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Cheniere Energy Inc
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Good morning and welcome to the Cheniere Energy Incorporated Fourth Quarter 2018 Earnings Call and Webcast. Today's conference is being recorded.
At this time, I'd like to turn the call over Mr. Randy Bhatia, VP of Investor Relations. Please go ahead sir.
Thanks, operator. Good morning and welcome to Cheniere Energy's fourth quarter and full year 2018 earnings conference call. A slide presentation and access to the webcast for today's call are available at cheniere.com. Joining me for today's call are Jack Fusco, Cheniere's President and CEO; Anatol Feygin, Executive Vice President and Chief Commercial Officer; and Michael Wortley, Executive 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 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 risk.
In addition, we may include references to non-GAAP financial measures, such as consolidated adjusted EBITDA and distributable cash flow. A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in the appendix of the slide presentation.
As part of our discussion of Cheniere Energy, Inc.'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 an overview of our 2018 operating and financial highlights and perspectives on 2019 beyond. Following Jack's comments, Anatol will provide an update on the LNG markets and Michael will review our financial results. After the prepared remarks, we will open the call for Q&A.
I'll now turn the call over to Jack Fusco, Cheniere's President and CEO.
Thank you, Randy, and good morning everyone. I'm pleased to be here this morning to review our significant accomplishments from a very successful 2018, to share my optimism for the continued success as we look forward to 2019 and beyond. 2018 was a truly remarkable year for Cheniere. On last year's call, I described 2017 as our breakthrough year which it certainly was.
In 2018, we maintained our momentum, achieving excellence and reaching new heights in virtually all phases of our business from commercial success achieved by signing over 7 million tons per year in new long-term SPAs with the FID of Corpus Christi Train 3 in May and the startup of Corpus Christi Train 1 a few months later to continued financial discipline and simplification of our corporate structure.
We've achieved those and much more and in doing so have cemented our reputation as a reliable full-service LNG operator which delivers on its promises to its customers, employees and stakeholders. In 2018, we executed on our strategic growth plans, operational plans and financial plan and results of our execution are apparent in the financial results we reported earlier this morning.
Slide 5 presents some key highlights for the fourth quarter 2018. There are a couple of achievements I would like to highlight from the slide. We generated consolidated adjusted EBITDA of over 630 million and a distributable cash flow of approximately 130 million and produced and exported of record 80 cargoes on the quarter almost a cargo a day.
In addition, we reached the commissioning milestone of our first cargo of both Train 5 at Sabine Pass and Train 1 at Corpus Christi. As of yearend, we had exported four commissioning cargoes from Train 5 at Sabine Pass and two from Train 1 Corpus Christi. Our substantial commercial momentum continued in the fourth quarter as we signed long-term SPAs with both Polish oil and gas company and Petronas for over 2.5 million tons per year in aggregate.
We look forward to successful long-term relationships with our newest SPA customers and expect these SPAs to support our growth plans. The market for LNG contracting remains active and we continue to pursue additional long-term commercial arrangements with new and existing counterparts worldwide.
Turn now to Slide 6 and look at some of 2018s most notable highlights. Financial results for the first year 2018 came in at the top end of our guidance ranges for both consolidated adjusted EBITDA and distributable cash flow, as we generated more than 2.6 billion in consolidated adjusted EBITDA and approximately 600 million in distributable cash flow for the full year. Michael will cover these results in more detail, but our financial performance in 2018 improved throughout the year and we're pleased to deliver full year financial results at or above our upwardly revised guidance range.
In 2018, we executed two important market transactions that I'll highlight briefly. First, we closed the merger with CQH in which we opportunistically and economically simplified our corporate structure. Our corporate structure remains complex and we would prefer to be simpler. However, we will remain opportunistic and only pursue further simplification transactions to the extent their economic LNG shareholders.
In addition to the CQH transaction, in 2018, we also refinanced the remaining term loans at CQP into the bond market, economically addressing the nearest term maturity in our complex and further demonstrating our commitment to managing our balance sheet throughout the corporate structure. Operationally in 2018, we produced and exported a total of 273 cargoes which required over 1 quadrillion BTUs of gas at our terminals.
Our teams in gas supply and operations made a significant operational and logistical achievement look easy and their dedication and commitment to excellence are significant contributors to our reputation as a reliable operator. Strategically, 2018 was an incredible success as we made a positive final investment decision on Train 3 at Corpus Christi and originated over 7 million tons per year of new long-term SPAs giving us sufficient visibility on Train 6 at Sabine Pass and enable us to finalize the EPC contract and issue limited notices to proceed from that project late last year.
