Q1 2020 Earnings Call
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Ladies and gentlemen, todays conference is scheduled to begin shortly we continue to standby. Thank you for your patience.
Again, ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
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Ladies and gentlemen, thank you for standing by and welcome to do fortress Energy L.L.C. first quarter 2020 earnings conference call. At this time, all participant lines ARNA listen only mode. After the speakers presentation. There will be a question answer session. Catholic question. During the session. You want me to press Star one on your telephone.
She had lots of todays conference is being recorded if you require any further assistance. Please press star zero.
When I like to hand, the conference over to your speaker today Alan Andreani. Thank you. Please go ahead Sir.
Thank you Gigi I would like to welcome you all to the new fortress energy LLC first quarter 2020 earnings call.
Joining me here today are with Eaton search CEO and chairman of board, there's going to our Chief Financial Officer, and branded Battle Murray, Our Chief Development Officer.
Ralph the Cold medical you referenced the earnings supplement posted to the Newport Your synergy website.
Not already done so I'd suggest that you download it now.
And we'll be discussing some non-GAAP financial measure your during the call today.
Conciliations of those issues did the most directly comparable GAAP measures can be found in New York and stuff.
Before I turn the call lived the west I would like to point out certain statements made today will be forward looking statements, including regarding future earn.
These statements by their nature are uncertain and may differ materially from actual results may encourage you to review the disclaimers in our press release and Investor presentation regarding non-GAAP financial measures and forward looking statements and to review the risk factors contained in our quarterly report filed with the FCC.
No I would like to turn the call over to with.
Great. Thanks, Alan Thanks, everybody for dialing in and love to talk about the before we go into the quarter I'd like to start by just sharing a couple thoughts that I had as much preparedness with our folks here well last couple of days.
Two main takeaways things that I'm very thankful for one in first and foremost as our customers. Even in these very difficult times power and gas remains essential goods and services for those people and I'm not sure honored actually to have them as customers. They continue to deal with the difficulties they had each and every day and although volumes in the aggregate from.
Them are down a little bit as a result of the diminished a financial times. They still showed up everyday and we should up everyday to service dominance in its really a a terrific cut benefit for us.
Two is that a I'm very grateful for the people that we have especially those people there on the other fields for US there was no shelter in place for Central workers and these people show up to work every day now as a result, we got done what we needed to get done we had a great quarter and we're off to very good started the year and we are because a large no small part because now.
The result of our activities, we had no mass layoffs or furloughs, we apply foreigner got any government assistance.
We actually are able to raise the salaries Raphael workers by 50% for the month of April and May in recognition of the jobs are doing the times. It was very very proud to be a part of the organization that was able to do this.
In New York City, I've been coming to work every day I would the skeleton crew here, our business is not particularly translate well to the to the shelter and at home crowd as well as we've been making adjustments and trying to be productive as we can we have some people here. Some people at home you hear it just my dog, but we've had a very very very good quarter and we'll go through that detail at both in terms of the.
Productivity of what we have we managed to accomplishing the in the infrastructure building the pipeline that we have a happy to say the both branded and a in Chris shaved and actually put on clean shirt. So they obviously thought this was a zoom call them, you're having this morning here.
I'm, there's never been a shutdown in my life quite like this many a industries and companies literally had no no revenues whatsoever. So we're very very fortunate that in this extraordinary times that we have both.
But to have these record revenues and complete our infrastructure in Puerto Rico, and get that online and maintain the new business a lot pipeline and profile that we have a company is remarkable indeed, so with that let's just turned to the or the presentation will go through this briefly I'll start on page number four.
Highlights less than five months. So our business is all about the volumes that we generate January we averaged 700000 gallons per day February seven Thirtys March 830 April a million gallons per day. The goal is one of the have to two and a half million gallons per day for the remainder of 2020, and there's significant upside to that depending on.
Yeah, I come up a a handful things that are in progress right now.
On T. Kobe Old Harbor, San Juan are complete and fully operational the new business pipeline remains very robust or the world is not certainly gotten electrified on its own or they're just changes some gas theres a lot of a new business prospects for still out there.
That is obviously impacted our customers to power and gas are essential goods.
I'm talking about so page number five.
This is the volume chart and as you can see each one of these terminals has come online overtime and as is has grown measurably. Some montego Bay was our first terminal you see it and then we go back to the first of <unk> first quarter 2019, it's been fairly constant.
The old Harbor terminal came on mid point last year, Puerto Rico came online just a month or so ago and we've now got new developments in both Nicaragua and in Mexico, There under development as well as other organic growth from these existing terminals to give you some or some sense of how that translates the simple chart in the.
Right hand side as a good illustration of that there's got to chart that ranges from a million gallons a day to three millions of gallons. A day was results to go on annualized basis from $12 million to $450 million. Obviously a million gallons is the important line of departure for us at which point the margins for our business grow dramatically we're through that.
