Earnings Call: Q2 2016

Aug 9, 2016

Morning, ladies and gentlemen. My name is Sally, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cheniere Energy Inc. 2nd Quarter 20 16 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. I will now turn the conference over to Randy Batya, Director of Finance and Investor Relations. Please go ahead, sir. Good morning, everyone. I'd like to welcome you to Cheniere Energy's Q2 2016 earnings conference call. The slide presentation and access to the webcast for today's call can be found on our website located at cheniere.com. Participating on the call this morning are Jack Fusco, Cheniere's President and Chief Executive Officer Anna Tole Fagan, Senior Vice President of Strategy and Corporate Development and Michael Wardley, Senior Vice President and Chief Financial Officer. Before we begin, I would like to remind all listeners that our remarks, including answers to your questions, may contain forward looking statements. 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 non GAAP financial measures such as adjusted EBITDA, net loss as adjusted and net loss per share as adjusted. A reconciliation of these non GAAP financial measures to the most comparable GAAP financial measure can be found in the appendix of the slide deck. As part of our discussion of Cheniere Energy Inc. Results, the call may also include selected financial information and results for Cheniere Energy Partners LP or CQP and Cheniere Energy Partners LP Holdings or CQH. On this call, we do not intend to cover CQP or CQH's results separately from those of Cheniere Energy Inc. After prepared remarks from each of the participating executives, we will open the call for Q and A. As shown in the agenda on slide 3, Jack will begin with an overview of the quarter and then give an update on construction and operating progress at our liquefaction projects. Following Jack's comments, we will hear from Anatol on the market and then from Michael, who will review financial results. I will now turn the call over to Jack. Thank you, Randy, and good morning to everyone. I'm pleased to be here today for Cheniere's quarterly earnings call. Since being appointed President and CEO of Cheniere several months ago, I've had the opportunity to meet with many of Cheniere's employees, customers, project partners, investors, regulators and other stakeholders around the world. The caliber of the people associated with this organization is world class and only reinforces my confidence in the future success of the company. It's truly an exciting time at Cheniere. We are firing on all cylinders and are beginning to see the impact our company is having on the global energy marketplace. I'm eager to build upon the positive momentum of the past several years, improving our operational efficiencies and implementing a strategy for sustainable long term shareholder value creation. Slide 5 contains a few highlights from the quarter. The Q2 of 2016 is a significant one for the company as it marks the Q1 of operations from one of our liquefaction projects. After approximately 45 months of construction, Train 1 at Sabine Pass is now operational. The substantial completion date where we take over care, custody and control of the train was May 26. I would like to once again recognize both Cheniere's Professionals and those of our EPC partner Bechtel, all of whom who have worked tirelessly since 2012 to complete this milestone. What I've highlighted on Slide 5 are 3 metrics, which I believe are important to watch as we track the business going forward. With the start up of operations of Train 1, we have begun reporting revenues from LNG sales from liquefaction. Revenues for the Q2 were $177,000,000 $246,000,000 year to date, of which $111,000,000 $113,000,000 respectively, were related to LNG sales. Adjusted EBITDA was a loss of $4,000,000 for the quarter $48,000,000 year to date. However, our earnings and cash flow from liquefaction have just begun. Our ramp up in earnings performance and cash flow generation is tied to construction completion of the trains over the next several years. I've asked Michael to cover in detail our financial performance for the quarter as well as our balance sheet management later on this call. Our 3rd metric is volumes. To date, we've exported a total of 22 cargoes from Sabine Pass with LNG produced at our facility in Louisiana being delivered to destinations around the globe, including South America, Europe, Asia and the Middle East. I've asked Anatol to cover our marketing efforts and global demand outlook on this call. Slide 6 provides an update on construction at Sabine Pass in Corpus Christi. Overall, we are very pleased with the progress of construction at both facilities. Our number one priority is to execute on the construction of our LNG platform safely, timely and on budget. As I noted earlier, substantial completion for Sabine Pass Train 1 was achieved on May 26, 2016, after nearly 45 months of construction and commissioning. Sabine Pass Train 2 began producing LNG on July 28. Commissioning is proceeding well and we expect substantial completion this fall. On all trains, Bechtel continues to progress construction efforts against aggressive schedules and contractual guarantees. In consideration of lagging construction progress realized these past months for Train 3, we recently revised the forecasted substantial completion date from April to June 2017, representing a construction and commissioning duration of approximately 49 months. This forecast adjustment results simply from an accumulation of weather delays and various construction challenges encountered over the 3 plus years of construction and not any one particular issue. Train 4 progress will be monitored over the coming months for any potential impact to the August 2017 substantial completion target. It is important to note that Bechtel is still expected to deliver by the guaranteed contractual dates and we at Cheniere are focused on transitioning the trains from construction management to operations management safely, efficiently and effectively. Furthermore, as there seems to be significant interest in the day to day operation of our trains, I would like to