Q1 2022 New Fortress Energy Inc Earnings Call
Good day and thank you for standing by welcome to the <unk> first quarter 2022 earnings call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further.
Please press star zero knowledge to hand, the conference over to your speaker today, Brett Mcgill managing director and head of Investor Relations. Please go ahead.
Good morning, everyone and welcome to New Fortress Energy's first quarter 2022 earnings call. This call is being recorded and will be available by replay until May 12.
Morning, we'll be referencing our Q1 2022 investor presentation, which 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 within.
Our SEC filings.
Joining me here today are Wes Edens, CEO and chairman of the Board and Chris Giunta, Chief Financial Officer also joining today's call are other members of our team, including Andrew D D. Ken Nicholson and Patrick Hughes, So with that I'll hand, the call over to west great. Thanks, Brett and thanks, everyone for calling in.
As a as usual we will be referring to the earnings deck, which we posted on the website. So if you can just flip through and fall that'd be that'd be terrific. So with that let's start at a page four so first the financial results Q1 was.
Another very good quarter for the company and we've moved kind of solve the out of the development phase.
Phase of our life into the production part of our life at least from an earnings standpoint.
And you look at the progression of earnings on on the page you can see that very very clearly so our adjusted EBITDA 2019 negative $115 million a first positive year of EBITDA 2020, $33 million last year $605 million with the bulk of that coming in the fourth quarter.
And the first quarter this year $258 million, so very much on track to produce you know what we have guided towards which is approximately $1 billion in adjusted EBITDA. This year our guidance at the moment is $1 5 billion in 2023 with.
With substantial upside both at year end beyond depending on the timing and delivery of our F LNG, which we'll talk about but the core underlying business our business, which is basically selling gas are selling power to customers around the world is a very very strong one obviously there has been massive changes and disrupt.
And the energy market that have implications in both the short and long term, we will talk about but the bottom line is that the financial results are very very promising on the first quarter of the year.
Page number five.
What we have laid out here is basically converted the volumes that we have delivered to our customers through our.
<unk> entered the blue boxes, which are TVT is so those are very simple metric.
Describes the volumes that we've had.
<unk> delivered in 2000 1936 in 2000 2061 in 2021.
80 in 2022 is our forecast the six on the top of it Ah represents the sixth TVT use thats about two cargos that are uncommitted at this point, that's the marginal long position that we reflect in terms of the volumes and then things start to change dramatically as you move into 2023 and beyond yes.
A portion of the graph basically represents the T V to use but we expect to produce from our EF LNG. So second half of next year 39, TVT use. So 24 that are uncommitted in total so we have a significant long position, which is a good position to be in at this point and then as these start to.
Role and you can see that the numbers become dramatically larger 268 2024 of 520 in 2025.
The goal, obviously over time will be to convert the yellow lines to the blue lines right. So essentially what we will do is take our market volumes and convert them into customer volumes as they become.
As it becomes part of our of our portfolio given market conditions. The yellow parts of these visa chart represents some of the most scarce things in the world, which is our LNG volumes that are not committed that are being produced in 2023 2425, given the shortage.
Uh huh of energy broadly in the world and specifically LNG with the developments in Europe and elsewhere. These are very very significant.
Developments for us.
Page number six.
Just a little bit of a recap so prior to the war in the Ukraine. The World is already very short energy in my view, we spent a considerable amount of time over the last couple of years traveling around the world in the different markets that we do we do business with my conclusion last fall was that the world will structurally short gas as youre getting developing countries that are needed more energy.
As well as the developed countries. Obviously, then then on February 24th that changed dramatically when Russia invaded Ukraine.
To give a little bit of context to it. So total production in the world roughly it was about 400 million tons of LNG.
Europe today gets about 40% of its natural gas from.
From Russia, it's about 150 bcm of gas that converts into about 100 million tons of gas. So in the most simple way of thinking about this you had 400 million tons of production in the world and it's the biggest one of the biggest customers in the world all of a sudden instantly got short of 109 times now the gas is not stopped floor.
In Russia today, but what is crystal clear is that given the choice over time, the Europeans will choose to get their energy from elsewhere in the energy security issues become more more oppressing then the cost of the energy.
Simply put the 100 million tons of incremental demand does not exist you can't manufacturer. So of the 409 times that is created in the world right now the vast vast majority of that is already spoken for the way that the LNG is produced around the world generally speaking is the producers lineup long term offtake to help them.
Finance the projects that they are that they are going to develop so when you see $400 million 104, hundreds is a big number.
It's actually much worse than that in a sense that.
The 400 is already spoken for so when we look at the chart on the right hand side expected supply additions across the world. You can see there is very very little in 2022, 23, 24 and 25. There are a number of projects that had been declared F. I D or in the process of being declared that.
We expect to come on in the second half of the decade that is not responsive to the world's energy needs in the next three years or four years.
Literally the only thing that really is on our horizon is the fastest LNG projects that we have so we'll talk about that in some detail.
Page number seven I.
I think it's worthy to give a little context of not just the energy crisis that all the other derivative impacts that this has in the world. So the crisis in my view and.
