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

Thanks, operator. Good morning, everyone, and welcome to Cheniere’s Second Quarter 2023 Earnings Conference Call. The slide presentation and access to the webcast for today’s call are available at cheniere.com. Joining me this morning are Jack Fusco, Cheniere’s President and CEO; Anatol Feygin, Executive Vice President and Chief Commercial Officer; Zach Davis, Executive Vice President and CFO; and other members of Cheniere’s senior management. Before we begin, I would like to remind all listeners that our remarks, including answers to your questions, may contain forward-looking statements, and actual results could differ materially from what is described in these statements. Slide 2 of our presentation contains a discussion of those forward-looking statements and associated risks. In addition, we may include references to certain non-GAAP financial measures such as consolidated adjusted EBITDA and distributable cash flow. A reconciliation of these measures to the most comparable GAAP measure can be found in the appendix to the slide presentation. As part of our discussion of Cheniere’s results, today’s call may also include selected financial information and results for Cheniere Energy Partners LP, or CQP. We do not intend to cover CQP’s results separately from those of Cheniere Energy, Inc. The call agenda is shown on Slide 3. Jack will begin with operating and financial highlights. Anatol will then provide an update on the LNG market, and Zach will review our financial results and 2023 guidance. After prepared remarks, we will open the call to Q&A. I will now turn the call over to Jack Fusco, Cheniere’s President and CEO.

Thank you, Randy. Good morning, everyone, and thanks for joining us today as we review our second quarter results and improved full-year 2023 outlook. Following a record-breaking year for the LNG industry, activity levels particularly in the U.S. remain elevated with significant commercial momentum and multiple projects having reached FID this year as energy consumers worldwide look to secure cost competitive, reliable natural gas supply in pursuit of achieving evolving energy, economic and environmental policies and goals. Such activity confirms liquefied natural gas as a preferred clean energy solution underscoring its critical long-term role in the global energy mix. Recently, the short-term global gas benchmarks have been volatile as markets try to adjust to a multitude of factors like weather, storage and economic growth that drive all commodity businesses. With over 150 million tons under construction globally and expected to come online over this decade, we expect pockets of volatility in the future as the market adjusts and absorbs this new supply. Cheniere is built to thrive in this volatility as a highly contracted nature of our cash flow profile ensures visibility in our returns, while maintaining some exposure to the upside when markets dislocate like they did last year. At Cheniere, our focus is centered on the long-term fundamentals for natural gas worldwide and today, those fundamentals remain as strong as ever, with the global LNG market expected to nearly double by 2040, hundreds of millions of tons of new LNG capacity will need to be developed to meet this demand and our platform is ideally set up to enable us to accretively capture our fair share. Please turn to Slide 5, where we will review key operational and financial highlights from the second quarter 2023 and introduce our upwardly revised full-year financial guidance. The second quarter was once…

Thanks, Jack, and good morning, everyone. Throughout the second quarter, international gas benchmarks continue to moderate briefly returning to single-digit territory as global inventory levels reach historic highs amid mild weather and tepid macroeconomic activity in most of the key demand centers. Although the extreme prices and volatility of 2022 appear to be in the rearview mirror, prices remain above historical norms and the market continues to react to news of any potential disruption. TTF contract settled at $7.75 in MMBtu, the lowest monthly settlement since April of 2021, but it is higher more recently, selling July at $11.30 due to extended maintenance in Norway. Similarly, JKM delivery prices dropped from about $14 an MMBtu for April to settle around $9.60 for July and back up around $11.90 MMBTU for August thanks to cooling demand load, LNG outages and summer maintenance. In the U.S., mild weather and production growth kept Henry Hub prices below $3 during the quarter, incentivizing coal-to-gas switching, which, along with lower renewable generation and coal retirement have significantly increased power sector demand, helping balance the market. Strong summer cooling demand along with the return of LNG facilities for maintenance has provided milder support to prices with the August contracts settling just below $2.50. While concerns about near-term market tightness have moderated amid softer near-term fundamentals and continued uncertainty around the pace of China’s recovery, we still view the market to be structurally tight and delicately balanced over the next few years as very limited new supply is set to enter the market globally, leaving further potential for upside risks going forward. With that in mind, let’s now turn to Slide 9 to address regional dynamics in more detail, starting with Europe. During the second quarter, Europe’s LNG imports continue to grow year-on-year despite ongoing efforts to…

