Q3 2022 New Fortress Energy Inc Earnings Call

Ladies and gentlemen, you are currently holding for the new fortress Energy third quarter 2022 earnings conference call, we will be starting momentarily. Thank you for your patience. Please remain online.

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Ladies and gentlemen, please standby.

Day, and welcome to the New fortress Energy third quarter 2022 earnings call Today's conference is being recorded.

This time I would like to turn the conference over to Patrick Hughes, Managing director of Investor Relations. Please go ahead.

Thank you Jake and good morning, everyone welcome to New Fortress Energy's third quarter 2022 earnings Conference call.

As Jake said this call is being recorded and will be available by replay on the investors section of our website under the subheading events and presentations.

At the same location you will also find our Q3 2022 investor presentation to which we will refer during todays call.

The presentation contains 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.

Now, let's turn to today's call.

This is Patrick Hughes I look after Investor relations here at New fortress Energy joining me today are Wes Edens, our chairman and Chief Executive Officer.

Christian <unk>, our Chief Financial Officer.

Andrew D D managing director responsible for our commercial activities as well as several other members of our team.

With that I'll turn the call over to Wes great. Thanks, Patrick and thanks, everyone for calling in this morning, so as usual I referred to the the investor deck that we posted here. This morning, so that you could pull it up and it's all along that would be great. So let's start on page number for Q3 was another great quarter for the company.

I'm very very solid quarter financially a $291 million in EBITDA.

That puts us well on track for our $1 1 billion dollar a goal for the year is up significantly from Q3, a year ago, a $170 million.

And just in general on a financial basis was actually that was quite a productive quarter.

In addition, we made significant progress on our two major aspects of our business the supply side and the demand side the supply side of course, I'm talking about the F. L. G.

Business, Chris will talk about that in some detail we hosted a large group of investors equity analysts are other participants last week down in Corpus Christi day to share with them not only the the details of what we're actually doing down there, but also introduce them to the the very talented people who've got this executing for us and we feel great about that.

But the demand side Theres a lot to talk about Andrew we'll spend a lot of time on that and it's really the question of the two aspects of demand in the short term dislocation in the world is significant and we all know about that we'll talk about that specifically long term our mission to provide power to the places in the world that need it.

Most is very much the mission of the company and and the problems and the dislocations in the world that we've seen in Europe in particular, you've only exacerbated the needs that people have so we'll talk a lot about that as well. So both sides. That's great other significant financial aspect out of the quarter is.

We are have increased our guidance for illustrative goals for next year from $1 $5 billion next year to $2 $5 billion. So significant upward adjustment based on what we see in the world right now and Andrew will talk about that here in just a moment so look at page number five.

This is a new a new page new format for us on presenting kind of the supply demand side, then I find it particularly helpful.

On the top you can see the summary of the supply side. So that the volumes T V to use 74 T V to use in 2021 88 in 2020 to 161 is F. LNG volumes kick in in particular in the second half of 2023 lots and lots of different adjustments in.

In this business 50 T b to use equals about 1 million tons of gas so about a million and a half tons last year closing on 2 million tons. This year and then the 161, so we're actually making a big upward adjustment next year, but then follow over to the right you can see what our expectations are for the rest of our LNG volumes in 2020.

For 2025, and you can see a fairly profound shift to the right in terms of the volume so take those volumes on it.

And now I look at the second line down which is the margin that we have realized on our positions. So simply put if you took the volumes times the margins that equals adjusted EBITDA. So it couldn't be a clearer and more transparent way of looking at the business you can see in 2021, we realized margins of $8.14 for Tvs to your 2022.

At $12.50.

Or forecasted a $2 $5 billion in EBITDA, resulting in a $15 53 as you see margin improvement each of these years that should match or intuition of what's happening in the world rights is as the world has gotten dislocated the opportunities to realize higher margins are there, but then what where we're obviously very focused on is not the short term, but the long term.

And so you look on the right hand side, what we have done is got normalized those those margins for what we believe is achievable largely through the sale of power and gas to our customers around the world and again, Andrew I'll spend a lot of time talking about this but at $10 12, $15 $15 you end up with a illustrative ebitdas in those years.

Ranging from $3 $3 billion, a low low side in 2024 to $6 96 billion on the high side and the other side now this all assumes that the amount of supply that we have in our inventory equals what we've already effectively committed to obviously, we do you think that there are significant growth opportunities across the world and across our port.

Folio, but this is this is a very discrete way of looking at that and I hope that you find it helpful.

So with that lets look at page number six.

The good news on the operational side, we are a significant generator of free cash flow cash on hand today $1 $4 billion targeted operating cash flows over the next three years approximately $10 billion. So something backing out the capex that we required to finish our Apple N G and other other initiatives you've got across the company, we expect to generate five plus billion dollars in liquidity.

Over the next three years, so a significant amount of liquidity and the question is then what do you do with that the three obvious choices are and the box down below so number one you can obviously make additional investments number two you can return capital to shareholders either by deleveraging the company and then issued dividends and deleveraging the company and buying back.

Stock or some combination of all those things we have yet to conclude spa.

Specifically the path that we are going to take and we have a significant amount of liquidity now we talked about with the board yesterday is doing a lot of analysis over the next 30 days or so and our target is on or around December 15th to come out and make a clear statement to shareholders about what our intentions are both in the short term and the long term with respect to our dividend policy in particular.

And what we intend to do with this capital. So it's a serious exercise as we say when we look at our balance sheet and capital structure. It's the the old proverbial measure twice cut once.

Uhm when youre talking about significant amounts of capital, but it puts us in a great position to return capital potentially to shareholders do things to grow our business and those are the things we're going to take into account so more on that to come here in a month or so.

Page seven is my last page four I'll turn it over to the the rest of the team.

Picture is worth a thousand words this might be worth 10000 words. So this is actually a chart that you can print out and carry around with you because I get it talks a lot about what the situation is in the world today. When you look outside the yellow box to the left you see for the most part the three major indices of of natural gas Henry hub in this country.

