Good day, and welcome to the Cheniere Energy Inc. Q2 2022 Earnings Call Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Randy Bhatia. Please go ahead sir.

Thanks, operator. Good morning, everyone and welcome to Cheniere's second quarter 2022 earnings conference call. The slide presentation and access to the webcast for today's call are available at cheniere.com. Joining me this morning are Jack Fusco, Cheniere's President and CEO; Anatol Feygin, Executive Vice President and Chief Commercial Officer; and Zach Davis, 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 measure can be found in the appendix of the slide presentation. As part of our discussion of Cheniere's results today's call may also include selected financial information and results for Cheniere Energy Partners LP or CQP. We do not intend to cover CQP's results separately from those of Cheniere Energy Inc. The call agenda is shown on slide 3. Jack will begin with operating and financial highlights. Anatol will then provide an update on the LNG market, and Zach will review our financial results and guidance. After prepared remarks, we will open the call for Q&A. I will now turn the call over to Jack Fusco, Cheniere's President and CEO.

Thank you Randy. Good morning, everyone. Thanks for joining us today and thank you all for your continued support of Cheniere. I'm pleased to be here this morning to review our second quarter 2022 achievements and discuss our 2022 positive outlook. The second quarter achievements were highlighted by the positive FID of Corpus Christi Stage III earlier this summer. In June, we issued a full notice to proceed to Bechtel, which had already commenced early construction under a limited notice to proceed earlier this year. The strategy of releasing Bechtel under limited notice to proceed ahead of a full FID continues to pay dividends as it locks in schedule and cost, which is especially important in today's inflationary environment. We are excited to move forward on this highly economic growth project, which will strengthen our market-leading LNG infrastructure platform and provide much needed LNG to the global market. The FID of Stage III is a milestone. The entire Cheniere workforce should be proud of as it was made possible by everyone's dedicated and tireless efforts to bring this project to fruition. Over the last decade, Cheniere has set the bar on safety and project execution and we look forward to continuing those results with Stage III. Please turn to slide 5 where I will review some of the key operational financial and strategic highlights from what was a very busy and successful quarter as well as introduce our upwardly revised financial guidance ranges for the full year. For the second quarter, we generated consolidated adjusted EBITDA of approximately $2.5 billion and distributable cash flow of approximately $1.9 billion as margins in the LNG market remains significantly above historical norms and our focus on operational excellence continue to be rewarded. Our EBITDA and cash flow metrics for the second quarter both…

Thanks, Jack and good morning everyone. Please turn to slide 9. As everyone is aware, the energy world has been caught in a mail stream of geopolitical and macroeconomic events that are feeding volatility and heightening uncertainty in the market. All of which have had consequential impacts on supply, trade patterns and consumer behavior across energy commodities. Amid this volatility, total LNG demand continue to grow, albeit constrained by lack of new supply and sustained elevated prices, undoubtedly contributing to the record amount of commercial activity in the second quarter. After a brief pullback in LNG spot prices in the second quarter, we've seen concerns over the dependability of Russian pipeline supply, plus numerous LNG supply issues pushed JKM and TTF forward curves back into the $40 to $50 an MMBtu range through the coming winter, pushing European electricity prices to record highs. JKM prompt month futures continue to trade at a discount to TTF during the quarter, as Europe priced cargoes away from Asia and this discount has widened as a result of further cuts to gas flows into Europe in recent weeks. During the quarter, we saw pipeline imports from Russia into Europe, excluding Turkey continued to fall, reaching modern aero lows of just over 5.5 Bcf a day in June, prior to Nord Streams annual maintenance period. US LNG imports into Europe excluding Turkey again surpassed Russian pipeline volumes for the first time in June and again in July. On the LNG side there have also been several supply disruptions as well as seasonal maintenance activities which have also acted to tighten the market. The outage at Freeport LNG has removed the equivalent of approximately 2 Bcf a day of LNG from the market. Industrial action at Shell's Prelude beginning June 10 slowed production and resulted in…

