Q4 2020 New Fortress Energy Inc Earnings Call
[music].
Ladies and gentlemen, and thank you for standing by the and welcome to the New fortress energy fourth quarter and full year 2000, and money conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session. The ask a question. During the session you will need to press the star one on your telephone.
Be advised that today's conference is being recorded P require any further assistance. Please press star zero and I would now like turn the conference over to your Speaker today, Josh game from a Investor Relations. Please go ahead.
Thank you.
And welcome you to the new fortress energy fourth quarter, and full year 2020 earnings call. Joining me here today are Wes Edens, our CEO and chairman of the Board, Chris Giunta, Our Chief Financial Officer, Andrew D D, leading our Brazil efforts a lot Shah the head of fast LNG, and Jake Suski, who lead zero, a renewable hydrogen and division.
Throughout the call we're going to reference the earnings supplement that was posted to the new fortress energy website, if you've not already done so I'd suggest that you download it now.
In addition, we will be discussing some non-GAAP financial measures during the call today, the reconciliations of those measures to the most directly comparable GAAP measures can be found and the earnings supplement before I turn the call over to Wes I would like to point out that certain statements made today will be forward looking statements, including regarding future earnings. These statements by their nature are uncertain and.
The differ materially from our actual results and we 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 the quarterly report filed with the SEC now I would like to turn the call over the west.
Great. Thanks, Josh and thanks, everyone for dialing in and so.
As a as usual we will go through our presentation with you all here and I've got a number of folks from the team that a little fishing and different parts of.
There's a lot to go through this morning, but we'll try and do so in a.
And and expedited fashion. So we leave plenty of time for a for a question. So.
And really a big part and a big year for us.
The first of all and the operating side and operating numbers of the quarter were actually quite good and very much in line with what our expectations were.
We had won a terminal that was down and a one one turbine that was down and Puerto Rico that was a a part of the scheduled maintenance of item. If you ex that out of it we're basically very much right on top of all of the operating numbers and Chris will go through that and details, but a solid operating numbers and again the three zeros in terms of <unk>.
<unk> and a injuries and people without a raw zero. So we had a very very solid operating quarter and feel great about that.
Developments are that are at the end of their the development, Tom and just about ready to turn on in Mexico and Nicaragua.
And the punchline is very much on time and on budget are expect in the next 30 to 45 days both of those are essentially done and ready to go a feel great about that so we're a and addition to the the terminals getting finished we also what was announced that we won a oh.
And a bid to provide 250000 gallons a day, the cfe and Baja which is great.
We've long said the organic growth from our existing portfolio was a big big part of the story going forward. That's a there they're the biggest partner for us and not of interest in Bahar and in Mexico, and we look forward to partnering with them. So that terminal will turn on a in may and our.
And our power plant is ready to go at the end of June so organically a across the board that's all good.
The Big news for the quarter and the Big news for the year of course, we announced earlier and so on January 13th we announced the acquisition of hydro from Golar and <unk> as well as the MLP from them a a portfolio of 13 owned ships and one knee ships.
The a the hydro transaction is really a transformational one.
We'll spend some time on Brazil, we think is perhaps the best market and the world. We now have a.
A really a constellation of the terminals up and down the coast of a these are a very very special terminals and that a not a lot of are they going to be a high volumes, but also a good margins for us So I'm, Andrew <unk>, who has been the point person for us will detail this but the way we look at those terminals, we think that at the end of the day a.
They are capable of generating kind of a four to five times of the volumes that we get from our other terminals. So not all the terminals are created equal. This is just a function of the the incredible size of that market and the need for gas and power. So a 45 times, what we think we generate from our other terminals and the portfolio had kind of 50 to 75 per cent of the of the net margin.
So a little bit more competitive and the marketplace and the margins are a little tighter, but the volumes could be considerably larger so that's a that's a big big win for us.
The portfolio of ship assets, a from Golar, a the MLP really less a ship acquisition and really kind of closing the gap and what we needed to.
Provide for our own terminal so that transaction and finished like a glove and adds immediately a $300 million a or so in EBITDA and that's a big a incremental amount of cash flow for us and it actually of fills a need that we have for both the fsrus and for F. S use across the portfolio. So that's that that is a great a transaction for us.
Looks like a we're on scheduled to close both of those transactions sometime in the next 30 days or so there's a number of different approvals that are out there all of which are ordinary course, a at this point, we think and a I'd say at this point at this point of our goal is to close sometime in the first half of April and we'll obviously update you as we get a close.
And of that last the last a topic for us and something we spend a lot of time on is it's a huge development for us as we announced yesterday that we are now F. I D. On our first F. LNG. So LNG a this industry loves the acronym so a floating liquefaction and let them look virus basically as a.
As a concept that was pioneered originally and by and by Golar and Theres a handful of these floating liquefied and around the world and.
And the transaction that we did with the the MLP, we acquired a 50% interest and one of those ships the healy, but a we have made a modification to that and do we think is a faster cheaper a better solution for and again, we'll spend some some real time kind of going through that but the net of it is that a.
This actually allows us to produce our own LNG at prices well below where we can buy LNG and the marketplace. So it solves a big a.
Challenge for us in terms of finding a gas for a portfolio and also creates a massive economic opportunity by basically creating incremental margin and all of this so we'll talk about that and some detail. So a page five.
And you look at the kind of the detail on all of this so.
What I, what I did and preparation for this call was simply went back to where we were a year ago now a year ago. We were a one week into this and do this terrible pandemic and.
And it was pretty quiet here and the office, we had and we went from a full office on the 11th of March to a handful of people buy the 12th and 13th and buy today, a the 16th we were down to literally a skeleton crew as me you know a handful of people and my dog. So it was a a very very different a place where we were we had five terminals. We are committed to at that point we have.