T T F in Europe J P. M in Asia moved relatively in a synchronized fashion for many years.

What's notable is that when you start to get the dislocation here, you'll see the timeframe for that actually occurring as July of 'twenty. One so a full nine months before actually the Russian invasion, you're starting to get a significant a change in the balance or imbalance in the world and that caused prices to spike.

The question of course, when I look at this chart is what do I expect to happen. When the continued this out to the right and things are normalized and what is the new normal and what is the level that we would expect for for gas to eventually settle out at once this crisis is has settled in one shape or form or the other my own perspective of it is I think the new normal may be at a at a.

At a marginally higher rate, perhaps some markedly higher rate and maybe the era of cheap energy in particular in Europe is one of the past.

When things normalize if indeed, they do normalize you'll end up in a higher place overall, but that that obviously has a big impact on margins in the business margins for us.

And it is something that really keep your eye, but there.

There are a number of factors that are not included in this in this chart that I think could have a significant impact most notably is that in Asia. There has been a pronounced step down in LNG importation and China in particular, the zero Covid policy. There has obviously impacted them economically they have actually scaled back dramatically on that that's some.

That we watch carefully it's something we think could actually change markedly, but really you know the other thing I mentioned about this chart is then this talked very much about the developed world. So this is about the United States about Europe about Asia and of course, there are many many billions of people that are outside of the developed world that desperately need energy Andrew will talk about that here in just a second but I think that.

Regardless of what's going to happen in Europe , you have a massive demand and the need for power in these different markets and so this is something to keep your eye on but an interesting chart on the left let me turn it over to Chris.

Yeah. Good morning, Thanks, Ross, Let me direct you to slide number nine and I'll update you on our LNG supply portfolio and what we're actively doing to increase its specifically our fast LNG developments on this slide you can see substantial growth in the portfolio from 2021 through 2025, our current supply contracts went from 74 at TVT last year Dave.

88, this year will be 114 in 2023 through 2025, when you layer on F. LNG volumes, we have an additional 350 <unk> or approximately seven metric tons per annum coming online and it's in the short term.

The first unit will begin operations in May or June 2023, and then the remaining five will turn on before the end of September 2024, so less than two years from now. This will result in 161 TB to you in volumes next year growing to 464 GB to you for 2025 now.

Now, let's turn to slide number 10 and talk about the progress in that Bungie as.

As you know and many of you attended we hosted an investor and analyst event last week and Hewitt shipyard in Corpus Christi, and there's a great opportunity for us to give investors a glimpse at the progress we have made.

As we mentioned onsite nothing that we're doing is overly complicated or difficult, but it does require the team to be organized efficient and accountable to one another the two key takeaways from the event last week and the highlights of the quarter are one we're making excellent progress in EF LNG number one and expect to achieve mechanical completion of March the 17th and then have the asset deployed in op.

<unk> in May and C. O D. In June 2023, second we've made huge progress in the deployment options, including permits for our various locations, which are outlined in a couple of side as mentioned our epilepsy. One is rapidly approaching completion on the modules in the top left of this page, there's a picture showing where we assembled the modules.

That'll be lifted under the Jackup rigs module one for gas treatment goes on the first rig module to liquefaction goes onto the second rig rig and then we'll have one smaller module for utilities and accommodations that goes onto the third rig each of these large modules will be 4% to seven levels high and when completed will weigh over 5000 tons.

Below is a picture of the Jackup rigs, where the modules will be installed we've completed the demolition and are nearing the completion of the whole strengthening and enhancements to the foundation as well as the complete overhaul and upgrade of the Marine systems. Further we're in the middle of preparing for deployment and operations. Once the epilepsy construction has been completed we've hired our commissioning team that's worth.

The commission is much of the asset in the yard as possible. Once the system is completed we can work to activate and test immediately regarding installation, we're doing things to have all subsea tie ins pipe way moring riser work completed in order to ensure that once the LNG is onsite. We can immediately begin operations and in operations itself. Our team of people is already big.

Training and simulations to be ready to operate the asset once its on location.

Flip to slide 11, and we've talked about these locations before but we've expanded our aphthongia options that appointment to three different spots, which can accommodate up to six F. LNG units as Wes mentioned, we were in Mexico City for another for another meeting with President Lopez, Obrador and the director of the Cfe, where we signed binding documents to deploy up to three.

[noise] units at Altamira this.

This would utilize U S feed gas molecules transported into Mexican waters via the <unk> pipeline. We've submitted all permit applications and those are undergoing final review, we have active vocal public support by all relevant permitting agencies in this process, we expect to complete the permit process early next year.

The second box is the West Delta 38 location, where we submitted our myriad application to install two F. LNG asset. This would again utilize existing pipeline infrastructure and reverse flow of gas from onshore to our unit offshore as many of you know or stop clock order was lifted on October 28, and we expect the EPA to issue a draft environmental impact study very soon.

This puts us on track to receive final permits in the first half of 2023.

Third location is an innovative partnership with Pemex to complete the Lukasz field and if he will complete seven wells and then begin producing in summer of 'twenty 'twenty four we will spend approximately a third of the gas to shore for Pemex to use and the remaining two thirds will be used as feed gas for LNG for which you will use the savant semisubmersible drillship.

We really like this model, which captures proven but undeveloped and stranded gas reserves incentive portion of shore and the remainder to earn a fee for feed gas to turn into LNG.

Turn please to slide number 12, which talks about this page last week in corpus, but but this provides a roadmap of which units we're building where they are being built and when they're expected to be complete the page shows the mechanical completion dates for each of the units and then it takes between two to three months to mobilize install and commission before reaching C O D.

These schedules are the result of simplifying the design with a focus on repeat ability we have the module fabrication timeline and the marine infrastructure make ready down to about 12 to 14 months to mobilize hookup and install is about a two to three month process. The commissioning is one to two months and all told we can be done on future units in 18 to 20 months from EF.

D to C O D.

