Q4 2021 New Fortress Energy Inc Earnings Call
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Okay.
Today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.
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Good day, and thank you for standing by and welcome to the end of the fourth quarter 2021 earnings.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.
Ask a question during the session you will need to press star one on your telephone. Please be advised this call is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your host today, Brett Mcgill managing director and head of Investor Relations you may begin.
Yeah.
Thank you Justin good morning, everybody and welcome to New fortress Energy's fourth quarter and full year 2021 earnings call. This call is being recorded and will be available by replay until March eight we plan to reference our Q4 2021 investor presentation that we released this morning. The presentation is posted on our website and will remain available after today's.
Call. The presentation includes a series of important disclosures related to forward looking statements and non-GAAP financial measures. We encourage participants to review. These important disclosures. In addition to the description of risk factors contained in our SEC filings.
With me here today are Wes Edens, CEO and chairman of the Board and Chris Giunta, Chief Financial Officer also joining today's call are managing directors, Andrew D D and Kashi Andras in EM as well as Ken Nicholson, and Patrick Hughes, Chief Executive and Chief commercial officers of our hydrogen business N F E zero parks and with that I'll.
I'll hand, the call over to Wes great. Thanks, very much Bret and welcome everyone as usual we have posted to the website.
A deck that we'll be referring to as we flip through them. We have a lot of material to go through today, and we will try and do so.
Quickly and get to questions here in short order so start with page number four so I'm first the results.
Obviously, a record quarter for US 334 million and EBITDA for the fourth quarter in 2021 full year 2021 $605 million the business has grown and matured dramatically and this really does mark the end of the beginning of US as a company eight years ago, We started the company.
Had been a development company as we've been developing our arc terminals in portfolio the downstream assets.
Our financial results mirrored that so full year 2019, adjusted EBITDA of negative $115 million as we were investing in our business full year 2020 are basically breakeven $33 million and then $605 million. This year and very importantly, we are poised we believe to be a very very profitable.
Future. So our forecast for 2022 is a one plus $1 billion. We think there's a substantial amount of upside of that number roughly 85% of the result is baked essentially already in some of the things work out as planned. So we're here on March 1st we have 10 months left in the year, we have lots and lots and lots of.
In front of us and so there's lots of lots of growth to come.
Page number five.
As I said, we started the business eight years ago from a blank piece of paper and it's it's interesting to see how it has really evolved and now the architecture of the business.
To me is actually quite clear.
We began the business by beginning with our customers. We started building downstream terminals and power assets around the world to solve a fuel issues energy poverty issues and that is the core of our business and that's where it remains today.
Part of our business has grown dramatically. This time last year, we had five terminals today, we have 11 are in.
And in operations are underdevelopment, a geographies and also a nuance, but an important one as we have really shifted our focus from some of the smaller more bespoke markets that are great markets and have great opportunities for us to larger markets with higher volumes that did play a key part of our strategy going forward.
Also about this time last year in January .
We made a very large acquisition and in two pieces one was to buy the hydro assets, which were.
Terminals under development as well as a large power plant that was under development in Sergipe, Brazil. We also then bought into large portfolio ships the.
The ships and logistics.
Business is how we actually get our products to our markets to our customers.
So those markets, obviously have tightened up dramatically in the last year both of those acquisitions today look like very well timed they have worked out very well and so we've added dramatically to our midstream capabilities to match the downstream capabilities. The last part of our business and the focus for much of this presentation. We'll talk about is then the gas gas.
She is obviously the biggest cost that we have is the business.
It has been a and intensifying point of focus for us for the last 18 months, obviously the results recently and the geopolitical results in Europe with Russia with all the geopolitical issues have only intensified with that but what we have done when you look at our portfolio from a year ago is we've roughly doubled the size of the portfolio more than doubled.
Size of it costs, you Andre who runs our gas are part of the business, we'll talk about that substantially we are poised to roughly double it again this year and this is the feedstock that we then provide to all of our all of our customers. So.
And those three businesses the way we think of the business now is we built this downstream business. We then have all the capabilities to actually manage our our flow of product that goes into them and with the cheapest and most flexible form of gas. We can do the best job of servicing our customers and that's what creates the opportunities for us.
You know page number six vast LNG, which we've talked about over the last year or so is now very.
Very much in the in the gun sites, we announced yesterday that we had our first transaction on the tolling side. When you think of a fast LNG. The way we think of it is it's just simply a way to move liquefaction to the offshore stranded gas assets and turn that gas into something which is a exportable commodity that can then be used to supplement our.
So the core of our of our gas portfolio as these base long term supply contracts that we've got and so we as we've added them in from the largest gas producers in the world. That's not a focus that's going to change from us in fact, it's only going to grow but the F. LNG basically as a way for us to add either long term high quality cash flows by.
Putting our equipment to lease into a situation like Congo, what you were doing with eni or to actually add to our own portfolio with market volumes that we can then actually in turn provide to our customers we're selling to the business line. When you look at the the next page.
This is the dynamic that isn't created we then have a very stable portfolio of gas.
As we match up our long term gas contracts with our long term offtake from our customers by adding in a market volumes on top of it we create the dynamic that basically creates a along LNG.
The basis, but the business model significantly mitigates the risk to it. So when you think of being long or short of commodity that sounds like a scarier proposition and one that is subject to market risks the way, we think of it as we created basically one that's got bond like downside in that we have marginal volumes that we have in our portfolio to the extent that we are the <unk>.
