Image source: Cheniere Energy annual report
Even though Cheniere Energy (LNG 0.73%) has been a publicly traded company for years now, the company has never hosted a quarterly conference call to discuss its results. Then again, there was little need to do so since there wasn't much to discuss other than the construction of its LNG export facility. Now, after 45 months of construction, its Sabine Pass LNG terminal has started delivering its first cargo and the company is actually generating revenues worth reporting.
On the company's first quarterly conference call, here are the things that management thinks you should know.
We're doing things differently now
Now that Sabine Pass' first of five LNG liquefaction trains is up and running and Jack Fusco is firmly implanted as the new CEO after replacing ousted founder and former CEO Charif Souki, Fusco wanted to let analysts and investors know that the company is going to communicate better such that investors will have a clearer picture of what management is thinking on a quarterly basis.
Financially, you should expect us to pull all levers to create long-term shareholder value. We will increase our transparency for the investment community, starting with today's call. We won't be providing guidance today, but guidance is something you can look forward to in the future. We will initiate a budget process with a focus on financial discipline and looking for ways to do our jobs faster and cheaper. We will look to identify opportunities to simplify our complex corporate structure. In addition, we expect our ratings momentum at SPL [Sabine Pass Liquefaction] to continue and look to achieve an investment grade rating in the near term. And finally, we are working on defining a sustainable long-term financial strategy, and we'll be communicating it in the due course.
There are a lot of things to unpack in that simple statement, actually. It suggests that the company will likely take development at its two LNG export terminals at a slightly slower pace than former CEO Souki had in mind to start.
It also suggests that the company will do something about its complex corporate structure, most notably its two subsidiaries Cheniere Energy Partners (CQP 0.35%) and Cheniere Energy Partners Holdings (NYSEMKT: CQH). The two subsidiaries were created as a way to raise cash to construct its two LNG facilities, but in doing so it makes it hard for investors to follow the company's financial statements.
Here's why you should invest in us
While the overall investment thesis hasn't changed much with new management in place, Fusco wanted to be clear why Cheniere Energy is worth investing in over the long term
Our investment thesis is clear. First, the world is shifting to a cleaner energy source, and reliable natural gas is a leading solution. Global gas demand is growing for both economic and environmental reasons, and LNG demand continues to grow faster than global gas demand. Second, Cheniere is well positioned to retain and grow its share of the U.S. LNG market. Many companies talk about developing an LNG export project, but Cheniere is the only company to have delivered an LNG export project on time and on budget in the Lower 48. We have a proven track record across all elements of project execution and finance. We are also unique in offering our customers a comprehensive service option from natural gas procurement, transport processing, storage and shipping.
Third, as I noted earlier, Cheniere's cash flows from liquefaction have just begun with excellent visibility for long-term growth. Fourth, we will remain financially disciplined while pursuing accretive growth opportunities. Cheniere is well positioned with additional existing LNG to bring to market, with 2 fully permitted, shovel-ready liquefaction trains and 2 more in the development pipeline. I am confident that we will be able to build incremental LNG capacity better, faster and cheaper than anyone else.
Where we can go from here
A big question mark for anyone investing in Cheniere Energy is where the company will be able to go once its two LNG facilities are up and running. Sure, it could build another multi-billion terminal, but having some smaller projects in which to invest could help balance out growth. Fusco highlighted one recent investment the company is looking at, and suggests there are even greater opportunities like this in the future.
In addition to building out our existing liquefaction projects, our strategic focus is to leverage our core capabilities on the LNG platform by developing projects within the LNG value chain...[O]ne of those projects in the development pipeline, our project in Chile. This is one of the most creative projects I have seen in my career. We are participating in the development of a Chilean gas to power solution. The project is a joint venture to build, own and operate a new power plant, with a 15-year power purchase agreement in a floating regasification facility. Cheniere will have the exclusive rights to deliver LNG to the FSRU for the power station for 15 years. While our competitors are talking about developing integrated LNG to power projects, Cheniere is once again leading the development of commercially innovative solutions. We expect the final investment decision to take place in the second half of 2016 after all the necessary Chilean regulatory approvals are received.
What makes this significant is that it is an investment that uses what Cheniere already has -- lots of volumes to LNG to sell on the spot market -- and finds a way to effectively use them to ensure more stable cash flows. Don't be surprised if we see other deals like this in the future from Cheniere.
Making things simpler to understand
Further addressing the fact that Cheniere has a corporate complexity issue on its hands, CFO Michael Wortley made some pretty veiled comments about the future of its corporate structure.
We are open to exploring opportunities to simplify our corporate structure to reduce complexity for our debt and equity investors. However, we will transact only to the extent it makes economic sense for our shareholders. As well, we will strive to maximize levered cash returns while maintaining a long-term sustainable balance sheet. Over the long term, embedded returns in our equity security will be the benchmark against which capital allocation decisions will be made. We aim to optimize the allocation of capital to growth opportunities, balance sheet management and capital returns to shareholders, with the goal of maximizing equity return.
Perhaps I'm speculating here, but this seems to suggest that it could consolidate its subsidiaries in the future. The lowest hanging fruit in that regard would be to buy out the remaining stake in Cheniere Energy Partners Holdings. The parent company already owns an 80.1% stake in the entity and its only purpose is to own shares of Cheniere Energy Partners. It will be worth watching how the company plans to handle its plans to simplify the business in the near future.