Energy, which is very very manifest is just the beginning of what the real real crisis is likely to play out obviously agriculture relies heavily on fertilizer fertilizer is created in large part through natural gas so the natural the imp.
The impact of higher energy prices, which obviously hits the pocketbook of people in.
In there their electricity Bill every month also has profound impacts on the cost of the food that they buy that then turns into inflation inflation, obviously rapids, the consumer price increases disproportionately affect that people that have the least amount of money and so what what really I think is about to play out as it not only you're going to get.
Significant amounts of increase in energy cost in both developed and developing countries around the world, but then the knock on effect of the great increases in the AR and the inflation in agriculture and food prices food.
Food insecurity ill mass hungry I mean, there's a there are there are significant implications for all of this which just only is exacerbated by the energy prices that we have in Ukraine, Lastly, and its worth noting is that the climate change goals that of course are that many countries.
Have adopted around the world are we're focused on a phase out of fossil fuels. When you have the energy crisis that we've had in Europe . What happens is that coal gets burned and.
Delays basically the impact of these these climate change initiatives by 10 or 20 years. So it is not only a significant crisis today, but one that in my view has got a long duration, who is likely to play out over the next number of years.
Page eight just to put into context, what actually happened in the last year and a half. So I went back to the first of last year and basically created the the energy hierarchy of the complex from top to bottom. So diesel Brandt CTF, which is the measurement of the price of gas there is brought into Europe .
Rehab, which is obviously our own domestic index and then call and you can see that the energy prices have moved dramatically.
Diesel $10 to $30, Brent 51 to 110, Etfs, 7% to 30 to Henry hub $2 58 to 841 yesterday called two to 11, so pretty much across the board. There has been massive changes in energy and while there. We think that there are significant adjustments ahead again, given the duration.
And of the events that are going to play out we think that this is not going to change quickly. So page nine with that overview what does this mean for our business.
In short there are there are several aspects of our business, which are greatly affected by this all of them and.
A substantially positive way, so the fsrus, which I'll have Andrew talk about in just a moment. So fsrus are the ships with re gas capacity that are that are used to bring gas into markets.
Are in great demand with all that has happened in Europe and they are in short supply.
Very much the market leader in terms of the owner of Fsrus. The world's fleet is Manhattan counted 45, or 46 ships. We are nine of that so we're about 20% of the market. We have open positions as well. So that's something that Andrew will talk about here in seconds. So that is a that is a tactical exposure, but it's a very very positive one and one that we.
That will actually result in some very positive results for us in the coming months and days.
LNG is the is really the industry changing application.
As I've said many times the only commodity that you cannot buy US time, we green lighted the production of our liquefy Ars 18 months ago that in hindsight. It looks like a very good event. It was a it was done at the time when LNG was five or $6 in the world now at $35 in the world. So we thought it made sense to provide security of supply.
For our customers and to do that with our own activities. That's why we started that that's why we actually bought equipment started the whole industrial process and then obviously the events of the last couple of months have has made that look very prescient.
We are committed to this as I said at the beginning of last year.
You know then.
The process that we are engaged in is to industrialize the production of these units.
Let's say as the Henry Ford.
You know kind of initiative, where you're trying to unitary design unitary engineering.
Build them ourselves.
In a in a controlled environment that is how we believe we can actually produce them not only.
And a high quality way, but in a very very fast and efficient way and Chris will talk about that in just a second lastly hydrogen so.
The the energy crisis will only accelerate efforts to find alternative sources of energy.
We believe that renewables in general will be the beneficiary of this and the focus on this but long term, we think dispatched for power is the cornerstone of real change I'm on.
To address climate change and of that we think that hydrogen is one of the key components of it. So both can and Patrick will walk through that here in just a moment so with that let me turn to the MSR you and talk to you Andrew.
Thanks, West Hello, everyone.
On the next three pages, we went to provide a brief update on the rush to add regasification capacity in Europe , and what that means for NFC and a commercial context. So on page 11.
Let's start with what exists today in Europe . So currently there are 27 terminals, providing a 153 M D J a total capacity.
Utilization of these terminals is typically provided about one fourth of European gas supply right around 100 bcm.
Utilization of that is actually about half of the capacity. So so these terminals have been your seasonally to balance supply and demand.
If we exclude Spain, and Portugal, which have a meaningful amount of capacity, but are not really interconnected and essentially Europe gas supply that reduces the total capacity by about 50 M Tpa down to something like 100 MTA of total existing capacity in Europe .
If we flip to page 12, what we want to show US how this picture is changing so in 2019, our Russian gas imports were just about 100 M. D. P. A that there's sort of a 140 to 150 Bcm West mentioned earlier.
That's gas being imported from Russia into Europe to replace that supply with LNG capacity requires approximately a doubling of the existing re gas capacity, assuming much higher almost constant utilization rates. The only way to meet this in the near term is to use fsrus capacity. So the typical kind of European.
In land based storage terminal it takes three to four years to construct fsrus are.
Are you able to be deployed today.
There are 18, new proposed terminals in Europe .
That covers some of the need if we think about actually replacing the full amount of Russian gas supply that would take almost 25 to 30 fsrus required to meet that 108 and tpa need.