Thanks, Anatol and good morning, everyone. I’m pleased to be here today to review our second quarter 2023 results and key financial accomplishments, all of which are products of our team’s dedication to operational excellence, seamless execution and financial discipline as we continue to serve our customers across the world while creating long-term value for our stakeholders. Turning to Slide 13. For the second quarter, we generated net income of approximately $1.4 billion, consolidated adjusted EBITDA of approximately $1.9 billion and distributable cash flow of approximately $1.4 billion. Relative to recent quarters, our second quarter results reflect a higher proportion of our LNG being sold under long-term contracts, less volumes being sold into short-term markets, continued moderation of international gas prices as well as the operating cost and production impact from the major turnaround at SPL during the quarter. Once again, these impacts were partially offset by the proactive locking in of a large portion of our open cargoes for the quarter, late last year and earlier this year and margins above what is in the market today. During the second quarter, we recognized in income 561 TBtu of physical LNG, including 547 TBtu from our projects and 14 TBtu sourced from third parties. Approximately 85% of these LNG volumes recognized in income were sold under long-term SPA or IPM agreements with initial terms greater than 10-years. As we have noted in prior earnings calls, our reported net income is impacted by the unrealized, non-cash derivative impacts to our revenue and cost of sales line items, which are primarily related to the mismatch of accounting methodology for the purchase of natural gas and the corresponding sale of LNG under our long-term IPM agreements. The further decline in sustained moderation and volatility of international gas price curves throughout the second quarter…

Our first question comes from Jeremy Tonet with JPMorgan.

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

Thanks, Jeremy. This is Zach. So as you think about the $4.5 billion of unrestricted cash that had an increment -- in that was a $1.4 billion related to the bond proceeds from the CQP bond we did in late June. That was a refinancing that was executed in early July. So you have to take at least $1.4 billion out of that. And then when you think about how much is actually sitting at CEI versus CQP, it is in the mid-2s. So clearly, there is ample liquidity when you consider that our guidance of $6 billion of DCF or so, and we have made around $4 billion of that to date. So when you think about liquidity, we like to keep around $1 billion on the balance sheet at all times, give or take. We probably have around another $1 billion to spend on the Corpus Stage-3 project this year and then the dividend that were set to increase in Q3, like the guidance that we had last year. So you take all that into account, there is still probably a couple of billion dollars there. And I will just reiterate what we keep on saying is that we are intent to catch up on the one-to-one cumulative ratio between debt paydown and share buybacks over time. And we are on track to do so. So there will be, over time, billions of dollars allocated to our buyback program. We are just going to stick to our opportunistic approach, abide by 10b5-1 rules, and we will follow through and eventually get to that $20 per share of run rate cash flow.

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

So I guess the good thing on that is no, it doesn’t affect run rate EBITDA because we really don’t guide to it until it is firm. So as we think about run rate EBITDA over time that is just based on the fixed fees, the open capacity at 2.25 and a basic lifting margin. That is it. So these are the types of examples that are the incremental optionality that comes with like the Cheniere platform from our Brownfield growth to the opportunities upstream with lifting margin and being such a big customer to most of the pipes upstream of the plant and the biggest consumer of natural gas in the United States to being a relatively big charter with our DES and IPM deals. So basically, what happened in the quarter was we firmed up the more of the sub chartering, let’s say, of some of our length on our shipping portfolio. And once that is firm, I see it in the guidance and that helps move the numbers upward. Add to that we released those four origination cargoes. Anatol and the team build another four million tons without meeting needing much in terms of bridging, and we were pretty much obligated to increase guidance by $100 million this quarter.

We will go next to Jean Salisbury with Bernstein.