Further we've already ordered all of the critical are long lead items for each LNG units one through four and obviously, we're using the same providers on each unit by using a uniform design on the engineering of the modules. The bulk of the procurement is common across the units. So Theres Baker Hughes for compression chart for the cold box Siemens for gas turbines trelleborg for marine equipment et cetera.

So in conclusion, you can see our supply of LNG is growing rapidly over the next few years. This will not only fuel expanding downstream portfolio, but also perfectly positions us to capitalize on current market dynamics and the growing global need for reliable LNG to boost energy security and with that I'll turn it over to Andrew.

Thanks, Chris Hello, everyone. It's great to be with you last week in Corpus Christi, Amazing, what Christian and alive and the team have done. It was it was fun to stand on those rigs and kind of look out and see all the component parts of that.

We lifted onto them.

And in my role on the commercial side.

Important moment for us so as Chris just went through NFC is creating seven empty PAA of new volumes in the short term. So that takes our total portfolio up from about two to two and a half empty P eight and nine and a half empty P. A.

Which as Chris showed is 464 television used by 2024 and a run rate basis. So I'm on page 14, and what we want to do now is spend a minute to frame our long term commercial strategy for selling these volumes in a way that creates long duration sustainable returns.

And what you'll see that that this strategy is generally in line with the same core Michigan as he has had since the beginning of expanding access to affordable power globally, which we think is a good business and a great mission.

So on page 14 on the left side, what we're showing really as an energy density chart.

Of the World. So you know the tagline is 70% of the world's electricity is consumed by just 10 countries.

And so what we see every day in these markets and what we believe is that these these other countries that are less kind of energy dense.

Our only going one way and that's towards more energy consumption more electricity consumption I think I almost have to pay a royalty to west to say this but as you as long haul or is that if he know Jamaica consumes about a 10th of what we can see them in the U S and Kenyans concern about a 10th of what you're making is consumed and so.

So what we see as a tremendous opportunity and a huge market, which is to provide affordable power and places that don't have it today and the more time, we spend in these markets. What we see is that demand is really only curtailed by supply and in that case by affordable supply.

So when we look at the right side of this page, which is which is new data for <unk>.

What youre showing is that in the first time of 20 years of collecting data on an access to electricity, they're actually seeing the number of people that don't have access to electricity increasing for the first time in 2022.

That's a bit of the Canary in the coal mine about a broader story about energy flows being redirected towards Europe .

And generally the developed world.

And about the world being short energy on a global basis. So.

So this really sets the framework for what we think the opportunity is and why we think it is important to us and long term. What we continue to believe is that by integrating our our LNG supply with power production, we can achieve differentiated sustainable margins over the long term and when he gave some insights today on how we're going to do that so flipping to page 15 and if he.

It really is an integrated power company today.

We have supplied converted acquired and built over 3000 megawatts of power to date across eight different power assets.

And so what we want to provide here is some background on what we've done as we dimension of necessity opportunity going forward.

Selling power is truly a downstream business, we have integrated all the way down to the consumer and now we're adding supply to effectively close that loop and we're gonna do more power.

It provides a basic necessity in service to consumers industrial businesses. It's typically acquired on a long term contractual basis, and it's very resilient from a credit perspective, it's very difficult to replace ones operating more expensive to turn it off and our credit experience across these countries has been extremely positive even through a global economic downturn, we had been paid on time and all of these.

Addictions.

So 90% of the operational volumes today that F E R power related.

And the over 3000 megawatts that we've been you know either a supplier or an owner of.

It's really going to speak to what we're going to do going forward.

Flipping them to page 16 on.

On the left side or the dimensions of the supply that Chris talked about so 464 T V to use is where we're going to be on a run rate basis. In 2024 130 of that will be spoken foreign current contracts and $3 34 that will be.

New supply.

Roughly we kind of use a rule of thumb that for every 10 D. B GB to use its about 100 megawatts and so that $3 34 T V to us translates to about 3300 megawatts of new power demand.

That we're going to fill with our LNG supply on.

On the right side, we're already in development on 1700 of those megawatts.

That's the power button bark arena, our 600 megawatt power plant in Ireland, 300 megawatts in South Africa, and 200 megawatts of new power in Jamaica.

We also have a development pipeline in growth markets with over five gigawatts.

So we want to show here is as our supply ramps up to this overall portfolio of nine and a half M Tpa.

The opportunity to actually integrate that with power demand downstream, it's about the size of what we've done before and were already in development on over half of that volume.

On page 17, but I wanted to do is take that offer that opportunity that's in front of us and try to dimension it from a margin perspective.

So when.

When we when we think about power, we really think about kind of selling long term power under a PPA at competitive rates that starts me on the kind of the left side of this page, which is 12 and a half cents for power.

That's a cost that we think is competitive around the world in these growth markets.

Typically there's also either a capacity payment or return on Capex the difference between what it cost to build and what the value of the plant is that's roughly around two and a half cents, so where we see long term for 100 megawatts of simple cycle power because we can sell power for an all in rate of about 15 cents per kilowatt hour, assuming a 9000 heat rate that's about a $17.

To use sale of gas or our cost of production on that LNG plus transport is about $7 I'm, a btu, which leads to a total gas margin about $10 trillion btu.

In line with historical West showed earlier eight going into 12 going into 15.

Also what we believe for the long term so in the bottom of this page we're living back to our margin page that we showed earlier to show as we get to our goals of 464 television use run rate 'twenty four 'twenty five at $10 and margin that's $4 $6 billion of margin and so this really is in line with what we've done in the past and what we're looking to do going forward.

Let me flip then to page 18.

Kind of address how we get there so.

The amazing thing about this opportunity for us today, and it's been different about about this business in the past is it is an amazing time to be building supply and to have a long position.

Because there is effectively an unprecedented market opportunity for LNG in a short term basis on.

On the left side of the page.

We've actually been doing a ton of detailed modeling about 2023 gas balances in Europe and for those of you who followed us theirs.