mention that there is a planned maintenance outage scheduled to begin during September for a duration of approximately 4 weeks. This outage is necessary to facilitate a design change with our process flares at Sabine Pass. In addition, we will utilize this opportunity to complete additional routine maintenance. Turning to Slide 7. We are transitioning from a development company to an operating one. These near term operational, financial, commercial and organizational goals will help us manage that transition and help take Cheniere to the next level. Foremost, we must ensure our construction and operations continue safely, on time and on budget. We expect to incorporate lessons learned from previous trains to improve on commissioning efforts as we continue to bring the trains online. Financially, you should expect us to pull all levers to create long term shareholder value. We will increase our transparency for the investment community starting with today's call. We won't be providing guidance today, but guidance is something you can look forward to in the future. We will initiate a budget process with a focus on financial discipline and looking for ways to do our jobs faster and cheaper. We will look to identify opportunities to simplify our complex corporate structure. In addition, we expect our ratings momentum at SPL to continue and look to achieve an investment grade rating in the near term. And finally, we are working on defining a sustainable long term financial strategy and we'll be communicating it in the due course. On the commercial front, we will continue to monetize cargoes produced during the commissioning of our trains. Our commercial team we expect to fulfill our contractual obligations to our long term foundation customers. Cheniere will continue to optimize our excess cargoes and our marketing efforts are focused on building a portfolio of short, mid and long term contracts. And we will continue to pursue long term contracts necessary to support the financing of our next trains, Corpus Christi III and Sabine Pass Train 6. Finally, we will make some changes organizationally to align ourselves with our shareholders. We will strive to have an organizational structure that provides clarity to our professionals' roles and responsibilities, provides clear succession and developmental opportunities and drives out unnecessary G and A expenses. Our vision is simple, to be recognized by all stakeholders as a premier LNG provider to the marketplace and the achievement of these goals are critical to that effort. Turning to slide 8, our investment thesis is clear. 1st, the world is shifting to a cleaner energy source and reliable natural gas is a leading solution. Global gas demand is growing for both economic and environmental reasons and LNG demand continues to grow faster than global gas demand. 2nd, Cheniere is well to retain and grow its share of the U. S. LNG market. Many companies talk about developing an LNG export project, but Cheniere is the only company to have delivered an LNG export project on time and on budget in the Lower 48. We have the proven track record across all elements of project execution and finance. We are also unique in offering our customers a comprehensive service option from natural gas procurement, transport, processing, storage and shipping. 3rd, as I noted earlier, Cheniere's cash flows from liquefaction have just begun with excellent visibility for long term growth. 4th, we will remain financially disciplined while pursuing accretive growth opportunities. Cheniere is well positioned with additional existing LNG to bring to market with 2 fully permitted shovel ready liquefaction trains and 2 more in the development pipeline. I'm confident that we will be able to build incremental LNG capacity better, faster and cheaper than anyone else. In addition to building out our existing liquefaction projects, our strategic focus is to leverage our core capabilities on the LNG platform by developing projects within the LNG value chain. We will remain targeted and focused on our core competencies and not stray with your investment. Slide 9 highlights one of those projects in the development pipeline, our project in Chile. This is one of the most creative projects I've seen in my career. We are participating in the development of a Chilean gas to power solution. The project is a joint venture to build, own and operate a new power plant with a 15 year power purchase agreement in a floating regasification facility. Cheniere will have the exclusive rights to deliver LNG to the FSRU for the power station for 15 years. While our competitors are talking about developing integrated LNG to power projects, Cheniere is once again leading the development of commercially innovative solutions. We expect the final investment decision to take place in the second half of twenty sixteen after all the necessary Chilean regulatory approvals are received. This project is one example of how the Cheniere team is developing creative ways to enter new and growing markets. We have a long term focus on marketing and market development. With that, I will now turn the call over to Anatol. Thanks, Jack, and good morning, everyone. Turning to Slide 11, I'd like to shift our focus to LNG marketing. In a volatile commodity environment, it's easy to lose sight of the solid long term supply demand fundamentals which underpin long term global growth prospects for LNG. LNG prices have moderated along with the rest of the energy complex due to a combination of oil market volatility, LNG supply additions and some modestly slower than expected economic growth. However, we're beginning to see evidence of price elasticity of demand. China and India, for example, key long term LNG growth markets have imported approximately 30% more LNG over the first half of twenty sixteen compared to 2015. Our differentiated business model as a comprehensive LNG provider positions us well to compete in today's LNG market. The market continues to evolve at a fairly rapid pace. LNG suppliers need to move closer to the end use customers, and you're seeing us do that most visibly with our project in Chile, which Jack discussed earlier. While the market for LNG is