Today, we averaged a last couple of days about a million 5 million 697 gallons. Each one of those days. So we're well through that today. It was each successive new business opportunity. It comes online only grows from there.
Page number six I've got a lot of questions about cobot, obviously and I've got a lot of questions about you know the competition between gas and diesel and so this is my attempt to explain that customers are still using significant volumes of gas and power on average the their reductions have done about 20% says you'd expect we are a derivative of the our customers businesses.
And those that are impacted by lack of travel hotels, you know a transportation have obviously been impacted their volumes have been down but are still very meaningful.
Oil prices have collapsed absolutely collapse, the the demand destruction of a in the oil business has been tremendous Oh, there's a lot. It obviously a lot of things going on there, but you know when you look at the oil business two thirds of all the oil in the world is burned and transportation with airlines lifestyle, 95% without people driving cars as I was much trucks and <unk>.
Ships going around the world demand destruction has been tremendous the good news of course is the deck and that can reverse itself once economies come back online. It goes the other way what I did as they simply went back and looked at our price of delivered LNG versus the delivered price of diesel in these markets such as the approximation. We tried to make on both these went back and looked over the last.
10 years, you can see that the averages over the last five years $5 in 12 cents and M. B to you last 10 years $8.47. There's only 15 days in the last 10 years of which would have been more sense to burn disciplined to burn natural gas so our value.
Proposition remains intact and this of course is it is just the beginning of it. In addition, you've got much much better a environmental profile you are much lower maintenance of your equipment. So we feel very good about our position with this we've seen no pullback whatsoever from our customers and conservative switch from from.
Oil to gas.
Page number seven the new business pipeline contained and continues to be very robust where shortlisted for the Puerto Rico temporary power RFP or notified of that to physician on I guess late Saturday night early Sunday, they expect to make decisions on that in the next couple of weeks, we can't comment on that obviously, but that's something that we are optimistic about we think it fits our profile and footprint there well.
Oh, hi, travel limits around the world there, obviously still very challenging, but hopefully they'll use up soon become very familiar with that was zoom calls I had a assume call with a a energy minister yesterday I've got one here later. This morning. So everyone is adapting to this new world without being able to travel, but I'm hopeful that that will he's zone these terminals or.
Portals for us and they bring into for us to bring LNG and power around the company, though the world. Our focus is on the 10 regions, which we previously highlighted in particular, the five that I've shaded in green or ones that we actively have discussions going on and I'm very very optimistic about our prospects here for the rest of the a year.
So let me turn it over to a brand talking about terminals and operations for and have you been thanks Wes.
Turning to page nine a good morning, and thank you all for joining as West said, we're very excited to update you on what we've accomplished since we last spoke and so focusing on page nine our terminals are complete we finished our San Juan facility, adding a marquee terminal asset to our growing portfolio, along with Mobay old Harbor in Germanakos, San Juan unit.
Five and six were successfully converted to run on natural gas completing a long running goal of prep and they could not be more excited now over 400 megawatts at San Juan Power station runs on natural gas, which is expected to save prep a millions of dollars and reduce emissions significantly versus diesel and most importantly is west alluded to in the.
Beginning the coal is we had demonstrated that even the most challenging times, we can deliver on our commitments to customers at peak, we had over 250 workers at the site completing construction and commissioning activities.
Equally in without incident, our employees and those of our partner show tremendous dedication and commitment and were greatly appreciative of all that they have done as a company. We showed tremendous resilience to deliver critical infrastructure and the most challenging period further adding to our reputation as the go to critical infrastructure provider turning to page.
Then.
With respect to Puerto Rico, specifically, our San Juan facilities, the significant step towards our strategy to Gasified, Puerto Rico, providing a compelling option to transition permanently from diesel and HFO across the island. We believe there's a tremendous growth opportunity. This highly complimentary to PRC strategic plan to modernize its.
Power infrastructure over the past few ever over the past week units five and six is averaged over 620000 gallons per day and we've seen as high as 800000 gallons per day as we continue to ramp up in addition to serving the power plant next door. We have a four bay truck loading system that can load about 1 million gallons per day for delivery.
The two industrial customers, we expect to serve our first customer and just a few weeks and we'll be adding to that such marquee names as Coca Cola and others. Most significantly though the facility itself has significant additional building capacity to serve additional power demand that can be added over time and as with west alluded to depending on how the.
Current process in Puerto Rico goes we expect that if successful we would need to add no more dollars to the terminal itself to serve that additional demand.
Now flipping to page 11 to give you just a snapshot of the operational asset performance.
The health safety and welfare of our people as a top priority as being a good stewards of the environment in the communities in which we operate in this moment, we have redoubled our efforts in this area and from an operational perspective perspective, No news is good news zero, which is the first page on the numbers probably the most is the single most important number that we.