Today existing in the World There are only 46, fsrus and basically none currently available outside of the <unk> suite.
I mentioned here in a second and if he owns seven currently operating Fsrus with two potential conversion. So a total of nine which is just about 20% of the total market in the world.
Moving to page 13, you can see Nf <unk> current fleet.
On the left side of the page we have two fsrus available now for deployment in 2022, we have the equipment needed to convert an additional emphasis are you in the next nine to 12 months.
And we're seeing charter rates that are up 50 to $100000 a day, so about 100% increase year over year in charter rates, which means that based on what we were seeing last year deploying an episode you today is equivalent to about $25 million more in earnings per year per ship.
So a lot of activity happening with the rush to add re gas capacity in Europe right in the middle of that and would it be supportive.
Some of the folks in Europe , helping to add this for you guys capacity important more gas and offset that Russian gas and have a great commercial opportunity ahead of us.
Back to you with great. So, let's turn to the AD fast LNG, which is.
A big part of the focus for the firm and I suspect for the investors as well so on page 15.
Let's talk about where we are so two steps to the fast LNG process. One is to obtain the permits to allow us to place our equipment and.
And make them productive and then two is actually construct and deploy the assets themselves. So let me touch on the first one first.
So the progress that we've made we filed for two.
<unk> $1 4 million.
Tpa units on March 30th on April 26th we received notice from the U S. Coast Guard married that we had thought that their application was judged to be complete.
That's reassuring, we obviously put a tremendous amount of effort into doing this in the both the E.
In expedited, but also professional manner. So this is the 8000 page application that I talked about in our last earnings call.
We are also preparing to.
To file for an additional six units off the coast of Texas.
The month of June we say and our goal is no later than the first of July but we're hopeful that we can get that done before that in basically the the design that we are.
Using four this is essentially the same design that we have utilized in Louisiana. So.
We will file those permits and move ahead on that as quickly as we can and Chris will talk about what our construction and deployment timeline as well.
We also continue to make progress with our deployment of our unit in Congo.
Our partners Eni.
One of the world's leaders.
Obviously oil and gas exploration, we think they're a great counterparty there are tough and very very a talented group of folks and we are in the final stages of negotiating definitive agreements to backup the Mou that we signed with them earlier. This year, we expect to deploy that in the second half of next year. So.
I think there are these two paths are I think actually quite balanced and they give us a good perspective on that.
The equipment to be used by others gives us access to volumes gives us access to kind of the IP and.
And and interactions that are positive with respect to how other people view the world and then applying that obviously to our own portfolio is one where we have the greatest impact from a P&L standpoint. So in total eight units would result in 11 2 million tons.
When when President Biden went to Europe to offer reassurances that the U S was.
Going to be supportive of the goal of reducing their energy in security. We talked in terms of 15 bcm of gas that's equivalent of about 11, 10 11 million tons. So this is roughly the amount of gas that we were talking about from the U S.
It is the only gas incrementally that is LNG that is scheduled to come online in 2023 2020 for 2025.
Sponsor of that and our interactions with our own government on the permitting side, thus far have been terrific and so obviously the proof will be in the pudding essentially in terms of.
Getting these both the permitted and then built and deployed but we feel very good about the progress with that thus far let me turn it over to Chris great. Thanks Wes.
As was mentioned earlier, we started this campaign a little over a year ago, but over the past six months, we've significantly organized and professionalize the process starting with a call that west leads five days a week as you can imagine this ensures people are quite focused and ready for success each and every day, we've hired some of the best liquefaction and construction experts, we now have over 70 fully dedicated.
People and hundreds of contractors onsite all of which intently are focused on speed cost and safety.
Given this is such a large and complex project in order to make the task more manageable, we decided to break it up into smaller parts that can be owned in prosecuted independently.
The engineering and procurement second the construction and the commissioning. This is the exact same way that in if he has executed our downstream terminal projects over the last eight years and so while we're using world class equipment providers and construction contractors. This is still N. F. These proven IP that is being deployed to manage the process.
So we're thrilled to announce that we're opening a new office in Houston. This much this month, where we will house the full LNG team Houston as you. All know provides us access to top industry talent proximity to the shipyard, which is in Corpus Christi and integration with our key partners to complete the project.
If you turn to page 17, first we will talk about the engineering and the procurement aspect I'm stealing a line from west here, but with from a design perspective, our goal was to make the model T factory for LNG. Our units we use the same design the same equipment. The same operations in the same unified team to piece everything together. This provides for operational continuity across.
Ross assets, common spares, which save money and interchange ability of the team amongst U S LNG assets.
Also we and our expert partners are design built the flexibility to accommodate different marine infrastructure, depending on the gas supply environment you can see in the cartoon in the middle of this page, which illustrates our ability to place the same technology on jackups fixed platforms, our semisubmersible rigs all of which do not require any material.
Reengineering.
From a procurement standpoint, we've already placed placed orders from industry recognized manufacturer for all long lead items for our first three units and we're in the process of ordering kit for units four through nine we wanted to ensure we have best in class equipment providers, which is why we have partnered with those of the likes of chart, Siemens Baker Hughes and others.