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

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

Great. As a follow-up, Cove Point transacted recently at a much lower multiple than in 2019. Can you just kind of - is this a sign that the LNG space is becoming more challenged. How did you view that transaction multiple?

But it is hard to make that comparison, right, from a single train confined - I mean I have spent a lot of time down in that part of the woods. As you all know, I have a house in Annapolis and there is no growth potential to compare Cove Point to Cheniere is not even close to being correct. But you want to get through the share.

Sure. I think there is more dynamics to this than just looking at the multiple. I think they sold to an existing operator, an existing owner and it is probably the easiest way for Dominion to get out of the business. But if you account for no growth to customers, polling versus our FOB, BS , IPM, CMI model, where you get all the steady cash flows, but also, like this quarter, incremental cash flow from all the optionality that comes with the platform. I think it only reaffirms that we are going to get a premium valuation to anything that Cove Point has or something like that. So that is how we think about it. And clearly, even at the share price today, we are barely getting valued at that type of multiple. And what we are pretty keen on is every turn on that multiple is probably over $25 to the share price. So we will take it. And yes, I just wouldn’t say it is apples-to-apples.

We will go next to Julien Dumoulin Smith with Bank of America.

This is actually Cameron Lochridge on for Julien. I wanted to start just on the expansion efforts, right, with Sabine, specifically asking kind of how you guys are thinking about open capacity for those trains. Would you give any consideration maybe to carrying in a little more open capacity than you have with some of your other projects. And then on a related note, just any update on the regulatory front, just given some of the recent decisions and whatnot by the DOE and elsewhere?

Cameron, this is Jack. I will start off. And the answer on the first one was exposure to the commodity markets. I would say no. We are going to do this the way we have done trains in the past. We are going to use our financial discipline. We are going to commercialize 85% to 90% of the output of the train that we feel comfortable that we can reliably serve and make sure it meets all of our financial criteria that Zach and the team have laid out many times in the past. . As you know, I have spent time in the power business, and that was almost a 100% merchant day in and day out. And I felt like a farmer, I was always worried about the weather. And we have no desire to invest billions of dollars - continue to invest billions of dollars in American infrastructure and pray that commodity markets will come back our way. So that is the first part. And then second question was on the regulatory structure or recent regulatory developments. I mean I, for one, I’m guardedly optimistic. I think under Chairman Philips, FERC is trying to act a little more in a bipartisan way. They have approved some major natural gas projects and specifically some LNG projects to go - to move forward, and that is been very positive all the way around that things are actually being reviewed and approved in FERC. And then similarly, I would say at the DOE, Secretary, Granholm was very clear when she discussed the critical role of U.S. LNG to support our allies and testimony that you recently gave to the House of Representatives. So those to me are really positive developments on the regulatory front for our expansion opportunities.

Got it. And then maybe one for Anatol real quick. You mentioned European appetite for long-term contracts in your prepared remarks, just how strong that is been of late. Any insight you can share on what is - perhaps what is driving that and for how long you maybe see that persisting?

Yes. Thanks, Simon. I do think that European sort of direct end users will continue to be part of the long-term sort of support equation for U.S. projects. My comments were kind of in the context of Europe not being as big a piece of the equation in 2022 as I would have expected and that has changed slightly, but it is still only a quarter. And the vast majority of that volume moving forward will still be addressed by intermediaries who are still half of that volume. So it has improved. I expect that to continue to be a healthy market for long-term commitments, but it will still be very much intermediated by portfolio players as well.

Our next question comes from Brian Reynolds with UBS.

We continue to see some exciting announcements around bringing more natural gas from Texas into the LNG, Louisiana corridor. So kind of just curious just given the size and scope of the Sabine Pass expansion, if there are any updated thoughts around providing equity support to bring natural gas into Texas and what that permitting time line could look like just given its crossing state borders and likely need for Greenfield capacity.

