Q1 2022 Excelerate Energy Inc Earnings Call
Its history and frankly, its an exciting time to be in the LNG industry.
Thanks to the talented team at accelerate we have successfully executed our strategy and established substantial momentum in recent years.
We've built a solid base business by focusing on operational excellence.
In providing our customers with the critical LNG Regasification services that they need.
And expect from us.
Our ability to deliver on our promises has gone a long way towards creating deeper inroads into our core markets.
We believe offer us a real competitive advantage when volume for new opportunities.
Looking ahead, we expect to build on our momentum by executing on a robust commercial opportunities that are now in front of us.
As a premier LNG infrastructure provider, we are viewed around the world as the partner of choice for many countries looking to LNG as a means to create dependable energy systems.
With that let's turn to our results for the quarter.
Our financial performance during the first quarter was solid and in line with our expectations, we delivered $13 million of net.
<unk> and $71 million of adjusted EBITDAR.
Our bottom line results during the quarter were driven primarily by the performance of our Regasification business.
As well as natural gas sales in Brazil, and new England.
The long term take or pay nature of our regasification contracts.
This is the reason while our business model has proven to be so resilient over the years.
We're pleased to have delivered these results during what is arguably the most dynamic shift in the energy market since the OPEC oil embargo of $19 73.
In addition to operating our day to day business. We were also successful in advancing our portfolio of commercial opportunities during the quarter.
On the gas sales front, we once again delivered re gasify LNG into new England.
Our northeast Gateway deepwater port in Boston Harbor.
Our gas sales at northeast Gateway were completed at the end of February .
Additionally.
We continue to execute our gas sales business in Brazil by completing our first full quarter of natural gas sales at the Bahia Regasification terminal.
In February .
We received approval from the government of bandwidth to begin commercial negotiations for the expansion of our <unk> terminal.
<unk> LNG the.
The extension of our Regasification agreement by five years to 2038.
And then LNG supply agreement to sell up to one 5 million tonnes per annum.
In March we were rewarded a seasonal regasification charter for the exemplar at the Bahia Blanca gas Port terminal in southern Argentina.
Simpler arrived the Bahia Blanca on May 15th and she is currently providing regasification services during the winter in Argentina.
Earlier this month, the Bangladesh government issued the approval in principle for the Pyro LNG project.
We are currently negotiating the integrated deal, which includes an LNG supply agreement to sell three to 4 million tonnes per annum to the country.
And just last week, we reached an agreement with the government of Finland for Fsrus exemplar to provide up to 5 billion cubic meters per year of regasification capacity through a new regasification terminal in southern Finland.
This important project illustrates the growing demand for flexible access to LNG as countries accelerate their efforts to enhance their energy security.
Now I'd like to share with you some perspectives on the current state of the global LNG market.
Over the first half of this year.
This is a paradigm shift in the global LNG market.
The energy prices in Europe , and the war in Ukraine have greatly increased the appeal of having flexible access to LNG as the means of promoting energy reliability and.
And enhancing energy security.
The potential for further disruptions of Russian pipeline gas to the region.
<unk> and LNG cargoes that ordinarily would have been destined for the Asia Pacific region being diverted to Europe .
The increase in LNG volumes being imported to Europe .
Also driven spot LNG prices to record highs as countries, who have historically been dependent on Russian gas are now competing for limited LNG supply.
We expect the sequence of events to lead to a new wave of liquefaction projects taking FID.
Which will be additional to the more than 100 million tonnes per annum of new supply already announced through 2027.
Europe is now faced with the challenge of replacing approximately one.
150 billion cubic meters per year of Russian gas.
In order to stabilize energy systems and enhance its collective energy security.
We expect the increased use of Fsrus and integrated <unk> style terminals across the region to prove to be critical factors in europes ability to accomplish this goal.
As a result, we expect European countries to accelerate their efforts to secure fsrus and LNG infrastructure.
We also expect the interest in Europe , and energy security to have a spillover effect in.
And increased the pace of decision, making for LNG consumers around the world.
It's clear that customers, who value flexible access to LNG.
Understand the importance of moving quickly in today's market.
As a reminder, we own approximately 20% of the global Fsrus.
Most of our vessels are quick with open and closed loop capabilities, which makes them ideal candidates for deployment in both warm and cold water environments.
We have the largest fsrus fleet employed for Regasification with sendoff capacity ranging from 600 to 1000 200 million standard cubic feet per day.
Our fleet is capable of providing a meaningful portion.
But the critical regasification capacity, but Europe needs now and in the future.
And we are confident that we can benefit from these market tailwind.
