Q4 2022 New Fortress Energy Inc Earnings Call
Okay.
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Yes.
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Please standby we're about to begin.
Good day and welcome to the New fortress Energy fourth quarter 2022 earnings Conference call.
Today's conference is being recorded.
At this time I would like to turn the conference over to Mr. Patrick Hughes head of Investor Relations. Please go ahead Sir.
Thank you Jess and good morning, everyone. Thanks for joining today's conference call during which we will discuss our fourth quarter and full year 2022 results as well as recent highlights and the very promising outlet for our business as Jeff said the call is being recorded and will be available by replay on the investors section of our website.
Under the subheading events and presentations.
In fact that that same location on our website, you'll find the press release and the corresponding presentation, we're going to step through today.
As we proceed through the discussion with Wes and the team will be referring to that presentation.
In the presentation, you'll see 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 get underway with the call. This is Patrick Hughes I look after Investor relations here at New fortress. Joining me today are Wes Edens, our chairman and Chief Executive Officer, Chris Gender, our Chief Financial Officer, and Andrew <unk> and other members of our senior leadership team west over to you.
Thanks, and welcome everyone.
And format as usual when I flip through the presentation that we posted.
So, let's just start at the beginning so page three 2022 was a very very good year for the company very volatile markets overall in the world and we've delivered very solid results nearly two times.
EBITDA and free cash flow of 2021.
Probably more importantly, the forecast that we have for the upcoming year is roughly two times. The results of 2021 22, so very very good financial results.
And not only the absolute number is good but the quality of earnings continues to improve more and more of our earnings comes from our downstream activities. Those are the long term dated cash flows that are actually are easy to predict and easy to model for all of you and thus for us So very very good start to the year.
Next page notable highlights there is a handful that really standout top of list for us as we signed a contract in the quarter.
Power generation assets of PREPA. So PREPA is the utility in Puerto Rico.
That services the whole island and effort was made by them several years ago to prioritize the two main parts of their business being number one the transmission and distribution, which they did about a year and a half ago number two was the management of the kind of Baseload power units.
<unk> thousand 600 megawatts of power in total 10 units.
We actually competed for and we're successful for it took over.
The contract is a 10 year contract base fee of just over $20 million, we profit share basically with cost savings of the island up to a cap of $100 million. So there is a substantial amount of upside to the extent that we're able to do as we expect to do which has cut down the cost of generation for the island.
Took this over we sat with the governor and another management folks in Puerto Rico in our press conference basically you said are too.
Scorecards for us on the island are number one.
The reliability of the service and number two the cost of the service it couldnt be more basic than that and we said that's what we want to be held accountable for that as we intend to focus on and we think that there is a tremendous amount of upside for us too.
Perform on both of those metrics performed for the people of Puerto Rico make their services not shut off make the.
Load shed and make the cost of it would go down and Thats, what we want to do in addition to the.
This contract, we think theres lots and lots of incremental opportunities on the downstream side on the on the development side and whatnot. So this just further solidifies that we think is a great foundational asset for us the terminal we built down there actually turned it on in the middle of Covid. So this time of year is reminiscent EMEA of what it was like three years ago. When we had people working in them.
Middle of <unk> to get that thing up and running so it feels great about that but there's a lot more to come.
We'll be talking to you the timing of this is we expect to be fully mobilized and take over the service sometime around mid year. So hopefully a lot more to talk about there in the future and number two the terminals terminals are the core of our business is the backbone of our business.
<unk> basically completed or near complete on two major Brazil terminals, Andrew <unk>, who will talk about that in just a second these are significant in that they are.
Our terminals are located in areas would have we think massive amounts of opportunity set of care arena in the South is just about complete Buck arena North is basically complete and we are a big baseload customer up there too based on the customers up there in the form of Norsk Hydro, which will turn on at the end of this year as well as a big power plant that we're building, but I'll leave those details to Andrew but it just <unk>.
Continues to March.
Significant downstream assets for us that's what we think is our most most.
Compelling competitive advantage versus other folks it takes a lot of time and effort to get to these places. So we feel great about that we've got.
Significant opportunities to turn on downstream assets in.
Puerto Rico.
In Mexico, and Nicaragua, and now in Brazil, as well as other geographies that we're pursuing so but this is all about the execution of our base level of business and getting these terminals up and running is a big part of it liquid.
<unk> as we've talked about a lot we hosted an investor day down at the end of last year.
The first one is basically near completion with Chris will give us an update on that but the first one is the most important and it's basically the way to fully integrate our business is the way to kind of get proof of concept of accessing gas and offshore capacity. So lots more to talk about with that but we've made significant progress in this year, we've kind of.
Shifting our focus from the.
The mechanical completion of the unit, which is close to now the deployment of it the transfer of it and of course the operations of it.
Lastly, shareholders the business creates a significant amount of cash flow and that affords us the luxury of returning capital to shareholders I think keeping the company appropriately capitalized, but also lean is the right way to make good judgments about incremental opportunities. We expect to continue to generate significant amounts of excess capital and as we do.