As normalize we simply deliver those to our customers into our terminals and our power plants around the world and then to the extent that there is a market dislocation as we're going through one right now we have the ability to sell those into the marketplace and realize windfall opportunities. The dimensions of this can be significant and we'll talk about that a little bit and go through an example, with it but.
You know we've been through a period of relative stability since since we started in the business from 2014 and until recently, but of course since last summer and then more recently in the last handful of weeks, there's been significant disruptions our businesses oriented about taking advantage of those kinds of opportunities. In addition to the base load. So unlike downside equity like upside.
Is the is the portfolio that we've created.
So that was kind of the downstream effect of Andrew.
Thanks, Ross, Hey, everyone nice to be talking with you again I'm actually on page nine so a bit of a scorecard here for our business downstream in 2020 , one I totally trends formation all year for us. So on the left side acquired hydro for $3 1 billion in GMO P for $1 nine boats announced in January of last year and closed in April .
Mexico Terminal came online in July and we started flowing gas to the Cfe power plants under a contract with Cfe there in California.
The Sergipe power plant is now fully operational.
And we've had almost 4000 plus run hours consumed almost over 30 TV to you <unk>.
G since taking over a through G P.
We signed a 15 year 30, TV to supply agreement with a law an orchard.
Our refining subsidiary of Norsk Hydro just co located with a Buck arena terminal and as the largest alumina refinery outside of China.
And then we've made significant construction progress on our Buck Raina and Santa Catarina terminals. Both are expected to be completed in the second quarter of 2022.
Both are a huge associated LNG markets and so when we think about our progress as Wes mentioned on the hydro and Jim O. P. Transactions, we took two terminals and background in Santa Catarina that were not finished permitting we completed the final permitting renegotiated and started an EPC contract and you're kind of nearing the end of construct.
The offshore terminal so we've made great progress in those terminals.
Excited about the commercial opportunities in both those places.
On the right side, we provide a little bit of a scorecard. So in Q4 of $2 9 million gallons a day up from about one eight.
The same quarter last year, we have 65 total contracts 15 year weighted average life and our NPV of the revenue in those contracts is over $14 billion.
Flipping to page 10, what we wanted to kind of show was.
The transition from NFC.
As a business with the kind of premium long term off takes for LNG to power in the Caribbean to a truly global downstream LNG portfolio, which is anchored by long term stable cash flows but has real upside as we as we participate in these larger markets and these pipeline connected markets.
For a more flexible supply.
So in 2020, we had about nine M tpa or addressable market. We had three terminals completed and two under construction five total terminals and today, we sit with 42 M Tpa of an addressable market and 11 terminals.
So it's a totally different portfolio than where we ended the year last year or we're going to talk a lot about is the vision for for kind of how that 42 MTA of addressable market is going to be attacked kind of over the next year.
Page 11, and talk a little bit about our 'twenty to 'twenty two growth plans. So it will always start with <unk>.
<unk> to have organic growth from our existing terminals.
Wires no additional capital and we have a number of opportunities that are kind of right in front of us and Jamaica, the Jamaica refinery to which we provide scheme from our Jamaica Powerplay today is switching from H you vote LNG.
And we hope to be the supplier and we think we have a great value.
Your proposition for them in Puerto Rico, we intend to convert more oil in H F O fired power plants to natural gas and in Mexico.
We hope to expand or contract with Cfe.
All things, we think that are you know very in front of us today and that present, a great organic growth opportunities in the portfolio.
Second is we're going to complete construction of the background on the Santa Catarina terminals in Brazil.
We only believe more in those markets than we did at the time of the acquisition, we're extremely excited to bring those online.
Start some of our kind of currently contracted opportunities are continuing to grow the commercial opportunity.
In these large markets, Santa Catarina being kind of specifically interesting because it'll be our first pipeline connected market, which gives us a number of opportunities that are a little bit different than what we've had in the portfolio today.
And then last is the potential for F idea in our Shannon LNG terminal in 600 megawatt power plant. So we are in final stages of planning approval in both the terminal and the power plant.
Which you know today give us an opportunity for a great long term supply into western Europe , as well as a very highly liquid and kind of flexible market and the ability to build combined.
Combined cycle power in a place that's very short power today.
Page 12.
The highlight here is our west talked about in terms of kind of step one was building downstream step two is really integrating the business and we've done that with the acquisition of G MLP and the.
<unk> of over 20 ships today. So when we ended 2020, we had five ships under our control and ownership today, we have 20.
And our portfolio is unique so we really have a large need for fsrus and storage capabilities from our ships. It's really forms the core of our terminal assets and then we also have transport chips, which we used to supply our customers inspire portfolio globally.
So we.
I think we feel great about the G. M O P acquisition and the value of those assets from from when we acquired them last year to where they are this year and we've really been able to kind of outfit the terminals into a fully integrated business and portfolio, that's going to grow over time.
Page 13, we tried to put some qualitative details around what it means for our portfolio to go kind of from nine a M. D. P. Eight of 42 M. T J and just kind of what we're seeing on the ground. So what that means for US is that we have a portfolio that was all kind of long term power and small scale until we were matching up.
Supply contracts with demand contracts.
In 2021, you know we're seeing multiple.
Multiple categories for it for what our commercial activity looks like so it's not just long term power, but its merchant power its industrial demand into gas trading pipeline balancing selling capacity in our terminals and so we just have a much bigger and diversified portfolio to play with and I think as you're going to see how we build our gas portfolio and how we think about cash flows over.