Highly variable problem, but we'd like to go back to kind of one simple metric, which is in 2020. One there was 122 MTA of Russian gas supply through pipelines. In 2022, there was 67 M. D. J and then 2023, where we expect it to be zero.

That's effectively replacing 1500, LNG cargos and you need 20, plus new LNG terminals to do it and so there's a lot to be said about what will happen in 2023, but I think we effectively we believe that market will be continue to be short and the price graph on the right, which is the one we showed previously which is when we all carry around in a park.

Today is really the short term opportunity. So we're building a long position into this opportunity that we're going to term out overtime with integrated LNG to power.

Page 19 goes a little bit further in terms of the infrastructure in Europe , because we wanted to describe some of these details to you to understand just how good this opportunity is and how we're going to attack it in the very near term.

Europe has substantial re gas infrastructure today and in a very connected LNG market. So theres approximately 30 terminals about 3000, LNG cargo slots a year.

And the market trades on an index price so that the main indexes called TTS. It's the.

Gas network in the Netherlands, and the other gas networks in different countries in Europe effectively trade, it's a basis to the ETF price now the great thing for us that is very different from most of that if these life is we've got two things we've got existing infrastructure and we've got a centralized market price. So we don't have to go find individual buyers.

We can sell effectively on a centrally cleared exchange at an index price.

And so there are chokepoints for this infrastructure of getting into Europe , and obviously now those are getting more full we're creating new capacity, which will be highlighted here, which is the EMS side and terminal in the Netherlands, which we partner with gas and Neon and is the first new terminals to turn online since the Russian division there'll be other new terminals, especially in Germany, and Italy, and other places as well that will.

Span that infrastructure, probably not enough to make this market anything but very tight for the next few years, but there will be available infrastructure for for suppliers like us to be able to supply gas into Europe .

Again, replacing 100 empty PAA of Russian flows, that's probably 15 to 20, new regas terminals to really try to dimension that opportunity and so as we expand the portfolio of supply we will be able to sell into Europe , using existing infrastructure and at the market price, which is giving US great short term returns on a long term basis, what we.

Really believe is that LNG to power as the differentiated way to build competitive advantage.

<unk> a real service downstream.

<unk> competitive margins and its something that <unk> has the expertise and the experience to do and so that's a little bit more information on how we're thinking about the long term opportunity and how we're going to deploy all of these F. LNG volumes and look forward to talking to more that's it's Patrick.

Yeah.

Thanks, Andrew.

On slide 21, we're just going to spend a few minutes talking about hydrogen.

So we are.

I guess I'd start by saying, we continue to make significant progress with the hydrogen business, what we're calling zero.

During the third quarter and as Wes has said many times, we're very strong believers in the role that hydrogen will play as a cornerstone of our clean energy future. In particular, we think it plays a big role in difficult to abate sectors of the industrial economy things like refining petrochemicals steel and cement manufacturing, where you can have a real impact.

On de Carbonization, but what we're also seeing actually especially in recent months, there's a lot of related opportunities and kind of secondary and tertiary areas like transportation hydrogen storage and renewable power and we continue to look at a number of opportunities in those areas from a strategic perspective.

All of that said, we're really in the early days of seeing a clean hydrogen economy really come to life.

So, let's start with Beaumont and the asset we've talked to you about in past quarters, and then we'll step through a few other items before I turn the call back over to Chris. So we're proud to be a really.

True first mover advantage in this space with our first industrial scale Green hydrogen plant in Beaumont, Texas. We're building a 120 megawatt green hydrogen facility, which will be capable of producing 50 tons per day of green hydrogen, which is about 18000 tons per year.

At that level it will be the biggest of its kind in the U S. Once it becomes operational which we expect in 2024.

Beaumont itself is a big industrial center and southeast, Texas that many of US are familiar with from from past transactions and activities lots of refineries in the area and lots of others that use hydrogen today.

And so our natural customers are right, they're both inside and right outside of our property sense line.

To put it in perspective, just three or four refineries in the immediate vicinity have demand for over a thousand tonnes a day of hydrogen.

We're producing 50 in our initial scale. So 1000 tonnes per day is over 20 times, what our plant alone would be able to produce in our initial phase so plenty of demand and plenty of growth potential in the immediate region.

As many of you know during the quarter, we secured our long lead equipment for the facility, including our electric <unk> in our deal with plug power. They are the manufacturer of essentially the machines that make the hydrogen. The first of these units will show up at our site in 2023 and will complete assembly and start operations as I said in 2024.

Also during the quarter, we signed an agreement with entergy to provide the renewable power to our site. There are actually multiple facets to that agreement and they've been a great partner. So far entergy of course is helping with the tower connections the high side. The Transformers on the site that you see on slide 21, but we're also looking at other areas of potential collaborations.

<unk> with them.

So now on to slide 22, as it turns out in the U S is really going to be the best place to build clean hydrogen projects probably have anywhere in the world earlier. This year as many of you know Congress made a major investment in clean energy infrastructure actually the largest climate investment.

Ever made in the history of the U S.

So-called inflation reduction act as the legislation is known as expected to spur more than four trillion dollars of infrastructure investment over the next 10 years that will include a tripling of annual hydrogen spending and other big commitments towards things like carbon capture and storage solar electric transmission really.

The network that makes all of this possible we're quite focused of course on the $3 per kilogram clean hydrogen production credit, which takes our hydrogen business from marginally profitable to very profitable and really allows our industry to produce green hydrogen in an economic and scalable way.

Okay.

So you go to the last slide in the hydrogen section, which is page 23, as we shared on our last call. We are working on projects in the Gulf Coast and in other locations around the U S. We mentioned in particular, the Marcellus project on our last call. What we're doing here is putting together a really a pure play multi asset clean hydrogen infrastructure business.

And our plan is to separately capitalize this business in the near future over the last several months. We've continued to put all the pieces together for Beaumont and we've learned a lot.

Buying those learnings to really optimize our approach to future projects, including being very thoughtful about our customers and where the demand for hydrogen actually is really putting these clean hydrogen markets in place right, where they are needed. So we're basically using all the good things about the Beaumont project and kind of stamping out that model in other parts of the country.