loose at the moment, we expect it to start tightening between late this and early next decade and for LNG demand to nearly double between now and 2,030. Production declines in legacy markets, market switching to cleaner burning natural gas, contract roll offs and the emergence of new LNG markets primarily enabled by floating regas facilities will continue to offer us attractive opportunities. While traditional LNG buyers like Japan and Korea have been reporting less, the rapid emergence of new market entrants such as Egypt, Jordan and Pakistan has more than made up the difference and there are currently about 30 new markets considering LNG import projects. At Cheniere, our global marketing and origination teams continue to build long term relationships, helping customers identify long term LNG needs and develop cost effective and flexible solutions. Another aspect of the evolving LNG market is that buyers are increasingly seeking non traditional or non standard contracts. We approach these discussions with a competitive advantage given our track record of execution, comprehensive product and flexible contract terms. Slide 12 is a very busy one, but exciting for us as it represents a scale of existing and potential LNG import projects globally. New LNG importers continue to emerge and are relying on the growing liquidity in the short term market to procure LNG supply. In 2015, 4 new import markets started up Jordan, Egypt, Pakistan and Poland. 3 of the 4 new markets began importing without long term supply contracts and together, Jordan, Egypt and Pakistan imported nearly 6,000,000 tons on a spot or short term basis. These 3 importers also employed floating regas facilities as receiving terminals. These FSRUs have become the import terminal technology of choice for new markets. They require less capital, provide more flexibility and can be brought online much faster than traditional onshore terminals. The rise in FSRU projects is staggering as new importers are able to start importing LNG in less than 12 months. The first FSRU was delivered in 2,005. Now there are 24 vessels, representing about 90,000,000 tons of import capacity. Currently, there are another 6 vessels on order, representing an additional 30,000,000 tons of import capacity. With more than 30 new markets spread across the world considering LNG imports, gas is becoming a more attractive fuel source. LNG is attractively priced, clean and increased supply will ensure demand is able to access supply. Turning to Slide 13, as I mentioned earlier, there is a secular shift to clean up burning natural gas for power generation worldwide. Natural gas is becoming the fossil fuel of choice to reduce air pollution and greenhouse gas emissions, while still being a reliable and economic supply source. U. S. LNG imports will help market shift to cleaner burning natural gas to reach their environmental goals. In December 2015, 1 100 and 95 countries pledged to address climate change at COP21 in Paris. While the commitments to reduce greenhouse gas emissions in the Paris Agreement are voluntary, the agreement signals a shift towards less carbon intensive energy sources already underway. In 2015, we saw the largest recorded year on year drop, down 1.8% for coal use, while gas increased by 1.7% globally year on year, taking market share away from coal. The drop was enabled by affordable gas supply, which allowed switching from coal to natural gas in power generation. In addition to moderate prices driving global demand, a number countries are looking at natural gas as a policy solution. Natural gas fired power generation emits about 50% less greenhouse gas emissions compared to coal, but even more importantly, it emits significantly less traditional pollutants like NOx, SOx and PMs. For developing countries dealing with harmful air pollution and increased per capita energy demand switching from coal to gas can help achieve multiple environmental goals. Indeed affordable reliable U. S. Gas supplies have already resulted in coal displacement and power generation and dramatic CO2 reductions. Due in part to cleaner burning natural gas, total CO2 emissions from the U. S. Power sector in 2015 dropped to the lowest level since 'ninety two and reduced total emissions 20% from the 2,007 peak. As part of a wider policy initiative to reduce greenhouse gas emissions, the UK set a carbon price floor, which almost immediately resulted in a dramatic increase in gas dispatch versus coal in the power sector. In summary, natural gas is expected to have a key role in policy options to reduce emissions and therefore we expect to see a continued increase in natural gas demand worldwide. Tying the previous two slides back to the LNG market in Cheniere, Slide 14 is a look ahead into the near term LNG market where liquefaction capacity from projects under construction will continue to be built, supply will come on through the balance of the decade. We have already begun to see that supply availability and an increasingly liquid LNG market will stimulate price elastic demand and attract new importers. A potential supply demand gap is setting up for the start of next decade. There's been a dramatic slowdown in liquefaction FIDs since mid-twenty 15 and emerging Asian markets are expected to continue to drive incremental LNG demand. The liquefaction costs have to be compressed to remain competitive and keep the momentum of the global secular transition to natural gas. With that, I'll now turn the call over to Michael to review our financial results. Thank you, Anatol, and good morning, everyone. I'm pleased to announce our financial results for the Q2 of 2016, a summary of which can be found on Slide 16. Before I get into the details, I'd like to say that I've been with the company for over a decade now and this truly is an exciting quarter as we've begun to recognize revenue from LNG sales from liquefaction and that this couldn't have been possible without the many years of hard work by many dedicated people. This is a pivotal time for the company as we move into operation and expect to ramp up our cash flow generation in the upcoming years as we continue to complete construction of the trains. Are also