And obviously some of you are wondering about costs in the face of rising inflation. We're hyper focused on increases that we may see supply chain based.
Or with partners internationally, but this should be offset by efficiencies on the engineering side. Given this is largely a copy and paste exercise on our first three units we have around 70% of the cost already locked in.
Moving to page 18, let's talk more about what we're doing on construction and again here, we've broken it up into a few different pieces first modules second marine infrastructure third pipeline and installation. We've created uniform modules that are fabricated using the same people in the same yard with the same sequencing and as a result, the increased familiarity with.
The task that each tradesman is doing will make them more efficient for marine if from a marine infrastructure standpoint, as you know we've already procured three jackup rigs and our brokers on others. We purchased two semi submersible drilling rigs. The sevan units that are well suited for deeper water and we've designed and reserved slots for jackets and decks for fixed.
That form solution on the pipeline and installation component we've done a lot of this in our collective buys it and if he already it's critical to have this planning done well in advance and have a top quality service provider to minimize the time in the field and to ensure best pricing last we always focus on or build through.
Through the build by you know thinking about the integration and the commissioning and then the operation. So so for example, the sequencing of the commissioning is key the way. We've designed this as we can use things like gas that's already available in the queue at shipyard to commission, the power and accommodations modules while world.
Wait to commission, the liquefaction and the gas treatment modules when your onsite and connected to your feed gas line. This allows us to just be able to get the asset online sooner and finally, we've hired an amazing new head of F. LNG, who is already starting to staff up the team. This way the people that will be operating the asset will have written the manuals they'll have done all the training they'll have drilled.
And there'll be incredibly familiar with the asset making sure that our maximum uptime has achieved once the assets placed into service alright. Thanks, guys.
So page 19, what does this mean for us economically.
It is actually a very very simple.
Question.
At least in terms of the arithmetic of it so each unit produced each one 4 million tons produced 70 TVT years.
To generate the P&L from that you simply need to multiply that 70 times the margin that you expect to receive on the units. So if you made $10 in margin it would generate $700 million a year.
Generated $15 in margin would be a $1 billion 50 per unit at $20. It would be $1 4 billion. There are agents. So you simply fill out the arithmetic that times eight is the ultimate P&L opportunity that exists with all of this.
There are many many forecasts in terms of what the market will do obviously predicting the future is apparel. This task I simply took the world Bank price forecast is just one of the reference points. There are many of you can get from a whole host of different analysts on it 2022, they are estimating $34.
RMB to U.
In Europe , $2023, $25 2024 to $22 our estimate of the cost all in of our LNG at the at the flange is approximately $6 it could be less than that it could be $5, even $4 50, but it's basically a range of let's say, 5% to $6 on the one.
Syed at 34, or 25% to $22 and the other side, obviously the margins are significant.
The question to ask the one that we ask ourselves is given all the market dynamics given the shortage that exists in the world right now what is likely to be the picture for <unk>.
Our production in 2023, and 24% and 25% and the answer is it could be.
It can be great or it can be amazing and we think that that is kind of a range of outcomes that exists with this as I said the goal long term is not to have.
Merchant volumes solely in just simply be selling.
Volumes into the marketplace, but to be converting those volumes to customer volumes and I think that the.
The next leg of this from our standpoint will be to then talk to customers and customers that actually need energy security they need fuel during these difficult times and convert these short term volumes that we have in our long term off take agreements in our terminals around the world. That's the business plan for the unit and that will be the development of it we obviously.
We've gotten many many calls from a whole host of Counterparties that are interested in buying bonds for us today, we're not going to sell volumes until we are certain as to the timing of the placement of <unk>. So that's why the group that Chris talked about on the construction side.
Cam called me the other professionals that are working on the permitting side, assuming that all comes together. The first time, we'll really be selling material volumes is probably sometime later this year or early next year, but this is this is the math on the upside for us So obviously with a one.
$1 billion roughly run rate base of operations from our existing business the upside from the deployment of these units is material. So that let me turn it over to the hydrogen team Patrick yes.
Yes, Thanks, Wes we're on page 21 here.
So starting with that with a look at sort of an update on our hydrogen business. The world's credible experts are in broad agreement that we must decarbonize energy supplies to achieve global climate goals under the Paris agreement.
And also actually to address the urgent energy security needs and concerns that Wes touched on earlier in the call. The good news is that with further technological advancements and cost reductions clean hydrogen and specifically green hydrogen produced using electrolysis can will and must play a larger role over the medium and longer term.
We think there's tremendous value and positioning zero parks as an early mover in this vast and rapidly evolving market and we intend to be the largest clean hydrogen producer and supplier in the U S to that end as you can see on the slide we're building a scalable business with activities throughout the hydrogen value chain.
We think there are a few key ingredients.
For the commercialization and growth of our zero parks business and Theyre depicted here.
And really focus on where we're tasking from a commercial standpoint here over the next couple of months.
First in technology, we're finalizing an agreement with an Electrolyzed our partner for our first project in Texas, which Ken will touch on more in a minute. The electrolyze our manufacturing space is still pretty limited in the Grand scheme of what we think the hydrogen market needs to grow to assess.
