Q2 2022 New Fortress Energy Inc Earnings Call

Good day, ladies and gentlemen, you are currently on hold for today's conference. We are awaiting the arrival of additional participants must start very shortly we thank you for your patience and please continue to hold.

[music].

Good day and welcome to the N F E second quarter 2022 earnings call Today's conference recorded and at this time I'd like to turn the conference over to brush like.

Managing director and head of Investor Relations. Please go ahead Sir.

Thank you and good morning, everyone and welcome to New Fortress Energy's second quarter 2022 earnings call. This call is being recorded and will be available by replay within the investors section of our website under events and presentations.

There Youll also find our Q2 2022 investor presentation, which will be referenced throughout 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.

Our Wes Edens, CEO and chairman of the board.

Chris Giunta Chief Financial Officer also joining today's call are other members of the team, including managing directors, Andrew D D and Patrick Hughes with that I'll turn the call over to Wes great. Thanks, Brendan Thanks, Robert Good morning.

So let's jump into it so.

As usual, we will go through our the presentation, we posted to our website last night and gathering.

Let me start at the beginning so page four.

Very very good quarter for the firm by all measures.

Total EBITDA $283 million.

Actually the last four quarters together, our trailing four quarters EBITDA is now just a shade over $1 billion to $105 billion. So a real milestone.

We are affirming guidance for the remainder of the year that we expect 2022.

To generate approximately $1 billion in EBITDA and we're actually are providing guidance for 2023, our guidance of $1.5 billion.

Which we think has substantial amounts of upside depending on the timing and.

Nature of the LNG of installation so from a financial metric standpoint.

A very productive quarter, if you flip to page number five.

We have many significant updates to highlight for the quarter and I apologize for the dense words on the simplify here and I'd like to make things.

The simple and clear.

The reality is is we had so much activity for the quarter that ive been trying to convince them that this last was a bit of a challenge.

Let me just touch on the highlights and Andrew.

And Chris Jensen later will actually give it a bit more detail on it but let's just start at the top <unk>.

Terminals and customers our commitment to our customers and our downstream terminals are stronger than ever. This is the core of the mission of the company to help address energy poverty energy security in the world while at the same time being a key player in this transition to a cleaner.

Our energy future.

In the quarter, we substantially completed our <unk> and Santa Catarina terminals I made significant progress on permits for Ireland. Since we've been working on for a long time, but we are now more optimistic than ever that we will get to a positive resolution for the Irish terminal as well.

In addition, we leased one of our Fsrus into the Netherlands for the first exposure to Europe . Europe . Obviously had has had a very tumultuous year with the February 24th invasion of Ukraine, Theres a lot of activity from a variety of different nations in Europe to build terminals and get them online, especially with the pending win.

<unk> coming up.

<unk> success with at least one of our Fsrus into the terminal actually I think that the Christian <unk> data that is September the answers will be the first of the European terminals turning on we believe now that.

Europe is a bright part of our future and as we generate if LNG volumes of course will bring to all of our customers around the world, but we think that the European customers are going to be a big part of what.

What we see.

Eventually.

The energy crisis will abate and our downstream customers in asthma assets are the critical piece of our business model. We've invested nearly $9 billion eight years building out. This infrastructure. This is what it will allow us to take the volumes that we create ourselves distribute them around the world to our customers and be a meaningful part of the change in this energy transition.

Two other highlights for the quarter. We told you earlier that we intended to sell finance all of our activities. The goal that we set for ourselves is to generate two to $2 $5 billion of internally generated capital. So we didn't have to go back to shareholders didn't have to do corporate financings in order to do so the financing markets have been a mess.

Been a very difficult first half of the year and the financing markets with all of the inflation and financing challenges in the market notwithstanding that I'm very happy to report that we have done what we set out to do and we can now confirm that we do not believe that we need to raise incremental capital to finance our growth so being self financing for us and this market is the top of the list in terms.

The accomplishments for me for the quarter, Andrew will speak about that here in just a few minutes. This speaks volumes about the essential nature of our infrastructure assets. It also speaks volumes about the people that actually yet.

Did this work on our behalf so very very very happy with the accomplishment there.

Lastly, we made significant strides in the hydrogen business.

As an aside we actually there was a press release that was issued this morning by plug power.

Happy to confirm that we are partners with plugged that we are there going to be the equipment provider to us on our first hydrogen plant.

The energy Bill that is currently being contemplated by Congress, we think puts the U S squarely into the gun size of being the world leader in the production of hydrogen.

I think when you when you look at energy transition.

The nature of the discussion to date has been one that has a bit of a false narrative in my view in other words that we're going to somehow seamlessly transitioned from dispatch of all fossil fuels gas coal et cetera directly into non fossil fuels of wind and solar and somehow that's going to be a meaningful transition.

That is a false narrative, it's a dangerous narrative in my view.

One that is actually proven itself to be very very very very parallel.

With the.

The dislocations that have happened in Europe . This summer.

Now we've seen massive switches back to coal, we now expect coal to be.