excited about moving the company forward and articulating our financial strategy with the long term goal of value creation through a disciplined capital allocation philosophy. As a reminder, Cheniere Energy consolidates the results of Cheniere Partners, CQP, and Cheniere Partners Holdings, CQH. For the Q2 of 2016, we reported consolidated revenue of $177,000,000 compared to $68,000,000 in the corresponding 2015 period. Revenue recognized from LNG sales for the Q2 2016 was $111,000,000 Before moving on, I'd like to update some information about our cargo sales during the Q2 as it relates to revenue recognition. During the Q2, we loaded 11 cargoes and sold over $200,000,000 worth of LNG produced at Sabine Pass Liquefaction or SPL. 6 of the 11 cargoes were loaded prior to substantial completion and those proceeds are not reflected on the income statement. Rather, they are recorded as an offset to construction and process on the balance sheet because these amounts were earned prior to our taking over care, custody and control of Train 1. LNG cargoes on future trains will be treated in the same manner, but it may be difficult to model our revenue accurately and tie out our reported revenue to production in upcoming quarters as we continue to commission trains at Sabine Pass. Post substantial completion of Train 1, we loaded 5 cargoes during the 2nd quarter, which are reflected on the income statement. Those commercial cargoes were lifted by BG Shell under their contract that gives them access to early volumes produced prior to DFCD at the contract price of 115 percent of Henry Hub plus 2.25 In addition to revenue, several other line items were impacted during the quarter as a result of substantial completion of Train 1. Certain operating expense line items previously capitalized during construction have begun to be expensed. Depreciation and amortization expense increased during the period as we began depreciating assets related to Train 1 upon reaching substantial completion. In addition, G and A expense decreased by approximately 30% quarter over quarter, partially due to some reallocation of resources from G and A to O and M after the commencement of operations. Furthermore, included in the G and A and marketing line items are aggregate share based compensation expenses for the 3 6 months ended June 30, 2016 of $32,000,000 $46,000,000 respectively. Amounts remaining under these legacy grants will be recognized over the next 2 years, and thereafter, we expect more normalized run rate levels to prevail. Consistent with the reporting change we made in the Q1, we have broken out marketing expense from G and A. Marketing expenses include costs directly associated with our long term LNG contract origination efforts and the sale and optimization of CMI portfolio volumes. These costs include payroll, benefits and stock compensation costs of marketing and origination personnel, professional services and other support costs. Net loss attributable to common stockholders was $298,000,000 or $1.31 per share compared to the corresponding 2015 period of $119,000,000 or $0.52 per share. Impacting earnings during the Q2 were significant items totaling approximately $158,000,000 or approximately $0.70 per share. These significant items related to derivative losses primarily due to changes in LIBOR over the period. Loss on early extinguishment of debt related to refinancing activities at both liquefaction project entities and changes in fair value of our commodity derivatives. The management of our consolidated balance sheet is driving much of the impact to EPS and investors should expect EPS results to continue to be influenced by such financing related items for the foreseeable future. As such, we plan to report adjusted EBITDA and net income as adjusted, which excludes these items. Additional detail on the impact of these items can be found in the reconciliation tables in the appendix of the slide deck. Adjusted EBITDA for the 3 6 months ended June 30, 2016 was a loss of $4,048,000,000 compared to a loss of $61,000,000 $86,000,000 for the comparable 2015 periods. With regard to liquidity, as of June 30, 2016, we had unrestricted cash and cash equivalents at Cheniere of approximately $1,050,000,000 In addition, we had current and non current restricted cash of $756,000,000 designated for the following purposes: $223,000,000 for the Corpus Christi project dollars 263,000,000 for the Sabine Pass project, dollars 110,000,000 restricted under the CQP credit facilities, $91,000,000 for interest payments on SP LNG bonds and $69,000,000 for other restricted purposes. As mentioned earlier, won't be providing any financial guidance on this call, but it is something we expect to begin providing in the near future as we continue to move into operations at our projects. We expect to host an Analyst Investor Day in the first half of next year and we'll provide you with more information on that in the coming months. On Slide 17, we highlight some key points of our financial philosophy. We are open to exploring opportunities to simplify our corporate structure to reduce complexity for our debt and equity investors. However, we will transact only to the extent it makes economic sense for our shareholders. As well, we will strive to maximize levered cash returns while maintaining a long term sustainable balance sheet. Over the long term, embedded returns in our equity security will be the benchmark against which capital allocation decisions will be made. We aim to optimize the allocation of capital to growth opportunities, balance sheet management and capital returns to shareholders with a goal of maximizing equity return. Next, we will continue to mitigate financial execution risk by utilizing our deep access to capital across the complex in multiple markets. In the Q1, we raised a $2,800,000,000 bank facility at CQP to refinance debt related to our SPLNG regasification terminal and our Creel Trail pipeline. During the Q2, we continued to proactively manage our debt maturity profile by issuing bonds at both our liquefaction projects to refinance bank debt. In May, Corpus Christi Holdings LLC or CCH completed its inaugural bond offering with the closing of $1,250,000,000 of senior secured notes due 2024, which priced that par to yield 7%. CCH used the net proceeds from the offering to repay a portion of the outstanding borrowings under the CCH credit facility. As a result, the CCH bank facility was reduced to $7,350,000,000 with approximately $2,700,000,000 drawn as of June 30. A few weeks after the closing of the CCH notes, SBL completed a bond offering of $1,500,000,000 of senior secured notes due 2026, which priced at par to yield $5.7 8. Following the bond offering, the SBL Bank facility was reduced to approximately $3,300,000,000 with a little over $800,000,000 drawn as of June 30. To date, we've placed a total of $10,000,000,000 of SBL notes in the market with a volume weighted average coupon inside 6%. At both projects, we plan to continue to be opportunistic in terming out our bank facilities to better align our maturity profile with projected EBITDA levels. A summary of our current consolidated debt maturity profile can be found on Slide 18. Pro form a the repayment of the SP LNG project bonds later this year with proceeds from the CQP bank facility, there will be no maturities in this Genere complex until 2020. And we remain focused on execution, which we believe will lead to further positive rating agency actions across the complex. We maintain an active dialogue with the agencies and expect to over time achieve investment grade ratings, first at SBL and later at CCH. Our 2 projects have been financed from the outset with investment grade credit metrics. Evidencing our progress to date, in April, Moody's upgraded the credit rating of SPL from BA. 3 to BA. 2 due to derisking of the project and construction milestones achieved. This action was on the heels of S and P upgrading Cheniere's rating to BB- from B plus back in Q1. With that, we would like to thank you for your time today and your interest in Cheniere. We look forward to updating you on our Q3 call in November. Operator, we are now ready to open the line for questions. Certainly. Your first question comes from the line of Christine Cho with Barclays. Your line is open. Good morning, everyone. Thanks for hosting the call. I guess I wanted to start with where you left off, Michael. Can you remind us what the credit rating agencies are looking for with respect to a potential upgrade to investment grade for SPL. And you've done some bond issuances to term out the credit facility. But given the anxiety with the energy tape and leverage of midstream companies in general, obviously, your leverage is often the topic that's brought up by But what But what do you think are the steps the company needs to take today to alleviate some of those concerns that weigh on the stock every time commodity prices are down? Hey, Christine. So I think the first thing, the agencies are looking for de risking of the construction process. So we talk about our projects are financed with investment grade credit metrics. They are, they have where the agencies are looking for a debt service coverage ratio of something north of 1.4. Our 2 projects are using conservative assumptions more like 1.6, 1.7. So it's really just a matter of time for us getting there. So S and P has said they want to see 2 trains up and running and then they'll consider us right and the next upgrade from S and P will put us at investment grade. So that's anywhere between now, given that we have 2 trains running and the start of the Train 3, which is in the first half of next year. So I think we're in that neighborhood at this point, and it's just a matter of time. And then Moody's has said similar things except they want to see 4 trains up and running. So seems like a lot more than 2, but really that's only the second half of next year. So I don't think we're far from that standpoint. In terms of managing the balance sheet, we've always stayed ahead of the curve, I guess, is what gives us a lot of comfort in dealing with these big bank maturities that we have in 2020 2022. So we've been very proactive in putting those into the bond market when the market is open. So we were very active in 2014 and 2015 and even 2013 and then the market got choppy. So we took our time and that's the benefit of these bank facilities is they're always there to back up the projects and then the bond market came back here recently and you saw us go back quickly with almost $3,000,000,000 of issuances. So we'll proactively manage the debt towers when the market is open and with no maturities over the next 4 years, we're very comfortable with our ability to deal with the maturity in 2020 and then the tower in 2022. In terms of long term balance sheet, you said it and we have 20 year contracts. The debt all of the debt can be amortized over the contract life at very, very high coverage ratios as I talked about 1.6%, 1.7%. So I think that's the starting point. And then as we look at it, the assets are 30, 40 year lived asset. So doesn't make sense to pay off every dollar of debt over the 20 year contract. And you look at a project like Kenai in Alaska has been making LNG for 45 years. It's a very long lived asset. Will we have to pay down some debt over the 1st 20 year term of the contracts? Probably. But is it all of it? Probably not. So that's just something we want to keep our eye on over the next many, many years. Okay, great. Thank you. And then I guess my follow-up, you guys have had Train 1 running for a couple of months now and Bechtel has had a strong track record in bringing on trains at a level higher than the design capacity. Do you guys have a good sense for what the effective capacity for Train 1 is yet? And what would you say were the biggest surprises and or challenges with bringing Train 1 up to where it is today? So Christine, this is Jack. So first off, thanks and thanks for recognizing it's your follow-up question because the queue is really backing up. So I want to make sure we give everybody an opportunity to ask a question on the call. But we are very pleased with the performance of Train 1, but we're right in the middle of doing and conducting our testing and getting comfortable with the train. So we're not going to commit at this point of what we think the design capabilities