Having that project underway via limited notice to proceed is strategically important for us as we have cost and date certainty on Train 6 ahead of our formal FID, which is where efforts are concentrated today. The FID of Train 6 is one of my key priorities for 2019, which I'll address on Slide 7. On this slide, I have included a few key priorities which highlights that our focus remains centered on growth, execution and being disciplined towards capital.
We are focused on completing the remaining steps necessary to achieve FID of Train 6, which we expect to occur over the coming months. As we have previously communicated, we expect to finance Train 6 with approximately 50% debt 50% equity, which is consistent with our strategy of deleveraging through growth. Ahead of that FID, Bechtel was work hard at work on Train 6 and making excellent progress in the scope of work. Bechtel will now estimate at Train 6 is approximately 14% complete, highlighted by over 3,300 piles already driven as part of the site preparation.
Beyond Train 6, we are focused on progressing Stage 3 at Corpus Christi through the permitting process, which we are permitting for approximately 9.5 million tons of additional LNG capacity. This project is moving through the process very well. We expect to have all the required regulatory approvals in place by the end of 2019. We expect to bring three trains into commercial operations during 2019. Train 5 at Sabine Pass and the first two trains at Corpus Christi.
As we have done with all the trains to date, we expect these three to be brought online safely, ahead of schedule and within budget. Completing commissioning and startup as well as commencing long-term contracts associated with new trains is a significant undertaking that requires a tremendous amount of work in coordination among Cheniere, our EPC partner Bechtel and our foundation customers. These efforts are especially critical for 2019 as we will be starting up three trains and commencing long-term SPAs for Train 5 at Sabine Pass, Train 1 at Corpus Christi and I'm focused on maintaining our track record for seamless transition from construction to operations.
The performance test for Train 1 at Corpus Christi has been successfully completed and we expect substantial completion to occur in the next few days. The last priority I'd like to highlight is our plan to communicate the capital allocation policy. This is a high priority for the executive team. we're working closely with our advisors and our Board of Directors to ensure we develop a durable, flexible policy that enables us to allocate capital the most effective, impactful way for our shareholders. We look forward to communicating it with the investment community in the coming months.
As I said earlier, 2018 was a remarkable year for Cheniere and we are proud of the accomplishments we achieved throughout the year, we have many more successes we're pursuing both in 2019 and beyond, and my confidence in our ability to continue delivering on our promises is underscored our people and the relentless focus on execution that continues to define Cheniere.
And now, I'll turn it over to Anatole who'll provide an update on the market.
Thanks, Jack, and good morning everyone. Please turn to Slide 9. 2018 was a banner year for LNG in many regards. Globally, nine trains started service increasing global supply by roughly 30 million tons, the largest year-on-year increase since 2009 when Qatar began to bring its mega trains online. New and expansion trains in Australia, Russia and the U.S. pushed total global supplies over the 320 million to mark according to preliminary data.
In the U.S., exports from our facilities totaled nearly 19 million tons during the year, a 33% increase over 2017. Sabine Pass Train 4 started commercial deliveries in March and Train 5 which is currently undergoing commissioning exported its first cargo in November. Also in November, we saw startup of the first greenfield LNG terminal in the Lower-48 U.S. as Train 1 at our Corpus Christi facility started producing LNG and exported two commissioning cargoes before the end of the year.
We expect LNG production from our facilities and others in the U.S. to continue ramping up in the coming months and contribute to further enhancing the reliability, flexibility and liquidity of the global LNG market. Strong global LNG supply growth was met with robust demand in 2018 and led to some late-year market rebalancing. Demand growth in Asia absorbed virtually all of incremental supply.
The step up in global production especially in the fourth quarter when the global complex added more than 10.5 million tons year-on-year ensured adequate supply availability for Asia and the rest of the world as mild winter temperatures kept price points in check and supported an uptick in imports into Europe, which added over 4 million tons year on year in 2018.
The graph on the top right displays the fourth quarter 2018 demand compared to that what we saw in the fourth quarter of '17. As you can see China, along with the rest of Asia has strong year-over-year increases in imports. For the month of November, China overtook Japan as the world's top importer though the position went back to Japan in December.
Total European demand increased nearly 7 million tons in the quarter, which as I mentioned was partially supported by mild weather in Asia, new LNG supply coming online and high shipping rates that incentivized Atlantic source cargoes to target Europe. I'll come back to weather in Europe in just a minute.