The two and Jamaica. The were opened the one in Puerto Rico at that point was still under construction. So it was a it was a pretty dark a time a year ago. Our total volumes of the time was about 800000 gallons per day operationally, one 9 billion gallons that we're committed and the gas supply that we had a and our portfolio of then was about five and a half dollar. So we're all four of 12.
And what a difference a year makes we've gone from five terminals to nine terminals. So the four that are operating a in.
In Montego Bay Old Harbour, San Juan and then sort of G. P, which is the part of the terminal was a big power plant in Brazil that is operating right now there are five developing and once of the two Mexico, Nicaragua, which I talked about and then of the swap a a terminal that a Andrew will talk about the Buck a range of terminal again in Brazil, and then a southeast Asian a turn.
And all that we are the we're committed on as well.
<unk> have increased dramatically. So the 800000, a day goes to a 1.9 million 1.9 committee of the goes to a $5 1 million. So two and a half times a bigger operating margin goes from basically a zero or a negligible two $1 $2 billion a year when the terminals that are actually a underdeveloped and a complete.
And so we've taken a massive step forward as a company and the bottom of the page the fast LNG as we call. It it's a rather than a floating LNG is the fastest and G wishing and I'll detail and the second here. We believe we can produce LNG between three and $4 and M. M. P to you. So a couple of dollars and and Btu of below what it is and on the right.
And side. This is what really gets us all excited and out of bed early in the morning is one year from now and these terminals are all on we've got the nine we're committed to a there's two that we are very very close to be and F. I D. On so it'll take us to 11.
It takes our volumes up to $19 3 million gallons per day, so a far cry from the 800000, we were producing a year ago operating margin. If we continue to buy and gas at the market $1 6 billion.
And to the extent that we can also then produce a our.
Our own LNG across the whole portfolio and adds roughly a $1 billion and earnings. So it's a it's a huge a transformation for us as a company, we really are and the.
And the really the the last stages of a trend of.
Of moving from being a development company to an operating company, but you can see that the impact of this across the portfolio is really a tremendous.
So let's look at the the next section and you look at page seven.
The the graphic the visual of the planet with our different operations spread around and I think because of a compelling one obviously, we started and the Caribbean. So theres the Jamaica, Puerto Rico, a terminals and then your and Mexico and Central America now with the Brazil will have four terminals in total across a there is a continent sized country is a huge.
But for us biggest market where and by far.
And that big Blue Chip that is off the coast of a West Africa, that's the Healy, which is the again this a $2 4 million ton.
The floating LNG a ship that we own a 50% interest and then Theres fsrus in the Middle East and Southeast Asia, where a very close to a two announcing our first deal in southeast Asia. So it really has gone from a regional comps kind of.
To a a a global company and that creates a massive massive synergies and.
And opportunities for us on page number eight we just show the the different terminals. So the four of the ear on the left hand side and Chico day old Harbour, San Juan and the store G. P.
Portfolio. This is the terminal that actually has the one five gigawatt power plant and we also acquired as part of the Hydro is the largest power plant in Latin America. So a very very significant asset that really anchors that terminal and.
The two that are in construction and the middle of the page here of the pause in Nicaragua.
<unk> are literally days away from being a 100% completed and then of the right hand side, we've got the swap a terminal a Buck arena and then the the Southeast Asia terminal.
And if you flip to a page number nine and the two that we expect additional ideas and the next 90 to 120 days Theres a large of.
Offshore terminal and incentive kind of arena, Brazil.
And then a terminal we've been working on for quite some time and Shannon Ireland will fall and are planning a papers on that at the end of this month and we expect to the <unk> sometime in the middle of the year.
So with that let me pause and turn it over to Andy D. The Andrew as I said is the person who is the point person and for us and Brazil, and I think and give us some great color on what's going on down there Andrew Hey, everybody good morning.
And just wanted to go a little bit deeper on Brazil, just the echo some of the comments.
The west made and the beginning.
And so excited about this because we think really this is.
And the unique market for both volume and margin opportunity and now and.
G and a natural gas and three main reasons, we believe that one is the market opportunity that exists today. So a 35 a M tpa market with about 10% of LNG imports in 2019, we see basically four to five times the volume of the current and a few terminals and our terminals and Brazil at 50 to 75 per cent of the margins on the <unk>.
And the growth of that market.
So we believe the key regulatory reforms are in place too.
Urge from a vertically integrated monopoly run by Petrobras and the opening of competitive gas market and it'll solve supply constraints.
All of overtime and then the the third is really the ability to combine those volumes.
And with margin and so we mentioned the sort of Ah and.
<unk> a regulatory market.
And the ability to compete.
Both of them kind of with LNG sold on Brent oil price linkages as well as with high priced H F O and diesel and the country and so when we looked at this acquisition and we look at at the terminals that we're now developing a we just couldn't be more excited about maintaining both the volume and the margin opportunity.
I'll flip to page 11, which is an overview of the terminals that we have and Brazil.
No.
Just just to start with this.
And we loved the hydro business because what we saw is a is a really strategically located.
Folio of terminals, so a tremendous job that the folks and hydro data in terms of permitting and getting a these assets either operational and the cases for G. P. J.
And we're ready to construct and so let.
Let me kind of go north to south on the terminals and give a little profile.
Of each one of them starting in the northeast and the state of per hour with Buck Arena.
This terminal.
From a margin perspective will be most similar to the operational and a few terminals we have today, but with four to five times greater volume potential just because we're in the Brazil market here.
Buck range will be the sole supplier of natural gas and the region. So we will compete with with H F O and diesel and.
And we are both co located and surrounded by a really large industrial demand not only kind of in the port itself, but certainly as we as we sort of go down the Amazon River, you'd have and industrial opportunity of power opportunity and a small scale of opportunity that we think is really a special and unique and we're very very excited about Buck arena.
The next one is swap piece of swap fees and the state of Pernambuco.
And as.
A different thing than a buck range and that here, we have gas volumes that are potentially significantly and the orders of magnitude greater than what we've seen in isolated regions of the world because what we have is we have huge demand at a at a at a serious of developed industrial port.