Thanks, Anatol and good morning, everyone. I'm pleased to be here today to review our second quarter 2022 financial results, our key financial accomplishments and our increased 2022 guidance, all of which reflects the hard work and dedication of the Cheniere team, the reliability of our platform and the volatile state of the global energy markets Anatol just described. Turning to Slide 13. During the second quarter, we generated adjusted EBITDA of $2.5 billion, distributable cash flow of approximately $1.9 billion and net income of over $700 million. Our second quarter results once again were driven by the sustained higher margin environment across global LNG markets, coupled with higher lifting margins, due to higher Henry Hub prices. We recognized an income 574 TBtu of physical LNG during the second quarter including 570 TBtu from our projects and four TBtu sourced from third parties. Approximately 85% of these LNG volumes recognized in income were sold under long-term SPA or IPM agreements. We are pleased to announce that we generated positive net income of $741 million in the second quarter. However, the net income line continues to be impacted by the unrealized non-cash derivative impact related to our long-term IPM agreements as we have discussed on prior earnings calls. In fact we recognized $1.3 billion of these unrealized non-cash derivative losses in the second quarter alone, as Gulf Coast netback curves continue to rise in Q2. As a reminder, because GAAP requires mark-to-market accounting of these long-term gas supply agreements but does not permit the mark-to-market of the associated sale of LNG, resulting in a mismatch of accounting methodology for the purchase of natural gas and the corresponding sale of LNG, which drives this quarterly variability in net income from period-to-period. As Jack noted, during the quarter we launched and closed on…

Thank you. [Operator Instructions] Our first call will be Jeremy Tonet with JPMorgan.

Hi. Good morning.

Good morning, Jeremy.

It seems like Cheniere has been quite successful in signing up new contracts, as of late particularly with Asian buyers. And some of those contractual terms have showed that part of it is contingent on expansion beyond CCL Stage III. And so, I was just wondering, what the pace of new contracts could be? Do you see more of these coming in the near term? And are they going to be contingent on a further expansion? And if so when might we hear more about that?

Jeremy, thanks. And I can give you a little bit of color right now, if you'd like. So as you all know, strategically, we have a track record right of capitalizing on all the infrastructure and the sites that we've built. So we have executed on that strategy and expanded our portfolio by over 20 million tonnes so far over 60%, and that's Corpus 3 Sabine six and now Stage III. So I still view both sites as being excellent for major brownfield LNG expansion. So at Corpus specifically, and since you asked about the contracts Corpus is growing to just over 25 million tonnes with the addition of Stage III. We have a clear line of sight to get Corpus over 30 million tonnes on par with Sabine Pass. With the addition of a few more mid-scale trains as an expansion of Stage III, as well as some debottlenecking and tuning efforts. And so in terms of growth plans, we believe that that's the lowest paying fruit. And it's expected to be extremely cost effective, and potentially seamless with Bechtel already on site. Additionally, both at Sabine and at Corpus, both of those sites are ripe and ready for much larger expansions. So, we're currently working on early-stage developments, of over 30 million tonnes between those two sites. So as you highlighted, the energy crisis abroad has brought reliability and energy security and really the flexibility of Cheniere's LNG into sharp focus around the world, and that includes Washington. So the US LNG is rightly seen as a logical long-term balance, or a long-term solution, how balanced the shortages in Europe. And I believe that, the permitting reform that's currently being talked about in D.C. is a very positive development. It should enhance the regulatory tailwinds for well-developed commercially sound brownfield projects like ours and what we're about to propose longer term in our growth forecast. So I hope that helps.

Yes, that's very helpful. And I just wanted to pivot to capital allocation if I could. And I know there's a bigger update coming towards the end of the year here. But it seems like at this point Cheniere has clear line of sight to hitting targeted leverage and reach full investment grade in the not-too-distant future here. And so I just want to know process-wise, when you're thinking about buybacks, would you think of buybacks in terms of balance sheet capacity, or stock price, or think of it more in a holistic manner certain return of capital to shareholders that would be a combination of dividends and buybacks as a certain percentage of free cash flow or such?