Due through a combination of either dividends or stock buybacks or quite possibly both as we did in the last 12 months, we will return capital as we see Fitzgerald's. So page five just a bit about the macro and Andrew will talk about this in some detail I don't have to tell anybody on the call, but 2022 was a record year of volatile.
The LNG markets. So the markets. If you go back and look at it.
Yellow box on the left hand side the market was already dislocated at the time that there is an invasion in the Ukraine. So.
They were already been a significant move up in price that was exacerbated by the in the blow up with the Russian pipelines all the.
The disorder that happened in Europe as a result.
That has abated substantially.
And what you see on the right hand side is that really a combination of two things significant fuel switching number one number two is just fortuitous warm weather right as the warm weather in Europe in the last 50 years or so in the winter time. So they are the beneficiary of just good fortune, which is great. But what has happened is that the prices between all the alternative fuels so gas.
Diesel coal have really is converged.
One thing that is very clear there was a lot of debate over whether Europe would fuel switch or not back to the kind of dirtier fuels like coal I think that that debate has been subtle there was actually I think last year will end up being kind of the most prolific year burning coal in Europe ever so when.
When you had to pick between energy security.
And the environment. There is no question, which way they win so I think that that is just that as a theme more broadly across the world certainly in China that has also been the case, Andrew can talk about that a little bit, but but what the net effect of this for us is that lower prices in a converged prices are good for our downstream business $50 TTS well it sounds.
Great if youre in the LNG business is actually not great for your customers. Good rule of thumb is that take that gas price multiple lifetimes six that gives you the oil equivalent so at $50 times six is the equivalent of $300 a barrel of oil.
That sounds expensive and an affordable it is actually expensive and an affordable so having to come back down to a more reasonable level, albeit at a higher price point than where we started is very very productive for our business because it becomes much more related to our customers and power and gas solutions now moved in line with other fuel sources and that actually is really really good.
For our downstream business. So I guess the last thing I'd say is the crisis is not over the winter of 2023 is still in front of US. This winter has not yet all of them are you talking about next winter, but I think again weather fuel switching gears.
Theres, a big activity levels in Europe to try and add more and more terminals, but they have a big hole to fill and we still think that there is a significant possibility of some real dislocations in the coming year.
So lastly, my last page before I flip over here is just the goals for 2023.
Couldn't be more simple from my standpoint, 2023 is really the year to execute.
We nearly doubled the supply.
That we have in our portfolio as you can see on the left hand side here over a couple year period and match that with incremental demand.
So just to read through that charter number one.
<unk> was <unk> 70, <unk> to use in 2021, we are forecasting that to be a 184 in 2024, so more than double over that three year period demand, which was fully matched in 2021, we also expect to double so the goal.
Yellow circles in the bottom there show the open volumes that he's got so you can see anywhere from 15% to 20% of our portfolio is open at the moment I get a lot of questions about our exposures to market prices and especially with all the volatility and whatnot. Our goal is to largely be matched it is impossible to be precisely match, so theres always going to be a buyer.
My bias is always going to be to have a long bias.
You need to have inventory to sell to customers that gives you an ax to go and talk to them about gas and power, but we wanted to have that be as modern as possible. So it kind of 15% to 20% is the size of that and.
Youll see that as we as the year goes on and as next year goes on we're trying to minimize exposure to volatility by focusing on our terminals customers and operations downstream business downstream power that is our core business that we manage here and we feel really good about it.
Next step for us on the gas and power side is.
We are very close to buying our first portfolio of really modular units of power and so thats something that if it goes as planned we could be talking about soon in the next couple of days.
The goal for that is to basically give people different countries and utilities and whatnot access to gas and power on an expedited basis time is the enemy of all of these problems and so when you see there's a big article in the paper. This morning about all the load shedding and the problems in <unk> is based in South Africa. That's a good example of it and the challenge for a lot of those places.
Not only do they have a problem with a lack of power, but they have a problem with it takes too long then to give a viable solution for it we think the right solution for that is to kind of more even more fully integrate by bringing power into our portfolio gives us the ability to provide solutions in months not years as a step towards longer term. So.
<unk> that are more efficient so lots more about that to comment just a general marker for you to keep track of it when you see something announced by US. It means that we've been successful about this we feel pretty good about that but there's a lot of lot of different applications for that where we think it makes a lot of sense right hand side and the last thing to liquefy, our as I said, we're closing in on mechanical completion transport installation operations now.
From the things that we're very focused on the timeline is short so we're in it we've gone from triple digit days to double digit days and so we have as Chris has talked about before we have a daily call on this and our teams are working very very hard on this the first one up and running as a massive accomplishment for the company and something we look forward to not only us.
The first step towards that.
Vertical integration of the business, but it also has a real proof of concept of these stranded in offshore gas assets that not only for us but for others. We think are big opportunities to do something with it so lots of focus on but these are the two main areas. So with that let me turn it over to <unk>.
Andrew.
Good morning, everyone I'll step through two slides in the LNG markets and then give an update on <unk> commercially we do want to spend a moment on the markets here just because.
We're seeing a moment in time.
Current price levels that we'll talk about that we think are really supportive and if you're a business case. So starting on page eight there are really two key messages here.