Global gas price benchmarks in the fourth quarter saw higher levels and increased volatility compared to the same period in 2016 and '17. However, even with a brief spike in Henry hub prices in December, the U.S. benchmark continues to trade at a heavy discount compared to other global gas price indices. Despite a mild winter and a reduction in the stores deficit seen earlier in the year, TTF prices traded more than a $1.50 higher than levels seen during the same time a year ago. Similarly, fourth quarter Asian spot prices settled at more than $3 higher on average year-on-year of the premium decrease over the course of the quarter.
Please now turn to Slide 10. More than 20 countries almost half of all LNG importing countries had record annual LNG import levels in 2018, including China, South Korea, India and Pakistan. In addition to record import levels, China and Pakistan also set records for LNG demand growth rates in 2018. The graph to the far left highlights how remarkable China's demand has been over the past two years.
China alone absorbed more than 50% of the worldwide incremental supplies in 2018, adding 16 million tons above the 2017 levels. China remains an important demand center for our products and the country's need for natural gas and LNG is expected to continue to rise as the country balances its economic growth needs and environmental commitments.
South Korea's steady demand over the last two years has also been impressive. Demand growth was largely due to low nuclear utilization as well as low coal-fired power generation resulting from policies intended to improve air quality. Looking ahead to 2019 for South Korea, LNG consumption taxes are set to decrease while coal taxes are set to increase which of course is expected to be supportive of LNG demand.
Pakistan which began importing LNG in 2015 has shown consistent and growing demand and re-gasification build out in the early 2020s to be Pakistan is significantly larger importer than it is today. The middle graph shows the total accumulation of population weighted heating degree days for the heating season in Asia. Populous areas of East Asia have seen mostly minor cold spells this winter and the month of January finished on an extremely mild note.
Asia's heating degree days an indicative of factor of weather driven demand ranked close to average at best for much of the early part of the winter. Nonetheless prices remain fairly robust, compared to last year. The graph on the far right shows spot prices in relation to crude oil for the past three years.
Price levels in the first half of '18 were higher than in '17 and particularly more bullish from June to November partly due to China's early buying ahead of the winter in order to secure more LNG and avoid shortages and price spikes in the winter. High Asian LNG storage levels combined with the arrival of new supply in the fourth quarter and a fairly mild winter resulted in more moderate prices in the fourth quarter.
Please turn to Slide 11 where I will highlight the European markets. LNG imports to Europe reached record levels in December. European LNG imports during the first three quarters of 2018 were actually lower year-on-year, but the fourth quarter showed very strong levels for a number of reasons. Storage levels were at 17 year low after the 2017, '18 winter in Europe, leaving the region to play catch-up throughout the year.
The relative tightness in the global LNG market through the first three quarters left limited opportunities for storage replenishment. Early buying and mild temperatures in Asia left that region adequately supplied and elevated shipping rates. High coal and carbon prices and an uptick in global LNG production incentivized flows into Europe in the fourth quarter. Nuclear maintenance and domestic supply declines also supported imports.
The middle graph shows the total accumulation of population weighted heating degree days for the heating season in Europe through January 24th. Europe has also seen mild weather this winter, particularly in December, making the regions heating degree days below average in the fourth quarter. Cool attempts in the back half of January have helped bring Europe's temperature closer to average for the season, which should help with the weather sensitive demand. However, given all of the factors encouraging LNG flows into Europe, we do not view the increase is entirely weather driven.
The graph on the far right displays storage levels on the left and TTF prices on the right axis. As mentioned earlier, the storage situation Europe faced coming out of the winter of 2017 exerted upward pressure on TTF prices. Europe entered the third quarter was storage levels near the bottom of the five-year range, which contributed to upward pressure on TTF prices. In the fourth quarter, prices were still more than $3 an MMBtu higher than level seen in the fourth quarter of '17, although, they have moderated particularly after October settlement.
Europe is undergoing to structural shift in the overall dynamics of its gas market, which makes it increasingly attractive region for both our long-term and shorter-term LNG strategy. There is debate in Europe heightened in recent weeks about limiting coal use and achieving climate targets that could have a significant positive impact on Europe's appetite for LNG in the longer term. In the near term, a number of issues that were in play in the fourth quarter could remain in 2019, potentially resulting in continued robust European LNG imports again this year.
I'll now turn the call over to Michael to review our financial results.
Thanks, Anatol, and good morning everyone. Turning to Slide 13, for the fourth quarter, we generated net income of 67 million consolidated adjusted EBITDA of 634 million and distributable cash flow of approximately 130 million. Our results for the quarter were positively impacted by higher than forecast LNG volumes and revenue and listing margins as well as lower than forecast and O&M expenses. For the full year, we generated net income of 471 million, consolidated adjusted EBITDA of over 2.6 billion, distributable cash flow of approximately 600 million.