So solidifying our partnerships with Electrolyze are Oems and booking manufacturing slots in the Q is an important step in support of our future industrial scale developments.
Second is on power we are in the process of constructing a renewable power portfolio working with some of the nation's leading power producers and renewable developers to ensure that we have reliable long term low cost power to support the build out of our clean hydrogen project pipeline.
The third is on land, we are working to secure optimal sites with important attributes for the development of green hydrogen projects and Ken will take you through this in more detail on the next slide.
And then fourth is people.
You heard Chris talk about our focus on people and the fast LNG side of the business and our recent opening in the Houston office and likewise on the hydrogen side in order to be the nation's leading producer of clean hydrogen we recognize that we need to build a world class team of professionals across functions with a particular emphasis on technical expertise.
<unk> and commercial acumen and so that's what we're doing there.
Let me turn it to Ken to talk about how these ingredients translate into our plans for growth and he'll also give an update on our first project in east, Texas in the past the near term there Ken.
Great. Thank you. Thank you Patrick.
We will talk about the path to our.
On our first site in just a second here, but on page 22, our plans are to build a portfolio of green hydrogen production facilities throughout the United States and we've been scouring the country for the best sites to do so.
We have a pretty significant acquisition pipeline key attributes that we are focusing on are as Patrick mentioned first low cost renewable power, we can build our own renewable power. We can buy from others. We're somewhat indifferent, we just need a low cost long term supply of renewable power.
Two as regional demand.
Sites that are surrounded by significant users of natural gas or or gray hydrogen today.
Things like power plants gas burning power plants coal burning power plants other transportation businesses and there are a number of areas of course throughout the United States that are ideal for regional demand and finally efficient logistics and pipeline infrastructure.
We can make the green hydrogen at attractive cost.
But being able to supply it to domestic and international markets will be essential infrastructure is something that we here at fortress been heavily involved in over the years and I think we have some great sites in our pipeline that could be perfect for green hydrogen production today, we have a database of about 24 total sites about a half a dozen of those.
We think are prime candidates for green hydrogen production and we look forward to reporting back on our progress in the coming months shifting to page 23.
We have a number of significant events coming up in the next few months and we certainly plan to update the market.
In the near term regarding development of our first site.
Our site is.
As Patrick said in the Gulf Coast, we expect to achieve.
By June 30th we're making great progress shortly after <unk>, we will.
Break ground on the project, it's about an 18 month build and so we plan to be in business by the end of next year.
We continue to build.
Build out the business in parallel with our first project and.
We expect to begin to capitalize zero parks as a separate company during the second half of the year to continue to fund our development, we expect to issue equity in the business positioning zero parks as a potential spin off.
But fund the bulk of the developed with tax exempt debt to achieve the lowest overall cost of capital.
And with that I'll turn it back to us.
Yes, yes.
Let's flip to slide number 25, and I'll quickly walk us through the financial results for the first quarter. The headline is west has already mentioned is we had $258 million and adjusted EBITDA and we're on track for our goal this year of $1 billion.
The terminals segment operating margin was 211 and $89 million from the ships and you can find more detail on this in the appendix.
On SG&A, we had a few one time items in Q1, which drove SG&A higher for the quarter were implementing some savings initiatives and expect to be able to see this number decline closer to $30 million to $32 million going forward.
The comment that the results of this quarter really solidify our run rate adjusted EBITDA that exceeds $1 billion on its way to north of a $1 five for 2023, if you annualize the past three months the past six months or the best nine months Theyre, all above $1 billion and when we post our Q2 earnings yield true.
We have a trailing 12 months above 1 billion net income for the quarter was $241 million, which does include a noncash adjustment for reduction of deferred tax liability, which is further explained in the release and in the 10-Q.
That amount of $77 million in the quarter, we had $1 13 and earnings per share if you normalize for the non tax adjust.
Adjustment you'd still have 77, a share which is our largest your largest earnings per share we've ever had.
Page 26, we repeat what we've talked about in previous quarters that we expect to fully fund our robust growth initiatives through internally generated cash flow. We have an excellent team that is aggressively working on monetizing assets that are significantly in the money versus what we paid for.
The asset transactions that are in advanced discussions will contribute an estimated two to two $5 billion in new proceeds that we will effectively efficiently recycle into higher yielding projects I guess N F. LNG. Alternatively, we can obviously choose to pay down debt or returned to shareholders in the form of buybacks or dividends.
Further as you can see the leverage ratios were up four times currently expect to be under three times. Once F. O N. G is operate LNG one is operational.
We'll be talking to the rating agencies in the coming weeks and we hope to be upgraded to double V that will be flat or double b plus this year and then into the investment grade category in 2023, and then the only quick comment on liquidity as in Q1, we did increase our capacity on the revolving credit facility to $500 million and added another $125 million.
New commitments.
The one the one last comment I'll make before I turn over to questions.
On the financial side is that obviously the goal for our company the Gulf where every company is transparency in terms of the earnings.
And a.
<unk>.