are of the train. But you should rest assured it's in very good hands that the Cheniere operating team is in my classification doing exactly what we need to be doing. They're operating it extremely well and the handoff from Bechtel has went extremely well. So we're very pleased at this point, but not ready yet to commit or comment on the total capabilities. But thank you. Thank you. Your next question comes from the line of Ted Durbin with Goldman Sachs. Your line is open. Thanks. I just want to talk about the long term and the near term sort of contracting strategy. I guess the first question is, would you be willing to give on the 315 MMBT that you signed up a lot of your recent contracts on if you saw that some of your competitors were signing up capacity in a more meaningful way? And I guess follow-up to that is your appetite to contract out more than this, call it, 87%, 88% of the existing trains that you have under contract? Hi, Ted. It's Jack. And then I'll turn the I'll give you my piece and then I'll turn the call or the question over to Anatol. So, as far as our prospects on long term contracts or the 350 number, we're going to do whatever makes financial sense. So the way I think about our contracting efforts is there's going to be a portion of whatever the 87% and above is that we feel comfortable that we're going to want to term out. I believe having stability in the cash flows is more important to Cheniere than trying to play some spot market or basis spreads throughout the world on the LNG complex. So, you should expect us to be very aggressive with our marketing and our contracting efforts going forward. Anatolian? Yes. Thanks, Jack. Thanks, Ted, for the question. As we said in our prepared remarks, this is a cyclical market and right now we have a fair amount of supply coming on. We are very encouraged by the demand response that we're seeing in the market, new markets emerging, price elasticity clearly showing up. And we do believe that over the medium term towards the end of this decade, early next, those buyers that need ratable supply and need certainty of supply will be in the market for attractive long term contracts. And we believe that our comprehensive service offering where we are responsible for supply and loading at the dock is something that will emerge as a key competitive advantage and we'll be able to capture those long term contracts at that point. Okay, great. And then my other question is and I realize you're still developing this, but maybe just talk to us about the metrics that you and the management team are targeting both in the near term and the long term EBITDA growth, free cash flow per share. And then as you communicate that to us, how are you thinking about guiding us to those metrics? Okay. Mike, can you take one? Yes. I mean, we're trying to maximize cash flow per share over the next 4 years. And so that will be almost totally a function of the trains coming online, right, and getting the contracts up and running. So I think once we get the first couple of trains and their ramp up under our belt, we'll be a lot more comfortable with giving guidance sometime early next year when we have a better idea how the trains ramp up. So that's I think where we'll be headed in the near term. Is that true for the incentive side as well in terms of how you're incentivizing the management team? Well, on incentives and working closely with the Board on this one is I'm a very traditional person when it comes to long term incentives and I want to make sure that the management team and the employee base, our incentives are aligned perfectly with the shareholders. So, you should expect us to have a majority of our compensation tied to performance metrics that are tied to our share price. Understood. I'll leave it at that. Thank you. Yes. Your next question comes from the line of Jeremy Tonet with JPMorgan. Your line is open. Good morning. Good morning, Jeremy. Jack, just want to touch base on the opportunity for cost savings and improving operational efficiencies there. I'm just wondering, I know you're early in your tenure at this point, but could you provide any more thoughts as far as what type of scale or magnitude this could present? Or is it more just about kind of shaping a more return focused culture in general for Cheniere? Any thoughts there would be helpful. Yes, Jeremy. So we're in the process right now of trying to get our budgets in order. So it's a little longer process that we're going through. So we're talking about staffing plans first. We're going through a zero based budgeting process that Michael and his team are going to kick off here very, very quickly for next year. And we'll go through what do we need to be successful here at Cheniere if we're focused on being the best LNG provider in the space. And that process, I'm hopeful, will deliver some significant results for us. And you should expect us when we give guidance to actually give you what we believe a run rate on our G and A budget should be going forward. I'm not capable or willing this time to actually answer your question directly on this call as far as what I think the magnitude is going to be, but you should expect it from us in the near future. Makes sense. That's fair. Thanks for that. And just wondering if you could comment, philosophically speaking with the structure, Calpine never employed the UCO structure or anything like that. I'm just wondering philosophically what do you think about the MLP structure here? I know you've talked a bit about simplifying the family structure that could take a lot of different iterations. But just wondering philosophically thinking how you think about the importance of the MLP structure? Wow. So, I mean, not only in my career have I never been involved in an MLP or Yieldco. I've never paid a dividend either, Jeremy. So this is all new for me in a learning process. It's exciting. I mean, I am appreciative of Michael and his team trying to get me up to speed on all the nuances with the Cheniere capital structure, which is very complicated. But I think there's a place and a role for the MLP structure. I am pleased and very supportive of trying to get to an investment grade