As Jack mentioned, consolidated adjusted EBITDA and distributable cash flow for the full year were both at the top of the revised guidance ranges we provided on our third quarter call. We exported 285 TBtu of LNG from the liquefaction projects during the fourth quarter of which 21 TBtu were commissioning volumes. Total volumes exported were higher than exports in the third quarter due to commissioning volumes from Sabine Pass Train 5 and Corpus Christi Train 1 and higher seasonal production from the four trains in operation at Sabine Pass.
Approximately 72% of the volumes exported during the quarter, our 260 Btu were lifted by a third party long-term SPA customers and the remaining 79 TBtu were lifted by our marketing function. Long-term SPA customer volumes were consistent with prior quarter and marketing volumes were higher due to increased production and commissioning volumes. For the full year, we exported 976 TBtu from our liquefaction projects of which 21 TBtu were commissioning volumes.
Approximately 77% of total volumes 756 TBtu were lifted by our third party long-term SPA customers and 220 TBtu were lifted by our marketing function. For the fourth quarter we recognized an income 242 TBtu of LNG produced at Sabine Pass consisting of 263 TBtu loaded during the quarter plus 3 TBtu or one cargo loaded in the prior quarter but delivered and recognized in the current quarter, last 25 TBtu are seven cargoes built on a delivered basis that were in transit as of the end of the fourth quarter. We also recognized an income 40 TBtu or 12 cargoes for the LNG that was sourced from third parties.
For the full year, we recognize an income 973 TBtu of LNG produced at Sabine Pass and 84 TBtu of LNG that was sourced from third parties. Five commissioning cargoes from Sabine Pass Train 5 and Corpus Christi Train 1, totaling 17 TBtu of LNG were recognized on the balance sheet as an offset of a 140 million to LNG terminal construction in progress during the fourth quarter. One commissioning cargo exported during the fourth quarter is on the water at year-end and will be recognized as an offset to construction in progress during the first quarter of 2019.
Net income attributable to common stockholders for the fourth quarter was 67 million or $0.26 per share, consistent with the third quarter. Increased operating income due to additional LNG volumes recognized in revenue was offset by increased derivative loss related to interest rate swaps. Full year 2018, we generated net income attributable to common stockholders of 471 million or a $1.90 per share on a diluted basis, an increase of more than 860 million from a net loss of 393 million in 2017.
The increase in net income was primarily due to increased income from operations as a result of additional trends and operations at Sabine Pass. Decreased loss on modification or extinguishment of debt, increased derivative gains and decreased net income attributable to non-controlling interest, partially offset by increased interest expense net of amount capitalized. During the fourth quarter, we amended our existing revolving credit facility, increasing total commitments to 1.25 billion and extending the maturity date to December of 2022. This undrawn revolving facility enhances our liquidity position and provides a backstop for corpus equity funding obligations.
Turning now to Slide 14 where I'll review our 2019 guidance and touch on the highest priorities for 2019. Jack mentioned earlier, we remain focused on delivering results and today, we are reiterating our full year 2019, consolidated adjusted EBITDA guidance of 2.9 to 3.2 billion and distributable cash flow guidance of 0.6 to 0.8 billion. We're also reconfirming our full year 2019 CQP distribution guidance of 235 to 255 per unit. Actual results could be impacted by changes to train completion timing or LNG market pricing.
Before turning the call over to Q&A, I'd like to briefly review our top three financial priorities for 2019. First is to achieve financial results within these guidance ranges. A second priority is to complete a debt financing transaction for 50% of the total cost of Sabine Pass Train 6. We kicked of that process and it is an essential step prior to reaching FID. Jack also mentioned this, but our final key priority for this year is to develop and communicate capital allocation strategy, a process which has been underway for several months now.
As we have previously indicated, we expect our capital allocation plan to support our ability to invest in growth, enable us to maintain investment grade credit metrics of the project and ensure the consolidated leverage is at an appropriate level, and return capital to shareholders in a way most appropriate for Cheniere and our shareholders. We expect to communicate this policy to the investment community in the coming months. That concludes our prepared remarks. Thank you for your time and your interest in Cheniere.
Operator, we are ready to open the line for questions.
[Operator Instructions] We'll now take our first question from Christine Cho from Barclays. Please go ahead.
I know it's early for Corpus Christi Stage 3 and it depends on the contract, but how are you thinking about targeted financing for it, especially, as you are in the process of developing your capital allocation policy? Should we also think of it as 50-50 debt equity similar to Train 6?
It's Michael. That's how we are thinking about. We continue to deleverage through growth with no more than 50% debt on all the incremental projects and maybe we can bring that down overtime.