Used as much this year as it was used during its peak year of 2013, we expect next year to be a higher amount for it. So obviously the energy security has trumped climate change and just in this particular case.

You believe and apparel climate change, which of course, we all do.

The logical answer is you have to be heavily invested in hydrogen and in nuclear we don't intend to have a nuclear.

Part of our business here, but the hydrogen is something we've talked about for the last two and a half years and this announcement. This morning is a meaningful milestone to actually establish our first.

The first project in this regard so with that let me turn it over to.

Let me turn it over to Andrew.

Thanks, Wes happy to be with you guys. This morning, and great quarter for <unk>. So I'm on page nine and wanted to give you a quick update on the snapshot of our assets and portfolio and then on page 10, I'll kind of go through our commercial highlights for the quarter.

So page nine just gives you a kind of an update of where we are so we're operating and developing over 37% and GPA of downstream regasification infrastructure in seven different countries, we own and are developing over 3000 megawatts of power at our terminals.

We have eight <unk> of LNG production capacity under construction or under development. So this map is a little cleaned up little updated from last quarter.

And kind of shows you, where we're at and gives a good sense for the integration of the portfolio flipping to page 10, and just wanted to echo with west side of the front our core business at NFC is really serving customers. So we seek to serve downstream LNG demand over long duration contracts that gives energy security and lowers emissions for our customers and.

Also will deliver long term stable and growing cash flows to investors and this quarter. We've made some strides on doing that so on the right side of page 10, our updated numbers.

If you add in the contracts, we signed over the last quarter or so.

The volumes to the <unk> refinery.

<unk> PPA and the increase in extension of our volumes with Cfe. It takes us up to a 136 TV to use on a 2023 run rate basis on 65 contracts and increases the volume weighted average life to 15 years up from about $12 five years.

So great strides in terms of increasing our overall portfolio in terms of volumes and actually increasingly duration that 15 years. It's something we think speaks really highly to the quality of our infrastructure and the kind of the core long term contracted under fee.

On the left side I want to give a little more detail on a few of the real commercial highlights for the terminals and we've broken this out into terminals power plants and LNG vessels, starting at the top the Barker Rana terminal is complete.

That's eight offshore terminal a three kilometer pipeline and a gas conditioning station that will initially serve Norsk hydro starting next year in 2023, and there will also serve our broker and a 600 megawatt power plant starting in 2025, we have line of sight on over $100 million of EBITDA in just those two contracts alone.

And great growth prospects embark reyna as we continue to convert industrial customers to LNG from their current <unk> and oil based us and as we build and own more power in the region.

Santa Catarina terminal is an offshore terminal as well with a 33 kilometer pipeline and will be connected into the trends moving gas pipeline and the entire Interstate pipeline system in Brazil.

This is over 90% complete today and we will be completed in Q4. This will be <unk> first terminal connected to a big Interstate pipeline network and we expect to start commercial operations in 2023.

And then as we've announced is west hit on we've increased the volumes and extended the term of our overall partnership with Cfe at our La Paz terminal.

Now we have a 10 year contract there.

Moving on to power plants.

I'll start with <unk>, So we sold our 50% stake in the <unk>.

1.5, gigawatts or GP Powerplant enterprise value of $1 3 billion for the 50%, which net <unk> $550 million in proceeds after paying down asset level debt.

I think this is a great example of our capabilities at a fee. We took over this plan almost a year and a half ago. When it was still under construction, we finalized construction we stabilized the team in operations, we have over 7000 run hours.

And now we've been able to connect that powerplay and also to the main Interstate gas pipeline network in Brazil, and we're selling.

That is a very productive asset to a NEVA, which is a public company in Brazil, and a great long term owner of this asset.

Demonstrate kind of how the downstream infrastructure flywheel continues to work for in a fee. We are also in the same quarter commenced construction on a power plant and Buck Arena. This is 605 megawatts on a 25 year PPA, which is very unique both for its duration and because the gas.

Pass through and that PPA is actually indexed to <unk>. So it gives us two things, we're really looking forward, which is exposure to LNG indexes like J P M and long term contracted duration.

We've signed an EPC contract fixed price and schedule with Mitsubishi and Toyota, which is investment grade consortium.

Very excited to start construction on that power plant this quarter.

On our LNG vessels.

Excited about our partnership with Gasunie.

We've chartered the Golar igloo fsrus.

On a five year term.

That fsrus will be deployed to Ms Hagen.

Netherlands in early September and we will start the <unk>.

First new re gas terminal in Europe . This terminal along with the gate LNG terminal will double the capacity for re gas in the Netherlands and allow them to effectively combat gas shortages coming from their pipeline supply from Europe . So very excited.

I've had a great experience working with gasoline I think and then if you would like to think of ourselves as lean and moving quickly, but it's been great to be in partnership with somebody like <unk>, who is more motivated to move just as quickly and implement a terminal and really record timeline. So really excited about that and excited inaugurate the terminal in September and then I'll touch on this a little bit later, but we.

Also have signed and announced our.