We have great small scale of demand in the region is and again, we compete with LPG and diesel off the gas grid.
And then we also have a connection to the tag pipeline.
And basically runs almost a length of of the coast of Brazil from sort of the the Sao Paulo Rio region, all of the way to the state of Suraj and the north.
And architected to that means we can access demand centers, both north and south of the swap the terminal itself.
Beautiful infrastructure with a fixed jetty of already in place and so we're very excited about swap. A this is also where we are and the process of moving a 288 megawatts of Ppas that we've acquired from B R distribute aura.
Third is the Sergipe terminals, so operating one five gigawatt powerplay and largest thermal power plant and Latin America as Wes mentioned Oh here, we also have.
A permitted expansion and for up to another one seven gigawatts.
And so you know a lot of fixed revenues coming from that day.
And and you know, we're obviously excited if it did turn out a pro forma one Mr. G. P. A terminal and distribute the power plant.
Going to the south of us tend to catch a arena this terminal and.
And San Francisco to a swirl and the state of Santa Catarina really combines both high volume like we see and swap a with really the best in class margin potential. So here will be connected to the TPG pipeline and we'll be competing against a gas that is coming from Bolivia, which is both declining and and frankly quite expensive to transport.
All the way a west to east from Bolivia.
And there's also a lot of strength of demand in the south of the Brazil. So we'll be adding basically a critical infrastructure of the TPG pipeline in terms of gas supply and compression at the at this point and the pipeline.
And so we see the Santa Catarina terminal, that's combining really some of the high volume of attributes of being on and intrastate pipeline with an ability to basically supply of new customers with gas and also a convert people from H F O and diesel tremendous small scale opportunity and the region as well and a half.
And he developed region net today it pays a lot for for LPG and H F. O. So when we look at that portfolio as a whole we're very very excited about how a strategically located at each one of these terminals are.
How far along there and new development, a Buck arena today.
For construction and has all the permitting it needs and it can be online a very early in 2022.
The other two are also very far along in development and be online and the.
The first half of 'twenty two and.
So we're excited to be kind of a first mover and the new open a gas market in Brazil and to have the strategic locations from the Hydro acquisition, Yeah, Greg and thanks, Andrew look a round and provide some detail on this because I don't want people to just lump of Brazil, and as a single a.
Point of reference for us each one of these terminals is unique and has its own attributes is on place and the marketplace. We have a specific development and commercial teams that are in place for each one of these now and we think that each of these individually has a chance to a.
A really really outperformed so it's a big focus for us Andrew and the team have done a great job in integrating with the team that was on the ground already in Brazil for Golar and Hydro, which we think is a terrific team and so we are quite excited about that.
So Chris.
Chris.
Yeah, that's great. So.
Turning to page 14, thanks, Wes so.
Thanks, guys. When you look at 14, we highlight the strategic importance of the G. M. L. P acquisition, we're purchasing a fleet of vessels that generates a stable stream of contracted cash flows over the next few years. The acquisition also solves a long term ship needs as we intend to integrate the vessels and our logistics chain once they roll off the current charters in fact, when you <unk>.
The full build out of the terminals that we acquired and the hydro transaction and combine that with our own organic growth, we forecast the need of eight fsrus and for F. S use which you can see and the left side of the page pairs very nicely with what we are buying from Golar.
So while we are a strong consistent cash flows from the MLP now once the current charters for these vessels expire we can plug them into the end of feed machine and save materially and our expected logistics cost by owning the assets ourselves.
When you take a look at slide 15, you can really see the velocity of growth that and if he is experiencing as Wes talked about earlier. This page evidences that we've gone from a development company a year ago, two and operating business with over $830 million of annualized operating margin once Mexico, and Nicaragua come online.
Further as we ramp into the over 5 million gallons per day of committed volumes and combine that with the $300 million of cash flow from the MLP, we will be producing over $1 billion and operating margin.
When you add the fact first fast LNG unit. This takes us to over $1 2 billion of committed operating margin.
The breakdown is helpful. Because you can see and the downstream business is the biggest driver of profitability, but as west said and as you look at the far right column by pairing the fast LNG solution with our downstream demand the effective per unit margin doubles.
Finally, as we convert on a commercial pipeline, we can see a clear path to close to 3 billion and operating margin and the next one and a half the two years.
If you turn to slide number 16. This shows our summary financial information for Q4 and on the whole it was a fantastic quarter.
During the quarter, we achieved our highest single day volume totals and San Juan and old Harbour, and and Jamaica, We had our highest quarterly revenue and the best operating margin performance to date.
Volumes for the quarter were a little less in Q3, which is due to two customer driven maintenance outages, which I wanted to touch on briefly the first was turbine maintenance. The PREPA conducted on the San Juan Power plant unit six during November and December and the second was a diesel commissioning of the old Harbour power plant. This is a dual fuel plant within a few providing the backup fuel.
As well so while there was a volume reduction we didn't see any dip and operating margin from that asset.
We are expecting a similar maintenance outage in Q1 Q2 per unit five and San Juan and also the installation of our selective catalytic reducer, which will provide further emissions reductions for the power plant.
A quick comment on maintenance that we've previously mentioned as we get more terminals. These maintenance events will be less pronounced and have less of an impact on each quarter's results revenue for the quarter was $146 million and the cost of goods sold was $85 million, which resulted in the $61 million of operating margin and you see here. This 61 million was our highest quarter on record and <unk>.
[noise] presents approximately 40% margins, which is in line with our target and long term expectations and.
I want a highlight that in a quarter, where LNG prices range from below $2 to over $30. Our average cost of LNG for the quarter was $4 20, which is within 5% of our estimate.
SG&A expense for the quarter was $22 million after normalizing for noncash compensation development and one time expenses. This is up slightly primarily due to some extra head count on the Mexico, and Nicaragua projects, which will migrate to operating expenses going forward.
