Earnings Call: Q3 2019

Nov 1, 2019

Good morning, and welcome to the Cheniere Energy Incorporated Third Quarter 2019 Earnings Call and Webcast. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Randy Batya, Vice President of Investor Relations. Thanks, operator. Good morning, everyone, and welcome to Cheniere Energy's Q3 2019 earnings conference call. The slide presentation and access to the webcast for today's call are available at cheniere.com. Joining me today are Jack Busco, Cheniere's President and CEO Anatol Fagan, Executive Vice President and Chief Commercial Officer and Michael Wortley, Executive Vice President and CFO. Before we begin, I would like to remind all listeners that our remarks, including answers to your questions, may contain forward looking statements and actual results could differ materially from what is described in these statements. Slide 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 financial measure can be found in the appendix to the slide presentation. As part of our discussion of Cheniere Energy Inc. 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 Michael will review our financial results and guidance. After prepared remarks, we will open the call for Q and A. I'll now turn the call over to Jack Fusco, Cheniere's President and CEO. Thank you, Randy, and good morning, everyone. I'm pleased to be here today to discuss our results and accomplishments for the Q3 of 2019, as well as our outlook for 2020, which we expect to be a record setting year for Cheniere. The 3rd quarter was yet another quarter highlighted by achievements across multiple facets of our business and operations and across both of our world scale LNG facilities. Please turn now to Slide 5. For the Q3, we generated consolidated adjusted EBITDA of $694,000,000 and distributable cash flow of approximately $200,000,000 on revenue of approximately $2,200,000,000 We reported a net loss attributable to common stockholders of $318,000,000 for the quarter, which was impacted by non cash derivative losses and an impairment to our investment in the Midship project and certain other items that Michael will discuss in a few minutes. Looking forward to the rest of the year, we continue to expect our full year 2019 consolidated adjusted EBITDA to be in the range of $2,900,000,000 to $3,200,000,000 and we expect distributable cash flow to be between $600,000,000 $800,000,000 For 2020, we expect significant growth in our financial results as compared to 2019. And today, we are introducing 2020 guidance for consolidated adjusted EBITDA of $3,800,000,000 to $4,100,000,000 distributable cash flow of $1,000,000,000 to 1,300,000,000 dollars and a CQP distribution of $2.55 to $2.65 per unit. Michael will cover our financial results and guidance in more detail in a few moments. During the Q3, we signed our 2nd integrated production marketing or IPM transaction, this time with the OG Resources providing additional commercial support for Corpus Christi Stage 3. Under the terms of this deal, Cheniere will purchase 140 1,000 MMBtu of natural gas per day from EOG for a price linked to JKM for a term of approximately 15 years. The LNG associated with this gas supply approximately 0.85000000 tons per year will be marketed and sold by our marketing affiliate. This transaction represents further progress on the commercialization of Corpus Christi Stage 3 and supports our expectation of a positive final investment decision on that project during the first half of next year. The success of the IPM structure is another tangible example of Cheniere's market leading commercial innovation and demonstrates the value the marketplaces and our ability to tailor solutions to meet the needs of our customers. We continue to pursue additional IPM transactions, primarily in the Permian given Corpus Christi's advantage location with a focus on large investment grade producers. Train 2 at Corpus Christi reached substantial completion on August 28, 6 months to the day after the completion of Train 1 and became the 7th operational Cheniere train. Train 2 like the 6 trains before it was completed ahead of schedule and within budget. In the 1st 3 quarters of 2019, we reached substantial completion on 3 trains for approximately 15,000,000 tons of liquefaction capacity with each train an average of more than 9 months ahead of schedule. A product of years of development and the hard work of thousands of dedicated Cheniere and Bechtel professionals, This achievement further reinforces our global reputation for best in class project execution and I'll speak more about the continued progress on our liquefaction projects in a few minutes. In September, the data first commercial delivery or DFCD was reached under the 20 year contract with both Centrica and Total associated with the Train 5 at Sabine Pass. So the transformation of our cash flows continues as we have commenced 13 of our creditworthy customers under their long term take or pay style contracts. Also during the Q3, we achieved some significant milestones in the execution of our balance sheet and capital allocation strategies. We recently refinanced debt at both CQP and Corpus Christi and the latter was upgraded to investment grade credit ratings by both S and P and Fitch during the quarter, a milestone achievement for the Corpus Christi project. In addition, we commenced debt repayment, prepaying a portion of the Corpus Christi credit facility in support of our long term balance sheet strategy to achieve consolidated investment grade credit metrics at all rated entities over the next few years. We also continued repurchasing shares in the market opportunistically with approximately 2,500,000 shares repurchased in the 3rd quarter. We have now repurchased approximately 1% of our outstanding shares since the program commenced in late June. Operationally, we produced and exported 108 LNG cargoes during the Q3, a new quarterly record. And in October, we exported our 850th cargo. In addition, we completed additional successful maintenance turnaround at Sabine Pass in support of our 2019 maintenance program. The turnarounds for Trains 3, 4 and 5 involved over 490,000 man hours and 2,700 work orders and like the turnaround for Trains 12 earlier this year was accomplished ahead of schedule, on budget and most importantly with no safety incidents. Congratulations to Aaron Stephenson and the Sabine Pass team on further demonstrating the safety first Now turn to Slide 6 for an update on our liquefaction project Now turn to Slide 6 for an update on our liquefaction project operations and development. Since liquefaction operations began in early 2016, we have loaded and exported over 850 cargoes from our 2 projects or approximately 60,000,000 tons of LNG. As I mentioned earlier, our 7 operating trains have all entered service early, on average over 7 months ahead of the guaranteed completion date. As a result of the early completions and excellence in operations, our marketing affiliate has been able to sell over 200 cumulative cargoes of incremental LNG into the global market, a significant benefit to Cheniere and our shareholders. We remain laser focused on maintaining excellence