To put this all in related terms, we're building really the leading industrial scale clean hydrogen business and our platform. Initially is expected to be the equivalent of five Beaumont.

So this 90000 tons per year number that you see on your screen is equivalent to about 600 megawatts or about 520 megawatt Beaumont facility's as.

As you can see there's much more to come on this front, we'll be in touch again soon with key commercial milestones at Beaumont and details of our path for expansion and separate capitalization.

Chris over to you.

Great. Thanks, Patrick Please turn to slide 25, I'll quickly run us through the financial performance for Q3 for the three months ended September 30, we had adjusted EBITDA of $291 million.

Which is approximately $1 2 billion on a trailing 12 month basis.

Terminal segment operating margin was $251 million with another 88 million from the ship segment and you can find more detail in the appendix net income for the quarter $86 million, which is about 41 per share when excluding one time items. This quarter, we sold 24, TV using total volumes, which equates to an average operating margin of around 15.

<unk>, which obviously is in excess of what Andrew is saying, we can do long term.

Henry hub averaged $8 30, which is a is obviously a pass through but did have an effect both on revenue and costs over the period.

Move to slide 26, we're showing a side by side of the balance sheet as at June 32022 versus where it is now and as you can see it's a completely different picture as a result of the incredible work of our M&A teams, we've executed on our promise to monetize over 2 billion worth of assets, which fully funds our growth initiatives, we've simplified the corporate debt.

Just two tranches of bonds at $6 75, and six 5%, respectively. We also have $440 million revolver, and a $250 million letter of credit facility, which provide us access to low cost flexible capital as needed is currently undrawn given our cash position.

Last year of the <unk> bonds, which is an asset level debt nonrecourse, then it would be but it is consolidated on our balance sheet and thus included here as you can see the liquidity profile is strong with over $1 4 billion in available capital.

If you turn to slide 27, we've made significant progress on our financial goals and we will use this slide to talk to the rating agencies in the coming weeks, we think we're well positioned for an upgrade and look forward to speaking with them today as I mentioned, our trailing 12 month EBITDA is approximately $1 2 billion with seven terminals either online or nearing completion, we have done.

To EBITDA ratio of less than three times as you can see on the graph at the bottom left deleveraging as rapid as each LNG unit comes online there will be we will be under two times leverage with our first iphones, yes. It below one times once the second one comes online later next year.

Finally at the bottom right of the page we show our cash on hand, plus available into the working capital facility is $1 4 billion, which combined with our operating cash flow fully funds the <unk> LNG initiatives.

Finally on slide 28. This shows our continued focus on being a world class operating company in Q3, we delivered 2004 television use the customers and asset reliability remains above 98% important to note that our excellent teams in south, Florida, and the Caribbean, we're able to effectively and safely shut down activity, while hurricanes approach facilities. This fall.

It had operations back up and running with it within 24 hours of the all clear notice from the Coast Guard.

Last but certainly not least we had no safety incidents during Q3 and maintain or zero point zero total recordable incident rate.

With that turn the call back over to Patrick.

Thanks, Chris So Jake I think we're ready to take a couple of questions. If you could.

Explain the instructions to the colors that would be great.

Of course, ladies and gentlemen, if you would like to ask a question. Please send them by pressing star one on your telephone keypad keep in mind. If you are using your speakerphone make sure. The Moody's released two allowed that suitable to reach for our equipment. Once again star one for a question, we'll pause for just a moment to allow everyone an opportunity to signal.

And we will begin with Ben Nolan with Stifel.

Yes. Thanks.

I appreciate the.

The time here I wanted to start a little bit just understanding on the LNG side, what goes where.

It feels like they.

Altamira is first in line for the for the Jackups.

And I guess that would mean that the floaters would go to Louisiana.

First of all is that right and if it is does it change the myriad process at all.

With respect to sort of.

Approvals in timelines or anything like that.

Hey, Ben it's Wes good to see last week.

Yes.

As Chris said, we signed agreements with the government of Mexico on Friday right. After our our tour in Corpus and so we have a definitive.

Definitive agreements allow us to place units into Altamira, which is great. So that gives us a lot of certainty.

What can I say the LNG business, there's two things that matter one is building the unit and two as having a place to put it in so we feel great about our situation in Mexico and feel like this is the first of many many different opportunities. We have done their second with respect to myriad a we have a very engaged process with them.

Our our permitting team is in daily interactions with them at this point.

As you know there is a 364 day period that they have to grant you a permit by statue.

They have questions along the line they can stop the clock basically while they ask you to give them more detailed responses and then start the clock once they're they're satisfied that you've done so and we went through exactly this process here recently, so they stopped the clock on a project in the middle of August they restarted the clock in at the end of October which.

Which we feel great about it and so both of those sites. We think are very active candidates for the first of these units.

At this point Altamira has.

Modest lead because there are a little bit further along in the process, but our goal really for next year would be to deploy assets in both size and that would give us. The most diversifications accompany would allow for incremental units to be applied.

Addition to that so that's that's where it is I'd say right now we would be the first one.

Mid year in Altamira, a second one later in the year in Louisiana.

Okay, and if it's a in Louisiana, if its a floater or does that does that change the process at all.

Oh, we're really permitting both floating rate as well as the fixed platform in Louisiana, and we expect it to do both there so either or right. So I think as you know as Chris laid out and we tried to be very specific on this we've got a pretty detailed view as to the calendar that goes on so first one due out of the yard in March 2nd one.

In November and then every few months thereafter, so which gives us a lot of flexibility in terms of the nature of the infrastructure, obviously as we said before the the substance of the liquefy ours are the same regardless of the marine infrastructure install them on so.

Okay, Perfect and then I think I get that.

Extra one, but just real quick any update on Ireland.

Sort of on and off but where does it stand at the moment.

Yes. So we are in final review, obviously, there's been some data previously been published by the permitting authorities in Ireland that have extended a bit.