For 2021, we expect corporate SG&A will stay around $80 million annually for the Standalone business and increased to about approximately $90 million on an annualized basis. Once we close the transactions.
Last thing I wanted a pointed out is it the balance sheet balance sheet remains very healthy with over $600 million of cash on hand at December 31. This is a result of the two financing transactions. We did in December and raising approximately $550 million and total proceeds with that I'll turn the call back over to the West Alright, Thanks, Chris So, let's let's kind of the two.
The page number 18 and talk about gas.
And as I've said before gas is one.
Of the biggest focuses we have as a company gas supply is and then.
And he respects our biggest risk from a financial standpoint of the company.
The gas is.
And generally a stable asset and <unk>.
As a a commodity pricing and there's quite a bit and then quite a bit more stable than a.
The oil based fuels have been over the course of the last couple of years. Although if you look at last year from the low to the high I think the lowest price that I saw and LNG that was sold commercially and the world was about $1 25, the highest the highest price I saw at the very end of the year was nearly a $39. So between that and now theres a lot of stability of the middle, but obviously theres a big swings I mean.
And of that and so we're very very focused and not getting caught by the swings and being able to provide our own portfolio of supply that we can actually a rely on in terms of the prices. We use for ourselves and then and then to our customers. So when you look at the page number 18, our volumes operational and Jamaica, Puerto Rico, $2 1 million gallons per day.
And Mexico, and Nicaragua that takes into a $3 3 million, adding sort of GP and the southeast Asia.
Terminal is going to take at a $5 1 million gallons per day.
Divide that by 1.6, because 1 million tons is basically about $1 6 million gallons and we have total gas demand today.
And 3 million tonnes, we've contracted $2 2 million gallons per day to a $1 3 million tons. So with this we still need supply for about 55 per cent of our portfolio $1 7 million tons of gas demand.
Like a page number 19, the index priced gas supply is not only a problem for us, but it's also a challenge for our customers.
The vast majority of gas and the world is indexed either to Brent or to J P. M, which is the Asian price or the Henry hub and the problem from a customer standpoint, and the virtually none of them have a demand which is also based upon oil. So if you are running a power plant if youre running a refinery of Youre running a hotel or a shopping mall and E <unk>.
Christy for it and the price of oil has a little to do with the economics of your business and yet if your index of the price of the gas you were at the at the end of that with and you can see from this chart and the right hand side that can be a very very difficult place to be so over the course of the last year of Brent crude prices of nearly doubled and.
And the power plant revenues have doubled the shopping mall revenue as having doubled the refinery prices, having doubled and so you end up with a real mismatch between the two customers prefer a fixed price supply and that's something that has not been available and the market till this point.
So turning to page 20, so the.
The Genesis of this.
We have been interested and a floating LNG markets for a long time, we ourselves have been and we built our own liquefy a have run it for the last five years I've had a lot of experience and the local vacation side, we're fortunate enough to partner up with the Golar guys, who really have been the pioneers of many things that have happened and the Ics and they were one of the first.
Parties to actually convert their ships into fsrus into sort of a floating re gas units.
Theres, a handful of LNG vessels on Earth, and they actually own and operate one of them off the coast of camera and that's the Healy that we now own 50% of it of a second one of the gambling, which is and construction right. Now. So this is this all started at the and.
And the middle of January when a b.
And we picked up the phone I called our technical group on the turn it over to a locker and just a second but a lot of Sean Sam kind of a are a very very capable of technical guys and said look let's get on with the Golar guys and it's actually look at doing this a different way because of a little box and the left hand side of the page 20 represents how the LNG business had been done until this point.
And to make it very simple if you want a construct a new ship or you want to convert a ship into a a floating liquefied and it takes a long time and of course, a lot of money. So the.
The $2 4 billion, a $2 4 million ton shipped that Theyre building right now cost well over a $1 billion to developed a field that actually it would service cost.
And if we can amount of capital as well. So the punch line is four to five years to develop this from end to end and many billions of dollars of development capital. So while the output of it is interesting to us the process and the price and the timing is not interesting at all and I. Just said look can we do as we've done and other parts of our business, which is used existing marine infrastructure.
<unk> and repurpose it for a for what we want a deal and in very simple terms of the cartoon here shows what we're going to do is we went out and found a couple of the drill rigs with the help of the folks at Golar, So Bob Das Das and all day and <unk>.
Others actually were very helpful to us to a whole were very helpful to us and finding us.
Give some sense of the dimensions of this we bought basically rigs that were originally.
The cost basis of over $509 for a $39, so essentially buying stuff and pennies on the dollars of done in other cases.
A repurpose them and then try to make the liquefacient fit on top of it which is what we've done and so maybe what I'll do right now is pause, bringing a lot of new op. You can give a summary of as to what the what the work we've done thus far.
Good morning, all.
Just to give you a little bit back and arent mitral and my <unk>.
And good background and I'm, leading the technical solutions group and a.
Hitting the fast LNG program unit of NFC.
And I worked at Black and Veatch for 22 years, a leading their technologies group prior to joining in and fee in January and kind of funny and was part of the team worked on Golar Hilli, if LNG a few years ago, when black and Veatch was doing engineering and design on that.
So as way of saying you know we are very excited to update you on our innovative posture LNG solution and so focusing on page 20. The concept. We have here is the same as healy except a couple of teams that you a significant advantage on budget and schedule and the first one is we are using a pre engineered fully modular design.
And in pseudo if a steep yield design on Healy.
And then the second one is we are using jackup rigs and sort of a ship to install a liquefaction modules.
The flipping on page 21, you can see the are off to a great start with our television partners like chart floor Baker Hughes Covid.
And Maersk to get therefore, LNG ready to be deployed in 20 months leap.
We plan to use key with shipyard in Texas for installation and possibly commissioning prior to taking the jackup rig to the location of gas.
So this approach allows us a panel and execution of.
One manufacturing of modules and fabrication yard and then to B P.