And then, I think on the last quarter call you said that 2.5 to 3 mtpa was the assumption for early cargoes this year. Has the contracting for this book increased since last quarter? And how should we think about your strategy around this, as we move through the year? And we should we still think $5 margin for the un-contracted portion at least what we should assume?
Yes, it's Michael again. So, the number is more like 6 million tons I think of post COD volumes with another 1.5 million on top of that commissioning volumes, which won't hit the P&L. So, I don’t know exactly how the portfolio is evolved over the past few months, but certainly we've been selling. One thing to keep in mind as we don't like to sale volumes until we know we have them right, and so as we go through this commissioning process, there is always uncertainty about exactly when the train is going to come on. So, we don’t want to get out of our skis have in place a lot of volume prior to getting the train.
So with that, starting to become behind us, as Jack mentioned, Corpus passed the performance test recently, so we have more certainty there, so the guys will definitely be more active in putting those volumes away. In terms of market, you guys can all see the screen like we can. I told you for the unsold piece of our portfolio we were assuming $4.5 to $5.5 margins when we did our budget three or four months ago. Clearly that has come in probably almost $2 and so, we gave you that sensitivity on the last call that said for every dollar move in margin it affect our EBITDA by 130 million. So you can do that math. So if we were in the upper half of our guidance range 3 to 4 months ago, certainly, we are lower in that range today, but still within it.
We will now take our next question from Jeremy Tonet from JP Morgan.
Just want to build on SPL 6 a little bit more here and see what else is needed for positive FID, seems like the contractual support is largely there. Is it just lining of the financing? And then also it looks like the EPC contract price 2.5 billion is a bit lower than what you have from SPL 5 and I was just wondering what drives the delta there?
So, SPL 6, we are extremely excited about as I mentioned on my talking points, we have released Bechtel with limited notice to proceed, so we've locked-in the price, we have locked in the schedule in regards to that, and Bechtel was making extremely good progress as you know. There's a lot of synergies with having the workforce just roll off of 5 into 6. Additionally what you are seeing with the cost of 6, we think is extremely competitive just like Corpus Christi Train 3, and we were able to utilize one not only the synergies of having the workforce already mobilized and the equipment already there to move right into Train 6, but also in the utilizing some of the existing infrastructure that it affords us having the brownfield site. So, we've got the infrastructure that was already built for the first five trains that we've rolled into Train 6 and that's part of the cost reduction. Michael, I don't know if you have anything to add.
Yes, I mean on the financing that we're progressing that as we speak. As I said on the last call, as Jack said, we have Bechtel working right, they're full speed ahead. We know price, we know schedule. We don't owe them a full NTB until all of the summer. And so, as I said on the last call, we're just kind of waiting to see what contracts come in and that the best portfolio is to really attach to that train for financing purposes. And since the last call you saw Petronas come in, which is very clean, FOB deal, which we like to put down with the project.
So, that's 3 or 4 months to see what else comes in and then decide the optimum mix and close that financing, but that's not flowing us down in anyway because we're underway on Train 6, and then, I'd add to Jack's comments on, remember, when we built Train 5, the first four trains leveraged a lot of infrastructure that we had at the re-gas facility, all the utilities and things like that. With Train 5, we had to really add all of that and we did that in anticipation of Train 6, so Train 5 was always going to be a higher cost train, Train 6 was far more attractive on a cost perspective. There's so much infrastructures in place from a Train 5 build. So, yes, just like Train 3.
And just want to switch gears over to ESG. It seems like the greater focal point for the marketplace for investors going forward here. And I was just wondering, if you could tell us how Cheniere thinks about these issues? How you position yourself? And how you guys see yourself stacking up versus other energy infrastructure companies?
Yes, so, we're very excited here recently, organizationally, we are able to bring on a Fiji George, who is from Southwest, who's got a lot of experience in ESG type programs, and he's been spearheading our effort as well as Chris Smith who is our Senior Vice President of External Affairs in Washington DC. And you all may know, Chris, he was Assistant Secretary of Energy under the previous administration. So, we think we need to be a leader in it, as you know we feel like we're on the right side of the equation when it comes to ESG.
We think natural gas is a solution. It's economic, it's secure and it's sustainable. And I know what you see around the world is a policy shift. I think it’s going to be a secular shift in the way energy is utilized worldwide. And I think you're going to see natural gas and liquefied natural gas take a much more prominent role in that, but we will be rolling out our ESG methodology and program here very soon. Anatol, do you have anything to?