We are currently developing our portfolio integrated growth projects in a variety of locations across our global footprint.
In both existing and new markets for accelerate we are in active discussions with Counterparties looking for Fsrus.
And LNG solutions to supplement their energy needs.
We estimate that our projects and advanced development represent over $1 billion of capital investment opportunities and.
And we have additional projects in early stage development identified in Europe .
Asia Pacific Latin America, and the Middle East.
Yeah.
Each quarter as part of our earnings materials, we will provide incremental material updates on our projects as they are available.
We will also provide updates on our projects as they transition from advance development.
Two and execution.
This quarter, you'll see that we've updated our project list to show that we expect the recently announced Finland project to commence service in the fourth quarter of 2022, and we've shifted the timing of the Philippines project to the second half of 2024.
Because we operate an integrated business model, we have the flexibility to adjust the sequencing of our projects in response to changing market dynamics and to accommodate the number of projects currently in our pipeline. We are assessing a range of options for increasing our tonnage and optimizing the deployment of our vessels.
This approach ensures that we are allocating our assets and resources to projects that maximize value for our shareholders.
As we announced just last week accelerated executed a binding agreement with Finland state owned transmission operator gas strip for long term Regasification services utilizing the <unk> exemplar.
We believe this 10 year agreement will allow us to deliver enough reclassified LNG capacity to replace completely but Finland, and Estonia is pipeline gas imports from Russia.
This <unk> project will serve as a security of supply tool for the government of Finland and for the government of Estonia.
We expect to place our Fsrus exemplar in service in the fourth quarter of this year.
The terminal will be located in southern Finland, the Baltic connector pipeline.
In January we received approval from the Albanian government to proceed with the second phase of the feasibility study for the Florida, LNG terminal and power plant project.
And the same month, we were notified that are offered to procure cheap power barges.
On an emergency basis was accepted by the Albanian government.
We have since executed the definitive commercial agreement for two years of service and expect the power of barges to come online in the second half of this year.
Under our previously announced Mou without gas.
Opinions natural gas transmission system operator.
And with snap.
One of the largest energy infrastructure owners and operators in the world. We are continuing to explore solutions to connect the Florida LNG terminal with other European natural gas infrastructure.
Flexible LNG projects like the Florida terminal has the potential to enhance energy security for our Pena, Italy.
Bulgaria and other countries in Europe Southern gas corridor.
We expect the LNG terminal and power plant project to come online in the second half of 2023.
We've spoken before about our growth opportunities in Bangladesh, We continue to advance our proposed LNG expansion project, which would increase natural gas deliveries to the country through our existing terminal in the southeastern part of Bangladesh.
We are also advancing our pilot project, which would support Bangladesh is growing economy by providing natural gas volumes to new and existing LNG customers in the southern and western parts of Bangladesh.
By receiving an approval in principle. The pilot project has reached a significant milestone in the Bangladesh approval process.
We are negotiating the integrated deal our Counterparties and have high confidence that the project will proceed to execution as planned.
We would expect <unk> to be a game changer for accelerate as it would represent our largest deployment of capital and a project to date and significantly increase the scale of our operations from a global perspective.
Currently the.
The southern and Western regions, Bangladesh received approximately 100 million standard cubic feet per day of natural gas.
We expect the pilot project to increase this amount by providing 500 million standard cubic feet per day of re gas capacity at the initial and surface.
And through 200 kilometer 1 billion cubic feet per day onshore pipeline, we expect the pilot project to be capable of providing natural gas to six existing combined cycle power plants in the region.
In addition to these existing power plants, we are actively exploring opportunities for new power projects along the pipeline route.
We expect to complete geophysical surveys and pipeline route selection for the project and to begin our front end engineering and design study in the next six months.
The pilot project is targeting an in service date in 2025.
In addition to the LNG supply deal for the <unk> expansion project, we are negotiating a separate LNG supply deal for pirates that would allow us to sell three to 4 million tonnes per annum of LNG to the country.
On a combined basis.
These two supply deals would allow us to sell approximately 1% of current global LNG supply annually to Bangladesh over the next 15 to 25 years.
Before I turn the call over to Dana who will walk through our financial results in more detail.
To provide you with.
Summary of our investment thesis.
Our primary objective remains to provide superior returns to our shareholders as an integrated LNG infrastructure company.
<unk> two addressing the lack of access to cleaner energy around the world.
We expect to accomplish this goal by.
By developing a high quality portfolio of growth projects that.
That provide attractive rates of return.
And enhancing our existing customer relationships and asset base, while integrating further downstream into both our existing markets and new markets.