and execution as both Sabine Pass Train 6 and Corpus Christi Train 3 progressed through construction. At Sabine Pass Train 6, Bechtel continues to progress construction efforts against an accelerated schedule. Project completion for Train 6 is over 38% as of the end of September. Construction is ramping up with headcount now over 500 and activities focused on foundation and column work and commencing structural steel. Bechtel is currently projecting substantial completion of Train 6 in the first half of twenty twenty three. At Corpus Christi Train 3, Bechtel also continues to progress construction efforts against an accelerated timeline. There are over 2,000 workers currently on-site for Train 3 and the project is over 2 thirds complete as of the end of September. Construction activities are focused on structural steel, above ground piping installations, mechanical and instrumentation activities and recently the concrete roof pour was completed on the 3rd LNG storage tank. Pecto now projects substantial completion of Train 3 in the first half of twenty twenty one and acceleration from the previously projected target for the second half of twenty twenty one. Our development efforts on Corpus Christi Stage 3 continue and that project remains on the expected timeline we have previously communicated. We continue to expect to reach FID for Stage 3 in 2020. We are currently in the process of evaluating EPC bids and we intend to have a cost competitive fully wrapped lump sum turnkey EPC contract in place over the next few months. On the regulatory front, we continue to expect full regulatory approvals for Stage 3 by the end of the year. And on the commercial side, significant progress has been made already with our IPM transactions with Apache and EOG and Anatol will speak in a minute on what we see in the market today that gives us confidence in commercial momentum to enable an FID of Stage 3 next year. Before turning the call over, I'll briefly outline what I see as some of Cheniere's key priorities for 2020. 1st and foremost, we plan to deliver on the 2020 financial guidance we rolled out today. We have good visibility into next year and 2020 should feature less volatility than 2019, given that much more of our overall production next year will be under long term contracts and there are no new trains scheduled to enter service next year. Another key priority for 2020 is to maintain our reputation for operational excellence. Our track record development, execution and operations is a key differentiator and a key competitive advantage and it is imperative that we keep our eyes on the ball. In May of 2020, we expect to reach the FCD with respect to Train 2 at Corpus Christi and commence the long term SBAs tied to Train 2. In 2019, our teams have done a tremendous job of onboarding new SBA customers with the DFCDs of contracts tied to Corpus Christi Train 1 and Sabine Pass Train 5 as well as some of our marketing SBAs and we expect that performance to continue next year. As I've already mentioned, we expect to reach FID for Corpus Christi Stage 3 next year. Stage 3 is an attractive growth project which will leverage a significant amount of infrastructure we've built in Corpus. We look forward to receiving our FERC permit later this year and finishing the remaining steps of commercialization and financing ahead of a full FID. Finally, in 2020, we will continue to pursue additional development opportunities to maintain our growth momentum. We have an incredible infrastructure and land position in Corpus Christi, which we expect to enable further brownfield expansion economics for future liquefaction projects. In addition to our own infrastructure, this location is proximate to significant new pipeline development and natural gas resources. Our Corpus Christi project is by far the closest LNG project either in operations or development to the Permian Basin. So our site is an ideal location to match new gas supply with global LNG demand over the long term. Our project development focus in 2020 is on leveraging those advantages to expand our LNG footprint in Corpus Christi beyond Stage 3. And now, I'll turn the call over to Anatol. Thanks, Jack, and good morning, everyone. Please turn to Slide 9. 2019 has continued to be a year of substantial global LNG supply growth. After adding a record 12,000,000 tons of supply in the 2nd quarter, another 10,000,000 tons of supply was added in the 3rd quarter. Full year 2019 is on pace to add about 40,000,000 tons of supply, which will be a new yearly record. This year's supply growth has been driven largely by U. S. Projects, including our projects, with substantial completion achieved for Corpus Christi Train 1 and Sabine Pass Train 5 in the Q1 and for Corpus Christi Train 2 in August. Other U. S. Projects have also reached recent milestones as Freeport Train 1 exported its first cargo in September and the first train at Elba Island recently entered commercial service. Incremental supply during the Q3 was absorbed primarily by Europe. The region continued its global balancing role as we also saw in the first half of the year. Europe imported a record 18,400,000 tons during the 3rd quarter, nearly double the import level as compared to a year ago. As this year's rapid supply growth has outpaced Asian demand growth, pushing incremental supplies to Europe and driving down spot prices, we've also seen a convergence of European and Asian spot gas prices. The spot price markers most commonly used in Asia and Europe, JKM and TTF respectively, have occasionally shown some deviations, but generally spreads between the two have narrowed as compared to previous years. In contrast to the decrease in TTF and JKN prices, Brent equivalent pricing continued to diverge and generally traded above the $10 an MMBtu level during the 3rd quarter, more than 3 times higher than Henry Hub and almost double ETF and JKM levels. Please turn to Slide 10. European imports were lower quarter on quarter, but remained well above prior year's levels. The quarter on quarter slowdown in imports was driven by strong storage levels and low gas prices in Europe and by an increase in imports into traditional counter seasonal markets and emerging Asian markets. European gas storage levels have continued to be above the 5 year range and storage was reported to be close to 100% full in the middle of October. These storage levels have allowed spot LNG prices to remain low and the European market to remain comfortable with supply and demand dynamics heading into the winter withdrawal season. Though negative news flow on Groningen, French nuclear facilities and lack of progress on the Ukraine transit agreement during the quarter are potential tailwinds. Pipeline flows into Europe also fell off during the Q3, helping to balance the market. All three regional flows into Europe from Russia, Algeria and Norway were lower quarter on quarter and Norway had the largest decline flowing 22% less than in the Q3 of last year. Low gas prices and strong LNG imports have also incentivized increased gas fired power generation. Spain has had the most noticeable response, increasing its gas power generation by 58% in