$2 billion of enterprise value JV with Apollo So we will own 20% of that JV Apollo will have an 80% we will sell our 11 LNG vessels into the portfolio portfolio in charter those back over very long term. So we retain control we free up balance sheet capital and we have a great partner to continue growing our shipping portfolio over time talking about.

More in a minute, but Chris turn to you for now.

Great. Thanks, Andrew.

Everybody, let's turn to page 12, and talk about fast LNG since our earnings call in May we've continued to make material progress on our <unk> initiatives on the next three slides, we're going to outline the advancements.

Non location and the deployment opportunities for LNG and the construction progress. We've made a result of the teamwork with our partners.

Look at Slide 13, I will first talk about the how and where we will put our LNG assets into service over the last four months, we've expanded our deployment location options from one to three sites and are now actively permitting over 8 million tonnes per annum of capacity.

On our Louisiana option, we submitted permits for $2 eight M. Tpa on March 32022, our top flight permitting team has regular in active dialogue with Marriott and with the Coast Guard administration coordinating with them every week to make sure. They have all the information they need regarding our fast LNG project on July 15th we received 97 total comments in.

Our first full information requests and responded to all of these requests in just two weeks.

Our second location for US is an exciting partnership with the Cfe in Mexico. This location offshore ultimate and can accommodate up to three LNG assets and just to be clear on the background. Here. There is there is an existing pipeline that flows U S sourced natural gas molecules from Brownsville, Texas down to ultimate Aeromexico. This pipeline has a capacity of.

Two six Bcf per day, but it's currently only utilized about 20% by the Cfe, who is paying a fixed transportation cost for their unutilized capacity. This is the thick blue line, we show on the map here.

Last month, <unk> signed an agreement with the general director of the Cfe and with Mexican President Lopez Obrador to agree to an economic partnership whereby <unk> will enter into a GSA with the cfe to source feed gas and moved the molecules through our LNG assets on a firm basis and further the Mexican government agrees to expedite the permitting process.

Excuse me in exchange <unk> will compensate the cfe for their cost of transportation and the CPU will receive 10, 15 and 20% for the first second and third assets respectively.

Springs, Mexico, LNG cargoes for use as they continue to transition to gas fired power for the CFP. This deal represents hundreds of millions of dollars annually between the savings on unused pipeline tariffs and profits from LNG cargo sales for NFC. This allows us quick access to existing permitted infrastructure and once operational we will provide us with over six.

<unk> TB to you annually of LNG per asset that we can either market or sell through our downstream terminals.

A third location, we're excited to announce as another partnership with a Mexican state owned company in this case Pemex to develop an integrated upstream and floating liquefaction project offshore.

<unk> field pictured on the map near Veracruz, and located 70 kilometers offshore was originally discovered in 2007 and has approximately one tcf of proven reserves, but was stalled by Pemex mid development much of the engineering and the procurement has already been completed and will be provided to <unk> as part of the agreement and if he will be responsible for the <unk>.

<unk> of seven offshore wells development of the field and subsea infrastructure and the installation of a processing rig and an exchange will receive approximately 70% of the cash flows generated primarily from selling gas both to NFS fast LNG unit in selling gas onshore to Pemex. This provides pemex would needed gas to shore.

NSP approximately 70 TVT you Anil annually that we can sell our market.

Additional upside in Mexico includes two nearby gas fields to Lukasz, which have an additional two tcf of gas reserves were very excited about this model and this partnership with Pemex, which we think can be repeated in multiple locations globally.

On page 14, Here's a quick update on the execution efforts of our LNG assets.

Excuse me I was down in Corpus two weeks ago and saw firsthand the amazing progress. The team has made and I'm very excited that our efforts to optimize the design and the construction process are working engineering and material procurement for <unk> is 100% complete and overall the proxy the project is approximately 70% completed critical.

Long lead items have and will continue to drive Q. Its shipyard, despite global supply chain constraints, which allow us to maintain our aggressive timeline without any delays. This includes the photographs you see on the left side of the page from Baker Hughes is MLR compressor. The chart cold box Air Coolers Gen sets from Siemens other gas treatment equipment excuse me.

In order to mitigate any potential supply chain issues. We deliberately chose excuse me to pursue long lead items for <unk> units two through five given the design specifications are known the conversion and refurbishment of the Jackup rigs is nearly done which allows them to be ready for module installation in November and the module fabrication is for <unk>.

<unk> on time and on schedule first fast LNG assets are expected to be completed in Q1, where they will then sail away to begin commissioning offshore.

Quickly on page 15, as I, just mentioned and if he has been developing the fast LNG using the common design and equipment, but different types of marine infrastructure to allow for situational flexibility to install these units and different types of environments. As a reminder, from our marine infrastructure standpoint, we have three jackup rigs that serve as our.

Operational asset base for <unk>, one we started fabrication on jackets and decks in the U S Gulf Coast, which will make up LNG, two and three and earlier. This year. We purchased two semi submersible drilling rigs. These are the <unk> units that are currently undergoing demolition refurbishment, where they will receive modules at the same courtyard in Singapore.