A clear and transparent view of both what we expect today and what we expect in the future. So that's obviously the goal of that.
With the.
The developments across the company we have.
Now gotten to the position of generating significant.
Run rate EBITDA, and we have a very significant customer portfolio that exist over 100 customers over eight eight terminals on the way to 12 terminals around the world and now with the addition of LNG you go into a different category in terms of the volumes in the P&L that can be generated from them.
<unk> mentioned it but it's actually a significant point is that we think with the.
With the balance sheet that we've got in the assets, we've got and the performance of those assets, we have the ability to either sell or asset finance those assets and self finance ourselves. So we don't have to come back to investors and shareholders for capital to grow our business that obviously is a massive benefit of the activities.
We've got the result of that as Youll be basically exchanging cash flows on very stable assets and redeploying that capital into.
The cash flows generated from the LNG, there is likely to be timing differences from quarter to quarter.
The guidance that we've given I feel very good about the core of the underlying business is solid and we think we have a very substantial base to build from but it is not going to be a widget.
A widget factory, while we're actually redeploying capital from assets into the LNG.
The good news is that the upside from the LNG in this marketplace is gigantic and even as we are.
Here this morning, we see that.
Russia is talking about stopping all gas sales to France by the end of May the <unk>.
Energy and security that exists in the world is significant the upside from these LNG units to meet those needs in the short term is dramatic and there's likely to be some volatility as we go from <unk>.
One place to another I'm not.
I'm not overly concerned about at all and feel very good about the long term prospects and we will provide our best our best job to provide transparency as to what we are what we are doing as we move along so it's a very very good profile with that right.
So.
Humira will go ahead and take it into Q&A and for those that have questions. We welcome them absolutely asked you to ask your question and one follow up and if you have further and circle back into the queue. So with that we'll go to Q&A.
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 standby, while we compile the Q&A roster.
Your first question will come from the line of Spiro <unk> with Credit Suisse. Please proceed with your question.
Thanks, operator, good morning, guys.
To start off with that analogy if we could.
Permitting and advancing these six units from here.
And Chris you touched on this a bit at the end there, but just in thinking about funding that growth.
And it gets to about $4 billion kind of over time and it sounds like the early units given how much they're going to cash flow will effectively fund the later units.
I'm just curious if you guys are open to maybe even taking a partnership approach on some of these future units and I say that in the context that we've seen several e&ps come out over this last earnings season, and express pretty strong interest in taking on maybe more direct LNG ownership.
Yeah.
Yeah. The short answer is that.
We've had conversations with a number of different folks both E&P producers as well as infrastructure investors and there is a broad array of people that are interested in and what we're doing for obvious reasons I think that the.
As we map out the timing of.
Liquidity to fund the growth.
The combination of the.
The internally generated asset sales and financings plus the earnings from even the first unit gives us ample liquidity to fund out this entire program and so.
The timing, obviously matters and so.
We did bring in a partner it would not really be as a result of being worried about the timing and liquidity cash flows, but more because of perhaps strategic things, we can do with them around the world.
And frankly, I would put eni into that category. So.
He and I are any of the other big international oil and gas companies that have operations that are far flung around the world that want to also.
Monetize our gas holdings in the short term.
Our great potential partners for us the obviously the earnings potential of those units rent.
Rented out to others is substantially less than the earnings potential for ones that we would do for ourselves, but the credit characteristics of the cash flow characteristics of.
The ability for us to finance those assets and then provide incremental capital for the next is a balanced approach and I also think it's a mistake.
And a thing where we don't have.
A corner on the best ideas in the World, We certainly are very.
Proud of the people that we've got and what we have done but there's a lot of smart people that are out there in the world and having other partners take a look over your shoulder in your business.
Found over the years to be a very very healthy and productive thing to do so.
Short answer is in the short term I don't see us.
We're not we're not close to anything material to bring in other partners, but it's the kind of thing that we talked about it I think frankly, I think from a strategic standpoint that people that are the most interesting to us are the people that on the gas themselves. So.
This is a case where the.
The liquefaction is a process.
The actual asset as the molecule gassy you get so the U S is blessed to have substantial amounts of gas and actually very robust pipelines and so just on a market basis, you can buy a lot, but theres lots of different things that we think are interesting both domestically and internationally in terms of looking at gas and partnerships.
Got it that's helpful West Thanks for that.
Second question going to zero parks, maybe if you can it can be a tough one to answer now because I know you're still trying to develop this entity, but I think a lot of it has kind of struggled to ascribe value here and really capitalize the asset and so I'm. Just curious can you give us any sense of the economics on a per unit basis.
We can we can sort of get the math around 12 potential sites et cetera, just to try and figure out what the value proposition is here spinning that asset out at some point Brent happy shareholders.
Big picture.
A typical green hydrogen production facility that we've targeted about a 100 megawatt production facility to produce about 45000 kilograms of hydrogen a day.
Right now that business is a marginally profitable business, we expect to become a much more profitable business over the next 12 months to 24 months, obviously federal government incentives $3, a kilogram and things like that customer willingness to pay pay up for carbon free products.
Higher efficiency in electronic electrolysis technology.