Hey Jeremy, it's Zach. And thanks for the question. I mean, it was less than a year ago we came out with capital allocation. We thought we'd have $10 billion of available cash through 2024. Maybe it's double at this point just where the curves are? And how much earlier Train six came online? So yeah, we're going to owe everyone a capital allocation plan with much bigger numbers this year, because it's just been so much more accelerated. So as we think about it, there's this pile of money and how do we break it out. And we'll definitely recalibrate to an extent the debt pay down to shareholder returns. No need for the 4:1 ratio of debt paydown to buybacks going forward. So there's going to be quite a bit of money allocated to share buybacks overtime. And as you can see, we did over $0.5 billion just in Q2 and you saw some of the dislocation there and we were really opportunistic. So you can assume that that's going to happen. There'll be a regular cadence quarterly that we will always be buying back stock, but we'll be extra aggressive whenever we see things like what happened in June.

Got it. That's very helpful. Thank you.

Thank you. [Operator Instructions] We'll now move on to Marc Solecitto with Barclays.

Hi. Good morning. Maybe just following up on the longer-term growth outlook with respect to expansion beyond Stage 3, I want to get your latest thoughts around what the next iteration of that could look like after factoring in the recent contracts you've signed. It seems like you could potentially move forward with a larger scale train at this point or even a larger expansion with a couple more contracts. So just curious to the extent you could comment on, how you're thinking about that versus modular expansions?

Marc, hi it's Jack. I mean, the way I'm thinking about it is, I want to do whatever expansion I can do quickly and in a financially disciplined way. And right now, for us, it looks like adding to the mid-scale trains, we can do very quickly with -- and economically hit all of our financial metrics. And rather than get caught up in a long-term regulatory review of our large-scale expansion. So my first goal is to just grab all the low-hanging fruit that we possibly can right now today. And then, make sure we're filing and being respectful in those filings of what the longer-term expansion plans are for both sites. And that's near-term also. But I just think there's -- we have an opportunity to add to our growth plans in a very effective way and we need to take advantage of it.

Thanks Jack. It's very helpful. And then with respect to Europe, curious how your discussions with customers there have gone and whether with the most recent curtailment of volumes on Nord Stream and reescalation and gas prices has that at all changed some of the discussions over the past month or so?

Yeah. Thanks Marc. This is Anatol chiming in. The discussions have been very robust for the better part of the year, really in the market broadly and Europe obviously the tragic events that played out at the beginning of the year and continue to play out does add sense of urgency. You've seen us do transactions with Equinor NG those are transactions that we think probably would have gotten done anyway, but perhaps were done sooner. And then, of course, on the Europe front there is a tremendous push to add infrastructure to debottleneck, regas infrastructure running at well over 80%, and now will grow most likely by about 50%. And even given our business model and the transactions we enter into again with the Equinors, the Chevrons of the world, et cetera can all serve European demand. So, kind of, like a lot of the things you hear from us it's all of the above and we continue to be very well engaged. And to Jeremy's question, we do see continued great opportunity to support Asia's growth not just to help rebalance Europe.

Got it. Thanks for your time.

Thank you. And next we'll move on to Jean Ann Salisbury with Bernstein.

Hi, good morning. I want to ask any detailed questions about the EPA thing. I know it's kind of a sensitive situation. But I am just wondering, if we should expect a resolution on it before the 180-day mark, which is coming up in a few weeks?

Maybe Jean Ann is there because -- and I just want to say look I've worked in and around the EPA for well over my 40-year career. And I'm very familiar with the EPA their processes and what their expectations are. As I talked about on my speaking remarks, we've been testing the turbines with Baker Hughes at our side. Bakers or turbine OEM to try to make sure that we provide the data that they want by the September 5th date. I have to say being an own performance engineer from my days at PG&E back in the 1980s, the testing procedure in itself is very difficult. It relies heavily on correlations and calculations and estimates and guesstimates of the formation of formaldehyde. So we're working closely with the EPA as we're talking just working on what an accessible test program looks like, and what the shortcomings are from that program in and of itself. And as you know from your comments, 91 parts per one billion is an awful small number and very difficult to measure at least with today's technology. But we will continue to work closely with the EPA. And I think ultimately the situation is manageable. I think the solutions will be immaterial to Cheniere both from an operational perspective and a financial perspective.