the Q3 as compared to last year. The similar story in Germany, where gas power generation rose by 39% year on year in Q3. While hydro and renewables have oscillated in both countries, natural gas supported by low prices and a strong carbon price is taking market share away from coal. Please turn to Slide 11. Asian LNG imports in the 3rd quarter were slightly higher than 2018 and continued to trend above the 5 year range. Strong nuclear generation from legacy LNG consumers in Japan, South Korea and Taiwan has placed downward pressure on LNG imports this year. Lower imports from Japan and South Korea were offset by strong imports in the 3rd quarter from China, India, Bangladesh, Pakistan and Malaysia, all of which have experienced double digit growth from last year. Looking ahead, there are several developments and themes worth following that are expected to be favorable to Asian LNG demand growth. In Japan, there have been challenges in complying with anti terrorism retrofits on time at nuclear facilities, resulting in the potential closure of 12 gigawatts of nuclear capacity. In South Korea, there are plans for more temporary closures of coal fired power plants during winter. A proposal was submitted to the President of South Korea to close 14 coal fired plants from December to February and another 22 in March in addition to the 5 currently scheduled to be closed from March to June. China recently announced the target to replace dispersed coal with clean heating options this year. 5,200,000 households across 28 cities are targeted to switch to cleaner burning options, 45% higher than in 2018. While the impact on gas demand based on this policy is not yet known, it's a good example of China continuing to implement environmentally driven policies, which should incentivize stronger gas demand going forward. As we look toward winter 2020, the market will continue to absorb the recent amounts of new supply that have come online. At 40,000,000 tons, the LNG supply growth this year has been unprecedented. However, this wave is well over 80% behind us with only 24,000,000 tons or about 17% of incremental supply forecast to come online between now and the end of next year. Asian demand has continued to grow and Europe has largely balanced the market in part by rebuilding the muscle memory of natural gas imports and consumption. The forward margin curve remains in steep contango and margins, while not what I would characterize as robust, are fairly healthy only a couple of quarters out on the curve. We continue to expect that the prospects for global natural gas demand growth, our commercial momentum and our advantaged position of U. S. Gulf Coast LNG exports will enable us to capture significant additional term economics. We remain confident that these efforts should aggregate sufficient commercial support for Corpus Christi Stage 3 to move forward next year. Thank you for your time and attention. I'll turn it over to Michael, who will review our financial results. Thanks, Anatol, and good morning, everyone. Turning to Slide 13. For the Q3, we reported a net loss of $318,000,000 consolidated adjusted EBITDA of $694,000,000 and distributable cash flow of approximately $200,000,000 For the 9 months ended September 30, we reported a net loss $291,000,000 consolidated adjusted EBITDA of approximately $2,000,000,000 and distributable cash flow of approximately 520,000,000 As Jack mentioned, during the Q3, net loss was negatively impacted by an impairment of approximately $80,000,000 to our equity investment in the Midship project. This is due to cost overruns and extended construction timelines at the Midship project resulting in a reduction of the expected fair value of our equity interest. Net loss for the quarter also included an approximately $140,000,000 non cash loss from changes in the fair value of commodity derivatives primarily related to our gas supply contracts and an approximately $80,000,000 non cash loss related to interest rate derivatives. We exported 383 TBtu of LNG from our liquefaction projects during the Q3, an increase of 22 TBtu over the 2nd quarter, primarily due to incremental commissioning and operational volumes from Corpus Christi Train 2, which was completed and placed into service in August. We exported 20 TBtu of commissioning volumes during the Q3 related to Train 2. For the 9 months ended September 30, we exported over 10.50 TBtu from our liquefaction projects. For the Q3, we recognized an income 3.64 TBtu of LNG produced at our liquefaction projects consisting of 364 TBtu loaded during the quarter plus 36 TBtu loaded in the 2nd quarter, but delivered and recognized in the 3rd quarter less 36 TBtu sold on a delivered basis and in transit at the end of the 3rd quarter. We also recognized an income 8 TBtu of LNG that was sourced from 3rd parties. Approximately 73 percent of the 364 TBtu recognized in income from our projects during the quarter was sold under long term SPAs and the remaining 27% was sold by our marketing affiliate either into the spot market or under short and medium term Volumes sold under long term SPAs increased by 38 TBtu compared to the 2nd quarter, driven by a full quarter of volumes under the SPAs related to Corpus Christi Train 1, which reached the FCD on June 1 and by volumes under the SPAs related to Cinqim Pass Train 5, which reached the FCD on September 1. For the 9 months ended September 30, we recognized an income 998 PVtu of LNG produced at our liquefaction projects, of which 73% was sold under long term SBAs. We also recognized an income 31 TBtu of LNG sourced from third parties. Operating income for the 3rd quarter was $307,000,000 a decrease of $125,000,000 compared to the 2nd quarter. The decrease in operating income was primarily due to decreased total margin and a slight increase in total operating costs and expenses primarily related to Corpus Christi Train 2, for which revenue and costs began to be recognized in income after substantial completion in late August. Total margins or total revenues less cost of sales decreased by $112,000,000 in the 3rd quarter as compared to the 2nd quarter due to increased mark to market loss from changes in fair value of commodity and FX derivatives, partially offset by an increase in LNG volumes recognized in income. Margins for MMBtu of LNG recognized in income were materially consistent between quarters as lower LNG market pricing was largely offset by lower natural gas feedstock costs. Regarding the net loss from changes in fair value of commodity and FX derivatives, the impact is primarily related to changes in the fair value of agreements for the future purchase of natural gas. Certain of our gas supply agreements, including our IPM agreements, qualify as derivatives and require mark to market accounting. From period to period, we will experience non cash gains and losses as price or basis movements occur in the underlying commodities related to these forward contracts for purchase of natural gas. While operationally we seek to eliminate commodity risk by matching our gas purchases and LNG sales on the same pricing index, our long term LNG SPAs do not currently qualify for mark to market