Lower renewable power prices all of those things will contribute to.
More profitable green hydrogen production each facility each hundred megawatt facilities should produce between 30 and $40 million of annual cash flow.
And it should cost about $150 million to built so your bill Ted and Aaron for $1 5 billion generating about 300 million of EBITDA year.
It is a venture business more than our core infrastructure business is the venture business that I believe that we believe will turn into an infrastructure business over time.
I think actually producing some green hydrogen getting proof of concept generating cash flow is a very very important step, but do you want to take this from being a hobby to an actual industrial business. Obviously the scale that is necessary and is actually dramatic and while there are great synergies with the particularly with the downstream componentry of our business and just the industrial.
<unk> <unk>.
Building and running industrial plants like this which we think is great I do think that this is a company that over time will do its best with its own identity identity as a sister company, but not as a subsidiary.
That's definitely the plan.
Got it very helpful guys. Thanks for the time.
Your next question will come from the line of Sean Morgan with Evercore. Please proceed with your question.
Okay.
Hey, guys.
So one question, we've been getting a lot.
On the Fsrus that with Europe , and I know, it's only been.
Probably 60 days, but are you are you starting to see.
Inbound on new markets beyond Ireland and Europe .
That are interested in it because you have this.
Now hot commodity apologies, if I'm, sorry, you assets to potentially build new imports into Europe , and just kind of any update on commercial activity there.
Hey, John It's Andrew I think the quick answer is certainly.
I think we're kind of in all the discussions that are happening in Europe , and we've seen it kind of happened in two waves. So you'd have to sort of the initial wave of procurement of emphasis are used for terminals that will happen in the future and I think we've seen some announcements about that.
And now I think we're going to head into a second wave of kind of more conservative terminal building.
And so youll see kind of more announcements coming out from <unk>.
Various governments as well as some of the bigger state players in Europe around specific citing of terminals and what ships are going to go where and so I think we continue to see that progression.
They were kind of involved in all of those conversations and they all have specific requirements. Both on the technical side of which ship, that's where and then on the sort of capital and deployment side of kind of how it terminal gets built in Europe with the regulatory scheme et cetera. So I think it's fair to say.
It's a pretty chunky listed players we're in discussions with all of them and we hope to have some kind of exciting announcements here in the future.
Okay and then.
And the development side.
He was looking at some international projects, but Youre also looking at a pretty uniquely looking at the U S projects on their own view side. So is there.
Any possibility to get the U S government kind of more directly involved in all the import export banks I'm talking about.
Ultimately about Backstopping new projects in the startup projects like yours, it seems like it might.
It makes sense. So is there any kind of.
If you can give on that.
We have not talked with the U S government about financing.
We're blessed to have a balance sheet and the ability to self finance, which is.
When we look at the the elements that are necessary to be in this business.
Capital is near the top of the list capital operating capability is obviously are the big components, but we've got the capital to do it ourselves or a real interactions with U S government has been.
In particular on the permit side and not just from the permitting agencies, but also lawmakers to provide support for the activities. Both locally because this is a local activity both onshore and offshore and a huge source of potential economic activity in terms of the construction of it.
In the shipyards in Texas, and Louisiana and elsewhere. So.
Thus far.
I can't be more positive about the interactions we've had of the government we think that.
What we are doing is unique but it is not that different than what has been done already or simply putting our gear onto.
Existing marine infrastructure as opposed to putting in onshore. So it's not it's not something which is <unk>.
Wildly different than what they have permanent before the venue changes by doing it offshore and we think one of the most important aspects of our business is one of the reasons why we get.
Our timelines to be what they are is that we don't have to build storage because we can use ships for storage and use our marine acumen in our marine personnel too.
To do the ship to ship transfers.
Fuel rather than have to build online storage that has much much smaller environmental permit.
And of course, it's much much faster and much cheaper. So all those things together are great. So we we.
We like the the process.
The solution that we've come up with we need the government essentially to give us the green light to install and we're deeply engaged with them on a on a daily basis to do so so but the financing side of it right now has not been a real consideration at least for us.
Okay. Thanks, everyone.
Your next question will come from the line of Ben Nolan with Stifel. Please proceed with your question.
Yeah, Hi, this is Frank Galanti on for Ben I wanted to follow up on the Fsrus.
The prepared remarks, you talked about <unk>.
Three vessels being open.
We're coming off of.
Availability.
Two being converted.
Potentially a conversion.
And.
Sorry.
You have two available than the one was.
Waiting conversion you said that that.
912 months away with that.
<unk> conversion with the.
Components in there or was that to be completed in sometime 2023.
Yeah, Hey, let me, let me clarify that for you. So to open today, one that had started the conversion process, which should be ready to operate as in essence are you in nine to 12 months. What that means is that we have the regasification equipment available, which is really the long lead I'd.
And a conversion like this and so to have that in inventory and ready to go as a key advantage for us and why we can be confident and competent in the nine to 12 months so to today and a third added to that over the next nine to 12 months.
Okay.
Okay perfect that's helpful.
No I wanted to ask about capex needs and so.
As you just said.
You had the ability to self finance.
Primarily through asset sales, but can we get sort of framed.