rating done at SPL, which will be a first in my career also. I've never been associated with anything that's been remotely close to investment grade. So, this is an exciting time for me as well as for the company. But I don't have any philosophical positives or negatives against any of the different structures. I've just never had an opportunity to actually employ any of them in the past. Thanks for your thoughts there. Your next question comes from the line of James Carreker with U. S. Capital Advisors. Your line is open. Thanks for taking my question. Understanding that it's just the 5 cargoes that have hit the income statement. I was wondering if you could provide just a little color on the 10 or so pre commissioning cargoes and how those sold, what prices you're seeing and margins, things like that? Yes, I mean, I'll take that. We sold them all over the place. I mean, really all over the globe, South America, Middle East, India took a cargo, some in Europe as well, Portugal. So they really we were excited to see they went to a lot of places and not a lot of traditional markets also. And then on the pricing side, our guys, as Jack said, did a great job putting the cargoes away and I'd say we got market price. So if you look at what South American prices were or JKM during that time, it was in that neighborhood. Okay. And then, I guess on the for the balance of the year going forward on the marketing side, you had some sales done, I think in the 2014 timeframe. Are those going to start hitting I guess in Q2, Q3, Q4? Have some of those already hit? I guess a little color on what you might see for the rest of the year on marketing? Yes, I mean, the answer is yes. We don't want to get too granular into that kind of stuff, but one cargo did hit this quarter that was sold a couple of years ago. So that one showed up and then there'll be more later this year and then the bulk of them are next year. Okay. So for the most part this year is going to be spot ish type marketing sales? I wouldn't say that. I mean there are some cargoes that have been put away couple of years ago that are going to go today. There will be the occasional spot cargo. And remember, we're in commissioning, so sometimes the production guys show up with the cargo on short notice. Go ahead, Ed. And also just obviously BG pre commercial cargoes are going now as well as Michael said. So that's the bulk of the volume that you'll see moving out of the plant for the balance of the year. Thank you. And if I could just follow-up real quickly on I was wondering if you could maybe bridge the gap a little bit on the delta between LNG's EBITDA and CQP's EBITDA for the quarter and kind of what's driving the delta there? Yes, I mean, there's a lot of cost up at CEI, G and A or otherwise that aren't borne by the partnership, right? I mean, we have the marketing business up at CEI. We have a group of folks running our Corpus project. And so I mean, that's what's driving the difference. Okay. And I mean, is that a good run rate delta? Is that the right way to think about it? Yes. I mean it will be a function of what our cost structure ultimately is, but yes, I think so. Okay. Thank you. Your next question comes from the line of Alex Kania with Wolfe Research. Your line is open. Thanks. Good morning. It's a question on the El Capesino contract. What are the remaining regulatory approvals that you might need there in Chile? I'm just kind of curious about maybe a little more granularity on maybe the timing of the FID. Thanks, Alex. This is Anatol. Thanks for the question. So the project, I think the way to think about it is actually 2 projects. There's the terminal and the power plant. Our partner in Chile is doing a fabulous job of moving this through its paces and through the regulatory process. It is a very robust regulatory process with lots of involvement, lots of common periods and so on. Just yesterday, we received a favorable vote on the power plant itself. That vote has already taken place for the terminal. We are very comfortable that we will reach FID on this project in the second half of this year. And again, it's moving through the paces of a commission vote, a recommendation that's issued, comment period on that recommendation and then ultimately the permits issued for the terminal and the power plant and we expect that in the next few months. Great. Thanks very much. Your next question comes from the line of Jean Salisbury with Bernstein. Your line is open. Hi, guys. At low global LNG prices, it should make sense for Cheniere to continue to sell as long as you're profitable on a variable cost basis. So I have an estimate of variable OpEx, but what would be helpful is your perspective on how easy or difficult it is to run these trains at 70% or 80% utilization. Are there high costs associated with that which might make Cheniere's willingness to lift go to an even lower price than it might appear? No, it's not. And I mean, the variable cost should be relatively constant throughout the train and the train's production. Okay. Thank you. And then I just wanted to follow-up on your comment earlier about wanting to term out some of that spot. I guess most market observers think that the LNG market is over supplied through the end of the decade. Buyers maybe come back in mass in 2018 or so. Is that the timeframe of what you're thinking? Are you targeting earlier? And that's exactly what you mean by not trying to time the spot market? Yes. So first off, as far as the LNG market is concerned, we went through and I spent a little bit of time on my prepared remarks talking about the 45 months for Train 1 and the 49 months for Train 2. And that was not by accident. So if you think about the amount of time and effort it takes to build a train, those folks that are thinking they're going to need LNG in 2021 are late. So if you think the market like Wood Mack and some of the other consultants have talked about starts to get very tight again in 2021 to 2023, they better start talking to us sooner rather than later or we won't have any to sell them. And that's kind of what we're seeing and feeling with our marketing efforts that there's much more interest again, a lot of discussions