Bedding, jackup rig and installation modules in a controlled environment such a shipyard.
This is a repeatable go anywhere type of solution and we plan to repeat this for the next unit and next three to six months.
Getting back to us alright, thanks, a lot so.
The summary of this is what we've done is.
Change the the.
The the picture of the LNG market from a four to five year timeline for a plus $1 billion and project development costs and is something that is much much more relatable. So a total cost of the of the LNG and it'll be about $500 million, it's a $1 4 million ton output.
As <unk> said from the LNG P from the notice to proceed that we gave last week.
16 months until we actually have the.
The gear ready to basically install onto the drill rigs at the shipyard produces.
Produces gas for us, we think and about $3 50, so very simple math for every unit that you build and install you're generating a couple of dollars of margin.
Below what we would.
Yeah.
Paying for gas and the marketplace, so $150 million and net margin and a $500 million.
Unit and it gives you a tremendous start a new supply. So it really it's not an overstatement to say the changes everything and basically turns us into a fully integrated company from not just the midstream and downstream business, but now on the upstream side to control our own supply and if you look at page 22 of the the next focus for us, it's going to be where to get the gas from and the good news is there a <unk>.
And a gas and offshore gas all over the world.
On the and.
And the Gulf Coast of.
And just just south of this country Theres significant resources off the coast of Brazil, West Africa is probably the single greatest a supply and shallow water of of gas, but it's really all over the place and really our focus now over the course of the next 30 to 60 days will be to identify the gas source for the first of these and there's lots and lots of <unk>.
And as for that so it's pretty exciting and as I said on page 23, we show what the margins are for this is very simple so a $5 50 of minus $3 $52 on the capacity that we're actually building here is a $150 million.
So all good.
Jason and I'll give an update on hydrogen.
Thanks, Wes so we've made some significant progress and our hydrogen and hydrogen efforts.
After evaluating hundreds of technologies, we've identified the ones that we believe have the path to the lowest cost hydrogen production and meeting our target of a $1 per kilogram and virtually no emissions. So what we're doing is we're focused on building two very promising businesses along these paths. The first on page 25, calling the zero Bloom, which we built.
<unk> has the most commercially viable and near term path zero of Blue is focused on commercially and commercializing technology. They would produce hydrogen from low cost natural resources like natural gas and coal.
Two to make these technologies emissions free what you can do is actually capture the seo to inherently and the process and then the sequester and which is basically permanently storing the cotwo ground with that these these processes and technologies can be emissions free.
A significant advantage of the technologies. We've identified here is that they are ready to deploy today at commercial scale. So we're taking several steps of commercialized zero of Bloom, we're securing and exclusive license for technology, that's capable of up to 99% inherent and carbon capture and the next 30 days, we found a location to sequester economically.
And the Cotwo and that process and we're actively discussing offtake with a major consumer of hydrogen that we believe will just be a really terrific partner for us and the downstream market.
We intend to move forward with our first project and the next three to six months and we'll look to capitalize the business separately.
We believe that the zero blues really scalable solution that has the potential to meet customer demand and the methanol and ammonia industries, where there's a very very large and growing opportunity for hydrogen.
On page 26, you can see our the second business that we're focused on which which we're calling a zero green and.
And zero Green has a huge potential to reduce emissions across all of the energy markets as costs fall.
<unk> focused on Green Green technologies of the renewable technologies that use renewable power to produce hydrogen by splitting water <unk> weed.
We've made our first investment and the technology that we believe is the best in this category called <unk> Pro <unk> Pro has a 95% of efficiency and extremely low capex, which gives it a significant cost advantage over existing electrolysis and it's being designed to work very well with intermittent renewables.
This technology will be deployed with our first proof of concept and the next 12 months to 18 months and we'll be ready to quickly scale up commercial projects very soon after.
Our focus with zero Green will be also on securing low cost wind and solar energy to produce the cheapest screen hydrogen possible with a <unk> renewable power. We believe we can achieve around a dollar per kilogram hydrogen and one important factor that we highlight on this page that we think will help accelerate the effort as the supportive government like we're seeing.
Begin and Europe, and Asia, we are optimistic that the U S will implement additional measures.
Is this year to support the hydrogen industry and that many other markets will follow.
As this technology scales, we believe zero of Green just has a really tremendous opportunity for growth to bring emissions down across transportation power and industrial markets and help our customers decarbonize. Thanks, a lot one.
Of the.
The first places I think youre going to see this impacted and the shipping side.
It is very clear.
Based on the volumes of interactions and calls we got is that the shipping folks are very very focused on their carbon footprint I.
I think theres, a move a foot to really impose material taxes on the shipping market in terms of fuels and that's a that that.
And then Jay talked about government intervention, that's the most positive way I can think about it is making a more expensive for people and the all I should do the right things.
That I think will translate into LNG volumes in terms of the bunkering opportunities, but also of ammonia I think of ammonia and may be really the fuel of choice that ends up there and so if you have the ability to produce blue of ammonia at scale I think the market opportunity for that is tremendous. So this is something we are deeply committed to not just from a.
And of a moral and ethical standpoint in terms of our place on the.
And as good of a partner as we can be on sustainability issues, but there are a massive profitability opportunities I think as part of this and probably the path of this once we get to on a solution on the Blue side is really a separately capitalize the company so via a big participant and if it separately and capitalize it either ourselves or with partners so something to keep.
Keep an eye on but we're excited about that.
Just the last a couple of thoughts and then all of them. So I'll turn it over to questions. So on the financing side on page 28.
And one of the things we are preparing to do as we look towards closing.
The the transactions ahead as we've got some financing work to do and so what we did is put together a kind of a financing scorecard for ourselves and evaluating where we are today versus where we were when we got rated here.
Not too long ago, so and and every one of these metrics. The answer is we are substantially better than we were at that point and time volumes have grown substantially operating margins and has gone from negligible to pro forma of $1 $2 billion, perhaps most importantly of everything on this page is diversity. So the diversity by geography diversity of <unk>.