First is a recap of the price environment for LNG in 2022 on the left side and then second is what we are seeing in terms of LNG prices settling with some amount of stability just below the $20 area is significantly higher than the stable price levels, we saw.
In the time period kind of a pre the invasion of Ukraine. So on the left side of the graph of the TGF gas price, which I think as most of you know has been the leading indicator for global LNG prices in the last year graft against the U S domestic gas price Henry hub, and then the gas to oil parity, which Wes mentioned, which basically converts at a Brent oil price to adjust for energy content relative to gas.
As you can see on the graph price is actually starting to rise well before the invasion in February 2022 on increasing tenants in the market we were watching it closely at the time.
As we are seeing and opportunities around the globe and then that was extremely exacerbated with the conflict the balance of the year was that an experience of a relatively illiquid DTF price.
<unk> up and down doing the work of balancing a supply short market, where you had to draw LNG and into Europe , but then even more importantly, you have to actually have different times destroyed price sensitive demand and thats, what we really saw real spikes in CTF.
The rate is a very simple graphic but a powerful one for us showing the difference between levels going back to the end of 2020 and today. This isn't to say that we necessarily think pricing will remain totally stable at these levels, but we are seeing is a lot of price support for gas below the current level. So what we've been watching for the over the course of 2022 is really where gas prices are going to see.
Settle at a level that we believe will be higher than the historical so as prices come down in the last few months, we are starting to see strong incremental demand that level is in support prices and thats what were seeing now in the high teens kind of low $20 per btu level for gas at these levels LNG cargoes gets sold globally not just in Europe and we're seeing.
<unk>.
Gas <unk> power turned back on as we get to parity with other fuels for power.
The lack of supply and reduced overall liquidity is still means there is a ton of volatility in the system, but with adequate storage levels in Europe , following a winter or warmer winter than expected, we're really starting to see some stability come back in at levels that are going to be really supportive to our business. So let me flip to page nine and tried to focus a little bit more on what this means for nse's business.
<unk>.
So when the developing themes, we're seeing in the market now really kind of beginning in December of 2022 is the convergence of global fuels for power, So natural gas diesel and coal graph on the left side equalize the price of each of these on a permanent btu basis, which is the most useful way to look at it because this is really the measure of energy content, rather than what we typically see.
Which as measures of volume or weight and it shows how these prices.
As energy content, they've all come together in the last few months following the kind of 12 months to 14 months of volatility.
Gas prices reached such high levels in 'twenty, two or is it producers in countries you could switched away from expensive gas and into cheaper fuels, which Wes mentioned this took some time, but eventually dragged the price of coal and diesel upwards gas downwards, and they started to converge around $20 per btu.
<unk> is a pretty bullish signal for our business.
Because gas has returned to being long term competitive as fuel against its alternatives.
That's really good for us to kind of sell long term downstream business in the markets that we're in so in the last year was very hard to justify not selling an incremental LNG that we or others had into Europe with average pricing over $40 trillion btu, but now when we look at the downstream business that we're in in terms of power industrial gas supply LNG is competitive against the alternatives.
And so that's a really good signal for us in the business, we want to be in which is long term contracts with customers at the terminals and in the markets that we're already in.
On the right side.
We also want to bring a very complicated kind of supply demand balance equation back to a very very simple point.
And this really speaks to kind of the future of 2023, which is we have an aggregate reduction in supply with rush offline.
And that's about as simple as it is.
Theres been a lot of compensation on the demand side to reduce demand and to switch demand from different fuels, but the truth is the global supply changed.
And reduced.
The only thing that will really solve that it's further supply capacity in the future, but we're not getting that in the near term really getting that kind of 2026, plus and so we're going to continue to see a lot of volatility in that system, but it's a great moment for <unk>.
Fee because as we bring on incremental supply with LNG. This year and then continuing.
We really believe that that supply will be gobbled up by the market and because of what we just went through on the sort of comparative price levels, We think theres a great.
Argument for doing that in a long term downstream basis.
That's the market moment that we're in today.
Flipping to page 11, I'm going to really turn to like an NFL commercial update here and.
And what we wanted to do is put on the page really how we look at the business.
Which is trying to show the match between our supply portfolio and our demand portfolio.
So you can see and I'm going to use kind of a 2022 numbers and compare those to kind of 24, because thats sort of the run rate as we see things changing through 'twenty three our suppliers really going from <unk> to about 180 television to use by 2024 and you can see that.
Mix of the increase in our kind of existing third party supply as well as bringing LNG one online.
This analysis I'm really just looking at LNG, one to make this very clean.
And then on the demand side, we're also matching that growth. So we're going to <unk> 155, So we're seeing a 100% increase in supply about 75% increase in our contracted demand through downstream terminals.
The sort of exact long term contracted terminal business that are and if he wants to be in and the other really meaningful point here is we're not materially exposed to market prices. So you can see in 2023, we've got about 30 TVT use of unsold volumes about the same for 24, and then and then reducing in 2025 and beyond as we bring on further downstream demand.
