. The global LNG market continued to rebalance throughout 2023 as Europe navigated its energy crisis and Asia adapted to the delicate new market equilibrium amid some regional economic headwinds. Global LNG trade grew by approximately 3% from 2022, adding 10.5 million tons of supply to the overall market. Aside from 2020, global supply growth has not been this low since 2011 through 2015 period. Nevertheless, this increase in supply was broadly matched by an increase in Asian demand, which grew approximately 4% year-over-year to approximately 263 million tons per annum as the region furthers its post-pandemic return. On the supply side, only one new train came online in 2023 globally, the third train at Tangguh LNG in Indonesia.

Most of the growth in LNG output last year actually came from the continued ramp-up of existing projects in the U.S. The U.S. exported 86 million tons last year, becoming the world’s largest exporter in 2023, ahead of Australia and Qatar for the first time, and more than half of those volumes were produced by Cheniere. In the fourth quarter alone, U.S. exports reached record highs of nearly 24 million tons, contributing to the global market’s rebalancing. Despite persistent geopolitical unrest globally and the continued phase-out of Russian pipe gas in Europe, spot price levels have decreased this winter compared to last year due to a combination of mild weather, macroeconomic fundamentals, high storage levels and sufficient LNG supply availability.