accounting, meaning that the fair value impact of only one side of the transaction is recognized until the delivery of natural gas and sale of our LNG occurs. We anticipate that this accounting treatment mismatch will For the Q3, the net non cash impact of changes in fair value of commodity and FX derivatives was a loss of approximately $140,000,000 and year to date September 30, the impact was a gain of approximately $40,000,000 Net loss attributable to common stockholders for the 3rd quarter was $318,000,000 or $1.25 per share compared to net loss of $114,000,000 or $0.44 per share for the 2nd quarter. The increase in net loss was driven primarily by decreased operating income, increased other expense related to the impairment of our equity investment in Midship, increased interest expense and increased loss on extinguishment of debt, partially offset by decreased net income attributable to non controlling interest. Net income attributable to non controlling interest decreased compared to the 2nd quarter due to a decrease in net income recognized by CQP which the non controlling interests are held. Please turn to Slide 14 where I will discuss 2019 2020 guidance. Looking forward to the remainder of 2019, as Jack and Anatol discussed, we continue to see a relatively soft short term LNG market environment. However, we have continued to have strong operating performance and have effectively hedged most expected production volumes for the remainder of the year. We remain on track to deliver consolidated adjusted EBITDA for the full year within our guidance range of $2,900,000,000 to 3,200,000,000 and distributable cash flow within our guidance range of $600,000,000 to $800,000,000 Today, we are issuing 2020 consolidated adjusted EBITDA guidance of $3,800,000,000 to $4,100,000,000 and distributable cash flow guidance of $1,000,000,000 to $1,300,000,000 and a CQP distribution of 2.55 dollars to $2.65 per unit. We expect stable operations during 2020 with 7 trains in service throughout the whole year and with the SBAs related to 6 of those trains already in effect and the SBAs for Corpus Christi Train 2 expected to reach DSTD in May 2020. The total volume produced at our facilities in 2020, we expect approximately 7,500,000 tons to be available to our marketing affiliate down from over 9,500,000 tons in 2019 and a significant portion of that capacity has already been hedged either physically or financially. This forecast considers production efficiencies as well as maintenance optimization, debottlenecking efforts, which have been implemented throughout this year. Our marketing volume forecast for next year is weighted towards the first half of the year due to the timing of DSCD for Corpus Train 2 SPAs. And we have been actively pre selling some of these volumes in both the physical and financial markets. We currently forecast that a $1 change in market margin would impact EBITDA by approximately $100,000,000 for full year 2020. Turning now to Slide 15. During the Q3, we completed several transactions which advanced key initiatives related to our long term balance sheet management and capital allocation strategy. In September, CQP issued $1,500,000,000 of 4.5 percent senior note due 2029 to prepay all of the outstanding term loans under the CQP credit facilities and to fund future capital expenditures related to construction of Sabine Pass Train 6. Financing Train 6 at the CQP level has allowed us to bolster the resilience of SBL's investment grade credit rating and is a step towards our longer term goals of de securitizing our balance sheets and achieving investment grade credit metrics throughout our corporate structure. In September, Corpus received investment grade senior secured debt ratings from S and P and Fitch and in October received an investment grade issuer default rating from Fitch. Subsequent to Corpus receiving these IG ratings, we issued 7 $27,000,000 of 4.8 percent senior notes due 2,039 pursuant to the previously announced private placement transaction with Allianz, the closing and funding of which was contingent upon Corpus receiving the IG rating. In October, we entered into another private placement transaction with accounts managed by BlackRock and MetLife and issued $475,000,000 of 3.925 percent senior notes due 2,039. The proceeds of these 2 private placements were used to prepay outstanding amounts under the Corpus Credit Facility. Those sets of notes are fully amortizing with a weighted average life of 15 years and they help us achieve our broader balance sheet goals of strengthening project level credit metrics and reducing consolidated leverage over time. Finally, in support of our capital allocation framework, during the Q3, we repurchased approximately 2,500,000 shares of our common stock for a total of $156,000,000 under our share repurchase program and we commenced deleveraging by prepaying approximately $70,000,000 of outstanding borrowings under the Corpus credit facility. That concludes our prepared remarks. Thank you for your time and your interest in Cheniere. Operator, we're ready to open the line for questions. Thank you. You. And we will go first to Jeremy Tonet at JPMorgan. Good morning. Just wanted to start off with the 2020 EBITDA guidance, very strong number it looks like there. I was wondering if you could share any more behind what assumptions are embedded there. You talk about a lot being hedged or being sold forward. And you talk about the sensitivity $1 versus $100,000,000 But just trying to see, does that price deck being employed there, is that the same as the 2019 levels or is that where the strip set now or anything else that you could share us as far as the sensitivities that drive the top versus bottom of that range? Sure, Jeremy. It's Michael. I'll start with production. I guess for 2020, it will be a big production year for us. Obviously, we'll end up probably in the mid-30s in terms of MTPA for the year. We've guided to 4.7 to 5.0 per train. SBL will be at the top end of that range. That range is supposed to be a 20 year average building in all of the maintenance plans. Next year is going to be a low certainly a low planned maintenance year for Sabine. So that will drive a lot of production out of that facility. Corpus will be at the lower end of the range just given where it is and its ramp up. We have some debottlenecking efforts underway that should bear fruit over the next couple of years, but for next year, kind of at the lower end of the range. In terms of percent contracted and kind of EBITDA margin sensitivities, as we said in the remarks, 2020 will be about 7,500,000 tons left in the CMI book, down from 9,500,000, almost 10,000,000 this year, so down about 20%. Out of that 7.5%, as we said, we've been actively putting that away. Of course, CMI has a fair amount of long term contracts in its book right now. So if you back that off and then back off all of the shorter term stuff that we've already put in place for next year, back off the financial hedges we have in place, nets down to something like 100 TBtu left or about 2,000,000 tons of unsold. So in terms of margin certainty for us next year, it's kind of in the mid-90s