Yes. Sure, Brian. As we have said in the past, we view the gas supply component of our projects as an absolutely critical step, and we would not pursue a project that did not have a robust gas supply solution. That said, we view the Permian as a great source, not just for Corpus and this expansion but also for the expansion of Sabine, and we will continue to work with our infrastructure partners to find the best options for supplying the Sabine expansion. So whether that includes equity or not, TBD, obviously, we are not opposed to that, as you saw with our project into the Corpus expansion. And all of those options are on the table.

Great. I appreciate all the color. And as my follow-up, Zach, I kind of want to talk about potential funding needs for the Sabine Pass expansion. Just given the attractive leverage and debt levels at CQP with the debt reduction over the past few years and the ability to flex that variable distribution when the time comes to spend capital on expansion. Just kind of curious around if you could provide some more color around funding expectations between debt and perhaps internal equity for the project.

Sure. So it will be a debt and internal equity funding for that project over time. And we will start thinking about that now - we are thinking about the next few years as we are in development. what is the leverage metric should be going into FID. And honestly, the lower those leverage metrics are going into FID, more capacity we would have to lever up to help funding during construction of the project. So anything that we pay down going forward inside the CQP box is honestly like a pre-investment for that expansion. And as we look at our metrics on a consolidated basis, we are right under four times. CQP is a little over four times. So it will make sense for some of the debt paydown going forward to be inside that CQP box. And with that, it will give us even more funding flexibility when it comes to FID in a couple of years where we will live within cash flows, maintain a base distribution and most importantly, maintain those investment-grade credit metrics so that eventually that, let’s say, high $3 DPU run rate can get to something like $5 or better.

Our next question comes from [Sam] (Ph) Burwell with Jefferies.

I know that you have addressed it already, so I don’t want to belabor it too much, but just the buyback seemed a little bit smaller, especially relative to the free cash flow that you put up in the quarter. So just curious if you could maybe elaborate or give a little bit more color on the 10b5 restrictions that are in place, just seeing as you repurchased a lot more stock in 4Q 2022 and 1Q 2023 relative to what you did in this past quarter despite - I mean, the shares being under pressure in May and June.

Sure. I’m going to go back to the fact that we are thinking about this in the 2020 vision through 2026, and we have a three-year plan for $4 billion. And on a cumulative basis, we will get there on a one-to-one debt pay down to share buyback and to focus quarter-by-quarter is honestly not how we are looking at it. But again, if you just look at the time you are referencing where the stock was probably like $20, $25 lower than where it is today, clearly, if there has been pressure for a continued period of time, we probably would have been able to buy more. But abiding by 10b5-1 rules, we are not ones that are allowed to affect the share price. We are not allowed to buy at the opening or at the end of the day, and there is a myriad of other rules that we have to be careful of that, yes, when there is only three-days of extreme pressure at a certain price level, we can’t be a majority of it. . So I wouldn’t keep score quarter-to-quarter. But if you want to, this is the first quarter that share buybacks was higher than debt pay down. And if you think about the $4 billion program for three-years, we have gone through 30% of it in about 25% of the time. So we are on pace to do that ahead of schedule. That is the plan. And again, what is most important is we are going to get to that $20 per share run rate cash flow ahead of time and buy back 10% of the market cap over time. So it will play itself out. But we are not dollar cost averaging here with our free cash flow. So it wasn’t ever going to be in such a way as you referenced.

Okay. Now certainly, all fair points. Maybe just to follow up on Jack’s comments about the confidence on CCL3 volumes possibly coming on a little bit earlier than expected. I mean what supports that confidence? I mean I understand that the project is 38% complete and the construction is 5% complete. How do you see that progressing? And again, like what drives the claim that volumes can come on early?

I get a weekly construction report, and I was out at the site myself. There is over 1,000 people there. There is over 10,000 pilings have been installed. Train 1, it is concrete, over 50% complete. The steel is being erected on the [indiscernible]. So as I see that progress is way ahead of schedule. And I know that we have some very critical components for Train 1 that are - have been shipped. They just haven’t been received. So I think on the next call, you guys will get a much more fulfilling update on the schedule, but that is what gives me my optimism.

Our next question comes from Ben Nolan with Stifel.