Time, we're gonna be anchored around long term stable cash flows, but we're going to have a lot of upside in some of these other services in markets that we're entering.
And that's the real benefit in vision of the larger portfolio in the larger markets that were in today.
I'll turn it back to Wes Thanks, guys great. Thanks.
Delete into the gas discussion I think it's actually Oh, it's good to get a little bit of context to the bigger picture on the energy transition side.
The the there too somewhat conflicting themes that are present when you when you think of the world and energy transition one.
One that we are very focused on is that energy poverty in various forms is very real and so I always use. The example, because I think it's a meaningful one people in Jamaica use 10% as much electricity for catheter as people in United States to people in Kenya use 10% as much electricity as people in Jamaica deal. So you know people in East Africa.
Use in a year, what all of US in this room use in about three days. So that's a that's a very very real issue and so you can't really have a discussion about energy transition without at least first acknowledging that many many people around the globe are under electrified and that has significant implications for economic growth for health care for education.
All kinds of asked different aspects, we're very focused about that and so what we wanted to talk about a very very meaningful energy transition to a fossil free future at the same time, we have to acknowledge that we have real energy poverty that exists and so those are the markets that we're focused on.
The second main issue of course is that climate change is real and de carbonization is not a good idea. It's a it's a mandate that we all have and so we need to manage those two things at the same time and I think that people that are on extremists on either side of the equation.
Really do Miss the point of what we're trying to accomplish.
You know folks and say, we want 100% renewable power today.
Don't really acknowledge the fact that renewable towers not dispatch at all and when you look at the chart that I put in front of you right. Here you can see on the right hand side, Europe , which has some of the highest deployments.
Deployments of renewable power in the world is that increasing usage the usage of their coal plants are this this last year as they've had dispatch will energy challenges and so they've had to go to their old technology. Ironically in a time of energy transition some of the highest usage of coal is happening today. This winter. So that's that's not great.
On the other side when you look at the forecast for the demand for gas because gas really is the transition fuel that we think leads us to this this this this.
Meaningful.
Evolution.
Gas to us looks like it's very under supplied and so a central theme for US is that we believe that the world is on the verge of being structurally short gas that obviously biases our view about what the construction of our own portfolio would be not to take a long position of a commodity.
And it simply for for purposes of making a market that is definitely the bias that we have when we look at this the drivers of this situation on the right hand side. There's many of them just listed a couple I mean, there's a significant underinvestment in oil and gas production. They are very aggressive unrealistic energy policies that are put in place that then drive people to solutions that make it.
Good long term solutions, but they're very very.
Bad short term solutions premature.
Retirements of coal and nuclear you've seen announcements in Germany, and just in the past few days trying to potentially reverse those decisions or extend them and then it's of course he throw some geopolitical instability like Russia supplying 40% of the gas to Europe with the situations that are going on there. It makes for a very very challenging market environment. It is one that is incredibly well suited for.
For the business flows that we have but that's the the context for our own gas supply with that let me turn it over to <unk> to talk briefly about our guest views how sandra thank.
Good morning, everyone.
Simple chart.
Which is pretty much what are all the traders look I'd say everyday should transact. So you can see that the LNG prices are not below $30 until the end of the winter 2023, and after that for the rest of the year, it's like close to $20. So it's a it's a few here.
Dislocation and as we see it.
And.
And by by looking at that we design our strategy for for contracting LNG, so going to page 17.
You want to show the good news that we successfully executed our strategy contracting LNG from Vermont to.
Match, our clients' needs and we increased our portfolio by more than 2200% since the beginning of 2021, we now have a portfolio of $2 9 million tones.
With 2.2 contracted in any market.
Two 7 million tons to be produced by our first forced to first LNG.
Starting in 2023.
We have no need for LNG from the high priced spot market to meet our.
Our clients' needs.
And the other focus we applied a chink resolved would fall into 'twenty 'twenty. One we also lead us to quickly conclude the first LNG Choo.
Which we expect trough, taking the full $1 4 million tons of capacity.
The airports also led us to advance our negotiations for other long term LNG supply agreements.
And we expect that both of our initiatives the first LNG.
And the long term.
Contracting from the market will be concluded in Q2 2022.
These will allow us to have a base portfolio of around four to 5 million storms.
It also means you're sort of per year, and it will be ready to support our downstream airports and into high growth markets.
Andrew just presented.
Oh.
On slide 18.
No.
To bring you additional college DFAST LNG commercial arrangements.
We believe there are two.
Primarily business models for each of the first one is to provide them falling service.
And.
And contracting with Counterparties that will contract 100% of our capacity.
And that's at the same time, we I'll sneak up percentage of that of that capacity and that's a D and I view that Oh, we're going I'm going to speak a little bit more in the next slide the second business model.
Is a is the once we engage with our resourcefulness.
And enable the gas production to our LNG facilities.
Facility in Florida, the local gas needs.
This will lead us to offtake, 100% of the linear prediction of our facility.
And also sell natural gas at the local market D. These are our efforts.
So did you see much of our airports in Mauritania, where we signed an Mou with the goldmans Donald over the year and the project easy not green great momentum now Oh, the discussions are with all the counterparties involved.
Slide 19, no I was talking about the recently announced horse Jewish CNI.
We are very pleased street in and excited to have such an experienced company in the oil and gas and LNG business partnering with us and United does not the only have experiencing the LNG production, but also just finished the construction of its own that for LNG.
We could not have a better proof of concept for all of course, the LNG facility.