These assets will serve as <unk> four and five given we're using the same design and layout the module for the modules combined with the procurement efforts from our partners. The timeline for module fabrication is down to about 14% to 16 months and what's the modules are completed we are then able to start the placement install hookup and commissioning of the units which can be completed.

Approximately four to six months.

In the table on the right side of the page you will see <unk> one two and three are all predominantly fabricated in Q its yard in corpus with two units online next year and the third beginning 2024, <unk> four and five will both be completed in Singapore and expect it to be operational in 2024 last point regarding commissioning and operations were already staffed and started that process as well.

Procedures training sequencing et cetera will ensure that when these assets arrive onsite, we minimize commissioning timelines and maximize operational uptime Andrew.

Thanks, Chris Amazing.

Amazing progress.

On page 17.

We want to talk about funding fast LNG. So.

About six or seven months ago, we sat down and looked at our.

Aggressive plans in LNG and we laid out what we thought success would be in terms of our funding plan and we knew there were probably three things with.

With that one was no new corporate financings, who no equity or debt issuances to us internally generating capital.

Through asset sales and then three was obviously laying out a timeline and plan.

Sequencing that works so that as we as we got assets online we use the cash flow from those assets to continue to develop our program.

I think we can successfully say we're on the way we've done that.

So we've raised over $2 billion in asset sales.

Notably the big ones there are the Sergipe power plant sale.

The shifts JV with Apollo.

And we have no financings required to fund our fast LNG program. We've also this quarter increased our letter of credit facility to $250 million really critical for us because that allows us to place <unk> on a lot of our kind of development and construction needs and frees up a lot of cash so.

Liquidity.

Really I think a success in terms of our financing and funding plan for LNG.

<unk> I want to provide just a little more detail on some of our asset sales.

These are a couple of things for US in addition to funding. They really also simplify and focus our business model as we move from owning and operating ships to chartering in ships.

And the <unk> power plant.

Amazing story for us, but ultimately one where we werent supplying the LNG, so became noncore to us and was a great chance to recycle balance sheet capital.

So on the left side, our ships monetization over $1 1 billion of proceeds.

Maintain long term control over the shipping assets.

We retain great upside, 20% ownership in the JV, and then and potentially most importantly, we have a great partner in Apollo.

For future growth. So this is really a platform that we plan on growing as we need more ships for our operations.

Really think Apollo is the right group to do that with now we expect this to close the week of August 15th and a lot more good stuff to announce here on the <unk> side.

I think we've talked about this one at length, but really a great outcome for us with this as a deleveraging transaction where in addition to getting proceeds were also paying down a lot of debt on our balance sheet.

And we're just really happy with half of last year and a half has gone in terms of kind of taking over that asset stabilizing the operations and get into a great outcome.

Let's turn it back to you.

Actually I will quickly talk about the financial performance. So everybody could please turn to slide 23.

The three months ended June 30, we had EBITDA of $283 million, which as you've heard from west Texas to over $1 billion on a trailing 12 month basis. The terminals segment operating margin was $238 million another $90 million from the ship segment and you can find more detail in the appendix and in the queue.

SG&A was flat quarter over quarter as we continue to tackle some efficiencies on third party service providers and process automation that will show up towards the end of the year as as further disclosed in the Q and the press release, we did have one time noncash impairment charge in the second quarter related to the <unk> asset transactions. This write down was approximately $315 million.

When you exclude this nonrecurring adjustment our net income from the quarter was $146 million and earnings per share was <unk> 69.

The results this quarter really solidify our run rate adjusted EBITDA that exceeds $1 billion on its way to north of one five for 2023, even before accounting for LNG cash flows, which depending on pricing and timing could be an additional $1 billion next year alone.

On page 21, we wanted to show a comparison of what we said at the IPO and where we are now.

And if you were crazy about operational data capture and measurement and the same goes for our financial performance. This comparison shows what we projected at the time of the IPO Road show in January of 2019, and demonstrates the tremendous evolution of our business. If you were to go back and look at the IPO materials, we have dramatically outperformed our expectations for fiscal year 2020.

Two.

At the time of the IPO, we projected around $500 million of adjusted EBITDA, and we will finish above $1 billion EBITDA per share was forecasted to be $3 30.

Since the IPO, we issued new stock as part of the Golar transaction, taking that into account we are still exceeding our EBITDA per share estimates by around 40% frankly, I saw a very low when you compare it to what the cash flow generation will be once our <unk> assets come online, we think fully built out EBITDA numbers could exceed $4 billion to $5 billion or over 20.

$4 a share just interject for a second I mean I think.

Going back and looking at the history is a it's a very useful tool.

I would like to say around here anything worth doing is worth keeping track of and measuring obviously the projections that we made at the time of the IPO, where our best guess.

<unk> at what we thought the future would hold given the current book of business that we had.

Went public in January of 2019 at that time as Chris said, we projected at $500 million roughly in EBITDA in 2022, so three and a half years forward. Obviously, we're very happy that we have double that on a notional basis, increasing by about 50% on a per share basis and the right hand side is actually something also just to reflect on where we are.