Closing, we believe that accelerate energy is a compelling investment opportunity in the downstream LNG value chain.
With that I'll now turn the call over to our CFO Dana Armstrong.
Thanks, Steven and good morning, everyone overall.
Overall, we're pleased with our first quarter results.
Stephen mentioned for the first quarter, we achieved adjusted EBITDA of $71 million up 12% as compared to the fourth quarter of last year.
Driven primarily by our first full quarter of gas zone at the Bahia terminal and Brookdale, which commenced in December 2021.
And the winter seasonal gas sales, we deliver via our northeast Gateway terminal.
We generated operating income of $39 million and net income of $13 million in first quarter, both up sequentially over the previous quarter.
The sequential increase in operating income and net income was driven by the increased gas sales along with a decrease in depreciation due to the end of our LNG carrier vessel late in December of last year.
Lower restructuring costs related to the IPO in Q1 as compared to Q4 last year.
In comparison to the first quarter of 2021, our first quarter 2022 earnings were down year over year.
Each market headwinds related to recent geopolitical events.
Including the European energy crisis, and the wine Ukraine.
The flattening of the JK EM versus TTS price spread resulted in fewer opportunities to charter our available vessel and to deliver on spot LNG cargos in the first quarter of this year.
Now, let's turn to an overview of our liquidity and capital resources.
At the end of the first quarter accelerate had $83 million in cash and cash equivalent.
Because the first quarter results, we're presenting today occurred before our recent IPO. We think it would be helpful to provide you with additional information on our liquidity position post IPO.
On April 18th we closed on a new $350 million revolving credit facility with a syndicate of banks led by J P. Morgan.
This revolving credit facility supports the execution of our growth strategy and further enhances our liquidity and balance sheet strength.
The facility, which has a three year maturity that expires in April 2025.
<unk> is expected to be used primarily for letters of credit.
Short term working capital needs and.
And other general corporate purposes.
As part of the IPO, we generated $416 million of net cash proceeds after underwriting fees of which 50 million when used as a partial payment along with equity for the purchase of two vessels that had previously been on finance leases with a related party.
Inclusive of the $366 million in net IPO cash proceeds our pro forma cash balance with $449 million as of the end of Q1.
Our pro forma revolver availability at the end of Q1 with $235 million.
Netting to a pro forma liquidity position of $608 million.
Our pro forma leverage ratio, which is defined as debt and finance lease liabilities over trailing 12 months EBITDA.
It was about three times as of March late March.
The pro forma adjustment remains the finance lease liability for the two vessels that were purchased in April concurrently with IBM.
Based on the commercial momentum we've established to date, we are providing full year financial guidance for adjusted EBITDA and adjusted EBITDA.
As a reminder, we focus on adjusted EBITDA and adjusted EBITDA as our key financial metrics as our earnings metrics are more predictable as compared to revenues, which can be impacted by volatility and LNG prices.
Gas and LNG sales component of bromine.
For the full year 2020 teen adjusted EBITDA is expected to range between $249 million and $269 million.
Adjusted EBITDA is expected to range between $285 million and $305 million.
And as mentioned in our S. One we expect to pay an annualized cash dividend of <unk> 10 per share to holders of our class a common stock on a quarterly basis.
We expect that these quarterly dividend payments will commence in the third quarter of 2020 team and each case declaration and payment of dividends are subject to board approval and certain legal requirements.
With that we'll now open up the call for Q&A.
Thank you if you would like to ask a question. Please press star one on your telephone keypad.
Please Christoph I spoke to.
We're preparing to ask your questions. Please ensure your mute locally.
Our first question comes from David Hayes from BC, David. Please go ahead.
Hey, good morning, Thanks, guys I was hoping you can provide a little bit more.
Aspect to the phone with the European opportunity and it will look like for you specifically.
The majority of the projects include the Fsrus fsrus terminals as well as gas sales opportunities and then second to that.
In terms of availability of Fsrus, you guys have kind of.
Got a lot of your fleet now is on current commitments.
Would you consider M&A or what kind of timeline would it take to perhaps acquire newbuild.
Thanks, David I appreciate it I'm always going to remember this are first question as a public company. So thanks for doing that.
Europe's presenting a lot of opportunities and you can look at it just through what we've got out in front of you.
We're in front of the World right now so the Finland deal is more like our traditional business model, but we find it attractive now we will continue to work.
And we've told the defense that we're interested in exploring further downstream opportunities.
Both within Finland, and within the Baltic Sea region. So <unk>.
As we have in other projects, we're going to.
Get that.
Secure that first and then look with the other opportunities are that we can find down stream in that market.
The flip side of that though would be.