Indeed, a fantastic recognition of our engineering team and our partners that are working on that airports and our facilities will be deployed in the marine 12 asset in the Republic of Congo, the assets ease in shallow waters and holds an immense amount of gas.
More than enough to support the 20 years of production of our facility there and in our solution. We will enable the exploitation of the extreme did reserves.
And our board.
Upstream flaring gas.
And.
Thanks, guys. Andrew if you look at page 20, we wanted to put some simple math to what market volumes could mean to us in a market like this so.
The production of our first facility creates for US 63, TVT use thats the units of.
The production that we have if you used a price of $20 in the market and actually the price today is north of $30 in the market. We've used a price of $20 in the market and a cost of $5 you'd have profits of $15. They might be to you time 63, it would be incremental revenue for just one unit of $1 billion and so really the way that.
We think of it in the way you should think of it as a unit that costs US 650 to $709 in total that earns a very very good return as just a tolling matter. So we are in a very good market return for just leasing our equipment to a counterparty like Eni, that's one business model.
<unk> business model is do it for your own account you have uncommitted volumes you have market volume. So you can then either sell into your customer businesses on the downstream side or you can sell in the marketplace. If there's a disruption when you look back at the last 10 years, there's been a handful of periods of disruption. We believe that these periods are going to perhaps intensify but are.
Certainly going to continue there'll be normality, but there will be disruptions. These uncommitted volumes can be incredibly valuable and so one unit $1 billion billion and half dollars actually if it was the the market prices of today have huge implications for the upside in your business that I'll turn over the hydrogen Ken great. Thanks, Ross and good morning, everyone.
I'm happy to provide an update on our zero parks business do we think investors will soon appreciate as an industry leader in the clean hydrogen space page 22.
West said it I mean, the opportunity is huge for zero parks. It's a it's a huge problem for the world 51 billion tons of global <unk>, 75% of those emissions come from three primary sectors, and we're talking to customers and all of these sectors industrial power and transportation.
I would say the opportunity to earn a fee is two fold one international customers leveraging out of fees, you know logistics and international customer base as well as domestically, where we have folks like industrial party steel mills that are looking to replace fossil fuels for heat power plants looking to blend hydrogen into coal boilers to reduce emissions and transportation companies like railroads looking to use.
Hydrogen fuel cell locomotives and shipping companies converting to hydrogen and ammonia is fuel.
Shipping to I am sorry.
Page 23.
This just gives a and.
An update on our business plan and the path that we're pursuing.
First and foremost, we're identifying and securing the best sites in the U S to build clean hydrogen production facilities. The key characteristics that we focus on are one sites that are close to and large and diverse sets of emitters and industrial end users.
To have access to long term affordable renewable power that's critical when producing green hydrogen renewable power is an essential component to producing hydrogen and a clean manner and finally three have access to superior logistics pipelines railroads deepwater ports for setting up a low cost supply chain for domestic and international.
Our markets were very close on our first site and going to talk about that in just a minute.
The second the second element of our plan is is to target customers as I said, both internationally and domestically, we actually see a lot of demand domestically.
And we're making great progress on that we're in late stage discussions with a handful of different folks for carbon.
Hydrogen offtake and then finally, the big the Big element of the plan is not just to build of course, one facility, but to develop a portfolio.
As I said, we're almost at the stage of reaching FID on our first plant and I'll talk about that on the next slide.
We should be in good shape to commit to that project in approximately 60 days ultimately our plan is not to build just a portfolio of projects, but the portfolio of clean hydrogen hubs to become the most.
The largest and most valuable clean hydrogen business in the United States, We do expect to capitalize euro parks as a separate entity to fund its development.
Something that can ultimately be spun off of NFC in the future.
Slide 24, our first facility, we're making great progress to 100 megawatt green hydrogen facility.
That will be one of the largest of its kind in the United States. There's plenty of land available for expansion. It will be scalable up to a total of 500 megawatts of total capacity if we choose to go there.
It's located in the U S Gulf Coast, a place where we have a fair amount of expertise and currently own you know other terminals through other fortress investments here are the site as proximity to some of the most significant industrial demand a lot of consumers of hydrogen who are looking to convert from.
From from conventional hydrogen to green hydrogen and its connected to existing hydrogen pipeline infrastructure for efficient access to all of those customers.
We're now finalizing a competitively priced long term renewable power contract and when we wrap that up we should be good to go and reach FID on the project.
The first plant is really a template for us we're already working to secure additional sites that are close to industrial end users.
All of which have access to long term affordable renewable power and superior logistics and hopefully we'll be able to make a couple of more announcements on some additional sites here in short order.
Slide 25.
So this is just kind of a summary of the economics of green hydrogen.
The.
The standard is a kilogram standard universal's gallons that might be to you in the hydrogen business kilograms or are the primary measure today it costs about $3 a kilogram too.
Produce.
Green hydrogen.
That makes the business a marginally profitable business today green hydrogen cells for anywhere from three to $4 a kilogram.
But we do think of it is going to become a highly profitable business in the future. There are a lot of trends that are that are driving the cost of green hydrogen down over the next several years.
Significant upside for us.
And we don't need all of these things to happen, but if they do the cost of hydrogen should go to about $1, a kilogram and it would be a highly profitable business. Those three things are declining renewable energy costs with the build out of low cost wind and solar capacity. We believe long term low cost renewable power will be available to us for a number of our facilities.