I guess I will put both of these into one. There has been some issues with congestion and water levels and that sort of thing around the Panama. Now I’m curious if that is impacting how you guys are managing your book? And then also, there is a lot of speculation there is likely to be a pretty high increase in - or upward movement in freight costs into the back half of the year. Curious where your freight book looks like at the moment.

Yes. Thanks, Ben. So you are absolutely right. The Canal has had an issue with drought. Clearly, it is something that we are very close to, the canal is very good partner, and it is - it continues to be a good partner and will be for decades to come. Equally, obviously, Europe has been the market of choice. So that does not affect us nearly as much as it would have. And we also have the capacity to address that by going around instead of through the canal, which obviously takes longer, but equally obviously saves you the transit fees on the canal. So all of that is included in our guidance and in our economics, and we do look forward to continuing to work with the canal and finding good solutions there. And in terms of costs, you are referring to sort of charter rates as they continue to be elevated in the back half of the year, driven primarily by the contango into Europe. And of course, as you know, we have our requirements fully covered and our shipping position reflects that.

Our next question comes from Craig with Tuohy Brothers.

And I understand Trains eight and nine for Corpus are significantly hedged on some costs. But we are hearing more and more about EPC price inflation post Port Arthur and Rio Grande FIDs. And I wonder if you could opine on the broader market trends in terms of - we used to be looking at six times EBITDA in projects, now maybe somewhere in the seven times might be more reasonable, but some peers might be pressured even at eight times. In terms of peer FIDs, the pressure on the market and how you would think about economics and hurdle rates for SPL Stage 5, can you kind of give us your thoughts?

Sure. So yes, we have heard about - all of the other projects mind you, they are Greenfield, et cetera. But as we think about it, if we could sign up the contracts like Anatol and the team has been doing and can do it around, let’s say, seven times CapEx or better, and then you fund it around 50% leverage. We are talking about sub-four times easy on the credit metrics, and you likely can still get to 10% or better on unlevered returns. We are going to do that all day. And not only are we going to do that all day, we are still going to wholly own these projects. We just have a different dynamic economically with an investment-grade balance sheet, cash flowing in the billions and having already spent $40 billion that structurally and financially, it is just no comparison. So yes, I guess, kudos to some of these folks for getting their projects to the starting line. But again, we have a really nice hand to play here at both sides.

As we go into the next decade, do you see this basically as a systemic competitive advantage that the field is just going to permanently be windowed?

We honestly don’t - we have to focus on what we do here, and Jack reiterates that all the time to us as we execute on these projects. Again, if the economics don’t align, we will be patient, we will be disciplined, and we will just keep on buying back the stock and letting all the shareholders that already believe in Cheniere own more and more of Sabine and Corpus in the meantime. And then when they do align and it is clearly accretive, we are going to go for it. And that is it. So if some other folks get projects done, so be it. But again, this industry is probably going to double in the next 20-years or so. And Cheniere is not going to build all of it because we are not doing this for market share.

Our next question comes from Robert Mosca with Mizuho Securities.

Just wondering if you could talk about some of the debottlecking activity you have undertaken at your non-train portfolio and when or whether you think you could start to push towards maybe the higher end of that 4.9 to 5.1 MTPA per train run rate?

Yes. this is Jack. Yes, I will tell you, Robert, I have been more and more impressed with what my operating folks have been able to do. And I am optimistic that they will continue to deliver on it. I think our guidance is right around five. My expectation over time is that it is going to be a little higher than that. When we guide to the five million tons that included and includes our major maintenance that we just talked about. We had significant major maintenance in this quarter and we are still able to hit the five million tons. So we are not ready to guide above it just yet, but stay tuned.

Great. Appreciate it, Jack. And for my follow-up question. I know in the past, it really has been a part of the playbook to take on equity partners for projects. But any revised thoughts on your appetite if there is a high-quality partner that could also sign up for a chunk of uptake since it seems like those opportunities may still be in the marketplace?