Sit today, we know that the economic value of generating our own LNG volumes and routing those to our customers through our terminals were developing around the world has tremendous upside for us or.

We're not prepared to offer specific guidance with respect to what the impact of that would be other than to say from the guidance. We provide next year of $1 5 billion.

When the LNG and Thats our deployed when they are actually up and operating in when we're actually you'd like then translating those.

Those volumes into EBITDA, we think it could increase our forecast by two to three times. So context wise time of the IPO of $14 share price today $50 share price roughly so about three five times from where we started that three and a half years ago, but on the right hand side as Chris said, we we are midpoint of our expectation of what the <unk>.

That could be on the LNG volumes is.

Is substantial going from 475% to $24. These are obviously estimates at this point as we start to get deployment as we continue to make progress on the construction and the deployment of these and then the eventual marketing those volumes are Andrew and his team you'll start to see these turn into actual numbers. So Chris yes. Thanks Wes.

Finally on slide number 22, a quick comment on the financial health of <unk> and as you heard from West and Andrew. It is very strong we've made significant progress on our financial goals and think we are well positioned for an upgraded by the rating agencies.

The first box our earnings growth combined with consistency is an important part of establishing our financial and operating performance track record.

The incredible job that the deal teams have done on the asset sale transactions ensure that our business is fully funded and frankly as life changing as the transactions closed during this quarter, we will have a simplified the balance sheet and removed over $1 4 billion in asset level debt. This deleveraging continues to under 2.0 times as <unk>.

G assets come online.

And the third box, we are focused and executed on making our cash flow is stable and predictable we have elongated or weighted average customer term of 15 years and we've continued to expand relationships with investment grade counterparties like Norsk hydro in the Cfe.

As Andrew mentioned and we alluded to on our last earnings call. We were able to close on the upgrade of our letter of credit facility and thank you to the partners in that process for.

$250 million of the $1 million $100 million accordion. This optimizes, the working capital needs an extraordinarily attractive cost.

Great.

Introduced the hydrogen section and I'll turn it over to Patrick you used to give us an update on the activities in Washington as.

As I mentioned earlier.

Really achieve a fully decarbonize future hydrogen needs to play a very very meaningful role when you look at the.

The pillars of our industrial production in the world. So the production of steel production of concrete and production of plastics and production fraction of ammonia for fertilizer all of those activities contributed significantly to economic stability and growth all of those activities use a substantial amount of fossil fuels coal for steel production and natural.

Gas for the production of them.

And in concrete and obviously the oil industry plays a huge role in the production of plastics. So when we talk about decarbonize future much of the focus is on electricity and thats, great, but fully two thirds of the greenhouse gases that are admitted come from industrial activities that cannot be electrified that's the.

Key point on this in that regard hydrogen is clearly going to be a huge huge component of all of this with the announcement by Senators mansion and Schumer of the Bill that is currently being considered by Congress right now it really positions the United States to be and again sites as the world leader in the production of clean.

Hydrogen green hydrogen blue hydrogen et cetera through these production credits and other other activities.

I'm going to turn it over to Patrick can talk about this in the second.

It was actually a coincidence in terms of the timing, but we did we have been talking for some time about.

Taking on our first project.

In Texas on the Green hydrogen side, if you look on page number 25, each of the major components of that project are now in place and we anticipate actually declaring a <unk> in the next 30 days. So the site has been procured we have permits we've actually obtained renewable power we have water as a feedstock for the production of it we have water takeaway capacity.

We have a pipeline.

That are available for it and lastly, we have selected plug is our electrolyze, our technology and our partner to.

Produce is worth.

We anticipate 120 megawatt project.

Patrick to talk through the financings are the terms of this but we believe that this is the first of many many of these projects that will get built as a result of this bill.

That come to pass as we expect over the next 30 days or so with that let me just turn it over to Patrick to talk more specifically about both the project and what our activities.

We see it happening in Washington, Patrick.

Sure. Thanks Wes.

So maybe just with respect to the Washington activities first.

As Wes alluded to we saw leaders in Washington last week, including of course, Senator Schumer and mention really take a strong and long awaited endorsement of clean hydrogen as a key climate solution. So in this bill which is called the inflation reduction Act as many of you know.

There is a production tax credit under section 45 of the federal tax code, that's $3 per kilogram clean hydrogen produced and I emphasize the word clean.

While it applies to both green and Blue hydrogen we do have to be.

Quite mindful of the emissions profile on a lifecycle basis of what we're producing the good news is that we've spent a good bit of time in Washington.

West in particular.

And we've been anticipating this legislation and precisely kind of the way that it's come together and the details of it. So we've been working for the last many months to put the key ingredients that Wes has just described of our projects together, we do anticipate that voting will begin shortly on the bill we do believe that a bill that includes that $3 per kilogram credit.

<unk> has a high likelihood of passage at this point.

And in General again as was mentioned a moment ago.

This.