We think that's a great position for us to be in which is about 80% contracted that gives us some incremental supply for new business activities, but keeps our exposure to the market at a reasonably tolerable levels.
Hopefully this is a good way for you guys to see it as well in terms of seeing the spread business.
That we're in and really we're kind of burying the lead here a little bit, but the growth in that sort of tremendous growth in that spread business between 2022.
234.
Page 12, just tried to substantiate that growth a little bit. So this is on a per terminal basis tracking the volumes that we see going through our downstream terminals in 2022, and then what we expect through 'twenty three 'twenty. Four so you can see here, Jamaica stays relatively stable, but in Puerto Rico were expecting incremental demand.
And have some exciting announcements to come about that in Mexico, we've increased the supply to our GSA and we're starting to kind of full run rate operations here very soon and then.
We've got the existing portfolio.
Terminals, Nicaragua, Bukharin Unscented Cat arena that are all going to turn on here between now and the end of 'twenty three and that on a 2024 run rate basis are really adding up to this.
Demand and rents due to the terminals so.
We really want to make sure that we're communicating clearly on the great kind of downstream long term contracted growth we have.
Just executing on what's in front of us between now and the end of this year.
Chris I'll turn to you.
Great. Thanks, Good morning, let me direct you to slide number 14, and we will walk through an update on <unk>.
Our LNG one construction and development. The next two slides include some recent pictures showing the current state of the modules and the rigs and as you can see things are progressing well on slide 14, you can see the support frame has been installed along with critical equipment from our suppliers of chart and Baker Hughes. The support for him is put in place in advance of the module to ensure this.
Stability of the deck of the Jackup rigs on slide 15, you can see the liquefaction module on the left side and a close up of the second gas treatment module on the right.
All of this will be lifted and installed over the next three weeks or so and then we will have complete module to rig integration and began land based testing and commissioning all of this is to note that we are approximately 80% complete on our construction activities and over 86% complete when you include engineering and procurement.
Turning to slide number 16, and frankly, the headline here says it all we're less than 100 days away from our first <unk> setting sail towards home in Altamira, Mexico with construction nearing completion, we are focused on installation commissioning and operational readiness regarding our installation the pipe lay barge is on location today and loading pipe late this week, we will begin the short.
<unk> work to connect the <unk> pipeline and our <unk> location and that's expected to take around three weeks. We will then perform a hot tap connects subsea pipe two of risers, which will ensure that all subsea activity will be completed prior to the LNG arriving in the field for commissioning we've hired a commissioning team to work in partnership with Representatives from our original.
Equipment manufacturers to commission as much of the asset in the yard as possible. The construction site provides access to natural gas power and utilities, which enable us to test major components, such as gas turbines at the queue. At yard also we can do shore based testing and validation of controls safety systems instrumentation and process optimization.
<unk> all while the assets are getting final touches completed the onshore commissioning capabilities reduces a typical offshore commissioning timeline by around six weeks.
Finally regarding operations, we've hired our installation training and offshore management teams, including our board operators and maintenance technicians and these folks are working through our critical operating procedures as well as training simulators now and are being used to complete competency training. We've established our shore base at the port of Altamira for storage needs Commission activities and ongoing.
Operations. So what does all this mean turn to slide number 16, and let me update you on the timeline from today through COPD.
The current estimate for mechanical completion of our first rig is May 2000, 2023. This includes a staggered readiness of the three rigs and the final one is expected to be completed in early June as mentioned on the previous slide we have the ability to commission systems on a rig by rig basis, and we've sequenced the rigs to maximize readiness ahead of the offshore hookup, we're starting in the field construction.
Activities this week, including the pipe way and other make ready activities to receive the rigs.
Briggs will be towed from the <unk> altamira as they're completed but full offshore hookup is expected to be completed in June . This includes the station of the rigs on location and also the installation of the Penguin. Our FSU first gas is expected to the units in late June and our first LNG production will be July of 2023 and expect to hit Sidoti in August of 2000.
'twenty three.
So moving on from our liquefied is if you're going to get you to turn to slide number 19, and we will go through some of the financial performance for Q4 2022.
For the three months ended December 31, we had adjusted EBITDA of $239 million and $1 1 billion for calendar year 2022, which is in line with our expectations. The terminals segment operating margin was 196 million and 86 million from the ship segment and you can find more detail on that in the appendix. The net income for the quarter was $183 million, which is 87.
Dollars 87 per share when excluding impairment charges and for the year. Our net income was $576 million or $2 74 per share excluding impairment charges, which is an over 500% increase from 2020, while this quarter. We sold 22 TB to use in total volume, which equates to an average operating margin of around $13 per.
<unk>.
On slide number 20, I wanted to point out how NLP is accessing flexible debt to support working capital fluctuations earlier. This month, we completed an upsize to our revolving credit facility to $750 million and increased the letter of credit facility to $325 million. This is an increase of $800 million since the end of 2021 the cost of these.
Ladies and competitively is competitively priced and allows for draws and repayments to match the needs of the business from a liquidity standpoint as of 12 31 2022, we have over $1 3 billion of cash on hand, plus availability under the revolver. When you include the upsides and an additional $325 million of availability under the letter of credit facility.