Focused in on every day, particularly over such a challenging period over the last few months I'm happy to report that we continued to achieve zero in terms of our recordable incidents on the operational side and our operators continue doing terrific job day in day out they are truly the face of our business and the ones that our customers like to look to everyday.
They are critical activities.
The other numbers on the page that I would point you to is our availability and reliability numbers continued to exceed that of our customers, which is such a critical point because we are actually more reliable than the customers. We serve which can ensure they have no no disruption of service and for our customers who provide power to hospitals and.
First responders policemen and firemen and all the critical services that are providing such needed benefits now that such an important aspect of what we do.
On simply the metrics are we continue to rack up more and more truck and rail tender loads without incident. So right now were about 6000, maybe a little bit more we have over 420 plus ship to ship transfers without incident. This morning. It was actually watching a video of a ship to ship.
Maneuver in Puerto Rico. This morning again.
Continuing our track record of of no incidence.
In a terrific job our operators, we had the most ship to ship and shipped short transfers of any company in the western hemisphere, but as always on the operational side, we continue in strive to improve.
We're looking at technology had to implement technology information technology, analyzing data and or just trying to get better and better at what we do so now I'll turn it over to Chris to talk about the Companys financial performance.
Thanks, Brandon it's great to talk with you. All this morning, if you turn to slide number 13 and like to walk you through the financial results for Q1 2020, we're very excited to announce that are average daily volumes for the first quarter was over 750000 gallons per day. This is an increase of 40% from Q4 and more than double from the same quarter in 2019.
The increase in volumes is driven by the gym, Alco CHP plant coming online and achieving cod. During Q1. The plant has been operating a base load capacity and running inline with our volume forecast for over the last 60 days revenue for the quarter was $75 million, which was our highest quarterly revenue to date. This is the result of the volume increase.
Greece, but slightly offset by lower average Henry hub price for the quarter and by a decrease in construction activity revenue recognized in Puerto Rico.
Our cost of sales and own them were higher due to increased volumes. However, as we continue to grow we will see massive margin expansion on account of the fixed costs nature of our shipping and terminal opex.
As far as China expense was right at the forecasted $20 million per quarter. When you exclude $3 million of stock based compensation expense and $6 million of non capitalizable development related costs.
During Q1, we also had about $10 million of onetime costs that related to the early extinguishment of debt that was expensed. When we closed or 800 million dollar term loan facility provided by Apollo in January.
Flipping to page 14, we discuss how we will advance or plan to make our business more efficient now that are operating cash flows are online. We're taking a close look at the where and how we spend or capital and what we can do to be more profitable over 95% of our operating expenses. Today are made up of these four main categories number one as Jean.
<unk> expense, which is expected to be approximately $80 million annually, which can be refined to achieve increased productivity and scalability number two our current annualized interest expenses around $85 million, but this will come down once we complete a refinancing and are able to borrow at a cheaper cost of capital.
Number three shipping costs currently are approximately $85 million for the five vessels that we have on higher and we believe we can drive significantly lower.
We think that by focusing on these three expense lines. We can say $50 million are more on an annual basis, which goes straight to the bottom line.
Number four today over 60% of our LNG needs are uncontracted, securing long term supply at low prices as a primary focus and represents a big opportunity to dramatically increase earnings to the tune of billions of dollars.
Briefly on the right side of this page we demonstrate the strength of the balance sheet as of March 30, Onest current cash on hand, plus or LNG inventory is over $350 million, which combined with the cash flows from committed volumes fully funds all of our committed capex and operating activities.
Turning to page 15. This is this slide that we've included in prior earnings presentations and demonstrates the ramp of our committed volumes in the impact on our cash flows.
As we've mentioned before while this is not intended to be any formal guidance. We do included to demonstrate that these assets have material cash flow capability as they hit run rate.
The graph shows how annualized cash flows from committed volumes will ramp to over $300 million. This year alone and when you include Mexico in Nicaragua, we expect to be over $460 million next summer.
It's exciting to note that as we continue to execute on can contracting new committed volumes, we can clearly see NSP, earning well in excess of $1 billion, an annual operating margin.
With that I'll turn it back over to us.
Questions.
[noise] tougher.
As a reminder to ask the question you wanted to press Star one on your telephone to withdraw your question, but for bouncing. Please stand by what we compile the coordinate roster.
Our first question comes from the line of Joseph Osha from JMP Securities. Your line is now from.
Hey, I made it through the front of the wine I hope everyone is okay. Thanks for hosting the call I have two questions first you guys ill point out in the deck that you've been working through higher cost supply right now.
Obviously, you've got a west as you pointed out you still some open exposure. So I'm wondering how we might reasonably expect to see that cost of goods trend over the course of the next next couple of quarters.
It we did have excess supply in Jamaica assets in particular and with a lower volumes modestly lower volumes that has actually gotten a little bit worse.
In total we've got a couple of cargos extra that we have.