No, it's just exactly as you said, we are focused, we are looking to leverage our position on the gas procurement side as well as our ability to supply this clean and reliable fuel to the rest of the world and have the rest of the world achieve the type of carbon dioxide reductions that the U.S. has enjoyed over the last decade.
We'll take our next question from Michael Weber from Wells Fargo Securities. Mr. Weber, please go ahead. Your line is open.
Jack, just wanted to start off with a quick note of your market-based question. Overnight, we saw tensions escalate in Pakistan and India. You guys obviously have some exposure there in India. I'm just curious, can you maybe -- you are in the risk and in fact your business -- can you maybe walk us through the impacts theoretically of a force majeure there on your import contracts, if we saw replay of 1999 or a broader conflict? And then maybe I guess within the context and kind of walking through that see those volumes just get pushed into the spot market and make them up on the back ends. I know it's early but it seems pretty pressing so…
Yes, there is no force majeure, Michael, right. It's FOB. So our contract with Gail, they take up at phalange at Sabine Pass and they can take it wherever they want to take it and that’s one of the benefits of U.S. LNG and the Cheniere model. So from that perspective, we don’t see anything meaningful one way or the other.
Q - Michael Weber
So, it wouldn't be applicable to an FOB-based contracts, is that basically what you are saying?
It's not, no, we would expect them to honor their contract and we would enforce our contract. But so far relationship with Gail is extremely strong and we continue to try to meet their needs.
And then maybe just around the competitive dynamics in an around the U.S. gulf I guess it's been -- going to bit more crowded in the last quarter or two with FID at Golden Pass and BG kind of knocking on the door. I guess maybe a little bit more insight in guess within the industry in terms of where those deals are getting done. Do you have a better sense yet around whether you have been able to price or able to command a premium for your volumes relative to your peers in the U.S. gulf? And if so maybe kind of a vague sense on where you think that is?
So, a couple of things; one, I think when you see a lot of other folks that want to have a position like Cheniere and then it reconfirms that our business model, our position is second to none, right worldwide. And so I'm very excited about that. As you know we were a first mover, and we've executed extremely well, right. You can compare us to just about everybody else in the U.S. and see that our construction effort has been second to none. Our operating ability in the handoff from construction operations has been second to none. Our ability to produce real volume in a growing demand market has been second to none. So I feel very good about our ability to execute. And I do think our full service model and our ability to deliver anywhere around the world has afforded us a slight premium to where the spot market is clearing today.
We will take the next question from Craig Shere from Tuohy Brothers. Please go ahead.
Michael, in May 2018 in your mini Analyst Day, I think you guided that on a nine train program that you won't be required to think about debt amortization out of operating cash flows at both the MLP SPL level and also at the LNG Corpus Christi level till late 2020s. Can you kind of share what maybe the all equity funding of $300 a ton upsizing of all the liquefaction trains? And the possible successful addition of 50-50 Corpus Christi phase 3 would do to that? Would it push amortization requirements into the 2030s?
Yes, absolutely. I don’t know what the exact date is, but that we would look to get into the details on that when we hit the road probably after our next call to rollout capital allocation and Train 6 numbers and probably add some Stage 3 numbers into the whole model. But absolutely, I mean every piece of equity differs that amortization date.
And so speaking of Phase 3, since Corpus Train 3 you signed four agreements with total of 5.75 mtpa which obviously is more than you could possibly need for 4.5 at saving 6. How much do you feel like you already have in the back so to speak towards Corpus Phase 3? And what minimum percentage of the 9.5 mtpa would you like to seek contracted before perhaps an FID next year?
Yes, I mean we definitely have more contracts than we need for Train 6 for sure. We have drawn down kind of some of our CMI inventory to service some of that, but the plan would be to, we would think that piece of our business competitive advantage so to keep some capacity there. How much do we need on Stage 3? I think we are running a couple of cases. One where we build the whole thing and one where we build half of it, and certainly, we are making our way towards at least building half of it, but not quite there yet.
And I would say, Craig, we are extremely excited about Corpus Christi in our ability to expand. We think there are no constraints with the site, there is constraints with nat gas, pipeline capacity coming into the site, the amount of infrastructure is there, and then our location to the Permian should be a real advantage to us all the way around. So, we are not going to slow down on the growth side, I think I have got some of the best originators in this industry and we are going to capitalize upon that.
Jack, if can I kind of dovetail on those comments. Do you see prospects related to corpus Phase 3 signing both supply and offtake agreements linked to Brent or perhaps a Texas-based gas sub like Waha or Agua Dulce.
Anatol, you wanted to take this.