Great. Thank you. And then as a follow-up, what do you view as the maximum amount of US LNG liquefaction that the US could realistically build, concurrently over the next four or five years? And what sets that liquefaction? It's obviously, a very big talking point in the market right now, and you guys know more than pretty much anyone. So, interested in your opinion there.

In the next four or five years, Anatol, what's the maximum amount that US can build?

Yes. So, Jean Ann, I will admit that the answer to that question has changed modestly over the last six months. And it is probably higher today, than we would have put it into our base case. But the constraints have changed and the constraints are very different today. As we said, the way we prosecute these projects with lump sum turnkey, commercial support, gas supply solutions, all of those boxes checked, on a disciplined and attractive risk-adjusted basis. Those boxes are getting more difficult to check, right? The commercialization issue, which was a key gating factor two or three years ago obviously, year-to-date less so with well over 30 million tonnes of SPA signed by US projects, and other 20-plus million tonnes of HOAs. That is not the gating factor, but running the gauntlet on all these other pieces and having the EPC economics that support that commercialization. Zach's prowess in financing these things, is not that widely distributed and the gas supply solutions that our guys come up with are becoming more and more difficult. So, all those issues are going to be the limiting factor.

Great, Thank you.

Thank you. We'll move on to Brian Reynolds with UBS.

Hi. Good morning, everyone. Looking at 2022 guidance seems like $10 billion is roughly the right number to end the year for EBITDA. But when looking ahead at 2023, it seems like the CMI margin opportunity has expanded, just given the roll forward in hedging and strengthen prices relative to 2022 EBITDA. So I was kind of just wondering, if you could talk high level about some of the moving pieces, when considering what's changing in terms of stock contracts and CMI capacity, as we look ahead into 2023 versus 2022? Thanks.

Sure. This is Zach. And you know, full well we don't really give guidance on 2023, until the November call. So that's coming in a couple of months. But what I can say is that, we're comfortably over 90% contracted on our nine trains, plus Stage III at this point through the mid-2030s. And for the next decade, we're on average 95% contracted across everything. However, considering a few of the remaining contracts, aren't going to stand up or start until 2023 or even early 2024. There is actually a reasonable amount of open capacity next year, especially in the first half before most of these contracts, that still haven't started yet, related to the first nine trains begin. But that's not to say we're not still comfortably over 90% even next year. But if you look at the curves, and on average for the rest of this year, next year, high 20s if not better, we're comfortably confident that we can beat the $5.5 billion of run rate EBITDA on nine trains again next year. So it could be a really strong year, before 2024 or so, where we're almost fully contracted on the nine trains until Stage 3 ramps up in 2025, 2026 and then we have a little more open capacity again.

Great. I appreciate all that incremental color. Maybe just a follow-up on the CCL Stage 3. I know you've gotten a few questions on this already. But just kind of curious if you can talk about brownfield expansions like with mid-scale at existing CCL Stage 3 and Sabine that would limit the regulatory approval versus like permitting a whole new site and going back to FERC which is -- it seems like the long-term plan at this point. But is there anything in the interim on the mid-scale perspective at CCL Stage 3 or Sabine that could potentially be brought online earlier just given that you already have almost three MCP contracts signed? Thanks.

Yes. No, we are FERC-regulated site. So, it doesn't matter what technology -- and in fact it doesn't matter what we do, we always go back to FERC and then FEMSA and now the EPA. So, I didn't want to mislead you on that aspect of it. There -- the degree of difficulty in my opinion is different from doing a modular expansion to a whole new large scale, large train construction program as far as getting through FERC and the engineering required. So, since we've already engineered and got fully permitted seven trains -- mid-scale trains, it should be significantly easier to just add to those seven trains and punch amount but it still requires FERC approval.

Great. Appreciate the color. Have a great rest of the morning.

Thank you. Next we move on to Matt Taylor with Tudor Pickering Holt & Co.

Yes, thanks for taking my questions here. I wanted to go back to Euronet in terms of behavior there as we're seeing a lot of those Western European countries can be really focused on getting through the winter here. So, I guess the question here is have you seen structural change in that behavior meaning should we expect to see interest? Like you said it's already picked up, but interest picking up even once we get to next year or are you still seeing LNG imports being viewed as a short-term measure to backfill Russian gas before turning back to say mothball baseload generation so that they can support renewable development?