The customers.
And when we had one and then two then three terminals and obviously, we're then a function of how our customers are doing and has a lot to do with what our operating results are at the peak of our.
A lack of diversity, our biggest customer was 38% of our revenues once we close the the hydro and the MLP transactions that drops down to 12% and as these markets. Then as these terminals that Andrew was talking about and others come online and those numbers are going to go down so no one customer and no. One geography, then drives our returns which that's a.
Big Big issue for us in terms of our own cash flow and of course, our financing counterparties will be very very happy about that logistically, we needed a bunch of ships and fsrus for a portfolio with one transaction, we were able to close that gap almost perfectly the the transaction really fits like a glove from an operational standpoint, and generates a $300 million and.
The cash flow and then lastly gas supply has been the one aspect of our business. The where are we now kind of close the GAAP and become as I said this fully integrated company from stem to stern. So flip the page 29, and this is these are a.
And pictures of our capital structure, a pre and post the transaction so.
Pre closing transaction and $10 1 billion and total capitalization, 12% of that is a 1 billion and a quarter of that 88% of that and equity 175 non shares outstanding of $8 $9 billion post close of capital structure, We issued a couple of billion and equity as part of this we <unk> the transaction heavily our debt goes up by a 1 billion and a half day.
But our equity goes up as well so still a ratios at the end of the day 20 per cent that 80% equity we are very committed to becoming a investment grade company and as we continue to grow diversify and perform we think that that's a that's a very achievable goal for us and the next the next timeframe. So.
Great Operator, we will open up the questions.
Thank you as a reminder to ask a question of who needs of the press the star one on your tongue.
And sorry your question first of the balance.
Keith please.
To the roster.
Our first question comes true.
And this week.
Credit Suisse. You May proceed with your question.
Hey, good morning, everybody.
First question on fast LNG should we think about that strategy of becoming the primary source of gas.
Well.
So of different supply arrangements, and and sorry, just and to the extent. It is kind of the primary source just curious how youre thinking about bridging supply gaps.
Hi.
The mine and six months what are the things you mentioned the LNG, maybe takes a little over a year. If the customer is sort of non index and he's off of that middle part.
Yes.
Well the answer is that we do think it is going to be a significant portion of our portfolio is going to come from our own activities, but with the geographies of we service, we definitely will have needs to buy and product from the marketplace and probably sell product into the marketplace that will make us a much more active LNG counterparty and the business again, we're trying.
And to essentially grow wheat, and the fields and then sell pasta at the other and so it's a it's a vertically integrated strategy, but we have a number of significant trading partners right now in terms of the major of the produce LNG, we think that will continue on.
Forever, but we do think that the LNG component of it is going to be a significant part of our portfolio and both in terms of the economics of it as well as the stability and certainty of.
Of supply, it's a meaningful step and the right direction for us.
Got it thanks Wes.
Yeah.
Becomes a pretty apparent that Asia is going to be a pretty big step out for you geographically curious if theres more significance of that and maybe we're appreciating and so I'm curious to the extent that you established that anchor customer and Asia do you get the sense of it opens the door to the rest of Asia and other words is there a line of other countries behind this customer who maybe didn't want to be first but a more than happy.
To follow the blueprint once you establish yourselves and the region.
Yeah look when you when you look at the markets around the world. What we think are the five most interesting markets just based on size of the.
The population and of a.
Economic growth and potential Brazil is the top of the list, but then South Africa, Indonesia, Philippines. Vietnam. These are all material markets, where we think theres a tremendous opportunities about 75 per cent of the world's supply of LNG goes into the Asian region. So, it's obviously, a big big part of the overall landscape.
We are excited about our first a transaction there. There's another list of of a long list actually of transactions that are behind it and I think that when you. When you look at the world. It's a long ways from New York to the far east so establishing a presence that is local and those regions is imperative if youre going to be success.
A lot of it but I think theres going to be a lot of activity and the in Asia for us for sure and.
And there has to be the first one before there can be a second one and so we're very excited about this this first step.
Great. That's all I had thanks Wes.
Thank you and our next question comes from Alonso Garcia with Scotiabank you May proceed with your expenses.
Yeah.
Hey, good morning, with the team really appreciate the detail you provided is the.
The first one on a fast LNG, you've mentioned the highest shrink costs required and some of the floating the vacuum projects and the pad.
I guess is the idea here with your concept that you'd essentially be able to tap into various supply sources and theyre ready to go or is there any meaningful option and capex that you would need a attack you need to spend it and sort of tap into the gas.
Sure.
And I think it's mostly just the the ordinary course of industrial development. You know a version one point of all is always less good than version 2.1, and three point O and and really the.
I'd say as I said, the Genesis of this as we looked at local vacation that had been done on ships and it had been done very successfully the operating history of the Healy and the other ships has been quite good and simply ask the question is it possible to do it and smaller scale on existing marine infrastructure, and thus kind of reduce the timeline that it takes to get it and the cost to get the.
Key that the word that that a lot to us that has been on the on the tip of our tongues is really a modular.
Aspects of it so basically we went back to these are counterparties the.
But the charts and the the floors and the key was and said can we.
These processes modular and thus make them easier to to build the easier to install easier to run and the answer is yes, and so I think that.
And it makes so much sense and really.
And maybe the biggest aspect of it at all other than just the time that it takes a do it as a half a billion dollars for a project is something that is eminently financeable and that's quite different and two to three 4 billion right and I think that that's one of the real impediments I think and the growth of the LNG market has been exactly that is that if I said you have got a project that I want to do but it takes three or four.
The $1 billion and it takes four of five years to do that is a pretty long pull to get to a think financed properly, whereas a half a billion dollars that we think is through and has been installed next summer. So the summer of 2022 is a much more related to a much more addressable thing. It also then we can we can figure that into our own calculations. When we look at supply that we need.