percentage range. So we feel like 2020 is generally put to bed on the margin side. So don't expect really much sensitivity next year. We say a dollar move is $100,000,000 To the extent we get into the year, probably be in a position to tighten our EBITDA guidance range down once we get some of that behind us. But that's really the big driver for us at this point and of course, it's not very big. Mid-90s, that's great to hear. And Jack, just want to a second question here as far as the stock price, I know that you've talked before as far as frustration and holders of the stock have frustrated with the market seeming to not kind of recognize the stability in your cash flows. Just wondering how you think about that now? What levers do you have to pull to try to address that or any thoughts you could share there? Well, Jeremy, over the long term, I think our capital allocation strategy is the right one. So when we see weakness in the stock price, as you can tell from the Q, we're pretty aggressively buying out there. We don't need to sell stock for to raise capital. Our plans call for us to generate cash that we can reinvest in the business for our expansion plans. And we'll pay down our debt to get our balance sheet and we're going to be continue to be very opportunistic about buying back our stock. That's helpful. That's it for me. Thanks. Thanks. We'll move next to Christine Cho at Barclays. The $1 change in market margin, changing your 2020 EBITDA by $100,000,000 was helpful. Are you willing to share with us what the average marketing margin is assumed in your guidance after factoring in all the long term and short term and financial hedges you've put in. I ask because the 2020 guidance that you gave is the same as the 7 train run rate guidance that you gave at your Analyst Day a couple of years ago, which obviously makes sense because you're running 7 trains. But I think in that analysis, you had assumed 250 as your CMI margin. So I'm just trying to get a sense of how far off we're from that initial metrics? Yes. Hey, Christine, it's Michael. I mean, you got it. We're not getting $250,000,000 Obviously, the book is more like a little under $2,000,000 next year. So that's a headwind versus the guidance we put out. Of course, that's offset by the fact that production is much higher than we thought it was going to be back when we put out that guidance in 2017 and updated it in 2018. And then the other thing I'll point out, it's kind of along the same lines, the run rate guidance assumed a full year of Train 2, whereas next year, obviously, we only have it until starting in May in terms of DFCD. So all those puts and takes equal out to us being able to stay in that guidance. Okay, great. That's helpful. And then earlier this year, I saw that CMI entered into an agreement with SPL for up to 20 cargoes this year at the standard 1.15 percent of Henry Hub plus $2 per MMBtu. My guess is this was driven by trying to create more stability for CQP versus the standard eightytwenty sharing agreement you have. But should we think that these sorts of agreements like might continue into the future if spot prices are low or volatile? Or did it just make more sense for 2019 because you had higher than normal spot exposure? Christine, this is Jack. So there's a couple of reasons and you've touched upon all of them. One is, we feel that CQP gets rewarded on its share price for having stability in its cash flows. And this helped deliver that. It also helps us at CMI cover some of our physicians and have some certainty on that price of what that is. So you should expect us to continue to try to work closely and collaboratively with our Board at CQP as well as CMI to make sure that those deals are a win win for both parties. Okay. So we shouldn't be surprised if we see like this kind of continue going forward? No, you shouldn't be surprised. Thank you. Our next question comes from Ben Nolan at Stifel. Great. Thanks. So my first question relates to something that came up on the BP conference call earlier this week where they indicated that they thought that global gas market was oversupplied and that there was a pretty strong chance that some of the U. S. Capacity might actually need to be backed off a little better or operate at lower utilizations to help balance the market. And I'm curious if you guys see the same thing or if there might how that might play out if there are other locations around the world that might come off first perhaps? Ben, this is Jack. I'll start off and then I'll ask Anatol to give his opinion. And it never ceases to amaze me that we keep getting this or having a conversation of U. S. LNG and the part that customers won't lift because we are extremely competitive worldwide. As Anatol mentioned, there's a lot of infrastructure that continues to be built in support of natural gas consumption worldwide. And we feel very, very good about our position in the world market and our customers' position on how they are utilizing natgas and that overall cost of production. But Anna Talwin. Thanks, Ben. Yes, just to follow on Jack's comments. Number 1, this supply wave from 2016 through next year is about 150,000,000 tons, as we said in the prepared remarks, a little over 20,000,000 tons left to go. So the global LNG market today is about 360,000,000, 370,000,000 tons sort of current monthly run rate. That's 50 Bs a day or so. Our gas supply team, Corey, takes about 5.5 Bcf of gas to our plants alone. The U. S. Is 7.5. So number 1, I think we're much closer to the end of this supply of wave. Obviously, the question of how quickly the world absorbs that is in part weather, but certainly we fully expect the emerging markets and actually Old World Europe to continue to grow and have fundamental demand growth. And number 2, you switch off 15% of global supply is going to have quite an impact on Henry Hub here and LNG prices globally. So we don't expect that to happen. We think it's very rapidly self correcting. And of course, the LNG world does not run off the spot spread, right, neither physically nor financially. So we think there is a good chance that we're in another 9 to 12 months of a steep contango. And as Michael discussed and Jack discussed earlier, we'll take advantage of that contango and secure margins for ourselves. Great. I appreciate that color. I thought that's what you might say. The other question is about the guidance for 2020 and the EBITDA guidance as came up earlier is as you laid out in terms of the absolute numbers for 7 Train run rate. But the DCF guidance was a bit different, which I thought was odd given EBITDA being the same. Any color as to what is happening on the DCF side relative to the EBITDA guidance? Yes, Ben, it's Michael. Thanks for asking that. I should have clarified that in the last question. So the only difference there is I got some of the same things I mentioned, 250 margin, not a full year of DFCD on Train 2. But the big one is Train 6 equity down at CQP. So remember, we're fifty-fifty financing that train at CQP. That results in slower distribution growth. So we're foregoing some distributions today, which is impacting our DCF, right? We only count