Tax incentive in kind of the scope and extent of it we believe substantially altered the economic picture for producing hydrogen in the U S and affirmatively makes our country. The worlds leader in the production of clean hydrogen.

On the projects themselves.

As you heard we've announced.

Partnership with plug power this morning.

Quite proud of that.

They are a leader in what's called PGM electrolysis technology, and so there'll be supplying actually a series of 12, what are called arrays to support our 120 megawatt facility.

At operations is expected to be one of the largest of its kind in North America. So truly an industrial scale facility that we think is.

Kind of a model that we will have quite an impact on the <unk>.

Hey.

The space evolves over time, and we are proud to be at the very very forefront.

<unk>.

The sector with the way that we've positioned and kind of put all these ingredients together inclusive of our arrangement with plans we.

We have much more to share on this front, including other participants in this particular project.

The project economics in financing details and then our commercialization plans I look forward to re convening with probably a similar group to what is on this earnings call today, maybe in the course of a couple of weeks to provide that additional information.

Lastly, on slide 26, and just very briefly.

Also now underway on our Blue hydrogen project in the northeast.

This is slightly different of course than what we're developing in Texas in the sense that it's meant to benefit from the proximity to stranded natural gas in the Marcellus.

Which will offer us ample low cost feedstock.

Our green hydrogen project, we're putting the pieces together now.

We're positioning that facility that would be one of the largest of its kind as well again slightly different approach than the green hydrogen facility that we're developing in Texas. So much more to come on this front and again, we look forward to sharing some additional information on the projects in our hydrogen business overall in the very near future West back to you.

As I've said before our goal in the hydrogen business was to first and foremost to create an economically viable projects that had standalone economics that we're compelling on the basis of that individual project and I think with this first one that we announced here in Beaumont, We believe we have.

Very much have that is the case.

Two is we want to provide transparency on.

All the details that are relevant to investors and thats exactly what the details that Patrick was talking about both in terms of the raw.

<unk> unit economics for the plant, but then also with the commercial activities are the financing and what we think that that ends up resulting to a return of equity to us and our shareholders. Three is then to provide a meaningful roadmap to then turn this from a project into a company to address what we believe is a massive massive need.

Need for hydrogen on an economically viable basis to really be the participant in the climate change transition that we think that it actually needs to be and deserves to be.

And when all that comes to pass as we said before I think we will definitely look hard at the notion of actually separating this activity from the rest of our activities to give it its own character his own invest ability to give the investors the chance to invest directly in this in this project I get asked often by friends.

By investors.

Other folks.

What I view as the best way to invest in energy transition in terms of the economic profile of our company, we believe that actually connecting both the production of <unk>.

Gas and LNG on the front end with the downstream activities on the other side. That's the core of what our mission is is the core of our business and we feel like we're very much following exactly the blueprint that we laid out three and a half years ago. When we first went public.

With respect to the energy transition to a true clean energy future. We believe that this Alan with this company it could be one of the true leaders in that transition the United States with the leadership of the members of Congress that are behind this we think is given a very very very strong platform to create that opportunity and that growth and we look forward to.

Looking to people as Patrick said in much more detail here as this moves ahead.

So.

So I think.

Excuse me, we will go ahead and take it into Q&A, if you'd like to transitions there. Please.

Certainly if you'd like to ask a question you can do the job.

By pressing star one on your telephone.

Star one.

You'd like to ask a question.

We will now take our first question.

Devin Mcdermott of Morgan Stanley . Please go ahead your line is open.

Good morning, Thanks for taking my questions.

So first just congrats on the great progress across.

All of the initiatives here. This morning. It was very helpful. Update My first question is on SaaS LNG and I wanted to ask specifically on the Louisiana permit process. You mentioned, you've re filed the permit addressing some of the comments that came in and can you talk a little bit more about what.

What changes are made in the <unk> filing whether theres any design changes that came along with that and what this means for that approval timeline.

Yes sure happy to this is Cameron work less help me up these efforts.

Short answer is very productive set of initial questions asking standard additional request for information we properly filed that back on the 26th of July and it has been reviewed by the regulators now so a very positive first interaction.

First.

First set of questions from the regulators I think totaled 92 questions.

Which relative to our experience in permitting other projects.

There's actually a fairly light touch theres, obviously a lot of.

We filed as I said, an 8000 page application that we've got.

Cameron is the general counsel, but call me, we have a whole team of very very talented and experienced folks we filed what we believed to be a very complete application. The result as is kind of.

Numerically.

92 comments, we think is a fairly light touch we've been refiled that as Cam said, a couple of weeks ago, and we very expect we very much expect to continue to make significant process. There was no real design changes that were material that were requested nor did we make and so just like when you're building a house.

The last thing you want or really the design changes that's what killed schedule that will cost more money. That's what confuses people that are permitting it our goal with this unitary design was to avoid all of that we spent a huge amount of money and time and effort trying to come up with a unitary designs. We think makes sense and hopefully that's being reflected in the progress we're making on this so.

Got it very helpful. And then my second question is on downstream terminals you had a very helpful update on that.