Contracted for that we don't need right now and I think that what we will do is either sell those and an outright basis or swap them in a cargo. So again then use in in Puerto Rico, but new event.
What what you'll see is the financial charge against the extra cargoes that comes out over the next couple of quarters, but the run rate.
Great margins that underpins it will reflect the actual price that we pay for the gas were actually burning so I don't want to confuse the operational performance of the assets in the run rate of them, which I think is the most important financial aspect of the entire business with what is a fairly short term just oversupply in one case.
Were 60%.
Undersupplied effectively across the board and so we have and and with the prospects. We've got knock wood in the short term that will only grow so we have a big opportunity with the market where it is to do some ROA summarize some good things on the on the price of gas.
Okay and is as a follow up there might we assume at this point.
That you probably don't want to go out I I'm confused because I heard Chris talked about contracting more but wouldn't it make sense to maybe what this existing.
Supply roll off and then just go out and by by spot given given how cheap it's gotten I'm trying to understand your your strategy going forward, Yes, that's exactly what we said before is that when we.
Get assets up an operational as they are in Puerto Rico right now we want to run them for a period of time and make sure that we understand a measure of what the performance is going to be in their needs and then once that Acetyls and then we'll go and look at a longer him strategy. That's what we did basically in Jamaica.
And I think that that's exactly what we're planning to do in Puerto Rico. So and then in this case, we do have an extra couple of cargo. So there's less of an impetus to go out and rush out and by a bunch more supply and right now as I said that could be more swapping or other things we might consider but.
But were still undersupplied in a very good markets. So thats net net a huge positive for us.
Okay. Thank you I'll jump back in Q.
Thank you Sir our next question comes from the line of Greg Lewis from BTI. James Your line is now.
Yes, Thank you and good morning.
I guess, Mike Mike. Good morning. My first question is related to the Puerto Rico temporary power or a realizing that it's a competitive process right now would there be any additional can't backs or.
Requirements needed to still that are temporary are a or is it just how should we be thinking about that.
Well I can tell you what is whats public is that there was a earthquake in Puerto Rico on the six of January than the southern part of the country that took out one of the main power stations and that was what created the shortage as are moving into the summer months. There, obviously very keen to cover that gaps they don't have a disruption and service as the summer months.
It up and even with a reduction of activity with Oh with co bid and less travel they still have a significant deficit they're trying to cover so that that's the industrial logic of the process that there Ryan what they've asked for specifically our offers on a equipment power equipment in various locations.
Yes.
And with that being terribly specific about it we have made offers on.
A number of those locations and feel like with the the physician that we've got and the infrastructure. That's in place obviously, we've got a good standing in that competitive process and you know I'm optimistic about it.
And we'll see what happens in the next couple of weeks. It really is supposed to be notified of results in some time next to no 10 days to two weeks or so so we'll see how it all plays out but I think you know the good news is for for the Puerto Ricans I think that there's a good solution and an economically a very viable one for them and we hope to be a big part of that solution form.
So we'll find out soon.
And was was the actual on the power of now it does that then is that available that like like in terms of the size of the central project or no.
We don't know for sure what they'll do I've seen estimates in different public meetings or whatnot easy ranging from a as small as 350 megawatts as large as 500 megawatts. Those are obviously significant power needs.
It does fit very well with what we had talked about our last call, which is this notion of kind of fast power, which is a combination of bringing in these you know fairly mobile turbines and then combine them with gas those two things in combination are very potent combination and allows us to bring very efficient pricing into.
Two locations. So this will be a good test of that for us and I think if we're successful can be a huge arrow in our quiver kind of going forward and look in other markets, where not only do you want to service existing assets or talk about building longer term power projects, but of course, many countries around the world have got short term power needs today, and so I think this fast power and ocean.
Which this is a real.
Real Life example, and proxy for what could happen is something that is really excited we've put.
Tremendous amount of effort into trying to be thoughtful and as aggressive about this as we can be and if we're fortunate enough to be selected we'll have some real life experience than to drawn to then look at some other applications for around the world. So it's a it's a really really good situation.
Okay perfect. Thank you very much.
Thank you. Our next question comes from the line of Sean Morgan from Evercore ISI. Your line is now open.
Hey, guys I had a question we look at slide 13, obviously the cost of sales before the biggest spread.
In the model and I'm wondering what what portion of that is fixed and what portion of that 77 million.
It is floating and could we see.
With an improvement in spot cargos, we see that like what how much flexibility you have there.
Yes so.
I'll answer that one a sean good to talk to you the bulk of the cost of the sales is obviously LNG expense. So when you think about the total cost of sales about 70% to 75% of it as LNG the about 15% to 20% is ships and 5% to 10% is your terminal opex, depending on each terminal I think you know as west said in the.