Yes. Thanks Matt. The first step in solving this crisis that Europe has pursued very aggressively is the infrastructure solutions. The issue of lining up contractual long-term molecules for those infrastructure solutions is something that has been somewhat successful, let's say, and something that will we think be largely intermediated. So, the support that the market will get from the IOCs intermediating these issues is clearly what you're seeing in the Chevron, Exxon, even Equinor transactions that have been executed lately as well as some European customers. Again the NGs and the ENBW, for example, that was done with another project falls into that bucket. But you really can't get away from the fact that demand growth and real sort of underlying increase for LNG imports is going to be driven by Asia into the 40s and 50s. And the fact that we now have deals that go into the late 40s and into the early 50s from that theater, really support that. So that's the balancing act. But, of course, the flexibility and reliability of our products will go to the market of most need as it has for over 70% of our volume to-date.

Great. Thanks for that. And maybe as a follow-up to that then, we're starting to see longer-term contracting on those regas terminals. So, is that something that acquiring or building those types of assets? Would that fit your risk-reward preferences and you guys get involved on the debottlenecking of infrastructure in Europe? I mean Sabine was previously an import facility.

I guess to -- the short answer to that is, we'll have at least 60% if not 90 and maybe even more million tonnes of additional European import capacity really without our involvement. So we're happy to look at things. We, obviously, are in the market, but to-date that hasn't required our participation. And frankly, we don't expect it to going forward.

It hasn't slowed us down at all on our growth plans.

Great. Thanks for taking my question.

Thank you. And next we'll move on to Michael Lapides with Goldman Sachs.

Nice try. Hey, guys. Thanks for taking my question. I actually have a couple. One, Jack, just curious -- actually this is the first one is for Jack. Second one is probably for a combo of Jack and Anatol. The first one just on the knee cap issue. Is there anything that your team is saying to you that would keep you in the EPA book state in federal from entering consent decrees that give you a lot of time to come into compliance if coming in the compliance is required?

Yes. I mean that would be the logical next step. If we could not get a subcategory and get a stay on our turbines, which is what we believe is -- would be the correct thing for the EPA to do since this rule was in place in really 2003, 2004, and our facility was approved in 2011, that we think it makes sense for them to put us in a subcategory. But if not, we would go into negotiations, some type of consent degree, most logically with the state agency, which in our case would be Louisiana, LDEQ, and we would go from there just like we have many times before. And like I said Michael, I have in my career many, many times.

Got it, okay. And then, a long-term question. And this is just -- when you're talking account our parties and especially, the utilities in Asia. What are they saying to you these days, just given what's happened to global gas prices about the future of their coal generation fleets?

Well, I'll give you my perspective first and then, Anatol can chime in. Like Anatol says, we track all the natural gas infrastructure being built around the world. And I think the last time and last thing, I saw from Anatol's team was around $1.3 trillion of nat gas infrastructure that's currently being built. And most of that is in Asia. I think a very small amount of that is in Europe with the FSRUs that they're currently trying to build and the interconnections into their gas pipelines, but most of that $1 trillion is in Asia. Our conversations have gone very smoothly because of our reliability. And it’s not an accident that I touched upon it in the presentation. It has been a competitive advantage for Anatol and his team to go sit across the table and say, "Look, we haven't missed a foundation customer cargo". And if your building is power plant, don't you want to have a reliable source of natural gas for that combined cycle power plant. And those conversations have went very well, which is why Anatol highlighted the fact that PetroChina is already into the 2050 with us on their contracted amounts. So they really do see the value proposition of a long-term Henry Hub based contract.

And just to build on that, unfortunately, the way Europe has set up its market, the pain of these very high prices is very broadly felt. The way that Asia, most of Asia has set up its market, those prices are largely irrelevant, right? Our friends at CPC are largely immune from these prices and pay a long-term contractual price that is much less volatile and much lower. And that's really what Asia is relying on. And as we look across and think about, as you do about demand destruction and the implications of these high prices. A, we're not seeing anything, right? The commitment is to not build any more coal plants, retire coal plants continue to import more LNG continue to develop more gas-fired generation, really haven't changed over the last couple of years. And one of the large reasons for that, as Jack said, is we supply a fundamentally much less volatile, very reliable and these days much lower-priced products. And the coal alternative is even economically not attractive, much less environmentally. So that's one of the many reasons why we're still so sanguine on Asian gas and LNG demand growth for decades to come.