Framed in.
What.
As committed from a capex perspective today.
Great and sort of the.
Price points around.
Using the three different platforms right between Jackups drillships and fixed platforms.
Or is that not the major.
Permanent of total cost for those for the first LNG assets.
Yes, so I'll stay away from the Capex for the downstream terminals because by and large they are completed the Brazilian the nicaraguans, Mexico, you're kind of all done on the construction there.
For LNG I mean, you spent.
Almost 50% of the first unit and so and we have line of sight to over 85% to 90% confidence in kind of the remaining cost. There. So we feel really positive as you look into the number two and three as I mentioned.
The long lead item the procurement stuff is done the bulk of the time of materials components for both engineering and for construction is known.
And is not too dissimilar to.
F N G. One and really the reason for that is imagine youre seeing a reconciliation yes cost went up you had some materials in some labor that went up but you had some efficiencies and so the number of engineering hours needed to design at Bungie, one significantly greater than the number of engineering hours into the design of <unk> two through nine so all in all we think costs are.
We're a relatively similar between numbers one through nine frankly.
The question on Marine assets, Yeah. If you were to go back into the market and buy a jackup rigs or or semi submersible rigs they are more expensive significantly so.
That's why we think that a fixed platform design may make more sense.
Particularly when Youre going to house these things in the U S Gulf of Mexico.
There'll be there forever frankly, just like many dozens or hundreds and hundreds of other platforms exist throughout the Gulf.
So from a capex standpoint, as Wes said.
There's a pacing component, but we do have all confidence that the cash that we'll generate from the transactions where.
Working on now plus the cash flows the free cash flow from the assets. Once they turn on are more than enough to fund the full Capex development program.
Perfect. That's what I had thank you so much.
Your next question will come from the line of Mark <unk> with Barclays. Please proceed with your question.
Hi, good morning.
On the pre application for six additional SaaS LNG permits.
Can you just talk about the visibility you have into the availability for some of the long lead time items. After the first three units that you have already ordered.
And then.
Totally understood.
The.
Sure.
The long lead items.
Really our the compressor strings in the turbines in particular those are the highly specialized pieces of equipment. Those Nicole box. Those are the those are the big components. There is lots of other pieces, obviously, there's hundreds of other pieces, but those are the significant ones.
With respect to the first three and potentially for units.
We have procured them and that's why we're confident in terms of the timing of construction for the additional six units. We have had extensive discussions with all of our counterparties about.
Just kind of factory application that Chris said.
The key to.
Regulating that process is to give long term commitments.
And so they can produce these on a on a monthly literally on a monthly basis, knowing what the.
The order book is and so much in the way that I think of it as kind of forward order books for new aircraft that you'll give us manufacturer of certainty than for production lines to then hire people and then procure their own componentry. It's a very similar process that we are engaging in here. So.
It's a it's a multi dimensional.
Project, because we need both the.
The long lead items, we need the componentry, we need actually this space to build the modules and then we need the shipyard space to install there's a whole host of different Counterparties. Chris had mentioned many of them that we are deeply engaged with that and we feel very confident that the timelines are going to be.
Quite.
Quite addressable here so.
Our forecast for LNG 123 is 2023, and then as Chris said.
It really is a quarterly installation thereafter 2024 through middle of 2025 is what our what our estimate is right now.
Got it that's very helpful.
And then for the five to six.
Production costs are first LNG can you just breakdown how much of that is opex versus your gas costs assumptions, just trying to get a sense of the operating cost profile for these first LNG assets.
It's rough Justice is it's a dollar to $1 20, depending on exactly what the.
The installation is but when you look at the core.
<unk> four.
For gas as you go out a few years, obviously Henry hub has spiked significantly in recent days and weeks, but long term curves are roughly $4. We got operating costs of about $1 transport cost of around 40 <unk>.
Those are those those are the big numbers too to keep in mind and then obviously.
If you took the curve today that would result in about a $5 50.
All in costs, that's why I say that an estimate of five to $6. I think is a good one one other things that I should've said what.
I can ask the question of what we think long term value is for gas versus oil.
There has been a very very long relationship historically between gas and oil.
Energy Equivalency gas is approximately one sixth of oil. So if you took oil today, which is $110. Brent one six of that is about $18 I think.
Gas tends to trade at a discount to that it's not at a discount today is actually a premium but tends to trade at a modest discount to that to reflect handling costs and transportation et cetera, because it's a little bit more challenging to move around in oil, but that would imply long term stabilized levels of kind of 15 to $18.
Would be the equivalent to oil to give some guidance to what we think the <unk>.
Ultimate margin could be for these units once you get past. This this immediate energy security window, So energy security window 2022, 'twenty three 'twenty four 'twenty five probably in 'twenty six.
Those numbers, we think can be materially higher than that but even long term, we think that the value proposition of this isn't one that's likely to be very compelling for these units.
Got it very helpful. Appreciate the time.
And at this time there appears to be no further questions in queue I would now like to turn it back over to the panel for closing remarks.
Well. Thank you everyone for dialing in and look forward to speaking to you again next quarter. Thanks much.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Okay.