what comes out of CQP to us in CEI DCF. And so we're foregoing that today for a much larger distribution later. So that's the reconciling item. Got it. Appreciate it. Thanks guys. Moving next to Julien Dumoulin Smith at Bank of America. [SPEAKER JULIEN DUMOULIN SMITH:] Hey, good morning to you. [SPEAKER JULIEN DUMOULIN SMITH:] Good morning, Julien. [SPEAKER JULIEN DUMOULIN SMITH:] Julien Dumoulin Smith:] Hey. So perhaps just to follow-up a little bit more on Christine's question. Can you talk about some of the sort of, let's call it, like this normalized guidance for the multi train scenarios that you've released in the past? Obviously, it was a little bit of sort of largely in line, but a little bit of a discrepancy relative to that guidance more on the cash flow side than the EBITDA side. Can you talk about some of those, the puts and takes again a little bit more discreetly and then kind of apply that if you can for the other guidance levels that you've articulated for the future trains? Yes, I mean, it's Michael again. Sticking with all of the future train guidance, whether it's the 9 we rolled out and even the Stage 3 preliminary guidance we gave on this year, again, it's those three items for EBITDA. I mean, it's we're not getting 250, which is what's in there, but we have higher production, which is offsetting that. And we don't have a full year of the 350 contracts, which will come with the DFCD of Train 2. Those are both impacting 2019, but leaving us in the same place as the guidance we said in 2017. And DCS has the added difference of Train 6 equity being funded by withholding distributions from us, which will ultimately come. Got it. So nothing else different on costs, etcetera. But if I can pivot a little bit a different direction, maybe more of a Jack question. We've seen Dominion out there selling down a stake in their business of late, obviously, more discrete to them and their long term financing decisions. I know that folks and you all just talked about CQP, but I'd be curious, I mean, could we potentially go back the other way with respect to Corpus Christi? I know you guys are trying to simplify things, but at the same time, if you find these particularly attractive costs of capital out there that we've seen with some of your peers, is there anything out there on that? Any thoughts? Yes. Well, Julian, I have to tell you, congrats to Dominion. I mean, when we look at that, it looks like they got 12 times EBITDA for that for a non controlling piece of LNG facility, which is fantastic for our complex overall. But I think, look, different owners of these LNG terminals will have different needs for cash. We're pretty pleased with our capital structure and our performance year to date. We're happy to give guidance that is relatively consistent with what we told you we're going to do years ago and we're just going to keep plugging away at our business. No, fair enough. All right. Thanks, guys. I'll leave it there. Moving next to Weber Research and Mike Weber. Hey, good morning guys. How are you? Hey, Mike. Hey, Mike. Hey, Jack, I just wanted to come back to the around Dominion and maybe kind of think about that from a different angle. Maybe not in the sense that you guys need to offload CapEx to a financial buyer, but I guess I don't know if there's a great way to put this in directly, but if you just think about the multiple there that's implied for Dominion at 12 times, you mentioned that it's for non controlling stake, but Jack, I'm just curious in terms of how you think about that multiple relative to CQP and kind of the different aspects of it and how it's applicable to obviously what's happening with Corpus or with Sabine, block that's getting shot now? There's no great indirect way to ask that, so I'm just going to go ahead and ask. Yes. Look, we like both of our businesses. There is a significant spread, as we all know, between how CQP trades and how LNG trades. And at some point, the market will figure out which one's right, and we'll see what happens there. You can tell from our buyback program that we continue to like buying back our LNG stock at these prices and levels. But I'm not going to get into trying to anticipate what one shareholder may do as far as their stock or their stock position. And it really does not matter for us strategically. We continue to perform and execute in our business. And that's where we're going to stay focused on is making sure that we hit all of our targets and we meet our commitments to all of you. Got you. Appreciate that. Follow-up is just more on the market in general and it's a good one I guess for Jack or for Anatol. But just within the context of your ongoing conversations with the Chinese, in this case, it's been a while now. I'm just curious, one, how have those conversations changed since the trade war started? And then I know we probably picked at this in each earnings call, but at any given point, the demand for LNG is going to a zero sum game, but over time, you can definitely see value leakage. And I'm just wondering, is there a point in time, we've already seen the Chinese help underwrite Arctic 2, and I'm sure they're being pushed aggressively out of West Africa. At what point do you think you start to see permanent market share loss from the U. S. Gulf as a result of tariffs specifically within the context of the Chinese bid? Yes. So I'm going to take that in a couple of different ways. I mean, you just saw from Anatol's presentation that there's over they've had over 20,000,000 tons of growth year over year. 20%. 20%, yes, 10,000,000 tons of growth this year. So they continue to use more and more LNG. We continue to work very closely with our counterparts there in China. They're very interested in securing more Henry Hub. The trade tensions have gone on a little longer than I think any of us have anticipated. And we continue to work with the administration and our counterpart parts in China to make sure that we're on the right side of the relationship when things get better. So I mean that's been our position from day 1 and it's the way we've conducted our business with China. But Anatol, do you have anything else to No, just to echo Jack's comments. And Mike, as you know, we're continuing to be very committed. We think it's a great opportunity. We want to support China and its ambitions to grow gas to 15% of its economy and to clean its skies and have affordable, reliable solutions. So we are as engaged as ever and are looking forward to the right opportunities to consummate those. Yes. Maybe the best way to ask is, do you think that Chinese bid getting directed elsewhere has helped underwrite any projects that wouldn't have gotten done anyways? No. I don't think any wouldn't have gotten done. I think everything that's been dispatched to date that has China's involvement are projects that we fully expect it to be dispatched, whether that's pipe or oil. Okay. Great. Got you. That's helpful. All right, guys. Thanks for the time. Thanks, Bhup. And we'll go next to Michael Lapides at Goldman Sachs. Hey, guys. Thank you for taking my question. One operational one, do you think and if you do, can you talk about