One final comment on the balance sheet, we announced the sale of the Hilli asset to Golar, which is expected to close in the next week or so in addition to the cash payment of share repurchase this reduces about $325 million of off balance sheet debt.
Almost done if you turn to slide number 21, just some quick comments on the progress we've made to increase our credit profile with a 2022 adjusted EBITDA print of $1 1 billion, we stand at around three times Levered and we will be under two times based on the 2023 earnings estimates discussed on the call today further as Andrew said we are.
Two new terminals terminal turning on this year and are focused on selling our volumes under long term take or pay contracts to downstream consumers, thus, creating steady and stable cash flows given our geographic and customer diversity combined with the increase of sales to credit worthy Counterparties. We've continued to enhance the quality of our earnings.
Finally in 2023 cash flows are highly predictable and resistant to market movements given that the majority of our supply is already contracted at known margins. These factors combined with disciplined capital allocation and contribute to our goal of becoming an investment grade company.
And finally on slide number 22. This is a testament to the amazing men and women at our terminals on our vessels and in our trucks in Q4 with their continued focus on being a world class operating company. We delivered 22 TB to use for our customers and a re gas terminal asset reliability remains around 99%, we continue to optimize logistics and terminal operations and saw significant.
Reductions in costs associated with our small scale delivery using volumes produced out of our Miami facility.
And last but certainly not least we had no safety incidents during Q4 and maintain or zero point zero total recordable incident rate.
With that I'll turn the call back over to Patrick for questions.
Yeah Jess.
I think we're ready for Q&A, if you can tee up the queue. Please.
Certainly ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
A speaker phone. Please make sure your mute function is turned off to about your signal to reach out.
Once again that is star one to ask a question.
Our first question comes from Cameron Lochridge with Bank of America. Your line is open. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions and congrats on the quarter.
Thanks.
I wanted to maybe start off on the.
On the LNG volume expectations going out through 'twenty five.
It looks like if I'm looking at it correctly.
There may have been a shift in expectations around when you're at the LNG volumes are expected to come on.
I was just wondering if you can confirm that and if so.
Provide any color on what you guys are planning around turning on incremental LNG volumes and then unrelated note any update on the permitting progress, particularly in Mexico or anything you can you can offer there would be helpful.
Great. Let me take the first one I'll have Cam who runs our permitting stuff, Virginia Counsel give me the second.
<unk>.
The supply demand numbers that Andrew walked through and I referenced.
At this point assume one F LNG unit, so 70 TBD use.
As the volumes of $1 4 million tonnes.
Probably net expected a 65 with weather days and other other operational down days during the year. So that's what's in the numbers in front of you.
We have a number of other units that are in various stages of development right now and basically what we have done as a as a matter of discipline is simply to look at incremental supply the mash with incremental demand we have lots of options on both additional units in Mexico. The unit that we are right now forecasting.
<unk> off the coast of Louisiana, and other situations around the world. So there's there's lots of opportunity on that side, but it is is intended to be and it is a disciplined process of not just simply adding supply when we don't have demand.
That said the reference I made to the modular units that we're looking to buy and the increase in our downstream capacity with terminals in Brazil, and Nicaragua and elsewhere. It gives us a lot of opportunities, we think to really really incrementally add to our demand part of the equation and if we did that we would add to supply and that's of course, where the growth comes in.
So we're not trying to forecast growth that we can't see the other side of right. Now. So these numbers that are reflected in front of you. We think are very much.
<unk> with what is on the table in front of US right now there could be some upside to those but and certainly in outer years. We think that there is a lot of upside to those and the LNG will be a big big part of that so that can sure. Thanks listeners as Cameron I don't see the permitting process in Mexico I think the update on the permits in Mexico is a very positive one we had an X.
One team fully engaged there.
Have a great engagement with the <unk>.
Permitting authorities and we continue to remain on schedule for all of the permitting milestones that we need to hit to match the timeline that Chris mentioned earlier, so very positive update there.
That's great. Thank you both for that.
I appreciate it.
I could just quick follow up on that Wes you mentioned.
Very measured approach to deploying new supply via App LNG.
I just wanted to dig in there a little bit is that to imply that before you bring on additional LNG volumes, you'll want to have contracted offtake agreements in hand.
Or in other words.
We not to expect.
<unk> volumes to be purely merchant volumes, but rather have dedicated offtake agreements prior to them coming online.
Yes, it's the latter it's really a it's not a hard and fast rule about it but we want to have clean line of sight to have the volumes being deployed before we actually turn the unit on.
That said these units take a while to build we are.
Nearly done with number one and we have numbers two and three.
Well under development. So we've got stuff that is on the back burner basically the moving ahead the.
The volumes at this point would be 2020 for volume so still.
Volumes it would be in a market, which prospectively could be quite a tight one and so the merchant volumes could be very.
Valuable to us at that point in time, but we don't want to interject a lot of market volatility into the earnings were on a path to high quality repeatable predictable earnings we think that that's the path that we want to be on this path of shareholders wants to beyond and then we can add to that incremental eight of course, that's a material amount of growth maybe just take.