Thanks Jack, thanks Craig. I think one of the things that, that was surprising and in some sense amazing in the LNG market in 2018 was that, the majority of the contracts that were executed were Henry hub linked. And obviously it was us and our neighbors at BG that had that success. The world has gotten comfortable with this as an attractive model. It offers liquidity price transparency and it has seen a number of times now when if Henry hub has a quick excursion to prices above $3 it comes down very rapidly and continues to be very competitive with Brent linked and other contracts. We continued to think that that is the right flag to fly. Your question about alternative indices, that's a very long pot and in our view the world isn’t ready to price meaningful volume, and Agua Dulce, while it's something that you and we know well just does not have the liquidity, transparency, turn structure that would make it marketable internationally.
That's very helpful. Very quick last one for, Michael, I think May last year at Analyst Day, in the mini Analyst Day, you said 1.9 billion of incremental forecast equity funding for Corpus Christi Trains 1 to 3, with things progressing seemingly better than expected. Any range of how much that might come under?
No, I don't think we're ready to, I mean Train 3 obviously has a long way to go. So I would stick with that number for now.
Train 6, we're going to end up with probably close to $300 million of contingency though. And so, that'll get rolled into Train 6 to help meet our 50-50 debt equity, trains to Train 5, we had excess contingency which will roll into Train 6 to achieve our 50-50 debt equity. But on Corpus, I'd stick with the members we put out in May.
We'll now take our next question from Danilo Juvane from BMO Capital Markets.
My first question is for Michael. You have pretty clear visibility to meet the contracted portion of your cash flow profile. I'm just curious, with that in mind, how you're sort of evaluating the various capital allocation decisions going forward?
Yes, we do have a lot of visibility. Again, we'll roll that out in a few months, probably after our next call, hit the road and talk about it. But it's pretty straightforward for us, there's three buckets right, there's the growth bucket, the balance sheet bucket and the shareholder returns bucket. I can tell you we're really excited about the growth, so that's going to be a big number as we look at not only Train 6, but Stage 3, reinvesting in the business is the best use of our money at the returns we think we can generate.
And then one we decide, if we want to do something else on the balance sheet relative to what we’ve already said publicly, so we're thinking through that. And then, there's probably some money left over for some kind of shareholder return. Flexibility is going to be key for us, so we'll keep that in mind as we think about bucket number three, but look to put some real numbers to that, here in the coming months.
And as you think about bucket number 3, is that something that you think you would be able to actually implement this year or try to out to some sort of our runway from your blend?
We'll see, I mean probably both, but we’ll see.
My other question is for Jack. You spoke earlier in your prepared remarks about being opportunistic to a CQP simplification. I mean, it seems that, that will be a little bit more difficult to achieve versus what you're able to do at CQH. How should we think about how you'll ultimately end up rolling up the MLP?
I think I said it fairly clearly, we're going to be very opportunistic the math that working, and we're going to have a complicated structure for the foreseeable future until we convince all of you that our growth really is there. I think we'll hopefully get you all comfortable and we can actually execute what we say and that we're a conservative bunch overall. But right now, the exchange ratios just don’t work.
And last question from me. With respect to Stage 3, have we ultimately just abandoned midscale investment should be less talk about now, there seems to be shifts in tone in terms of having sort of conventional trains going forward. How should we think about that?
We're moving full speed ahead with our midscale solution right now, which is our Corpus Christi Stage 3 that filing which we have in front of FERC right now.
[Operator Instructions] Our next question now comes from Jean Salisbury from Bernstein. Please go ahead.
How much advanced locking? And is there a pricing for spot cargoes? Have we seen the full effect of the fourth quarter winter gas spike on margins or will some appear next quarter?
It's Anatol. It's really a mix, as Michael said, we have three trains coming on with the fair amount of time and uncertainty on cargoes, and we are not in the business of going short in the market. As we have said to you before, we do have some tranches.
Obviously, we have early cargoes associated with some term deals that we've executed over the last year as well as some medium term deals for '19 and '20. But for competitive reasons we are not going to get into the specifics of the volumes quarter by quarter.
And then, do you see risk in 2019 that if everything starts up as scheduled some U.S. LNG facilities won't be running at full capacities for part of the year?
It's Anatol again. I really cannot envision that scenario, actually I have to say I can't envision the first premise of that scenario either, but even if that did play out the probability that on a marginal basis there is no value in exporting a $2.5 Henry hub molecule to a strong global market is pretty close to zero to me.
Our next question comes from Fotis Giannakoulis from Morgan Stanley. Please go ahead sir.
Anatol, I have one question for you. The last three FIDs they have been resolved long-term SPAs from the respective parties. Is this a new trend? And how does this change the long-term dynamics of the market and your potential margins and growth initiatives beyond the Stage 3 of Corpus Christi?