The Albania floor, a project that we've been working for some time.
Sure.
We've been quite clear, we like the appeal of the base deal the gas sales to power plant the power generation, but quite obviously as I mentioned in my comments. We're looking at that also is a great entre point for gas sales into Europe .
So I would say in short.
We're looking at the full spectrum of opportunities within Europe , and we're always going to try to find a way to sell gas downstream into a market.
Pivoting to your second question, we've had as a public company David.
What are we thinking about tonnage, we're not going to take anything off the table as we seek the best way to grow this fleet we are looking.
At new buildings, we have a full set of conversion kit and a warehouse that we've had for some number of years, we came through the REIT conversion candidate.
And we won't we won't rule out any other mechanism expanding tonnage.
Okay, great. Thank you.
Our next question comes from Marc <unk> from Barclays. Mark. Please go ahead.
Hi, good morning, So maybe just to start and Stephen you kind of touched on this earlier, but with the recent efforts are you announcements, we've seen out of Europe and tightening supply of available ships in the market today is that if at all affect the competitive dynamics for some of the integrated projects you're pursuing in other markets.
Mark Thanks for the question as I mentioned, what we're seeing is people advancing the pace of the decision, making and the rest of the world because they have their own needs, they're not going to be left out.
I would say, it's no secret that the Improvable in principle for the pilot project, we received out of the Prime Minister's office and Bangladesh.
And Thats a key milestone in their statutory regime of the quick enhancement of electricity and energy supply out to 2010.
We've been working on that project for a number of years that announcement came out within 48 hours of rushing cutting off gas to pull in Bulgaria. So I think just anecdotally. That's an example of the spillover effect on the pace of decision, making that youll see around the world.
Okay.
Okay.
That's helpful.
And then on the potential <unk> expansion could you maybe provide some context around the opportunity there I know the press release mentioned potential supply deal for up to one 5 million tons, but just wondering if there would be any incremental capital costs associated with the expansion.
And then also just want to confirm would you be earning a fix dollar margin on the additional LNG sales volumes for would you be recovering the economics under our terminal use agreement similar to the existing framework there.
Mark that is a great question and we have with US today, Daniel <unk>, our chief commercial officer, I'm going to hand that one to Daniel Thank you Steven Good morning, Mark.
On the LNG expansion, what we're going to offer something that youre going to see.
Deals our goal is.
To earn.
<unk> capacity payments extra payments for the expansion of the terminal.
The terminal is going to imply bringing a bigger vessel and yes, we're going to have some modest capital outlays for some life extension works on the fixed infrastructure.
Those extra activities are going to be covered by incremental capacity payments.
On top of that we expect to make it predictable margin on the LNG sales.
Similar to what you will see in our projects, we will always seek to secure capacity payments for our capital involved and then a margin on the LNG sales.
Got it very helpful. I appreciate the time.
Thank you Mark.
Our next question comes from Kamran look rich from Stephens, Inc. Please go ahead.
Hi, good morning, Thanks for taking my questions.
So we can start.
Thank you. Thank you.
I was hoping we could go back to the Finland announcement.
And just start there.
Can you provide any color on what the rate structure may look like there relative to your existing contract book.
Yes, Cameron we have Derek.
Have not comment on individual day rates across our across our competitive landscape with the other vessels.
You might speak to.
How we could think about in terms of.
EBITDA uplift.
The annual run rate basis is about an extra $40 million of EBITDA that were projecting we expect to start in the fourth quarter that we expect 2023, it will be at about $40 million EBITDA.
On our example, Russell.
Okay, great great.
That's very helpful. That's what I was looking for thank you.
I guess the flip them.
Thank you have a vessel in Israel that is set to roll off contract at the end of this year.
Under that scenario if my math is right you would be back to eight contracted vessels once that it drove vessel Rosa eight contracted vessels in 2023 is that the right number to think about as far as what youre targeting.
Targeting for long term agreements in 'twenty three.
Should we expect to see maybe one or two others.
<unk> announced as we progress through this year.
Thanks, Kamran again, I'll hand that one over to Daniel.
Our goal is for <unk> to be employed dania. So after Israel is going to go to traditional dry dock will going to do some enhancements specific for Albania.
Dania will be a long term deal.
Should we consider employ on the long term.
Okay, great. Thank you I'll turn it back.
As a reminder to ask any further questions. Please press star one on your telephone keypad.
Our next question comes from Devin Mcdermott from Morgan Stanley Kevin. Please go ahead.
Great. Good morning, Thanks for taking my question and congrats on the strong results this quarter.
Okay.