To increasing electrolyze or efficiencies that drive down cost, especially with emerging technologies like proton exchange membrane Electrolyze yours.
That can operate on intermittent power profiles and require significantly less energy for compression as opposed to standard alkaline electrolyze hers that often require a consistent baseload source power and then finally additional government incentives we can make here.
A few things about that and Tonight.
Big speech, but we do expect that there will be a future climate bill sometime here in 2022.
There's been discussion of up to $3 a kilogram of credits for a green hydrogen producers our facility on the Gulf Coast would qualify for those credits that would be a game changer economically for.
That facility and future facilities that we hope to build.
Finally on page 26.
Just a.
Quick update and here's what investors should expect from us in the near future in the next 60 to 90 days, we expect to achieve FID and break ground on our first green hydrogen project in the U S. As I said it will be one of if not the largest facility of its of its kind in the country in the next six to nine months.
We will be identifying and securing additional sites for future development, completing the design engineering and permits and entering into partnerships with power technology, and then use partners and then finally ultimately the plan is to develop a portfolio where.
Our first project as well as our future projects will be funded largely with low cost tax exempt debt. That's one of the things that we look at when we're identifying sites sites that are eligible for low cost texts sent that ultimately our plan is to create a valuable business within <unk> that can be capitalized and separated in the future and positioned as one of the most valuable clean hydrogen business.
As in the United States.
Thanks, very much Ken and good morning, everyone.
Before we dive in let me take a quick moment and oriented everyone to a new and more fitting measure of financial performance, which is adjusted EBITDA in our earnings release out yesterday and further outlined in our 10-K, the adjusted EBITDA measure better reflects the cash flows of our business in order to arrive at adjusted EBITDA, We use our total segment operating.
Jim less a regular cash SG&A in using adjusted EBITDA, we can properly reflect the cash flows from a non controlled subsidiaries like <unk> and the Golar Hilli F LNG asset.
On a report card on the left side of the page 28, we had record revenues record adjusted EBITDA and record net income for both the fourth quarter and the full year 2021, as we look towards 2022. These results should increase as we have a full year contributions from GM LP and hydro mergers as well as the new terminals coming online in Brazil, and the girl.
Sure.
And this will grow and further in 2023 as we deploy our F. LNG assets and important result of these improving financial measures is the general credit credit quality of NFC as most of you know we were upgraded to the double b minus with stable outlook from S&P. In November . This is a major achievement for <unk> and is an important step for us.
On our path to being an investment grade business, which allows us to source cheaper more efficient forms of capital and provides increased flexibility with suppliers.
Turning your attention to slide 29, and our summary financial results revenue for the quarter was $808 million and over $1 7 billion for the year ended December 31, adjusted EBITDA was $334 million for the fourth quarter and over 600 million for the full year SG&A for Q4 was 39.
And we expect to be able to drive this closer to 30% to $32 million per quarter going forward.
Q4 saw the company produce our first quarterly positive net income of $151 million and earnings per share of <unk> 72.
And for the full year 2021, we had net income of $97 million, which equates to about 47 per share on a fully diluted basis.
Yeah.
On page 30, we took a moment to include an update on our financial goals. These are pretty simple and straightforward. So quickly move through them, but first as you've heard us comment before we are committed to our goal of becoming an investment grade company and we are well on our way to achieving investment grade metrics. We obviously, we have been upgraded by S&P and were working with the other agencies on near term upgrades.
As well and we are on target for a three times debt to adjusted EBITDA levels for 'twenty around corporate debt for 2022.
Second we continue to increase our liquidity, we have secured approval to increase our corporate revolver by $200 million to $400 million in total and while that facilities largely undrawn and provides access to efficient capital as we have new projects come online.
So we are targeting an increase or a letter of credit facility to upsize that to $200 million nominally and expect to complete that effort in the next 30 days.
Third as we've mentioned in the past, we expect to fund our growth using cash flows from operations and strategic asset transactions, our conversion of adjusted EBITDA to capital. We can use for reinvestment is extraordinarily high going forward, we estimate approximately $200 million in interest expense and effective tax rate of around 18% and minimal maintenance cap.
X, which we should have which means we should have ample cash for new downstream terminals and additional LNG assets.
Turning to page 31, and we outlined what we've said in the past that we expect to fully fund our growth through internally generated capital as I mentioned on the prior slide our conversion of adjusted EBITDA to cash flow is very high when we look into 2023, we expect of the $1 5 billion of adjusted EBITDA result in over $1 billion of cash.
Cash that can be used to grow the business will return to shareholders.
Further while we know we want to fully fund this business from cash flows from operations on a long term basis. We clearly have some near term opportunities that we are actively pursuing these include the <unk> CHP financing, which has $175 million funded to date and the remaining 110 expected to close by the end of the month, we had the Sergipe power plant asset, which.
We're currently in the market to sell and have received significant interest and finally, the long term essentially ality of the ships to our terminal infrastructure, both from a re gas and the storage asset standpoint allows <unk> to sign up to long term charter agreements that provide tremendous value creation. We believe that between these three asset sales or <unk>.
<unk>, we can source two to two $5 billion of additional capital that we can redeploy it materially accretive yields.
And finally, if you turn to page 32. This is just a brief update on the operating terminals. The takeaway here is that we know how to operate and we do it extremely well despite as a few examples of our asset optimization I call. It. The NFL version of Debottlenecking, but one project I wanted to highlight is the production of our Miami liquid fire, we've been able to.