65, or 70 television to us take our margin, which today is close to $10. Obviously any incremental asset you bring online is very valuable unit $5. These things are actually very valuable so theres without any merchant volumes whatsoever theres a lot of growth potential from one incremental unit. We think we will have a portfolio of suite of these over.
Tom for sure, but the right way to get from here to there. We think is in a measured way.
Much appreciated.
And if I could just squeeze one more and do you guys plan on disclosing what price you may have hedged at.
Over the past several months for some of your open cargos.
We don't.
We don't report that I mean, obviously.
Yes.
We made a number of hedges in the market was higher and Thats, obviously, a good thing.
In hindsight, we should have hedged everything, but there's challenges in terms of doing that so we did the best that we could and we think it's actually quite constructive but no. We don't disclose that youll see that show up in our results, though so.
Okay.
I'll move to our next question from Mark <unk> with Barclays. Your line is now open. Please go ahead.
Hey, good morning, maybe just to start in 'twenty three guidance I just wanted to clarify what the embedded assumption is as far as spot prices and then if we compare to the disclosures in slides 11, and 12 I think that implies roughly $3 60 Btu of cargo sales just wanted to confirm if you've already locked.
Clinton or Petros.
Yes, we do have I mean this is Chris there is about.
10, cargos or so.
And Thats really up LNG. So everything is expected from our existing supply contract that's already been sold or has been.
Allocated to downstream customer volumes that are expected to happen over the course of the remainder of the year.
Fairpoint Mark that that is the kind of the open exposure, but some of those cargoes are hedged. So that's right and as we said that's not we don't disclose exactly what the hedging positions are.
The exposure that we've got at this point our view.
TGF going down to kind of mid to high teens, it's pretty modest at this point, we think that on balance the amount of market exposure. We've got net of the hedges net of the absolute price of gas today is actually pretty modest when you look at the slide that Andrew went through you can see not only this year, but not years, we're looking at 15 or 20% of our <unk>.
Total volumes being open and that assumes no incremental downstream activity, which of course, that's on our goals till the end of February . We think there is lots of downstream in front of us. So.
Got it that's helpful and maybe just apologies apologies if I missed it but as far as the 30 TVT U S.
If LNG are you using the current strip in your guide.
We are.
Great.
Yes.
Got it thanks for that.
And then maybe just a follow up on the previous question can you talk about the expected capex cadence at this point.
And then it relates to your dividend just how youre thinking about the 40% targeted payout over the next couple of years with the pullback in spot prices.
This is partly dependent.
On the Capex side as well.
Hey, Mark so.
Two kind of categories of Capex, one being <unk> wondering terminals there is very little remaining terminal capex so between.
The two terminals in Brazil, and then the maintenance stuff at the terminals, that's pretty minimal I would say less than $50 million.
Capex for <unk> number one we will pay the remaining balance and I think we have it in the K, but just to step through it it's around.
It's around $250 million left to spend and we will spend that majority of that is going to be in Q2. So I think in Q1, Youll have sorry, and I am thinking from today forward. So from 12 31 that youll see in the K, it's probably closer to $400 million that will span.
And that will all go out I'd say 100 in Q1 200 in Q2 and 100 in Q3, that's probably the way to think about it.
And then for LNG to or others as Wes has said we'd be probably be very thoughtful about how we continue to move that forward. We've taken careful precision through our legal team in executing excellent contracts that allow us maximum flexibility with our customers. So we're able to kind of pace out.
Construction capex to match the business needs procurement and engineering is largely all been completed.
Got it I appreciate the time.
Our next question comes from Sam Burwell with Jefferies. Your line is open. Please go ahead.
Hey, guys.
I wanted to maybe unpack the fast LNG capex, just a little bit.
Last week <unk> reported and they disclosed that you guys had made orders for the cold boxes on <unk> four and five so curious how much of the equipment have you guys procured so far for all the units and then maybe of the $750 million of guided Capex per unit what percentage of that is sort of.
Equipment versus labor and other.
Yes, so west has been very deliberate and we announced this on our earnings or the Investor day excuse me in Corpus.
Purchase of long lead equipment, so that we have maximum flexibility that when he wants to move forward on the pace of the construction side, we have the ability to do so so partners at Baker Hughes GE excuse me.
Chart and others.
On the ready with equipment, so that when we want to continue to move forward on the construction, we can do so as far as breaking it up rule of thumb.
30% is probably procurement and engineering and 70% is construction and make ready obviously the make ready you don't do until you have a location in and expect that expect that our mindset.
Okay got it very helpful.
Just sticking with Capex 2023 that still is expected to be $2 billion.
I mean, how much of that should be earmarked for the bark Arena power plant I think you said thats under construction.
More of a 2024 spend how should we think about sort of non F. LNG capex this year and next.
Yes, so non influenza capex is pretty minimal so theyre terminals as I mentioned in any maintenance capex is less than $50 million, you've got a little bit of fsrus at conversion to $28 million or so the.
<unk> power plant, if Andrew can talk specifics about it but we also have the bok rate alone that we have and it's disclosed in the financial statements. So we expect that to fully fund the development and construction of that power plant over the course of the next 12 months.