with our core customers about the next decade. So Anatol, do you have anything to add? No. And I would just add to the previous commentary that we are early in the process of putting the train through its paces. We're about to start doing that for train 2 To the extent that we're from a marketing standpoint, we're comfortable with ratable volumes being available for medium term transactions, that's clearly something we would consider at that point. Great. That's really helpful. Thank you. Your next question comes from the line of Fotis Giannakoulis with Morgan Stanley. Your line is open. Yes. Hello and thank you for taking my question. You pointed out the number of potential SSU projects that they are out there and the fact that most of the consultants are agreeing that the market is going to tighten after 2020, 2021. What would it take for you to take additional FIDs? Is this just a model signing more contracts? And I wanted to ask if you would be willing to move laterally in the value chain and potentially participating in some of these projects? Thanks, Fotis. It's Anatol. Well, as Jack mentioned, we are big fans of this Chile project construct. We want to enable our downstream partners to have a very successful and profitable project and we are at the ready to provide them with term supply. So to the extent that that requires us supporting the developer to some modest extent downstream of our value chain. We are happy to entertain that and with the proper risk mitigation and return profile, that's something that we clearly would consider as we have in Chile and we are pursuing those constructs really on a global basis. So as you are, we are fans of the FSRU as a component of this value chain solution. We're very encouraged by how rapidly they come to market and absorb meaningful amounts of volumes. And we look forward to incremental term supply deals that ultimately will come with incremental liquefaction that's constructed on our side of the value chain. So we like what we see and we think as the market continues to grow, we'll see more of those structures. Thank you, Anatol. I just want to follow-up. Would that mean that you might be willing to invest capital in some of these projects. And I'm talking also about the potential power project. And if you can also give us an idea of the economics of new power plant in this opportunity that you have identified. At what prices of natural gas do these projects work based on today's prevailing electricity prices? Well, it's really a global market and there are no 2 projects and no 2 constructs that are alike. It's very one of the things that we bring to the table is we're very creative and we are willing to work with our downstream partners in finding the right solutions and having the right economics to again enable them to be successful and creditworthy, of course, and allow us to market our supply. But our primary objective is to market our supply into those solutions. And for the most part, the whether the project moves forward or not and whether it has economics that are attractive enough is a function of the in country process, whether that's a a PPA or any other construct that's awarded to it and that enables the entire value chain to be put into existence. But the economics in those local markets are all over the map. Thank you very much, Bruce. Your next question comes from the line of Sunil Sibal with Seaport Global Securities. Your line is open. Hi, good morning guys and thanks for hosting this call and taking my question. So a couple of questions from me. I think you mentioned previously that you are expecting a 4 week turnaround on Train 1 and taking care of some items there. I was kind of curious, how should we be thinking about these kind of turnarounds or maintenance activities on a more normalized run rate going forward? First off, it's a 4 week outage for Sabine and it's to correct a design issue that we've had with our process flares, Sunil. So you shouldn't read anything more or less into that. We're taking care of it now, so we don't have to continue to take care of it in the future. There is normal maintenance, but the trains have significant redundancy built into them. So it shouldn't impact us like this in the future going forward, if that's what you're asking. Yes. No, that's fair. So basically then one turnaround per train every 3 years or something is that kind of a normalized expectation? I didn't hear that. One turnaround for 2 years. I mean production capacity is more than sufficient to meet our contractual obligations. I don't know how. Go ahead. This is Keith Tague. Just commenting that our production capacity is sufficient to meet our contractual obligations. The outage and turnaround schedule itself has a number of variables. And I don't know to what extent going forward we're going to be publicizing our maintenance plans. This last time around, it got into the market. So we're talking a little bit about it now. But we're comfortable with our with the maintenance planning that we've got in place and our ability to meet our contractual obligations. Okay. Got that. And then just one clarification with regard to your discussions with the rating agencies. I was just curious, in addition to the construction schedule, are there any other requirements with regard to amortizing features on the debts, which will facilitate your transition to an investment grade? No. I mean those features are built into the existing debt we have, those bonds we put in. They require certain debt and current test, which meet the IG thresholds that they're looking for. So, no, it's really just getting their early trains up and running, which is what will give them ultimate comfort to move the rating. Okay, got it. Thanks guys. Thank you. Thank you, ladies and gentlemen, for your questions today. I will now turn the call back over to Mr. Jack Fusco. Yes. Thank you all. I just wanted to close with saying I really appreciate all of your support and your interest in Cheniere and we look forward to working together here in the future. So thank you. Thank you, ladies and gentlemen for your time and participation. This concludes today's conference call. You may now disconnect.