Increased production out of our Miami facility to exceed the nameplate capacity of 100000 gallons per day, we're using one of our ISO flex assets to transport I suppose to Jamaica to serve our direct to consumer business. The time and the cost to complete this operation has gone down with each round trip and we're now estimating that we'll make an incremental $30 million on this project through the end.
2022.
At our other terminals in Puerto Rico, Jamaica, and Mexico were executing maintenance events and strategic improvements to increase productivity and functionality for both <unk> and our customers benefit a special thanks goes out to all of our incredible terminal and power plant operators in the field, who work tirelessly to help us secure reliable gas and power supply to our customers.
With that I'll turn the call back over to Brett to begin our Q&A.
Thanks, Chris We'll go ahead and taken into Q&A Justin from here.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press. The pound key please stand by we compile the Q&A roster and again that is star one if you would like to ask a question.
First question comes from Devin Mcdermott from Morgan Stanley . Your line is now open.
Hey, good morning, Thanks for taking my question.
So I wanted to ask on fast LNG and first on fast LNG. One I was wondering if you could elaborate a little bit on how we should think about the economics or potential margin to NFC from these tolling agreements and then also talk about some of the remaining steps to development, including how much capex needs to be spent how is that split.
Eni and NFC.
Sure. So we don't disclose specific terms of any of our contracts, including with this but.
Can you just give me a little bit of a.
<unk> run through it.
Leasing agreements for this there is a base level fee that we.
Our charging which is a tolling fee.
Which is.
Its fairly constant over time in addition to discussing Andrew So we actually are taking half the volumes.
Sure.
The production those two things for US combined we think gives us a very very good returns. So our return thresholds. As you know are kind of mid teens mid twenty's mid <unk>, depending on what the the risk profile is obviously given that this is an investment grade counterparty and a very long term.
Contract, it's on the lower end of that but it is still very meaningful returns and very stable long term returns what it does for US. In addition to providing returns. It provides great finance ability for the entire program is we now have long term cash flows to put against our development of other LNG units than that.
Helps us to develop these things.
Very very.
Capital efficient way, so sorry for not answering the question directly but we just don't think that they are being specific about any any one contract is a good idea and we're not going to change that here. So no.
And then maybe I can just follow up with a question on the second fast LNG I think in the release you talked about taking up on that and then in the comments just now talked about.
Having the agreements they are finalized I think neck next quarter.
The message are you envisioning, a similar tolling structure for that or any additional detail you can talk about for that project and what it looks like.
Second of all LNG is as we said we're F I D.
Interesting question.
Question, So the marine infrastructure that we're using in the first F. LNG, our jackup rigs and so we bought a handful of those for roughly $30 million, so basically at scrap value.
And that's what we'd cleaned off in and Theyre. Just in fact that process is just about done and we'll start installation of the liquefaction modules and that will turn into the units. We then ship off to Congo here.
Around the first of the year for the second one we actually recently agreed to buy two sevan ships. So their deepwater drilling ships giant ships big cylindrical ships that are great for both deepwater and shallow water apt.
Applications Big deck space, and 100000 square feet very very heavy loads that they can support.
And also at bargain rates I think we paid for the two of them you know $22 million for ships that cost individually I think north of $600 million to build so obviously, we're repurposing them. So were using them for their their profile. We think it's actually a great utilization of this because it does give us the flexibility to.
B in shallow water or in deepwater. So in both cases, it's great cost for both of these is roughly the same.
Nameplate for the second facility $1 4 million tons, which is what we were looking to achieve we actually are in the middle of.
Significant conversations both on the tolling side, because there's a lot of interest in doing these assets as well as looking at market opportunities across your Andre mentioned, <unk>, which is a real focus of ours. There's also a handful of other places that we think are are very interesting that we're deeply in negotiations as well. So one thing I will say is that.
<unk>.
The program for US we will continue to expand I believe that LNG in some form or another will become very much of a standard for offshore production around the world. So much as you think of the.
Our partners and friends of Golar. They were really the pioneers in converting ships into Fsrus for terminal use and that was a very novel approach 15 years ago is now the standard approach in the world I think that repurposed.
Green infrastructure with modules such as we're using Nf LNG, one <unk> two and then <unk> three through 10 or whatever it ends up being will be something that is very very standard around the world and so we think the IP that's being developed here for us will allow us to to be a big big participant in that market as it grows here substantially over.
The next few years.
Great. Thanks for taking my questions.
And thank you.
And our next question comes from Sean Morgan from Evercore. Your line is now open.
Hey, thanks.
So just just to follow up on because I think investors are pretty excited about the vertical integration story.
Want to understand a little bit better the any field off the coast of Africa.
That's a proven reserves that are currently completely undeveloped and also.
As part of that what would it take and what wasn't.
Next steps to sort of moving this from the HOA category.
The heads of agreement category into a firm contract what needs to happen.
The Marine 12 field exists and is in production right now so very very substantial find in production by Eni Eni is.
And kind of ever respect the standard bearer for oil and gas production around Africa and as those costs. Andrew said in addition to being a.
An E&P company they actually are.
Perhaps the most sophisticated offshore LNG producers in the world. They built liquefaction themselves on the ground. They build liquefaction in the forms of a ship so having them sign up essentially for our technology or our solution. We think is a great endorsement and an appropriate one for what we've accomplished thus grade they will make a substantial.
Incremental investment in the field that will actually then produce more oil and associated gas. That's the gas that we will be then treating and turning into LNG on the facility and we've we've had.