First quick to answer the first question as we buy in more supply at market prices will lower our basis below the 550 that we've shown in our forecast and thats material upside to earnings as you see these numbers in Q1, it's largely due to the legacy cargoes that we have purchased and we're burning through.
Well then since one of things is so important about getting this terminal online and operating at the units converted during this call that time, which is an extraordinary accomplishment I can't overstate that because.
Burning fuel that you're buying you know with the two dollar handle on into those facilities is obviously, a very good you know and profitable venture in the short right now it will we expected to more being a no more normalized as Chris said, we used in our model $5 in 50 cents.
You will see the aggregate numbers come down fairly substantially more that we burn on the short term and take advantage is low prices. So getting turned on its a really big financial deal for us.
Mhm.
And then on the charges for the excess cargos, because obviously demand is fluctuated a little bit with cobot 19 and.
Fully appreciate that you might have been buying for.
Less.
Economically disrupted scenario them, what kind of facing right now.
What's the timeline, but how long do you think it'll take in terms of charges and whats the magnitude of barges we should expect.
For the next few quarters or full year right. It's really just the next couple of quarters as things get kind of ironed out I think.
You know the organic numbers that we I think of them are down a little bit with the cobot impacts are down kind of 20% to revenues, so even though down 20% in terms of volumes on what we expect is not great. It's obviously infinitely better than the vast majority of countries out or companies up in the world. So our system right now we would expect to generate kind of.
Two to 2.8 million gallons per day, and we think now the average is something 1.567, something that range that that's the 20% differential right now and so were slightly over bought on that basis. The inorganic that the additions of new terminals and plants like San Juan five insects like the the the.
The terminal in Mexico, Nicaragua et cetera, those are step.
Options, which actually then you know greatly increased our demand for gas. So I can say that it from an operational standpoint.
Net of the building of the terminals the operations that terminals with things that you know the plumbing that matters each and everyday.
Thinking of ways to take advantage of low term low priced gas onshore offshore LNG otherwise, it's something that really consumes you know much of the day for me I think about all the time, there's a lot of different thoughts.
Got about ways, we can deal with that there's obviously a lot of mayhem in the world.
In the past I have been personally very very active and distressed situations and there's a lot of distress ride anytime you have zero revenues and businesses. There's all kinds of stuff. So I think depending on how long. This crisis persist there could be some significant disruptions and out of that could come some significant opportunities. So those are things that we're thinking about.
Very hard each and everyday work, we're blessed to have a very strong balance sheet, we refinanced our debt as it turns out at a very opportune time, we're now cash flow generative, which is a big deal. So we've got a lot of different levers that we can pull and hopefully take advantage of this.
And then on the revenue side I guess, you said that are falling falling Henry hub or is it theres a fixed portion of our.
Are there is a variable portion of that above the fixed fee. The charge. So we should probably expect some of that to reverse Henry hub remains kind of more elevated and you'll get a revenue benefit next quarter and bond quarters at that remain sort of the but friend.
Yes, that's right that's exactly correct John if you remember Henry hub is a small component that Henry hub.
But plus an AD or with all of our customers that Henry hub components about 25%, So movement and Henry hub doesn't change revenues dramatically, but you're correct as you see an elevation Henry hub as well see you expect to see over Q2 and going forward, you'll see that reflected in revenue as well.
All right. Thanks first from us.
Yes.
Thank you as a reminder, task the question wanted to press Star one on your telephone so as a draw your question that's about pool.
Our next question comes from the line of Ben Nolan from Stifel. Your line is now open.
Yeah, Hi, good morning, guys I too am glad it is not as in calls because I'm not shape, but.
I guess my first question has to do it just sort of the mentality of your customers. Obviously, we're sort of in uncharted territory here, but especially the oil prices being as low as they are has that.
Have you seen any of your potential customers sort of maybe being a little bit more.
Guarded or or or onshore of whether or not they want to actually commit capital or commit their balance sheets effectively when the economic benefit in the immediate term is not as great or or are they more forward looking in that.
Yeah, we did the short answer is no we haven't seen it at all I think.
15 days in 10 years kind of tells the story of what what really is at stake and that is the minimal though I mean, I think one of the things that we are already hearing from the folks in Puerto Rico is.
You know the benefits of running gases is just such a cleaner fuel much easier on maintenance easier on the equipment and that plus the price differential which has been tremendous.
It's just a net net when I mean, the savings for 100 megawatts of power over this timeframe is literally hundreds of millions of dollars. So I.
I don't think that people believe that oil prices are going to stay at 10 or $15 for the next 10 years and so they're betting that this price differential that has existed for the last 10 years is gonna be reflected the next 10 years. So I think.
We don't we don't see any issues with that you know at all okay.
And then shifting over to sort of the the incremental developments in and it seems at least that well, Mexico, obviously first and foremost curious if you could maybe give an update on any of that timing there and also remain in Capex and then also.
Any movement specific the Nicaragua or any other geography, we call out that is further along in its development process.