Four months or so maybe 18 months yes.
Yes, the power plants being built under a fixed price lump sum turnkey EPC agreement with Mitsubishi between now and July 2025, so actually on a kind of a per quarter basis, it's pretty modest amount of capex, obviously, mostly done through the loan. We have yes. So then I think $2 billion is probably a little high from the kind of what we were expecting when we announced last quarter.
That included probably moving forward at a quicker pace with additional <unk> units that we will now be very thoughtful in how we move forward there to match the online of supply with our demand.
Okay.
We'll take our next question from Sean Morgan with Evercore. Your line is open. Please go ahead.
Hey, guys.
I think slide 11 is pretty helpful. If we get a lot of questions.
Regarding <unk>.
Open exposure and I'm wondering a little bit the LNG it looks like the fully contracted some of that would have to be contacted by the math for the.
100000 alone of kind of third party gas so have you.
Firstly is there any difficulty.
Hearing gas kind of upstream.
You have to sign contracts on midstream pipelines and contracts with E&ps to basically procure that 63 that you have.
Slide 11, and then also on the other side.
We don't have any firm off take contracts now.
Now Youre just sort of maybe.
Set of being 100% merchant you would probably look to sign some of that.
Either shortly before you start producing gas or kind of.
Near term after it starts operating.
Yes. The first question the gas that we are going to take on <unk>. One is Texas gas right. It comes from Agriculture comes in a pipeline of TC pipeline, which are 100% of the capacity is contracted with cfe and they in turn are subcontracted to us.
The sticky bit there would be the capacity on that pipeline, but thats. The agreement that we have with cfe. The gas taxes is obviously very plentiful theirs.
And oversupply prices would come down obviously, so there is there is massive flexibility in terms of volume Henry hub index gas at that location for us. So that's not a challenge whatsoever.
Hey, John Yes, I think the way to think about it is yes, we're not we're not looking at as a sign like fixed uptake at the unit like you might think about some other business models right. We have a bunch of fixed off take through our terminals I think it's 66 contracts now waiting average weighted average life of 15 years.
On page 12 is showing kind of some of that right. So if you think about the <unk> the Nicaragua contracts like that's how we think about our protracted demand through F. LNG. So.
And to Andrew's point is the numbers that are shown on page 11 of our aggregates of the entire portfolio. So it's not that we're taking and.
It will supply contract via F, LNG, or cheniere or shallow or anybody else and allocated to specific locations. Typically it's really just in the context of the overall.
Balance of the supply that we have in balance with demand we have and then net numbers at the bottom.
Okay. Okay, that's really helpful.
Effectively has the upstream relationships already set up so there's no need to do anything there because you're just kind of relying on.
Their gas and then I guess another question, we get a lot.
And it also sort of relates to Cfe and of course, a few pipelines the valley crossing in Texas what is the on the on the water.
Price relative to say 100 hub is it what do we can we think of like an extra dollar brand on Btu of transit costs, and Cfe sort of margin built in there how do you sort of quantify that.
Thats a very good guests.
Plus or minus exactly what we think it is.
Okay Alright. Thanks, that's it for me appreciate the time you bought it.
Our next question comes from Greg Lewis with BTG. Your line is open. Please go ahead.
Hey, Thank you for taking my question and good morning, everybody.
Yes, I was hoping to catch.
Talk a little bit about.
The updated EBITDA guidance and kind of maybe some of the some of the puts and some of the takes.
Sure.
You mentioned the volumes.
Kind of curious if you've adjusted your spread assumptions.
Around the EBITDA guidance and then as we think about that $2 billion number just looking at it.
This is still a little bit above where the street is so really just kind of trying to understand how we should be thinking about it and maybe where some of that delta might be.
Yeah.
Yes.
Yes.
Greg.
Answered the question I mean, we had $2 $5 billion, we talked about at the last earnings call. It $2 billion now of that the difference is really just FRG timing in the downstream execution as Wes has talked about on this call. We feel really good about too it is above where a lot of estimates are today.
There is very little volatility in that $2 billion, we feel really comfortable about that certainly.
Two and a half included a little bit more volumes under under the <unk> scenario and it had a little bit of a higher strip, but as Andrew said, we've termed out more and more of that gas since we announced the call in November of 2022, so very little at risk and we feel great about the $2 billion for 2023 calendar year.
Okay. Okay, that's great to hear and then and then my other question was.
When we talk about matching.
You referenced matching supply and demand.
Around some of the volumes.
And clearly the core of the businesses.
Selling.
Not selling but delivering gas to your downstream terminals.
Has there been any change in how youre thinking about.
The medium term outlook and the ability.
To deliver LNG into the more of the international market will call it.
Maybe I can take that I mean, I think the.
The premise of our business basically is that there is a shortage of gas and power around the world.
That was true in absolute terms long before there was Ukraine invasion and the prices reflect I think the dislocation exists is there's just more demand for power. There is still a 1 billion plus people without power in the world.
People have an affordable power and so theres no shortage of demand for what our products are in.