Tremendous amounts of interaction with them over the course of the last handful of months to get to a place of sign an HOA, which we just announced their board as I understand it is approved the capital investments they've made in the field. So this is very much of it goes on for both of US and now it's just simply a matter of documenting that properly getting to final <unk>.
Lenitive documents, which we expect to happen in the next 30 days or so, but I would say from our perspective. This is a committed transaction and I think from there as well and we fully expect it to be.
And a definitive deal done here in the very near term.
Okay. Thanks, and then.
Switching to the re gas side, we've talked a lot in the past about Ireland and the volume opportunity from Regus perspective is large and I know it's early days.
But with all the changes happening in sort of the European energy.
I guess stack related to what's happening with Russia, and Ukraine have you gotten any feelers from Ireland.
About maybe changing appetite or interest in pursuing a little bit more independent natural gas sourcing as opposed to relying currently on an England as you've talked about in the past.
Yes.
Andrew give you a brief update there the answer short answer is there's a tremendous amount of interest but the project itself is one that we have been pursuing for a long long period of time, we are actually in final stages of the planning Commission, which is the regulatory body that we're dealing with.
Our optimistic very optimistic that we'll get to a successful conclusion and get to one in the short term what what I think was a good idea.
Several years ago. We started on this is now become kind of a.
Very very good idea mandated in effect because not only is cost of energy are big.
Issue for people over but energy security is a very very big issue the bulk of Ireland's gas from outside the country comes from a single pipeline.
This will be our second source of supply to the country and that's obviously very meaningful diversification at this point and so while we've gone through a very long and intensive process to get to this point, we feel like we're very close to the end of the commercial side, Andrew I know you.
Just.
Thanks for the question, but on the nuts and bolts of it I mean, I think we'd probably underplayed or 600 megawatts of power there as well I think it's a market that's short everything and I think.
That power plant is going to be kind of extremely valuable to be a real respectful resource.
With LNG and then what I would say I think has changed as we always had a real.
Advantage on the transport cost and being an LNG terminal as opposed to gas coming in from the U K.
I think I think Wes pointed out whats different now which is the premium for doing kind of a long term.
[noise] offtake contracts so.
People, obviously now are much worried about prices. They are about security of supply and I think that is.
It's really going to kind of dictate our strategy in Ireland, which is going to basically I think show up in all facets of that long term contracts short term trading.
Trading.
And then of course power and so.
We're excited to get the planning board approval, there and start to talk more about our our commercial strategy.
Okay, Thanks, Andrew and thanks Wes.
You bet.
Yeah.
And thank you.
And our next question comes from Ben Nolan from Stifel.
Your line is now open.
Yes. Thanks.
Good morning, and congrats on the results.
I wanted to talk a little bit about the.
Or the net long gas that you have at the moment, obviously that was very impactful on the fourth quarter can maybe talk about sort of it clearly international LNG prices remain elevated can you maybe talk about how we should expect that to impact your your profitability and your sort of net long position.
The next quarter or two.
However, long.
Let's say quarter or two.
Sure Ben.
Well thanks for the question.
The focus of our business is too.
With respect to the core business on our customer side is that largely match customer demand with our supply on the gas side and that's what we have done we did.
In our managed to have a modestly long bias as we went into this.
And through.
Through a lot of actually hard work across Andrew and his groups and Theres, obviously, a lot of logistics involved in a lot of.
Moving assets in volumes around and with a modest amount of long positions, we actually realize some very good returns and that's that's part of the good news that we had in the fourth quarter.
The <unk>.
Our forecast for next year as I said is $1 billion plus.
And with respect to first the $1 billion as I said, a large large percentage of that is already basically baked within that we've got customer volumes, we have our portfolio of gas we have our logistics costs and so we know with a high degree of certainty that we.
We're going to achieve something very close to that with no incremental growth and so that is the kind of bond like downside that I would describe the structure of the business on the flip side.
And this is this is particularly true starting in 2023, when we have that fall engie volumes, we have been the incremental upside of being able to take open positions and convert them into market cargoes to the extent that the market is favorable and that's what can lead to these very extraordinary.
Upsides I think it really is a case of where we're headed towards the $1 billion plus this year 1 billion and a half plus next year on the base case and as I walk through the math with one liquefy are up and running with the market where it is today, it's an incremental 1 billion billion and a half $2 billion. So these are obviously extraordinary numbers and it's.
What I think gives us a profile, which is unlike any other company I'm aware of in the energy space. So I think it's it's.
It's an extraordinary time, you can't predict that but I think that the I think the most important takeaway for me as I looked at the architecture of the business is that what we have done in effect by creating this downstream portfolio that acts as a shock absorber. So that to the extent that we have extra market volumes were not forced to just go sell them in the marketplace. We can go sell them to our value.
Customers in power plants merchant plants downstream customers that we spent $8 5 billion and the infrastructure to develop that as our downside and that is a very very meaningful shock absorber to the system that gives us the.
But really the the ability to then take market long positions market volumes.
The portfolio and to the extent that there is a disruption you harvest out of the other side. So bond like downside equity like upside is how I think of the business I think it's an extraordinary.
Architecture, it's one that we have developed organically we didn't have this view when I started at eight years ago, but part of being in the business is every day, you learn something and try and profit from those those learnings and I think that the construction. We've got right now is extraordinary so.
Okay, and then there should I guess my point is that there should continue to be an element of that.
First and second quarter here, you said are similar to the way it wasn't a great quarter.