It's not a surprise to you or to us, it’s a global and competitive market and lots of places have attractive molecules that they want to monetize with a different capital allocation algorithm and different risk tolerance than we do. So, we are always expecting what -- in the U.S. when we have called a producer push component, the LNG market called that the equity lifting model, those are projects that we always believed would be able to get off the ground whether that’s East Africa, Western Canada Arctic Russia, et cetera.
And we are fully expecting to compete with them. We have been competing with them. And they weren’t a surprise to anyone in 2018 where we had pretty close to a record year. So we love the hand that we dealt. We love as Jack said the business model and the track record that we built and we are confident that we will be able to leverage that into continued success but it is a competitive market.
So from your answer shall I take that your strategy over backing every new expansion with long term SPAs will remain intact or there is this new FIDs might change your risk appetite.
We told you a couple of years ago, our model we've continue to refine that, we think that the range of CMI having this warehouse 5% to 20% sort of as the sideboards of volume in, it is a very good number and we're still comfortable with that and we had good success. As Michael mentioned, we in essence drawn down that inventory, we will look to reallocate volumes to that in order to continue to prosecute the type of bridging volume and secure reliable attractive value proposition that we've been successful with. So, there's no reason to change what's been working and is expected to continue working for the foreseeable future.
Our next question comes from Michael Lapides from Goldman Sachs.
Two questions; one, on the last quarterly call you kind of updated the range of potential output or capacity for each train and kind of raised the high-end. Can you talk to us about how you get comfortable with hitting that high-end and is or even upside to that level? I'd love a response on that then I've got a follow on about the balance sheet.
Hi Michael, it's Jack. Yes, so from an operating perspective, I would say that we are very comfortable now with the upper end of the range that we gave all of you. We have some debottlenecking initiatives that were -- we have plans of achieving this year with some of our turnaround and maintenance schedules, and you should expect us to revise our output. But I think most of you are probably on Genscape and can see our gas flows into our facility know that we're very close to 5 Bcf a day right now. So we are very, very pleased with the way our trains have been performing.
And then, one quick one on the balance sheet. Just curious, how do you think about -- let's say once you get Train 6 online and I know that's we're talking a couple years down the road, what you think about as a normal credit metric that you'd like to achieve, kind of a long run target or a long-run goal and whether that's measured on an FFO to debt or debt to EBITDA perspective?
Michael, before Michael Wortley answered that question, I just want to make sure, I read your note this morning. You know with the LNTP of Train 6 that the price and the schedule are fixed and not a risk for us. We haven't had any cost overruns yet. We don't expect to start now on our trains number 8 and 9. So I just want to make sure I got that clear with you.
Understood, I've known you for a long time, I've not seen you have very many cost overruns in the 12 to 15 years.
Go ahead Michael.
On the balance sheet, the rating agencies look at it several different ways, the projects, they care about debt service, coverage ratios and then deconsolidated numbers, consolidated numbers. For us I think we need to keep it simple and just communicate like everybody else which is at the consolidated debt to EBITDA number. And so, that over the long run, I think that's what we will start to look at more and more though the rating agency are more nuanced given our multiple levels of debt.
Do have a kind of a mental target in mind of where you'd like that debt to EBITDA number to be once Train 6 is up and running?
It will be part of our grand rollout in a few months. Currently, we are at 5 times to 6 times, consolidated by on the upper end of that range from what we said last time. So, that’s what we will stick with for now.
Our final question today will come from Alex Kania from Wolfe Research. Please go ahead.
I just wanted to touch on the commentary related to maybe the financing package for Sabine Pass 6. Michael, I think you talked about thinking about optimizing what contracts you want to attest that facility. Are you talking mainly about the CMI contract that you've already got secured? Or maybe is there kind of discussions far enough along another FOB type contract that you may want to wait to see play out for you to finalize that?
Yes, we have a free option right now, which is that we don't have to give full MTP until summer. So, yes, I think we would just wait and see what happens. I mean, I like our position now, if we have to make a decision tomorrow. I don’t think we would have any problem with that. But given that, we have free time to wait. Bechtel is working hard. Yes, I think we will wait and see if anything else comes down the pipe between now and then. We have Vitol and Petronas, which are FOB deals and then we have a fair amount of [gas] deals, so, yes, we will just wait.
And thank you all for your support at Cheniere.
Ladies and gentlemen, I would now turn it back to management for additional or closing remarks.
Thanks everyone for joining us today. We look forward to speaking to you next quarter.
This will conclude today's call. Thank you for your participation. You may now disconnect.