what it would take to achieve this to be able to get above 5,000,000 tons per year per train? Meaning, is there incremental operational upside potential that may exist over the longer term? And if so, how do you achieve it? Yes, I do think. Having worked closely with the operational team recently on our debottlenecking initiatives, I think the debottlenecking plan that they've put before us for some additional capital, we could achieve over 5,000,000 tons if necessary. But I think what you're hearing from Michael is we're trying to do all of the low hanging fruit first, do the debottlenecking that gets us as much LNG as we possibly can without having to invest large quantities of capital. But yes, Michael, I do think we can achieve numbers above that. Is that something you think is in the kind of the next 3 to 4 years, 3 to 5 year horizon? Or are you thinking that's kind of a longer term kind of target? I think we will guide you appropriately when we get to that point. But for now, we're sticking with our original 20 year guidance. Okay. And then one follow-up and this may be more of a Michael question. How are you thinking about the balance? Like when you think about your debt capital structure between wanting to have bullet debt versus having amortizing debt and how you would go about changing that balance over time? Yes. That's a good question. I mean, this 4A2 private placement market is an advertising market. And we like it. It helps us achieve some of our deleveraging goals and kind of commits us to it by entering into this self amortizing debt. The rating agencies like that as well. I mean, the issue is that's not a giant market. So we're going to be a big bullet issuer for a long period of time, and we'll opportunistically do these private placements when we can. So yes, I mean, I think the larger part of our debt paydown is just going to be paying down debt when we have bonds mature. So it will be a mix, but I couldn't give you a target. Okay. Thanks, guys. Much appreciated. Thank you. And we'll go next to Craig Shere at Tuohy Brothers. Good morning. Good morning, Trey. With respect to the unhedged equity cargoes, as we kind of add up availability given the really good performance with Train 3 Corpus Construction, Do any of your EDP, Trafey or PetroChina contracts have automatic step ups at Train 3 completion? And a couple other quick ones, would any ultimately finalized Chilean LNG to power agreement be deployed for the first three trains at Corpus or more for Stage 3? And how much aggregate capacity upside you have on debottlenecking heading from 2020 to 2021? Because you said most of those efforts aren't going to be hitting next year, it's just that you have low maintenance. Okay. So there's 3 there were 3 questions in the one, right, Craig? So the first one, I'll take, which was with the accelerated schedule for Train 3 and our performance, which as we all know is really our Train 8. And we should be getting better and better at it as we get more and more of these behind us. Do the contracts start up or have the right to start up early? The answer to that is no. Those early cargoes will be treated the same way we've treated them in the past, which would be marketed by our CMI affiliate. The second part of that was Chilean, etcetera, all the other contracts Stage 3. And I'll turn that one over to Anatol. Thanks, Jack. Just to follow on Jack's answer, nothing steps up as a function of the trains coming on earlier. But as you know, there are bridging volume components to some of the transactions, and those do ramp until we get to the radical volume stage in the contract. It's just not train dependent. In terms of your question on Chile, we're finalizing that agreement. It's relatively modest in size. It will be something that is at CMI. It's on a delivered basis, as you know, and will contribute to supporting our investment portfolio and has the flexibility for us to do with, in essence, as we please, with the contract being at CMI, but it's very modest in size. And for all of those additional contracts, whether they're the 2 IPMs, which is Apache and EOG or the CPC contract in Taiwan, we're trying to put a portfolio of contracts together that support the expansion of our facilities and that next expansion is Stage 3. And then I think there was one more question you had, Craig, in that long list. Yes. The guidance was that you were looking good in 2020 on capacity because it's a low maintenance year, but that you're actually also working on active debottlenecking efforts that weren't really going to hit mostly next year. So I was just asking about the trend of capacity uplift from debottlenecking from 2020 to 2021? Yes, I don't know yet. I mean, we've raised our production range per train three times and hopefully we can continue to do that over time. But for now we're at 4.7 to 5. Okay. So perhaps with a little more year over year turnarounds or maintenance that might offset the debottlenecking. So we just assume that 2021 is about the same per train as 2020? That's fine for now. Yes, we'll see. 2022 is a ways away, but I think it's fine for now. You also have another train starting up in 2021, which is Train 3 at Corpus. Right. But on a per train basis, just for now, we'll keep it static? Yes. Okay. Thank you. We'll move next to Spiro Dounis at Credit Suisse. Hey, good morning, everyone. Maybe just starting off on Stage 3, can you just remind us again how you're thinking about the size of that FID? I believe at one point you kind of left the door open to maybe a partial FID. So wanted an update on maybe your current thinking around that. And if you could maybe tie it to Anasol's confidence here and maybe what that next set of contracts looks like as we go forward? Yes. Thanks, Spiro. It's Michael. I think we're still open to the possibility of different kinds of FIDs for that project. It's a 7 train project of mid scale. It could probably be 5 as we look through the numbers, but ultimately, the market will dictate that, as you mentioned. So I'll turn it over to Anastol. Yes. Thanks, Farah, Michael. Yes. So as you guys know and Jack mentioned between EOG, Apache and some of the things we have in the portfolio, each one of these trains is ballpark 1,500,000 tons. So there's no reason to even discuss a 3 train solution, but it's possible, as Michael said, that it's 5 at 7. Okay, fair enough. Appreciate that. And then second one, you talked about it a little bit, but just maybe getting more specific around Europe and the storage situation there. What do you ultimately think sort of resolves that issue going into next year? Is it pretty much close to capacity again as we sort of go through the seasonality? Know Anatol you mentioned some tailwinds, but is that kind of enough to help that market absorb another year of U. S. Imports? And what does that ultimately mean for the arb in 2020? Yes. A great question and a fair point, right? We don't reset to 0 and have Europe able to grow from this base by another 20,000,000 tons plus. That's a very fair point. One of the things that has played out is fewer lower volumes on pipes as a function of North African and European supply. Norway