Yes, very much so.
Okay.
And then for my second question on the <unk> unit.
You guys are tentatively taking half of the off take here on market based rates I was wondering if you could just maybe talk to sort of what is the basis for those rates.
Your prime merely buying everything in Henry hub. Obviously this is not anywhere close to Henry hub. So are you just buying it sort of.
TTM for or an oil based.
How exactly should we think about that.
The map on that yes.
Yes, it's actually a blend of all of these three things, we really constructive with Eni.
A portfolio approach to actually look at the three main indices with Henry hub, TTS, J Cam and tried to construct a purchase price for us to buy something that approximates market today, those would be at attractive levels, but there are really intended to be market prices in general. So it is not above the <unk>.
Market are below the market with its intended to be at the market that was the nature of what we're trying to do the significant aspect of it Ben that I would say is we're buying very long term volumes without posting any incremental credit right. So that's that.
That's our goal by the way as a company. So we've gone from a single B company to a double B company. We think we're well on our way to be an investment grade company that is very important in a nuanced way in terms of accessing long term supply without posting egregious amounts of credit and so that's a big big component of our strategy and Thats why we want to become.
Investment grade and we will become investment grade in our view and Thats what gives us the access to supply because one of the one of the nuances of this business is that.
As you build this up from scratch, having access to long term supply dictates that you post a lot of credit and that's not.
That's not a great strategy. So we've we've done I think a very good job of kind of boot strapping, our way to a place where within.
Line of sight of being investment grade. This is another version of that where we're basically taking off long term volumes without posting credit at market prices, which we think is a great great.
Perfect I appreciate it thanks for taking my question.
Thank you and our next question comes from Craig Shere from Tuohy Brothers. Your line is now open.
Good morning, congratulations on the strong quarter and excellent guidance this year.
So I wanted to focus a little on LNG.
LNG some more so.
So you'd mentioned.
Who knows.
<unk> project or whatever may come.
So my first question is.
Rapid do you think the pace of these could be.
Could you.
Because of market conditions.
I'm not worried at all about your downstream.
Needs for now.
Be happy with creating low cost opportunities on the upstream you benefit far exceeds for now youre downstream own.
Needs and maybe have three or four up by these by the end of the year early next.
And then my other.
Jim or comment.
I'd taken by the point that you just acquired.
Literally floating.
To put this design onto one of the arguments against your Jackup rig approach was it it doesn't fit for every coaster in the world.
It sounds like what Youre doing now can pretty much.
Okay, and then the world, where stranded reserves and get to a close.
Can you.
Implement that at.
At the same pace.
Whatever 20 months plus as what Youre planning on your Jackups.
Short answer to the questions, yes, right. So we've long had the view that there were multiple sources of marine infrastructure, which were suitable so the jackup rigs in the first place that we started we think it's entirely appropriate and the right one for the Congo application that would be another shallow water applications.
<unk> shipped.
<unk> became available we think that they are tremendous pieces of infrastructure. They are incredibly stable the designed to actually be deployed on doing it fairly.
Technical solution, which is drilling and very very deep water in rough water. So.
Entirely capable of actually is.
Hooked up to gas source and liquefied in that same location. So we feel great about that and in terms of the <unk>. So we went on.
On our second half LNG, we've got the <unk> rig, which we're going to.
Basically cleanup and use that and deploy the equipment at a very similar way to what we're doing on F. LNG one.
We do think that there are many many uses for our products around the world and having flexibility both to be a an equipment provider to some of the big oil companies that have got gas reserves. We think that's that's a good profile. It provides good long term stable cash flows which are great relationships thats the eni.
And there are others that are similar to that and then also looking for a merchant opportunities and I said, we we identified the one we did sign an Mou is.
As Andrew said at the end of the year with the Mauritania folks and we've been there recently, we are very optimistic about that as a project, but there's a handful of other things that we think are out there as well I mean, my my general.
Pessimism about the supply for the market comes from the fact that we went out on this first project January 22nd a year ago.
I thought that we would end up with a gas sourced sooner than we did.
The actual truth I think I've been in 19 countries and traveled about 170 days between then and now so we've we've been through a lot of places we've talked a lot of people and seen a lot of things and while I think there obviously are very substantial gas reserves that exist around the world.
There are fewer situations that are a perfect fit for what we need than what I had thought and.
That doesn't mean long term pessimistic about it but it does make me think that actually.
Sources are important and that's why having flexibility about being an equipment provider as well as a merchant provider, they're both great solutions for us and while I don't have a specific number of things we want to do I think the important point is that we view this to be an.
An increment in an add on to our gas supply.
To really complement our base long term relationships with producers. So we're not looking to become a large producer ourselves. We think on the margin. These cash flows are valuable to us we think of the margin. These market volumes are very valuable to us and so I think it's a great complement to what is an existing base of business.
Thank you.
And thank you.
And our next question comes from Greg Lewis from <unk>. Your line is now open.
Craig if you're line's on mute could you please mute it.
Yes.
<unk> Crazy if your line's on mute could you please mute it.
That's correct.
Justin I think we might have lost Craig So might just go ahead and hand, it back over to west to make final comment.
And I am showing no further questions I would now like turn the call back over to Wes Edens for closing remarks.
Great. Thanks, everyone for dialing in today.
It's great to get to you an update on the quarter and the year and the prospects we've got for the future.
It's a remarkable business that is in the right place at the right time in our view so it should be a very interesting year. Thanks, very much look forward to talking to you soon.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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