Yeah, dredging processing or in Mexico is nearly complete we expect that to be done sometime at the end of this month or in the middle of June that's a tedious process is sticking a spoon into the water and seeing how much dirt comes out of it so but the guys down there are doing a very good job and so that will really catalyze the marine development of that allows.
To bring the ships into the terminal. So that's something that I think could turn on a fairly quickly nicaragua's very much in the planning design and permitting stage.
Little bit of delay and just in terms of getting people down there and travel that's that's restrictive that actually does make it a little bit more challenging on the permitting side, we can't get people into the country, but you know this too shall pass new business pipeline the regions that I highlighted our ones, where we're having very very active discussions and I think its.
Possible and actually likely that we will sign in announced material emel use in a couple of this geography is in the next month or two so.
Again, a little bit more challenging because you can't get into a plane and go to go to there but people are quickly becoming a adapted to zoom calls video calls and alike. So I'm actually quite optimistic about.
The second happens here I think the other thing it's not a small thing is that the competition that comes from the big oil majors in particular, I think is gonna be reduced you saw Exxon yesterday announcing their cutting back their capex by $10 billion on projects I, just think that everybody is dealing with a crisis and their own way. We're fortunate in both to have a high.
Margin business, one that is without a bunch of legacy issues to deal with and serves customers. Most basic needs. So power is right up there next to food and water and air in terms of what you need to to survive and prosper. So I feel like the prospects of the business honestly in the context of that just simply couldn't be better.
Okay, and then just lastly, I maybe for Christmas what how should we think that remaining capex for Mexico, but just in general.
With whats on the books.
Yes, so really it's just as we've projected in the past I mean, I've seen the analyst models and the way that you in particular have the model running from Mexico, Nicaragua's pretty accurate, so but that $100 million remaining to come.
To finish Mexico, and Nicaragua, you still haven't started spending material capital or where through the permitting and design fits stages. So you've not started that much capex spend there.
Alright. Thanks.
Thank you.
Next question comes from the line of Ryan Levine from Citi. Your line is now open [noise].
Good morning.
Can you comment on the bad debt expense than what you're seeing with your contract portfolio and why it requires the company may have if customers. Some thanks.
Yes, so I think you're asking about customer receipts.
Ryan it's been we've been great. We have regular conversations with our customers they've been remark was less than at the top of the call days in a ours actually better in the first quarter than it wasn't the force for fourth quarter, We said no charge offs a our that's not current is less than a million Bucks right. Now so you have really strong.
Performance and commitment on the part of our customers.
Good Thanks, and then given your contract portfolio in Fourq is still or any of its customers currently pursuing any legal ads during due to force mature provisions and to adapt to the current environment.
No there's been no suggestion of force majeure on our side at all minutes that people need power. It's a question of how they're going to get it and it is the top of the list in terms of their essential.
In terms, so now theres been there's been no force majeure talked about on our part or for many of our customers at all.
Okay and last question for me what are you seeing with customer loads or gas demand in April and how are you forecasting that.
To transpire progress throughout the year.
Well the numbers that were showing in terms of our forecast for the rest of the year. This kind of one and a half to half million gallons reflects the current environment. So.
It would be a little bit better than that if we were in a more normalized environment that we're not but we still see significant demand for about power and gas you know across the board and we.
I feel like it's going to be a very strong.
I'm here as well I mean, the average you know in April I think last seven days, there's been 1.4 million gallons [noise].
So.
Looking to grow from there so since material from the the month by month March forward Thats why list those months at the beginning of it is very material.
How are you seeing any delineation between different customer types in terms of.
Well as demand estimates.
Not really I mean people are nominating I'd say minimal amounts you know, but their contracts are that are significant that we have not been asked take less than a minimal amount. So I think that when we are the gas or as to a number of these power plants. They tend to be the most efficient so they're high in the dispatch order. So even if you have to me.
As demand across the system. The most efficient power Sogous just as fashion, that's essentially what's happening right now.
Okay. Okay.
You bet.
Thank you know our next question comes on the line a lot. So nyquil from Barclays. Your line is now open.
Hi, good morning, it looks like the run rate margin target was revised lower by about 10 million on roughly the same volumes. So I just wonder if you could help us reconcile the delta there.
[noise], yes, mark.
The run rate volumes or shouldn't be changing with for the strict treat reason that their run rate the volume ramp overtime will be a little bit slower because as west described we are seeing a little bit lower nominations from the customers for the Q2 in Q3 timeframe that we've received nominations for so frankly, you know I wouldn't expect any erosion to.
Run rate volumes.
And margins are about the same which you may be seeing is a little bit of a timing difference one quarter to the next but the same numbers that we were forecasting for kind of run rate margins for all five terminals and they're up an operating between now and next summer in the $460 million to $75 million range still remains kind of the same numbers.
Okay, Alright, and then I.