We think we are in a very good position there.

There's public comments now about the government supporting <unk>.

LNG and the security of supply review that the government has gone through definitely recommends LNG and so we're working everyday collaboratively to answer your questions and do other things to kind of make sure our.

Perfect gets finalized here before the end of the year, but we're confident that it will happen and that includes both the terminal and the 600 megawatts of tower, which you want to make sure we're clear on as well.

Alright.

I appreciate the west Andrew Thanks for the time.

We'll now move to Sam Margolin with Wolfe research.

Hey, good morning, everybody. Thanks for taking the questions.

You pointed out in the prepared remarks that you know.

You're converting operating margin to cash them much.

More efficiently this year and that's great.

As you stand up LNG production, some things change with like working capital needs and how.

You know the financials come in and out can you talk a little bit about how.

Anything that needs to happen with respect to the balance sheet or liquidity to manage working capital positions as you become a major LNG producer.

Hey, Sam it's Chris so.

Short answer is we don't expect it to be a big working capital drain at all in fact right now we're buying.

LNG cargoes from the existing suppliers and prepay that strictly a function of not being investment grade is common in the in the industry right now when we start taking feed gas supply. What we've done is the feed gas supply contracts that will have and after the survey I find from cfe or in Louisiana will each be.

<unk> paid in arrears and then in the case of Lukasz. We actually are the people that are paying pemex. So so I expect that you'll be able to be working capital positive pretty in pretty short order. The actual turning on of the equipment. Obviously is not big spend I mean, it's labor and it's it's power, which is functionally cost of the feed gas.

And then the unit so not expecting big Big drags at all important laid it out I mean, we continue to upsize the revolver in the in the LC facility, which allows us a lot of flexibility to that's cheap capital.

That's fantastic Thanks, and then.

Just a follow up you know as you as your slides indicate the forward curve of TTS fully supports this margin view after 2025.

A lot of LNG capacity perspective capacity works at like a 15 dollar margin a lot less work that say like a three to four dollar margin, but I think that yours does and so the question is you know as you advance this term business how competitive do you really want to be against this competing capacity.

You know as you sort of advance this strategy to deliver energy to energy impoverished places.

Yeah.

You know one of the reasons, we had Andrew.

Go through in detail, what the economics are on the power side and the dimensions of the power shortage in the world.

As to show what the long term path of the company was really we started creating our own supply of long before there was a crisis and we did so.

In order to satisfy what we view as they virtually inexhaustible amount of demand on the other side of it the margins that you realize there are significant so if you look at our margins of $8 $12 $15 and you compare them to the margins published margins of the large gas producers.

At $1 $3 $4, $5, obviously, they're materially higher materially higher because it's harder you have to build terminals you have to build infrastructure you have to build power plants you have to so you have to supply operations for it.

If it was easy to make high margins everybody would have them. So we've made a profound effort on the downstream side to solve people's problems and knock wood, a denso pretty successfully you know one of those things I think that it is actually.

Is under estimated is that.

One of the measures of how successful that has been is the credit profile of that downstream activity is tremendous. So we just lived through a global pandemic still feeling the effects of that in many parts of the world. We have the the areas that we do business and were among the hardest hit economically and we do not have a single dollar of late payments from any of them I mean, the service that we provide.

Is critical and they have to have power they have to have energy, where the most affordable option that they've got and so even though it is significantly more commitment on resource and on capital and on time and on personnel.

The sum of all those things is you end up with the downstream portfolio that complements your upstream portfolio, you generate higher margins and you're solving real world problems, rather than just being a wholesaler. So we are a we are a retailer or wholesaler at every level and thats a big commitment, but you can see very visibly now what the benefits are not.

And in terms of the economics, the drop to the bottom line, but also the credit attributes of it and also just the Michigan, which we're trying to accomplish things.

Thanks, So much have a great day.

Thanks.

Our next question will come from Sean Morgan with Evercore.

Hey, guys. So.

Application for for Altamira, I think it's interesting it looks like youre going to be able to potentially source gas from I would say, which has been a bit of a holy Grail for U S exports because people kind of view that guests generally is.

Lower price too then than some of the Henry hub gas, where theres a lot more export capacity kind of servicing off of that so when you guys think about you have to transport. This gas a little further there's a couple of pipelines the ball I believe.

In terms of getting the gas wellhead to jetty, you know where do you think that you're sort of export costs.

Play out relative to some of the existing competition in the U S Gulf.

We think that the bottom line is that our economics are fairly similar weather than we actually produce LNG in agriculture gas down in Altamira are off the coast, Louisiana, I mean, Theres, obviously basin differential transport costs personnel costs and like there's a whole host of different reasons, but at the end of the day, it's actually highly competitive in one play.

Versus the other.

Big picture, 97% of the world's LNG today is produced on land, 3% I'd see.

Obviously with these five developments that we are building right now.

We immediately jumped to the top of the list would be in the world leader at actually producing these there's only six units that exist in the world today, we're producing an additional five so that makes us the world leader that IP I think is incredibly valuable. So obviously, what we're doing the first couple of our installations as we're using existing pipeline gas from the U S, which that's a ready source of gas it's good pricing.

It's reliable and that's a terrific place to do business.

The development that we're working on with Pemex will be the first time, we actually buy gas directly from a a productive well offshore we think that the implications for that long term are extraordinary and we think that the IP in order to build the equipment actually operated in those conditions allows us to access truly stranded gas and.

That's the next increment of a of incremental benefit to us than it is out there so.

It's a it's a step by step analysis, but the direct answer to your question is we think the economics are roughly the same there could be.

Plus or minus on either side of it but they're not that differential when you take into account both basin differential as well as transport but.

But we think that the next leg of it would be to actually source actually true standard Australia gas and that could be incrementally a very very different result.

Yeah Alright.

And just one quick follow up on Altamira. So I think the application is looking for $2, one and I think in last week, we talked about one point for export capacity in total so.

The $2 one or is that just headroom in case, you want to expand the Altamira project and also whats the maximum.

