Cheniere Annual Profit Up

Cheniere Energy Inc. has reported a $2.5 billion fall in net profit to $1.4 billion for the fourth quarter of 2023 compared to the same three-month period 2022 due to an unfavorable change in its derivative contracts.

However the fair value of its derivative portfolio for the full year had a favorable change of $8 billion resulting in annual net income increasing to $9.9 billion from $1.4 billion.

“Substantially all derivative gains (losses) relate to the use of commodity derivative instruments indexed to international gas and LNG prices, primarily related to our long-term IPM agreements”, the major United States liquefied natural gas (LNG) producer said in a news release. Under an Integrated Production Marketing (IPM) deal, Cheniere purchases throughput volumes from a natural gas producer at a price equal to a global gas or LNG index price minus a fixed liquefaction fee and shipping and other costs. Cheniere is responsible for transporting, liquefying and selling the purchased gas.

“Our IPM agreements are designed to provide stable margins on purchases of natural gas and sales of LNG over the life of the agreements and have a fixed fee component, similar to that of LNG sold under our long-term, fixed fee LNG SPAs [sale and purchase agreements]”, it explained. “However, the long-term duration and international price basis of our IPM agreements make them particularly susceptible to fluctuations in fair market value from period to period”.

“As a result of continued moderation of international gas price volatility and declines in international forward commodity curves during the three and twelve months ended December 31, 2023, we recognized $1.3 billion and $7.1 billion, respectively, of non-cash favorable changes in fair value attributable to such positions (before tax and non-controlling interests)”, the quarterly report stated.

Cheniere expects gas demand to be sustained in the future. “The structural shift to natural gas is progressing, and the market continues to call for additional reliable, flexible and price-certain LNG from the United States in order to facilitate energy security and environmental priorities the world over”, president and chief executive Jack Fusco said in a statement.

Last April, Houston, Texas-based Cheniere applied for authorization before the Department of Energy (DOE) to export LNG to free trade and non-free trade partner countries. In July Cheniere was cleared to export to nations with a free trade agreement (FTA) with the U.S.

However last month the Biden administration indefinitely paused pending decisions on the export of LNG to countries without an FTA with the U.S. The White House said the moratorium announced January 26 allows the DOE to review considerations on the security of domestic supply, local gas prices, environmental impact and climate risks.

Cheniere president and chief executive Jack Fusco told the company’s earnings conference it does not expect the government’s decision to impact regulatory approvals for the expansion of its Corpus Christi and Sabine Pass liquefaction facilities but said “it does introduce regulatory and permitting uncertainty into the U.S. LNG industry as a whole”.

“I firmly believe that a fair and transparent regulatory framework is essential for the future development of natural gas infrastructure in the United States, particularly liquefaction capacity, given the scale of investment, commercial support and time required to bring these projects online”, Fusco said in the question-and-answer session for analysts and investors.

After seeing a decline in gas prices in 2023, Cheniere expects lower earnings for 2024. While it logged $20.4 billion in yearly earnings before income tax, depreciation and amortization (EBITDA) adjusted for extraordinary or non-recurring items, the company put its guidance for adjusted EBITDA at $6 billion for 2024. Cheniere pegged cash flow from operations at $3.4 billion, down from an actual $6.5 billion for 2023.

It ended 2023 with $6.3 billion in current assets—assets convertible to cash within a year—including $4.1 billion in cash and cash equivalents. Meanwhile Cheniere’s current liabilities stood at $3.9 billion including $300 million in current portion of debt.

On January 26 it declared a quarterly dividend of $0.435 per common share, making no adjustment after the previous 10 percent increase. Cheniere now trades on the New York Stock Exchange (NYSE), having migrated from NYSE American February 5.

“2024 is off to an excellent start, and we expect to once again deliver financial results above the midpoint of our 9-train run-rate guidance ranges”, Fusco said. “With the progress we continue to make on our expansion projects at both sites, and our highly-contracted operating platform, our focus is centered on execution across operations, construction, and project development”.

To contact the author, email jov.onsat@rigzone.com