I think coming into the year you had a 13 cargos scheduled for delivery from Centrica in 2020, and I think there is 12 in 2021 I'm. Just curious if you can maybe help us think about the cadence Oh you know how many have you taken delivery of year to date and like how we should be thinking about those cargoes.
Going forward.
Yeah, Hey, Mark So we've we've taken for deliveries are 50 is coming up and I think it's been a week it to get them, a 12 and the remaining seven cargos as West said you know, we're a little under our expected consumption in Jamaica, we have the opportunity to take some of those cargoes and swap them to be able to be can sue.
And in Puerto Rico, but what we will do is continue to burn through the cargoes that we have contracted for the remainder of 20 and then into 2021.
And burned through those for the higher price cargos going into Jamaica, but as it was saying you can leverage your average basis, well lower by buying spot cargos into Puerto Rico. So I do expect that when you average the cost of LNG in Jamaica and in Puerto Rico, you can beat the 550 number.
Got it thank you.
Thank you. Our next question comes from a line of Craig share. Some Tuohy brothers. Your line is now from.
Good morning.
[noise] did the Jamaica oversupply.
Impact the first quarter at all I know the couple of cargoes of oversupply that will take a couple of quarters to flush out equaled a baby about sixty's.
And our you an oversupplied because you are low cost third party.
Tenure.
ER announcement the from February has already commenced or is this just off the central Gulf.
Yes, good morning, Craig So to answer your question in the first quarter you had about a million dollars of costs that were related to some logistics delays says you know when you have we have to reschedule cargos you can add some costs. We had a total of about a million dollars and that's running through the cost of goods sold on M. lines in.
Think what you're discussing is in the ballpark.
And like I said, that's just Jamaica, you still have a ton of a ability to buy and volumes for Puerto Rico and to the extent that you'd have excess volumes in Jamaica, we'll try to swap doesn't use those in Puerto Rico.
Great and what the potential systemic challenges for the cruise line industry.
Do you do see the syntax thing you're regional Bunkering plans.
You know, we do things at the cruise ships on potential customer, they're a relatively small customer in the world wide fleet or chefs fried. So I think that the big the big prospects for the shipping markets continue to be the container business, which obviously dwarfs. The the the cruise ships the cruise ships do operating the care.
In the operate you know in Miami. So they are in our backyard literally and so we think that they obviously will be a good candidate a good customer for us once savers and obviously they were you know a few industries were hit as hard as a cruise ship industry was right. So no cruise ships zero revenues is is a pretty devastating.
Blow for them and you know for their sake and ours I hope that they recover quickly and become good candidates for but no I don't think that in a long term that the bunkering potential worldwide will be really impacted by cruise ships because again the container stuff in particular was just so much more of a a bigger and bigger market.
I Gotcha and last question less do do you see the.
Global Corona virus scare and locked down having any systemic positive or negative implications. There previously envisioned shift to hydrogen focused you know global economy, and and if he business.
I think it takes it it's a really good question I think it takes it off the front page for people in that they're worried about first survival number to prosper right. So I think that there's a lot of focus on you know people getting their their industries and our businesses corrected.
I do think that long term the hydrogen remains I think focus for us and for the World and I think that you know times like this are defining moments where people you know if you're able to make your fuel locally which a lot of that the production of that could be that would actually you know stem a lot of issues you might have in terms of transport and moving stuff around during difficult times, but.
I don't think it has any impact longterm. It just probably takes it off the front page of People's perspective, you know right now.
Yeah.
So.
Great. Thank you.
Oh, Yeah, I'm not quite some crossing the line. So I was shocked fun <unk> security airline is now from.
Hello, again, gentlemen, I wanted could step away a little bit from some of the intermediate term <unk> West one thing you've talked about is the potential or.
Producing hydrogen and I I seem to be seeing more and more press about that I'm wondering if you have any kinda update on on your points during the one we might see some more detail. Thank you.
Yeah. The the the the one specific goal that we have this year has to have by the end of the year a pilot projects and one of our markets, where we already we are you know producing and using hydrogen in the in the production of power you know as I said before a lot of the modern power equipment can take up to 95% of its you'll could.
Hydrogens you you don't have to introduce it in total but in part they've got one project in particular that we're focused on it's a modest capital used but I think proof of concept and this and this particular part of the sector is incredibly important we've gotten you know from our last call. We got literally hundreds of different you know emails calls you know follow ups with different people.
Some a little more inventive than others, but there's a lot because there's a lot of interest in in people in in Decarbonizing. The world than we you know support that in a plot then I said before you know the big tent is what we want to be a part us we want to introduce you know the concept have a lotta people come to us and we have had a lot and a number of them are very serious and very meetings.
Participants in it and I think you know at the end of the day, it's going to be the cost of the hydrogen then we'll drive it's it's adoption right. So one dollar hydrogen is you know six dollar and M.M.B.T.U. gas that pretty from the set straight you know it's competitive position relative to gas you know two dollar.