But the existing pipeline infrastructure could could could sort of accommodated on an MTA.

Tpa basis.

Hitting the this is Chris so yes, we wanted to excess headroom is exactly right.

The pipeline capacity is $2 60, a day are we understand that there is active discussions to expand that capacity to do a little bit above three the public filings indicate that historical use on the pipeline as it is around 20% so to see it.

What we're really doing here is solving a problem. If you have which is helping them defray some of the cost of their firm transportation and then also being a partner with them as we market the LNG globally.

Alright, Thanks, Chris that's it for me.

Thanks, Dan.

Well now move to Sam Burwell with Jefferies.

Hey, good morning, guys I wanted to hit on terminal sales and really the flexibility that you guys have to continue selling to third parties.

Next year, and I guess in 2024 as well given that you've got some terminals.

That are due to come online and sort of on that subject Slide 27, you mentioned seven terminals today nine in 2024. So could you just run through what those seven are and then what the eighth one in ninth one would do.

I'm happy to talk about the terminals you want to talk about the kind of downstream opportunities. So the seven terminals will be referencing our our old Harbour Mo Bay, San Juan La Paz, Puerto Sandino, Nicaragua, Fokker Arena, Santa Catarina, we expect to complete developments.

That we're in discussions on in Ireland, and in South Africa, which takes us from the seventh at midnight.

Yeah on the first question.

<unk>.

Yeah, there's a couple of contracts I think will come on here through 'twenty, three Norsk hydro and Buck arena being the big one.

I'm not sure I totally understood. The question, but we will continue to turn on those contracts I think we're showing 130 TV to use a kind of run rate 2023 volumes. So we've got a little bit of a bridge between kind of where we are now and where we will end 2023 with Norsk hydro being the big part of that.

Okay that that pretty much answers. Thanks.

The follow up would be on all the merit process I know you've talked about it.

Prepared remarks, and the Q&A already but.

Given your experience, thus far how it's gone and what you've learned how would you characterize.

The repeatability of the process and do you think it could.

Be done more quickly going forward because it strikes me that the U S. Gulf of Mexico is probably a great place for you guys to scale up fast LNG beyond. These first five units. So curious on your thoughts about that.

Well the myriad process involves a bunch of different agencies, right and our interactions with it than it had been highly professional and very responsive. So we feel like they have done 100% of what they are obligated to do both and letter in his script and we feel great about that.

When you look at what they have done historically, they have permanent they're responsible for permitting all the fixed platforms in the Gulf, which is I don't know what the actual number is but it's probably in the tens of thousands. So this is a very very experienced group and so what we're doing is really not that novel relative to what they have done obviously the thing that is different is we're putting a liquefy are on it are liquefy our has a power.

Plant, because you need compression to turn that gas into LNG. That's a that are permanent is the one incremental difference, but it's a it's a modest difference and we feel.

Their response has been entirely appropriate and engaged and very professional and so with all that said, we obviously think is highly repeatable and theres a variety of different locations that we have looked at.

In Louisiana as well as in Texas that would be logical places to have.

Follow on developments as and if this is successful, which we expect it to be but it's been great and I think when you.

The the modular approach to building the liquefaction and putting it on existing marine infrastructure is a significantly cheaper MBS significantly faster and so when I referenced at 97 three is the ratio of what it is today I think it is a it is very very likely.

I, 100% likelihood that those numbers will shift over time, because this makes so much sense not just for installations off the coast of the U S, where there's cheap and abundant gas is cheap and abundant gas all over the world and this allows us to go from one place to the other and cheaper and faster is simply better so thats great.

Alright, thanks, very much I appreciate the color.

And moving on to Martin Malloy with Johnson Rice.

Good morning.

Have a question on zero and.

I would like to get your thoughts about the offtake.

From that hydrogen facility and how you're thinking about the optionality.

There's a lot of industrial load down in that area, but I.

I believe energy also has a proposed power plant that's pretty large they can take hydrogen in and they've got some pipeline and underground storage assets as well.

Also I guess related to that how youre thinking about.

Milestones in terms of scaling that up.

Yeah. Thanks, Marty so youre, absolutely right theres quite a bit of diversity in.

In the off take pool in the immediate vicinity I'm talking about literally within within.

Hundreds of feet and then and then within a couple of miles. So you were touching on the refining a sort of community is the number I gave you before which is 1000 tonnes per day of hydrogen demand just just among the three or four that are right. There and again, we're producing 50, so as you can imagine.

We're quite popular and you know a lot of folks looking at the 50 tons a day of green hydrogen which is a pretty unique offering we are also indeed.

Working with entergy on their needs in.

The region on the power side. The facility you are talking about is called Orange County advanced power station and they have a significant need over time as well.

And then and then I mentioned the storage and the transportation. So you have things like spindle top and a number of other existing pipeline networks to move the hydrogen kind of all around the region. So a lot of options for us and what we're trying to do basically is look at how to optimize that first phase and then it's.

The good news about Electrolyze ours is fairly straightforward to scale because it's just it's largely a function of just adding units. So the first 120 will be 2024, and then we can add units thereafter as as the demand picks up and there's more of a need for green hydrogen in the region, Yes, I mean bottom line those that youre producing hydrogen.

<unk>.

Inclusive of the production credit is something close to zero and obviously the economics of that are very powerful and people are willing to pay a market price for it and as Patrick said the dimensions of what's needed is vastly greater than what's being produced so this as well.

Well I think it's the upside in hydrogen production green hydrogen production blue hydrogen production.

Just in the U S, but across the World has meant the fact is that today, it's a hobby. It's a relatively small part of the overall energy landscape, it's something that I think this.

Placing reduction act actually provides capital to a number of different aspects of it including the production of it but also batteries, including carbon capture and storage. There's a number of different aspects of it there are actually very powerful and the demand in my opinion for green hydrogen is virtually inexhaustible period and we can.