You mentioned that you have made some additional progress and are optimistic on Ireland's my question is kind of at a high level could you talk about.

What gives you additional confidence in Ireland. The process there and then I know you also called out South Africa in the map. So just a little bit of an update on the opportunity there would be great.

Yes, sure Thanks, Kevin So in Ireland.

Just a lot of good activity on the permitting side.

Actually dissimilar to kind of the process, we just went through but.

And a much more advanced stage.

We've done a ton of work around permitting there we have interaction with the agency that suggests we've answered all the questions that are kind of at the end.

They have a formal data in September to give us an answer and so.

Kind of all those things.

In addition to our interaction.

In Ireland, and seeing kind of the energy security situation make us think that the project has a great basis for going forward.

At or before that date in September .

So I think that I think thats. The main issue. The other thing to call out there is I think sometimes it gets lost that permit application also has 600 megawatts of power associated with it.

And so not only do they have an energy security issue on gas. They certainly have a power shortage issue in Ireland, as well and a lot of the future.

So overall kind of demand datacenters otherwise in Ireland is based on increasing power. So.

Both of those things lead us to believe we have increasing chance of a successful conclusion of that process.

In South Africa, we called that out because we are actively working on development. There that's been a country that we've targeted as a very long time for having the kind of basic fundamentals that we think are really attractive for LNG. So large population growth large power demand growth.

In a country that.

Effectively burns coal and oil.

Oil based fuels today, it has almost no gas penetration some LPG penetration.

And so we're working on in development there.

Of our development. It's the most early stage, but is similar to our other projects in terms of being sighted.

In Richards Bay, which is a place of huge industrial and power demand.

And we would also plan to connect that to our own power development as well so more to say on that as we go forward, but wanted to be clear that as we progress our downstream development efforts South Africa is kind of obviously at our sites is the next thing.

Great. Thank you very much.

Thank you we will now take our next question from Ryan Levine from Citi. Please go ahead. Your line is open.

Good morning.

In terms of your hydrogen project can you provide some color as to what the background of how that project came together and.

The practical implications of the IRI for for that particular project.

Well the background of the projects I think it was $2 five years ago, we identified hydrogen as the true clean transition fuel and really began a process at that point of evaluating.

<unk> technologies, Electrolyzed producers and projects worldwide.

The fruit of that labor is the agreement that we signed with plug yesterday.

<unk> is the technology that we pick for this first project Incrementals are that we lay out on page number 25, there are a number of other aspects of the.

The development that had to get solved for in order to turn it into a truly <unk> or executable transaction.

The site, we selected is in the.

In the port of Beaumont.

Our view is it's proximate to our site that are infrastructure fund. So we have a lot of experience in that sector.

It is one that is ideal both with respect to its access to water and its access to a hydrogen pipeline. So theres petrochemical users in downstream users up and down the Gulf coast that actually can access it directly we had a pick intellectual lives our technology the financing.

Profile. This is similar to what we've done with other infrastructure projects in that area. So we believe we can access affordable and.

And very actionable financing for it. So it has all of the major attributes that we would look for in terms of making an economically viable the last real piece Thats a material. One now is this production credit that actually then moves the economics from a.

Modestly profitable transaction to one that we now think is actually one which is compelling and can be the template for a number of these.

So I think Patrick said with.

With this project, we think it is the largest.

Green hydrogen projects that will be built in the United States.

It is a very small fraction of what's needed and so give a green hydrogen project blue hydrogen projects. I think this is the beginning of a new industrial age for hydrogen in this country with this bill and then it sounds like a very.

A very substantial statement, but thats, what I actually feel about it.

And you can't really finish until you start and so having one project that is economically viable is shovel ready and Financeable and ready to go is what gives us a lot of confidence that this is the right path for us.

And then a follow up on that in terms of the.

Financial benefit of the higher rate for this particular project is there any numbers right around in terms of the impact and then maybe just in terms of the alternative minimum tax provision.

This proposed legislation.

How would that impact new fortress.

And do you see any place and mitigating any alternate minimum tax jurisdiction.

Location.

Well, it's a $3 production credits.

One number to take away from the Bill is $3 $3 a kilogram.

It makes us again from something which is modestly profitable is something that is actually very attractive returns both on leverage as well as returns on equity so $3 in production credits.

Or what.

What is the bill right now Thats, what Patrick and our folks in Washington believe is likely to be enacted and now we just have to see Congress do their work over the months of August and hope that in fact, as it's written as we'll get put into law, but that's that's the next thing to keep track of and as I said I think with this production credit it will move the.

The us into the vanguard of actually being green hydrogen production.

Thanks for everyone, who wants to do business. So the first one of these which we're doing we think is a great.

Profile for people to emulate and look at but we think it's the first of many.

And then in terms of the alternative minimum tax do you think thats going to impact.

I think for just energy.

Hi, Don.

Okay. Thank you I'm not alone. Thank you.

We will now take our next question from Craig share from.

Tuohy Brothers. Please go ahead.

Good morning.