And for our own projects. So, it's just much more usable and ever ever respect so.
Yeah, no it makes sense and understood.
And then maybe it's a as a follow up.
And both the South East Asia project, and the Sandy and Ireland project and they both seem pretty close it by day here in a matter of months. He talk to the I guess that sort of milestones that are left with those projects before you think of I D.
Yes.
The Southeast Asia Southeast Asia, It's just simply a matter of negotiating contracts. So there's been intense discussions thus far that have been very very productive and we think that that's a that's a matter of a short period of time, we will be at a good place on that one Ireland is something where we've had to go back to the drawing board from a permitting standpoint in terms of the.
Dealing with the.
And the local counterparties there the market for what we want to provide there. We think is a terrific one and we're in the later stages of now being prepared to kind of file of our stuff. So I think our thoughts on island the file of the stuff over the course of the the next month or so and hopefully by the middle of the year, we will have a real a.
The U S to the timing of the.
And the terminal.
Thank you so much that's all of that.
Yes.
Thank you and our next question comes from Ben Nolan with Stifel. You May proceed with your question.
Thanks.
Hey, good morning Wes.
Well I'll start with this one.
With the with the new fast LNG and and sort of a.
Especially also with the high volumes going into the new.
Terminals and the Brazil, how does the the ISO container.
Oh.
And.
It'd be a concept play into play into that and this or are you sort of maybe going back to a more traditional.
Methodology.
It.
It Hasnt changed at all I mean the.
And it's really a question and then of finding the right tool for the job. So when you've got something which is going to be a significant volumes and for us. The the volume cutoff is around a million and a quarter of 1 million and a half gallons per day and a half gallons per day of member. Each is a container is 10000 gallons and you'd be handling of 150, ISO containers, which is something you can imagine.
And doing but thats, a pretty busy terminal at about those volumes youre better off the shift to and Fsrus strategy, so, but but the the ISO container and the.
Of the ICL flex system is about ready to be deployed I mean, our ship has left the shipyard and off the coast of.
And the Gulf Coast.
<unk> zero, which is our first of these <unk>.
Small scale shifts that we're deploying and it's headed to Mexican waters, So both Mexico, and Nicaragua and will be using the ISO flex and for a number of the other opportunities that we're looking at that or not and these these sheets. We think it's really appropriate when you get into the high volumes that we expect in the Brazilian terminals and in Ireland for that matter.
Those are much more fsrus and thats, what the the equipment that we need there, but even within.
The Brazil, we think.
And the bulk of arena a terminal is really at the mouth of the Amazon River. There are many many more.
And of gallons of diesel and heavy fuel oil that a burned a power plants up and down the Amazon River and we think some form of ISO flex will be used there as well so.
It is just the tool for the toolkit is what we're looking for and how do we think it's a great solution and one that we will find lots of lots of chances to deploy.
Okay. That's helpful.
And then as my follow up I guess the question is sort of sort of what has changed on producing your own LNG vs versus maybe the Pennsylvania or why wasn't this concept really rolled out I don't know a three or four years ago.
What's the what's different now relative to sort of when you first had the idea.
If you're a recommended we should down and a few years ago I missed that phone calls some of our events.
And I had a been a helpful. One day yet.
Look we have been focused on trying to close the gap on our own supply for a long time and Pennsylvania is a project that we think has a lot of merits.
We haven't given up on that by any means but we've spent a lot of time and looking at it and.
And really what accelerated our thoughts and the LNG was with the the <unk>.
<unk> and the.
The MLP transaction, where we acquired 50% of the Healy the kind of brought us into the tent on the IP side, we had a great partner and the form of Golar and may be a number of ways that we work with these guys maybe a little separately capitalized the company and look at it. There's a there are a whole host of things that came out of it but basically we took our own liquefacient technical team, which has a very deep and.
And a capable group and said and really a challenge them to look at existing marine infrastructure and see if we couldnt shorten this up and make it more related both from a size standpoint, and that's what happened and so we feel really great about the process with it and as usual it comes down to the people and kind of suspending disbelief and try and make things happen, but I think the <unk>.
<unk> really does change everything because it takes a great midstream and downstream business and produces now of our own supply for at least and in large part and I think that that is.
That's just a materially.
A significant advancement for the business model that's for sure so.
That's great and and just a clarification of a kit.
The new Southeast Asia terminal is different and in the Philippines thing that.
It had been announced last year that and Mike.
It is specifically, it's a it's a purchase of an existing power plant with the right to then double the size of its a kind of a 300 megawatt power plant that we would double the 600 megawatts and a country that has got we think a tremendous amount of opportunity for incremental demand. So it is anchored by a very significant power asset and we are and the very late stages of of.
The kind of getting that finalized, but but it is different than the Philippines. The Mou, we signed at the end of last year.
Thanks I appreciate it.
Thank you and the next question comes from the Sound Morgan with Evercore and then proceed with your question.
Hey, Ross.
And so with the F LNG solution that you.
You guys are proposing now three and $3 15, I guess sort of of the midpoint is pretty attractive and does that.
And it's difficult sometimes with the apples to apples to kind of figure out the the true cost is that and operational marginal cost of.
And maybe to you or is that including the $500 million of Capex that you're sort of ballpark and for the conversion of the jackup rig and the installation of the the.
The midsize modules.
No it's actually a really simple so what we're assuming and this is a base cost of gas of $2 50 on a.
I'll share basis, 75 to liquefy, and and operating costs and 25 cents for the marine and Opex. So it does not take into account the capital expenditure and so that's why I quoted.
And at $3 50 are basically producing a $150 million of margin on a $500 million of capital base right. So that's a very simple way of doing it. If we then applied financing to it other things I'd like to look at things on and Unleveraged basis, I think it makes things simpler and it makes it harder to get confused so and.