Got it. And if you don't mind one last one and this is probably for Zach. Zach, just curious, when you think about any open capacity, whether it's in first half of 2023 or first had winter of 2023 2024, how liquid or how deep is the market? Like, if you wanted to go ahead and start locking in, call it, winter of 2023, 2024 for any open or uncontracted cargoes. Can you actually go ahead and do that pretty easily right now, or do you have to wait till you get closer to prompt months, prompt delivery for doing that?

I mean, the team is selling what it can for the rest of this year into the winter and in the first half of next year, physically. And that's even trying at times with all the volatility that we're seeing. But to put in perspective financially to hedge out over a year, that's not really realistic to be done right now. I mean, 18 months ago early last year, you might have to reserve, I don't know, $15 million, $20 million, $25 million to lock in a $3 margin on a cargo for the prompt month. That's now $300 million with the volatility doubling since then. And if you can go out six months, you're almost talking about $1 billion. So financially hedging out all that far is not really realistic or tenable. So we've been most successful on locking in on a Henry Hub plus basis, or just on a fixed price basis. And what we're doing is really, reducing any liquidity risk and taking on likely more credit risk, but that's why, even on the short-term book these days, it's just as essential working with IG counterparties that are reliable or those that can post enhanced credit support upfront.

Got it. Thank you, guys. Much appreciated.

Thanks, Michael.

Thank you. Actually, we will now be taking our last question today from Michael Blum with Wells Fargo.

Thank you. Good morning everyone. So you're clearly going to be adding a lot of capacity in the future here. I'm curious for your latest views on construction costs. I know in the past I think you've talked about per tonne range. But is that -- does that still make sense? And I guess on a related note, can you talk about the cadence of Stage 3 CapEx over the next few years?

Yes. So I'll take part of that question and then I'll turn it over to Zach. We have an extremely strong relationship with Bechtel. They built our first nine trains. We had early meetings with Bechtel. We locked in on some of our major equipment with our major equipment suppliers with Bechtel early to help manage the inflation and then Bechtel did a full wrap on Stage 3. We saw some inflation, but it was manageable and a relatively small number on Stage 3. A lot of that is the design, since it's smaller trains. It uses a lot less nine nickel steel than some of the larger trains the five million-tonne trains. Our Stage 3 trains are 1.5 million of train. And in that case, they use more aluminum, less mine nickel and aluminum prices haven't escalated as much and we were able to lock in those prices and still get within that $700 a tonne range. With that, I’ll turn it over to Zach.

Right. I think just locking in the contract and doing that aluminous know [ph] procedure even in early March, huge advantage to us that probably set Stage 3 apart from most other projects that are trying to get done this year. And as Jack mentioned that $600 to $700 a tonne on an unlevered basis that's correct. That's including contingency the six times CapEx to run rate EBITDA of, let's say, one 1 billion to one two billion that's good too. And that's where we stand today. And if you think about our financing we raised 50% leverage on it. So it goes a little over $7 billion when you add the interest costs and the financing fees that's SOFR plus 150 so less than 4% funding. We're going to delay draw that over time with equity. So it's about $800 million a year for debt and equity on average through construction.

Got it. Very helpful. And then just one other really quick one. O&M expense at CQP was up, I think, like 12% sequentially this quarter. I'm assuming that's just Train 6 being fully in service, but I want to confirm that and also just ask if that's kind of the new run rate? Thanks.

Yes. I think you got it. That Train 6 for a full quarter. There was a little extra maintenance so it can go up and down quarter-to-quarter, but that's about right. And that's why you saw the O&M be up a bit this quarter.

Great. Thank you.

Well, thank you everybody. We appreciate your support and stay tuned.

Thank you so much. And that does conclude today's teleconference. We do appreciate your participation. At this time you may now disconnect.