has been down pretty significantly. We need a winter cleans us up faster. We have had very robust demand growth on the power gen side. So that is something that is not dependent on seasonality and its back half of twenty nineteen weighted as everything was put in place and as Europe continues to grow that demand function. So all those help. Again, 2020 will be a very big supply year, right? There's no question, big supply year on a run rate basis. And of course, you get the full year effect of the 40,000,000 tons coming on in 2019. So we're not as you can tell, we're not that optimistic on 2020. Hence, as Michael said, we've got more or less everything we can have put away, put away. My point is that beyond 2020, there really is no meaningful supply. It's literally a couple of trains for a number of years with most of those being our trains. So fairly confident that 2020 is the transition year and 2021 through 2023 look much better. Understood. Appreciate the color. Thank you, gentlemen. And we'll hear next from Shneur Gershuni at UBS. Hi, good afternoon everyone. Just wanted to touch on a couple of quick questions here since most of my questions have been asked and answered. I was wondering if you can talk about the path to investment grade at the LNG level. I noticed you've had a lot of positive rating actions at the subs. Is it 2020 a reasonable timeframe to think towards the end of 2020 that you can see IG across the board or 2021 a more realistic target? Thank you, Matt. Michael. Yes. No, it's not going to be next year. I mean, look, we've said it's a multi year progression. It's going to take us a while to get down to the high force number that we're targeting. I think the agencies are going to give us credit for getting there before we get there, but that's not next year. And it was a 2 pronged deleveraging strategy. Doing Stage 3 at 50% debt equity is highly deleveraging for us. So we got to get that done. And then the balance is just straight debt pay down, which will happen as the money comes in. And so it's not next year, and we'll see if it's the following year or even the year after that, but that's as we know right now. Okay. That makes total sense. And one other question. Appreciate the fact that you've pre sold your the marketing for next year and you're effectively at 95% sold out and trying to upgrade the quality of the earnings from an investor perspective. Just wondering if that's going to be the strategy going forward that when we have this call next year, you'll also be in a 95% sold out position and we can sort of think of it as a more ratable business than it's historically been treated? Absolutely. You should expect us to manage the business appropriately and not take a lot of commodity risk if we don't have to. So and I'm not giving I won't say that 95% is our target, but you should expect us to be prudent and disciplined. Perfect. Really appreciate the color guys and have a great weekend. Thanks, Steve. Thank you. We'll move next to Evercore and Jon Chappell. Thank you. Good morning, guys. Michael, one of the key tidbits you gave on the last conference call was the cadence around the buyback up until that point. There was only $3,000,000 in the six thirty financials, but you had said that you'd bought up to $100,000,000 at that point in August. Is there any clarity you can give on what you've done since the end of the Q3? I know we're only on November 1st, but 1st 31 days? Yes. I think we're going to get out of the habit of giving those updates and just wait for the Q to come out. We were it's kind of our first report after starting the program and so we made an exception last time. I think from here on out we'll rely on the Q. Okay. That makes sense. And then just a follow-up to 1 a couple ago, maybe to Anatol. On the how you're thinking about CC3, it sounds I mean Jack's confident as ever FERC EPC, it sounds like we may even have an update on that by the time we speak to you next. Is there a percentage threshold on SPA that you're thinking about before you actually trigger FID? And also kind of a Part B to that, do you view IPMs as exactly similar to an SPA? Or are they not quite kind of like the long term contracts in your view? Hey, it's Michael. Yes, I mean on the second question, I mean for us, they're very similar. I think they count as underwriting an investment. And then the first question was how much do we need to be sold. We never have really targeted a number. We're trying to underwrite our economics on a contracted basis, kind of underwrite our downside case. And so that's always how we've looked at it. But having said that, it will be similar to our previous projects of 2 thirds to 85 percent contracted just depending on the economics. We could sell 1 molecule for a couple of $1,000,000,000 we'd be done. I'm sure you're on that, Anatol. Michael, just to be clear, though, you said you view them kind of similarly. The discussions you've had with banks as far as underwriting the projects do, I assume they view them exactly similarly as well? I think for us, yes, yes. I mean, I'm not sure that's the case if we were 6, 7 years ago. But for now, and I just think where we are, yes, that is the case. Okay. That's helpful. Thanks, Michael. Thanks, Anatol. We'll take our last question today from Alex Kania at Wolfe Research. Thanks. At risk of, I guess, getting ahead of myself here a little bit, Jack, you just mentioned expanding a little bit more upon kind of longer term growth opportunities, presumably beyond Phase 3 at Corpus. I'm just wondering if that's kind of arising from just broader commercial discussions you're having with people right now in terms of the opportunity set is over the very long term? Or is it just, hey, we're pretty close to getting Phase 3 in the next, let's say, 6 to 9 months. And so we're kind of thinking about what's further on. I'm just kind of curious how kind of how real you see that right now? Yes. And thank you. No, I think it's a combination of things. One is we are very close to securing another close to 500 acres of property contiguous to our Corpus site. So that will give us more land and birthing capacity because it happens to be waterfront. And that transaction should get done early next year. And that really opens up the possibility for quite a bit of additional expansion at Corpus. And the second part of that is the commercialization efforts. As we've said, there's just a lot of interest in that site and its location to the Permian and trying to evacuate some of this associated gas that's going to be coming in greater and greater quantities from the Permian. And then thirdly, with the infrastructure that we already have there, our additional expansion plan should be extremely competitive worldwide with any other options that utility customers have. So we're very, very focused on Corpus. We do feel like Stage 3 is going extremely well and we're looking for Stage 4 and beyond. Great. Thanks very much. Thank you, Alex. And thank all of you for your support of Cheniere. And ladies and gentlemen, once again, that does conclude today's conference. And again, I would like to thank everyone for joining us today.