And I think frankly, when you look at those three pieces $2 50, and 75% and 25, the $2 50 may well end up being a very high estimate I mean remember offshore where the stranded gas is a lot of times. It is a derivative of oil activities. So people are drilling for oil and Theres a lot of associated gas that comes along with it and especially in here and deepwater that that is not in a.
Asset, but its a liability and so that gas is re injected in many cases or it has flared which is of course, a horrible and environmental risk and of course. There are also just wasting the asset basically so.
It may well be that we can actually do a lot better than this.
And so we use a range of $3 to $4, but I think that you know as.
As we get into this and for for people that are listening on the phone that have gas resources give us a call I mean, we've already had a number of people costs, but if you've got.
Gas and your AR.
And your business and you'd like to talk to us about it we think we'd be very interested to do so I think the.
The Jackup rig is a great tool for shallow water so.
And I was largely to access a pre process molecules that come through pipelines without additional capex. That's great. The offshore of the deepwater is where perhaps the greater opportunities are and the semi submersible, which are another another form of marine infrastructure, a similar to the jackup rig, but suitable for kind of deep water solutions and may really be the tool that goes along with that so this.
And as the top of the first inning in terms of the.
And the development of this as a as a business line and I think there are many new opportunities, but the unit economics are actually really straightforward, so $2, 50% to 75% and 25 Thats our base case and I think we've got a lot of room for improvement beyond that.
Okay and.
So I appreciate that that this would plug sort of the year.
Your operation of the rigor of side in terms of the demand gas that you'll you'll have a one four and tpa versus the $1 70 of projecting kind of medium term.
But.
Youre going to be working with and upstream partner.
Generally these companies try to capitalize on prices.
For instance, like Saudi production would go down and.
And oil prices to go up you'd be able the past kind of of the costs through yourself, but your and customer would still be subject to.
The fluctuation in oil prices right, just like any commodity buyer.
And today, we have a contract is what I'm, saying no not today it would be.
That's true, but I think.
I've said this many times if you want to make a great fortunate and solve a great problem and the great problems and people have and getting the energy around the world is the index to a volatile index that has no relationship to what they are a core businesses. So I think once we get proof of concept and we're producing this and we have a view as to what our own price metrics are I think there is a <unk>.
The real opportunity for us to pass this through to our customers give them certainty of not just supply a bit of price and I think that changes everything and I really do so you have to walk before you run, but I feel like this.
There has been since 2006, there has been a real move to.
The distance gas prices from oil prices.
Moving in lockstep for decades, together, they really split apart and 2006.
Oil and a $140 and gas went down so the thing and really split apart and they.
And there definitely is a relationship between the two but it's not a pure relationship and I think from the customer standpoint, there's really no interest and having that relationship for the most part they don't have a Brent based offtake, that's not what they're looking for that's just what they are forced to take because there is no. Other alternative so that this really could be I think a revolutionary step in terms of what price youre able to.
<unk>.
The customers with and Thats, a big deal. So and then the math on this is as I said, one point to a $1 billion and in margin of what we have right now if we build out all the stuff that Andrew and others are working on that goes to $1 6 billion. If we then build incremental LNG to service all of that adds another $1 billion. So.
And you're taking yourself from a.
Negligible margin a year ago to a really a bright prospect of $2 5 billion and growing beyond that so it's a.
It's a big big moment for us and so a lot of work to do obviously and proving this out but it's definitely a huge step and the right direction.
Okay. Thanks Wes.
Thank you and or the last question comes from Greg Lewis with Beach Energy You May proceed with your question.
Yes, yes, thank you and good morning, everybody and I'll keep it and the one is more of where on the hour now west just kind of a big picture question and I think you kind of touched on it and some of your comments around.
Gas exposure and as we think about as you build out the portfolio clearly you're short gas clearly you're going to address that as we think about it.
And the as the business builds and.
Is this something where we would should expect a new fortress, the maybe control 50% of its gas that's in the 80% and we'd want to be long gas and any kind of views on how you're thinking about that would be helpful. Thank you.
Yes, I think that the goal would be eventually to supply the bulk of our activities from the Sabine geography plays a role and and so as this business is at the end of the day and logistics business right.
Youre getting the gas and one place and you're supporting customer activities and other parts and it's a big world. So that the the map back and the early part of the presentation is a is a great visual because it just shows you. The distances that you are trying to trying to conduct your businesses and and I think that there is definitely a role for us to buy gas from our.
And our trading Counterparties, and there's probably a role for us to sell gas to them as we produce and different places, but on balance I think the economics are overwhelmingly positive if youre able to do this successfully.
Supply youre on gas at a material discount to where the market is and also then be able to control your own supply. So it's a.
The huge benefit from an operational logistics standpoint, and economically and of course of the map is really easy so, but we'll see I mean I think this first one.
We feel terrific about.
Bought the first two rigs and there'll be shipped across the ocean here in the near term we've got a great technical team that is working on it and the next big milestone for US is to identify a gas source. So we have lots of thoughts about that and we've had a number of conversations about it but again, there's folks that have interest and talking to us about this they should give us a call and then I think you hit the first one.
And I think theres, many of the could fall and succession.
Great. Thank you very much.
I would now like to turn the call back over to Wes Edens for any closing remarks.
Great.
Thank you all for the time to go through this.
And we have a lot of different materials I didn't want to.
Have any one element of this dominate the conversation obviously <unk> is a huge huge step for us our operational success.
A success in the quarter was a very very good one we've added materially to our terminals portfolio and last and certainly not least I think that the whole move to kind of a zero emissions on the on the hydrogen side of his material and so we.
<unk> did a great job of summarizing what has been and an intense period of activity for us and I feel like that's got opportunity that is really a material and I've said again and the places I think you're going to see a manifest itself. Most of most immediately is on the shipping side and we think that those economic upsides. There are a substantial so there's a lot to go through and we've got a big staff of Josh and others that can help.
And get through it but thanks for your time and we look forward to talking to you and our next quarterly update which is not not too far down the road kind of 45 days from now so thank you.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may.
And now disconnect.
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