The first question I wanted to ask is going back to LNG and pyrite, it's great to see the continued progress there and the approval in principle I was wondering if you could just walk us through procedurally from here the remaining steps to move these projects from advanced development two in execution.
The remaining steps we're looking for.
Kevin.
Very helpful I'll start.
Start with just lining out why we think.
I have stated on the call that we have high expectation of pirate moving to execution and frankly, both of those seem LNG expansion as well.
Approval in principle does mean something with respect to the statutory regime that we referenced before.
We've been competing out.
Providing our proposals on the method and manner of technical solution for the need for the pilot project.
Been in a competitive process with other companies merging different competitive solutions.
Been in front of committees all across the Bangladesh government evaluating those technical expertise is so the first thing I guess I want to emphasize is that approval in principle under that rigorous technical assessment that the government of Bangladesh has does mean something it is a key milestone.
It does originate from the Prime Minister's office, so with that.
We have as we said we're.
We're going to be continuing with.
We've been doing already.
Sure surveys looking at pipeline routes, but Daniel once you lay out.
And a couple of the other points earlier, how we see this unfolding from now, but I did want to highlight.
In principle doesn't mean, yes.
Maybe approval in principle is a key milestone in a formal statutory process.
Sure Steven.
<unk>.
This kind of process that.
Unless you're Gorman has established probably the.
Wait to see them as similar to one you have the defense departments of Goldman's procuring large contracts do go through a technical process you guys selected and now we're going to go in more detail with the government in parallel to try to advance as soon as possible, while we're going to do in part.
We're advancing on the process for engineering design and permitting we are going to start negotiating a gas sales agreement.
With the Bangladesh government. The power project is going to be one where we're going to be selling natural you guys, but we need to agree with them. The final pipeline route for the sample for the project, where the gas is going to be the lever between power and cooling that all of these power plants that will go now surf.
So what youre going to see is a parallel process, we're going to be refining the technical characteristics of the project were going to refine the pricing is a direct negotiation that we're having with the bundle is your government.
We're going to negotiate the agreement.
In the following quarters, we were going to be providing that progress, but it's going to be running in parallel.
Got it very helpful overview.
Wanted to shift over to gas supply and the strategy. There. So these are two fairly sizeable projects and I was wondering if you could talk to the strategy and also market environment around securing long term gas supply and it is part of that address whether or not the current pricing environment is not being any.
Impact on customer demand.
For gas.
Okay.
Well I guess I'll take that last 0.1st.
That is.
These projects with.
25 years and LNG, taking it out to another 15. These are these are governments and people taking a long view horizon of what needs are and how to satisfy those needs.
We also see longer term.
LNG looks more affordable.
See you see people, having appetite to enter into rather long term commitments that arent that far off from what we have historically seen.
In terms of what people are willing to do.
We've been talking for some time I can't get into specifics, but with a number of suppliers and I can tell you that there is appetite.
For the length of term that we're bringing to the table.
Especially with the credibility that we have for delivering to bank with us that we've established so we're.
We're going to continue to advance those in parallel with the discussions with the Bangladesh government in those negotiations.
Got it makes a lot of sense. Thanks, Thanks for taking my questions and congrats again on the solid results.
Thanks, Kevin.
We currently have no further questions I will now hand, it back to the management team for any closing remarks.
We currently have a question has just come in for David Hastings from F&B BC. David. Please go ahead.
Yeah. Thanks, guys I just wanted to follow up real quickly with the exemplar going up the Finland.
Are we going to see Argentina coming back to market next year for the seasonal demand that they may have.
Yes, David excellent question I can't speak for the Argentinian government on what that is we expect that.
If there is.
Ask for the government of Argentina for Isa four seasonal service in Bahia Blanca for next southern Winter, we'll evaluate it and we suspect that we'll have in assets.
That we could look at that if it's something that's appealing.
Okay, great. Thanks.
Okay.
Okay. No further questions. So I'll now hand, you back to Stephen for closing remarks.
Thanks, everyone.
We're going to call that a wrap on our very first earnings call just glad to have all of you guys presence.
And participating in this.
Look forward to.
Doing this every quarter, we look forward to giving you predictable.
<unk> updates as we have done today and we hope this is the start of a long conversation.
We're excited about where accelerate energy is positioned excited about market tailwind that we see right now and we're excited.
To continue we're excited that people recognize the value of flexible LNG infrastructure to promote energy security and energy reliability across the globe and we believe we are well positioned to advance on that opportunity set. This presents so thank you all for participating.
<unk> today, and we look forward to next time.
This concludes today's conference call. Thank you for joining you may now disconnect your lines.