Well, as you know, we have some great equity partners with Blackstone and Brookfield and I have had a long relationship with them, and they have been very, very good partners for us at SPL. As Zach mentioned, his intent is to fund it with internal equity, internal capital down at CQP as well as some debt for our expansions. We don’t see a need to have to complicate our lives with more equity partners than we currently have today.

Our next question comes from Jason Gabelman with TD Cowen.

I want to ask too about the near-term outlook. There is a lot of concerns around European gas storage filling and potential pressure on MVP pricing. And I understand that it will have a limited impact to your earnings on 2023 given the way you have locked in pricing. But as you look to 2024, does the prospect of kind of more volatile gas dynamics impact the way you think about hedging your volume exposure next year, either doing some earlier or potentially waiting until after you get through the fall volatility?

This is Zach. I’m going to start and then Anatol can give a viewpoint on the market. But basically, I pretty much look at our EBITDA forecast daily, our cash flow forecast daily and the volatility of the commodity curve definitely moves quite a bit, but the volatility in our EBITDA just doesn’t period. Like next year, as I mentioned in the prepared remarks, might be our most derisked and most contracted year we will ever have. We will have less than 100 TBtu open, we will be like almost 98% or something like that contracted with all of the contracts starting up and that will be the case until we have some of that acceleration of Stage-3 ramping up. So there is not really a need to hedge or contract anything over what we already have. This was always baked into the 2020 vision into the $20-plus billion of available cash. And yes, we are pretty locked in for the next year or two until that Stage-3 comes online.

Yes and just to follow-up. What is critical for us and things that we look at, Europe this year will add order of magnitude 60 million tons of import capacity. That obviously comes with storage capacity as well. Asia is on track to match that and in the coming years, exceed that. Europe will add 100 million tons overall probably through this build. . Our customers will enjoy and as Zach said, this year and next year and really into the mid-30s, we are overwhelmingly contracted, and they will enjoy very stable pricing and we will enjoy the ability to bring volumes into various markets as those markets send the right price signal. So the way we look at it, the best case scenario is we continue to perform. Our operational excellence continues to deliver these volumes. Our customers enjoy those stable economics, and the world has the capacity to consume these additional volumes. Could you see more volatility? Sure. But we doubt that you will see a repeat of 2022 anytime soon, and the world will put tools in place to address that.

Great. And just a quick follow-up on the other revenue bucket that you disclosed in your earnings. I think a lot of that has to do with chartering out vessels. Correct me if I’m wrong. But given the outlook that fleet rates are going to continue to move higher, should we expect other revenues bucket to continue to grow?

I will say we don’t forecast anything that is not firm. So I look at Corey and the team, and we do expect them to take a full advantage of the system and the assets that we have every day looking forward. On top of that, though, we are pretty firm for the rest of this year. I mean we have less than 10 TBTU even open, and some of the upside in the guidance today was things that not only subchartering year-to-date, but some that they locked in for the rest of the year. So there could be some, but it is getting smaller and smaller as we get further along in the year.

Our final question comes from Chris Tsung with Webber Research.

I wanted to just ask if you have noticed any impact from the DOE policy that has reduced the number of viable U.S. LNG projects? And would you anticipate that affecting the cadence of your filing process?

No. All of our projects what make our filings are already either fully commercialized or will be -- are well on their way to being commercialized. So there is no question of the need, and we should need significant extensions like we did during COVID. .

Okay. And just as a follow-up, we are seeing green shoots in the long-term pricing market with prices inching up above like 250 or so. And we also noticed [Nex] (Ph) amended its pricing across several of its SPAs ahead of their FID. Is that something you are seeing as well as you term out your merchant book and commercialize SPLC chart?

Yes, you are probably seeing that folks with the previous questions around inflation, they can’t seem to make their numbers without having some price escalation. So that is probably what you are seeing around the market. And it is not easy to get a Greenfield project off the ground.

And thanks, everybody. Thanks for your support of Cheniere and we will talk soon. .

Thank you. Ladies and gentlemen, that will conclude today’s conference. We thank you for your participation. You may disconnect at this time.