And do so at economic levels and so this has gone from a business that is actually marginally profitable that's still something which would be interesting to something that is absolutely profitable and that could be expanded greatly and so but you can't build a second until you build the first and so that's what we're very focused on right now and then I think you hope for efficiencies across the entire landscape. So not just in the <unk>.

Production of the hydrogen, but the transport of the utility of it all the different aspects of it that actually will make this be something that's not a hobby that actually doesn't play a material role in de carbonization.

Great and my second question I, just wanted to try to get your thoughts on progress towards investment grade rating and.

Do you think you'll have to get a few of these.

The LNG projects up and running.

Before youre able to achieve that.

Well they are the right answers are listening in and I hope that they are we think we should be investment grade now.

The cash flow generation and the conversion of EBITDA to free cash flow is significant in all seriousness. The radiation have been great partners almost along the way we've had a great dialog with them.

Post this earnings as we intend to go back and revisit with them one thing that we want to get credit from the rating agencies, we Wanna get credit from the equity analysts and the investment community broadly is the dimensions of the cash flow generation that we are about to experience are tremendous.

It's not an overstatement to say when you look at you know the the 500 companies in the S&P 500, there is a handful of those and maybe even none of those that actually generated $5 billion in EBITDA in the first 10 years of existence and so we have an extraordinary opportunity as a company to produce a meaningful amount of cash flow and have done so largely with.

Raising other People's capital has been internally generated and so when rating agencies when equity analysts when investors look at our business. It's not just the generation of cash flow. The question is can you do it without asking other people for money and that actually is a question that we can answer is a resounding, yes, when I say, we've got a significant amount of cash on balance.

<unk>, which we do and we expect to generate a lot more and the repeatability of the sustainability of it is of course, what they what all of those three counterparties are very very invested and that's why the Andrew and others spent a lot of time looking at the long term attributes not just the short term dislocation in the market opportunities there and the excess of cash flow that will generate which we believe will happen, but also the.

Our long term doing well, we originally set out to do which is basically to provide power and gas and power in a meaningful way to communities around the world that need it that is both a doing well by doing good. So it's obviously a very good business for us long term, we're actually making a meaningful impact on the communities that we service. So those are all the considerations for my experience with the agencies.

Is that it's not an event its a process and it's doing consistently what you said youre going to do and I feel like our report card. If you look back from the day. We went public until now is fairly unblemished that we have generally performed financially at or significantly better than what we said, we're going to do and I think they take those things into account and they tend to.

Followers as the nature of the business on the ratings side as opposed to leaders on it but we feel very optimistic about our chances of long term.

Thank you.

Well now move to a question from Greg Lewis with BTG.

Thank you Lee and good morning, everybody and realizing or on the hour I'll just ask one question.

In our west as we think about.

The cadence around the fast LNG and I guess right now there's seven MTP a on the board.

Clearly.

You guys see an opportunity in the market, but we keep going back to the bigger picture as we think about the gating factor in terms of how big your LNG solution can day is the right way to think about it that eventually we're going to hit a point, where we're servicing or <unk>.

<unk> and the Caribbean, our projects in Brazil, and elsewhere I E is that kind of what we're building.

Units with an eye on meeting our demand for these projects as we see them in the future or will we always bake or do you see a scenario, where you're always in a normalized environment down the road selling gas into the open market outside of.

Your company's end markets.

Yeah that is actually a spectacular question and it's a.

I'll tell you my perspective on it but it's not it's not possible to really predict the future we size RF LNG production initially to meet the demand that we saw visibly in the markets that we service.

That said, we're servicing a fraction of what the actual needs are in places like Mexico, or Brazil, or South Africa, or Ireland, even so the upside to get to just build the infrastructure and continue to grow organically in those markets is tremendous.

Now the question longer term is when I addressed earlier is what is the new normal when you're all done with this and I think that that is that's obviously a debate not an answer and theres a lot of different elements to it. The one thing I would say is that.

The downstream portfolio, we know that it's a great addendum to the business because it provides duration. So when people talk about returns. They should also be talking about duration of I've sat across the desk as many of you have 1 million people in my life have told me, they could make 15% or 20% or some investment return. The reality is that people that can make 20% returns for 25 years.

Ours are named Warren Buffett in just a few others. So the duration really matters and the duration that we get from these long term portfolios is significantly value I think it's undervalued significantly so right now by the way both in terms of the quantum of the earnings that we have as well as the.

Complete durability about them one other thing that is actually under else estimated in my opinion is that the flexibility that is granted to you. When you actually enter into these long term contracts and significant and what I mean by that is the world chronically under.

Nominates the amount of gas and power that they need I think it's actually a human characteristic and so this is not this is not something specific to developing countries I would say the same thing happened across Europe , where countries basically knew that they needed significant amounts of supply to meet their needs. They under nominated and they always just assume that they would be able to buy more on the margin on <unk>.

When they needed it.

That actually incremental demand is one that in the normal market just becomes more demand at the same price.

An extraordinary period, what it does is it basically allows you to have excess supply to then actually take advantage of it.

In the marketplace.

It's a nuance, but it's a very very significant one, but we believe deeply that the combination of the upstream the supply the downstream, which is the demand those two things together are not only good business partners. They are actually necessary, if you're really going to manage the business properly and the margins that you generate then are markedly.

If you go back and look at any of the other gas producers across the entire spectrum. They have great businesses, but they do a thing typically they produce gas they their ship gas or perhaps some of them actually use gas in different in different installations. No. One does it in the same way that we do it in and I think that the economics of it and the margins that we generate are testimony to the fact that the reasons why.

That's such a good thing to consider so it's a long answer to your short question, but I appreciate it. Thanks, it's a very good one.

Jake I think given that we're at the top of the hour. This is Patrick we'd like to maybe close the call.

Suspect we might still have more questions. So by all means for those who may not have gotten their questions answered. Please please feel free to reach out to me. So Jake if if you could close down the call that would be great.

Of course, ladies and gentlemen, this does conclude your conference for today, we do thank you for your participation and you may now disconnect.

Yeah.

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