And what we've done in a fairly methodical way over the last eight plus years is basically build out terminals and power plants in those places to access them.
Obviously today, we have.
Jamaica, Puerto Rico, and Mexico, and Nicaragua in Brazil, there are a handful of other very significant markets. We have spent a lot of time on and we're confident that those will turn into terminals in due course as well, but there is there in the medium term or long term basis. There is just no lack of supply I mean, I think that when you look at the business.
<unk> in the aggregate I think number one the question is.
Is the macro view of the world the right one we feel very strong and the answer is yes, a resounding, yes, there is a shortage of gas and power use the same exact.
Example, all the time people in Jamaica use 10 percentage much electricity per capita as we do people in Kenya use 10 percentage much electricity for catheter as Youre, making stew. So there is a vast need for affordable power that actually is a.
Something we feel more strongly about everyday number two I think the question about the businesses are really good at this right. So.
Something that we feel like we've demonstrated a pretty good capacity to do things were not perfect. We're learning every day, we've got a great group of people, but I think that we now have.
Very very good proof of concept at every level that except for the LNG, which you are now days away from having proof of concept with so we feel like that Thats pretty good and then the third thing is just the quality and consistency of earnings because I think that companies are rewarded for being.
Without surprises to shareholders and living with their mission and delivering what they said, they're going to do and as I said at the outset of this not only do we feel great about the actual volume of earnings kind of doubling from last year to the year before and then doubling again this year, that's a pretty good path right. So we're at $2 billion.
EBITDA that translates into $1 3 billion and earnings right. So very very significant earnings when you consider what the value of the company is right now and I think that this all missing piece of it and only time will heal this.
Dress. This is just show that you are actually consistent with what you said youre going to do and the more diversity. We have of terminals more diversity, we have with customers. The more we control our own upstream inputs of this which is what the LNG does then the higher the quality of your earnings are and we achieved this magical combination of both high quality earnings and significant growth.
Opportunities that's the goal that we have as a company. So sorry for the long answer to your short question, but that's how I think about it.
Okay.
We'll take our next question from Martin Malloy with Johnson Rice. Your line is open. Please go ahead.
Good morning.
Kind of a macro question here.
With DSO LNG assets coming online, we've ever make sense for NSE to potentially invest in upstream gas assets or Conversely, maybe upstream gas producers.
Equity interest in the LNG assets.
And we'll take advantage of the increase and the Optionality for those molecules.
It's a great question and something we kick around all the time I think that it would be the ultimate and the integration from cradle to grave.
Gas out of the ground to power onto our system.
The U S gas and my opinion is especially adjusted for the stability of the jurisdiction and the rule of law is the cheapest gas on Earth, and so simply connecting U S. Domestic gas to international markets is a fantastic idea and that's essentially what we're trying to do with this first one we're basically buying gas out of Texas and that will be a pie.
<unk> gas and then taking it into there.
I think the gas assets in the U S are very undervalued and so I'm not an expert at this we've spent a lot of time looking at it but I think that the.
The quality and duration and durability of some of those products is actually very very very inexpensive relative to the rest of the world and so on.
Big believer in the value of those assets and whether it's directly or as in partnership or some combination of all of that I think that's something we'll explore over time and obviously.
First step first is get the LNG. So we're connected to the system directly and then I think those kinds of opportunities are things that we'll think about.
Okay. My second question I, just wanted to ask about hydrogen zero project.
Maybe are there any milestones we should be looking out for there.
Yes.
Unless it out in the presentation, because we're actually so far to that tracks with what our thoughts are with regards to that as a as a business.
As we said before my goal is to get a project fully committed and out of the ground and then in all likelihood spin that off as a separate company because it deserves to have a separate identity and I think our Gulf of that has to do so in the first half of this year, if everything goes to plan.
We have ordered the long lead items from plug we have personnel that are working on every day, we have a site, which has now cleared we have the bulk of the engineering done. So there's a whole bunch of individual milestones, but rather than clutter up what I think is an otherwise very clean.
Beginning of the year picture for the company I thought we would just leave that onto the side, but it's a good question to ask and I think that I think look I think with the <unk>.
And the incentives the government has provided it makes us the most attractive place on earth to build hydrogen facilities.
The location of those facilities.
Facilities is very very important because when you create hydrogen it quickly turns from a chemistry problem into a transportation problems do you want to be located next to where people are going to use at our site down in Beaumont. We think is ideal because we're close to customers or close to.
Sure.
Hydrogen pipelines thats, great but.
Our goal is to actually have a pretty specific update on this and then not too distant future. So I think that the prospects for that business given kind of the macro environment for here in the U S.
The $3 a kilogram production credits are actually quite good so thanks.
Thanks for the question.
And that will conclude today's question and answer portion of the call I would now like to turn the conference back to Mr. <unk> for any additional or closing remarks.
Jeff Hey, I'll take it it's Patrick Hughes here, Thanks, everybody for joining today, we remain available to you as always to answer additional questions as they may arise and we wish you a good day. Thank you.
Okay.
Ladies and gentlemen that does conclude today's call. We thank you for your participation you may disconnect at this time and have a great day.
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