Anytime.

So two questions here can you further opine on that.

Our long term vertical integration benefit of your upstream merchant plan and your downstream out I'm thinking.

Simple.

Karena plans under a 25 year gambling.

And the other related opportunities and then on the short term.

Wondering if there's been any change in the amount of your energy prices contracted LNG supply that's been redirected.

Since the last quarter.

Hey, sure Craig Thanks ill start off.

So yes, I think you hit on the background of PPA right Super attractive for us because it.

Has its very unique combination of duration 25 years and then the price is GKN so great.

Great contract for Us in terms of you mentioned a vertical integration.

That's good.

A good example, because it is a great thing that we could supply from a third party contract, where we buy LNG.

It's also a great thing that we can supply from RF LNG in the Gulf Coast. So.

The PPA start date there is mid.

Mid 2025.

And.

Actually transportation from the Gulf Coast, you Buck Arena is pretty advantageous so.

I think that does give a good example of kind of the potential vertical integration as well as the flexibility we have in the portfolio.

And so it is a good example of what we're trying to build long term duration at good prices.

This may not be the question you're asking but.

A related.

Question on vertical integration is this quarter is a very meaningful one for us with the Pemex partnership and that this is the first time that we've actually obtained molecules in the ground now we're not taking ownership to them. We basically are.

Going to complete the wells bring them onshore in part in part to our liquefied in partnership with Pemex.

But in fact, we actually are getting the benefit of actually.

The molecules as if we owned them that's a very very logical extension for US right now so basically we have.

Started our business by going downstream to customers and have gradually over the last number of years worked ourselves back further and further to the upstream end of the equation. So you have downstream terminals you have logistics you have the shipping you have liquefy ours and now with this Pemex is the first of what we think it could be a number of meaningful transactions in the long term for us.

Then look to to obtain our own molecules to really complete that integration because as I tell our guys. All the time here the business that we're in is that we buy gas in our portfolio. We have a very substantial portfolio. That's growing with the addition of U S. LNG volumes, we then contract to sell those molecules in those.

Form of power or gas in a very long term in a very long duration on the other end of it provide all of the logistics and all of the shipping and everything in the middle of it and we're going to keep whatever's left and so in that sense. We are very vertically integrated today and this pemex transaction is a meaningful step one to the <unk>.

Logical conclusion of actually locking in your own molecules to complete that cycle than it is just a spread business. It is a spread business with very very long duration. We think that is the most attractive profile in the entire investment universe. That's the business that we are we have created here and we're going to continue to Brazil. So.

Thanks for the question.

In the shorter term this year.

Any further LNG previously contract re directed from Europe .

Your own downstream.

Yeah.

We have our portfolio.

There's a couple of slides that I skipped over at the beginning when you look at the.

The amount of gas that is needed in Europe versus what is currently being provided the amount of storage, which is currently utilized which is just under 70% versus the 90% that they need from this year that is just Europe and of course that plus everything else around the world. The World is desperately short natural gas and its going to be short in my opinion for a number of years as they now move.

Move very very quickly to both create additional supply and also look for additional sources of ore.

Energy so.

There is not a lot of marketable supply that's available right now in the marketplace. So we're blessed to have the portfolio that we have we're blessed to be.

Largely matched up with the needs of our customers. So we're simply like actually operating within the confines of what the market allows us to do right now the one incremental benefit to that obviously will be windows LNG volumes turn on sometime next year and then through to 2024, then we will have incremental supply that we can then then.

But right now we're very much in a good position of being long what were long we have customers that we serve we haven't had disruptions to our customers, which is great. We don't anticipate any disruptions and and.

And Thats why the focus on the LNG will allow US then to add to that portfolio to then be able to create incremental supply for all those downstream terminals.

Thank you.

Thank you there are no further.

I will now turn the call back to Mr. Wes Edens.

Great. Thanks, everyone. So just a recap obviously it was a heck of a quarter on the earnings front.

Number one and number two the progress on our terminals, which are not to be diminished.

The large scale terminals in Brazil.

The prospective large scale terminal in Ireland, South Africa. Those are all things that we think have made massive amounts of progress and we feel great about it number three on the LNG front. The construction of a continues apace. There is no real supply of surprises there everything is actually moving as we expect our deployment options for deploying those first units have gone from one to three.

As a meaningful addition in terms of getting permits in the ground and having places to put it. So the one site in Louisiana, which we've made great progress with now in Altamira as well as <unk> field. So we've got a total of three different places to put it with with access to gas that obviously three is much greater than one it gives us a lot of comfort that we are in fact going to be able to deploy these units.

As soon as they are completed manufacturers and last and certainly not leases, we really have put a check the box in terms of being able to self fund their activities and not need to go back to shareholders or the marketplace for raising additional capital. So by all measures. We think it was a has been a terrific quarter and the prospects for the rest of the year look Bryan so thanks very much.

Forward to speaking to you next quarter. Thank you.

Ladies and gentlemen, we'll conclude today's conference you may now all disconnect.

Okay.

Yes.

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Okay.