Hydrogen is.
You know 15 dollar you know M.B.T.U. equivalent which is effectively you know the same price as we're in diesel husband, historically I was diesels, a little bit cheaper nice day. So those to the to those are the two markers that I think are meaningful. So I guess, it's it's you take the the dollar price of hydrogen multiply by seven and a half time.
And that's the equivalent to the M.B. to use a one dollar $752 $15. So if you can get to a dollar hydrogen I think you have a big chance to just placing a lot of gas in the in the production of power did you get to to to our hydrogen which many people think you can get too and the relatively short term. It has a big big chance of really displacing diesel and we.
Want to be part of a proof of concept in both of those cases in the near term and there's the number of different things, we're talking about and when you know hopefully the either the next quarter or the quarter. After we'll have something meaningful to report here.
Okay.
Follow up on on that the transportation business in particular, some of the the fuel cell vehicles that we're seeing or or an interesting market. There are a small market, but an interesting one is that potentially on the the menu as well.
Yeah, I think when you've looked at the that the change over as natural gas is used for example, and a lot of transportation a industries as well the easiest application for it are these so called returned a base users. So you know high percentage of the garbage trucks in the country use natural gas as they return to base to get refueled every night those would be a very likely.
Profile somebody's it could look to do hydrogen you know Fedex trucks, or U.P.S. trucks, or you know getting people to come back to the same place many of the many of the minutes bulbous systems in the country run on natural gas right now those at all of the examples of people that go back to the same place a forklift operator that uses the same equipment over and over and warehouses.
The easiest ones to supply the logistics chain too and so I think that's where you are most likely to start when you start talking about supplying long haul trucking long haul automobiles long haul airplanes long haul shipping the logistics change become you know obviously more complex.
So, but I I think the you know the the short term returned to base users that's that that's where it will likely end up with our first pilot and and I think there's some promising things to do again. It gets lost in the May have a little bit with you know the news unfolded and all the disruptions and whatnot, but this too shall pass and I think once it does.
They'll once again become a mainstream focus not just for us but for lots of folks.
Thank you.
<unk> timeline shelling no further question I would like would tend to call back over to <unk> Preclose.
Actually even before you go to the close now and there's one one thing I'd like to say because we didn't talk about it is kind of evaluation metrics, because we don't I something not something I focus on every day, because it's a long term issue not a short time issue, but there's a couple of things that we have done that I think are are going to be meaningful number one one thing you'll see in the in the financial statements is a we're converting kind of all of our partnership.
Interest that we hold our interest in the company to to just direct shares we do that because it simplifies the capital structure.
As a as a person is that is not I don't consider myself, an adept accounting accounting statement reader I want accounting statements and financial statements that a high school Kid can read and understand and this is a big step towards that goal. So the interest that I hold and Randy others that are material holders all going to be converted so it'll increase the share account.
Two what it's what the ordinary courses, there's about 166 million shares in total they will be all show up as regular classy shares on or about June 8th. So I think for there are some investors that have been a vocal with us because they're only allowed to invest in a percentage of the outs.
And he shares that are classes shares. This converse everybody. It's a not insignificant taxes on for us to actually do so but it's the right thing in the long term and that's what I've done it does not pre stage any anticipated sales or liquid liquidity for myself, Randy others for not doing that for that so there's no no change to 13, you Usanas right.
Thing else, but with respect to what our own up as you would be that you'll see that reflected in.
Number one number two when you look back at page number five and the volume charts on this and envy. The margins that are there 3 million gallons $450 million and margin is not a fairytale, but it's something that I expect it was very much in the gun sights, assuming that we actually have some success here in the second half the year and working very hard to achieve that.
And frankly far beyond that <unk> $450 million margin, it's about $160 million. When you when you subtract out the costs of the S.G.N.A. and the finance charges as Chris said, there's only four buckets of cost in our company. There's the people and S.G.N.A. There is shipping there is.
The the cost of the gas and there's the finance charges.
Taken in collectively you know those four things there are significant upside in my view to having cost reductions come across the board one of the benefits of coming to work everyday. During this is that you have a lot of time to focus on the internal workings of the company and while I like our company a lot I think that this has given us the opportunity to.
Look hard at how we do things across the board and see if we can't be more efficient and more focus on what we're doing and bring more of the money that we make to the bottom line.
So the $450 million of a translator, two 300 or $350 million.
Tax earnings would result in evaluation, which is I mean, much much higher than where we trade right now.
And so I'm not focus on the price of the the stock today I think it is very very undervalued and when you see these numbers roll through next quarter of the quarter. After I'd I'd like to think that the market will reflect that but that's my that's my pitch from evaluation standpoint, and just how I think about the numbers.
Thanks for much on.
Thank you all for participating in today's called especially in these trying times <unk> updating you after.
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