Q2 2023 New Fortress Energy Inc Earnings Call
And to all participants presently on hold for today's conference. We thank you for your patience and we ask that you. Please continue to stand by your conference will begin momentarily.
[music].
Good day, everyone and welcome to the second quarter 2002, three earnings Conference call. Today's conference is being recorded and all phone participants are in a listen only mode. But later you will have the opportunity to ask questions.
Get us started today with opening remarks, and introductions I am pleased to turn the floor to managing director of strategy and Investor Relations. Mr. Chance Pipitone. Please go ahead Sir.
Perfect. Thank you Jim and good morning, everyone. Thank you for joining today's conference call, where we will discuss our second quarter 2023 results recent developments operational highlight some future here at new fortress energy.
As Jim mentioned the call is being recorded and won't be available for replay on the investors section of our website under the subheading events and presentations in the same location you will find a press release regarding our second quarter 2023 results in a corresponding presentation that we walked through on today's call.
As we proceed through the discussion we will be referring to that presentation.
The same presentation you will also find 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.
Now, let's dive into the call.
My name is again chance pepitone and joining me today are new fortress energy, our west <unk>, Our chairman and Chief Executive Officer, Chris Jensen, Our CFO , Andrew <unk>, our managing director of new business and other matters managers of our senior leadership team West already great. Thanks, Jess and welcome everybody likes to talk about today so let's.
Start with the page number three the numbers and go from there.
Quarterly results for the quarter were solid.
The EBITDA for the quarter $246 million down from the first quarter virtually a 100% of that is just a function of the geography of timing of some cargo sales. The core earnings were basically flat quarter over quarter compared to the first half of last year were up significantly and so $541 million last year.
In the first half $686 million and this year, perhaps more importantly, the guidance that we see now for the rest of the year $1 $6 billion for 2023, and $2 $4 billion in 2024 little bit of reduction of guidance for this year, just as a function of a few of the projects delivering late but still very very solid earnings.
The rest of the year and our future is incredibly bright.
Page number for.
This this is a very very interesting page in the beginning of the presentation. So to say the least these are very exciting times for the company.
After many years of hard work and many billions invested we now have five major infrastructure projects all delivering essentially at the same time, having a $3 2 billion invested in projects that turn into productive revenue producing assets is life changing for the company and then a couple of a material points here one it greatly increases our revenue potential as a company obviously your convert.
<unk> construction projects into revenue producing assets and Thats, obviously, a huge huge change two is it changes the nature of our company from one that has a mix today of about 50% of our revenues coming from merchant sales to customer volumes and one that's virtually all customer sales going forward that greatly improves both the quality and reliability and transparency of our earnings going forward.
Or you're going to see that manifest itself. Both the second half of this year and then going on in the future three.
Three it opens up a number of new markets to us huge markets with tremendous potential all kind of all click through the major ones now, Puerto Rico, which is already a market for us but is now much much larger with the.
The acquisition of the <unk>.
The PREPA fleet <unk> the the temporary projects, we've done there brannen Mcelmurray, who will talk about that in detail, but as we will explain this is a massive massive opportunity for the company.
Number two Brazil, two large terminals coming online and greatly increase our capacity as a company, increasing total capacity or throughput by nearly 35% huge addressable market. Our first entry into it both of them are coming online in the next few weeks.
Three Ireland, we want our first power auction last quarter and we believe we're finally very close to being the first and only LNG terminal in the country. All of these together our increase in our capacity to grow materially and most importantly without material amounts of additional capex. This is truly the apex of our capital spend and we now need to just operate and grow revenues with very little additional <unk>.
Capital spend is an amazing moment for as a company in the next 30 60 days it'll be transforming transformational to US is all made possible through the hard work and dedication of literally thousands of people that have made this happen just a little context I appreciate how big $3 $2 billion of infrastructure actually is.
Years ago. Another line of work, we built an arena in Milwaukee for our box Amazing Arena, a little by little bias. My view is the best and Lee that was a total of $525 million in Capex. It took us about two and a half years to build what we're doing here at <unk> is equivalent of building and deliver 66 of these arenas at the same time in countries throughout the world.
Whichever it sounds hard is because it's plenty hard is that.
Hard to identify markets, it's hard to get a commercial foothold and getting business and it's very hard to fund and then of course, it's hard to execute that said nothing that we're doing here is on proven are dangerous or experimental and in some form it's all been done before and in many cases, many many times around the world, which is what makes them doing at the same time, both reasonable and feasible if you're organized in dedicated.
I wish we are these are big construction projects, there's things to talk about every day and we do but all on track and once they are done will truly transform the company.
They'll produce significant reliable cash flows going forward require very little capex and so does the cash flow much of it will go straight to the bottom line deleveraging reduce debt of the company is now a very straight shot for us to become an investment grade company and asset distant future.
New markets with major avenues to grow essential infrastructure at exactly the right time.
So page number five.
These are less of the projects, so theres LNG, one, which Chris will talk about the liquid fire, which is in the process of being deployed as we speak is materially complete Puerto Rico power half of which is operational and the other half of the operational in the next few weeks and Brandon will talk about <unk>.
Arena in Santa Catarina or two terminals in in Brazil that Andrew will talk about and lastly, the La Paz power plant and 135 megawatt plant that is being commissioned and right. As we go right now $3 $2 billion of abstract infrastructure being converted from construction to revenue producing which has a significant impact on the company.
Page six is perhaps my favorite page of the entire presentation because it shows the history of the company. What you see here on this page is the number of terminals and yellow going from one in 2016 to three in 2020 to five year in $2023 seven in 2024.
The capacity that each one of those has been listed below just as a point of reference we showed 20 TB to use 1 million tonnes of LNG is 50. So this was we started our business in Montego Bay, but basically 40% of one ton of capacity, we have grown that materially as these these different markets have come online too.
620.
TV to use of capacity today 920 next year.
As you would expect LNG volumes then through these terminals then follow so eight GBT use in 2017 74 in 2021 136, this year 185 and substantial growth beyond that going forward in the last few quarters, you would expect that to convert to EBITDA. When you look at the bottom line is truly remarkable.
Progression of EBITDA from losing money as we're developing assets, obviously took place where we were essentially breakeven in 2022, one which has gone from 33 million in 2020 $605 million 2021 about 1 billion won in 2020 to $1 6 billion. This year $2 4 billion to follow ups, so truly a remarkable remarkable.
Our past.
With that let me turn it over to Chris to talk about our <unk> great. Thanks, guys. Good morning, everybody.
Please turn to slide number eight let me provide some added details on the completion of fast LNG number one so let's mentioned thanks to the incredible effort by our team in Corpus Christi and in Mexico. We can continue to make major progress and we're nearing our goal of <unk> by the end of this quarter at this point each of the rigs have achieved mechanical completion and we're in the process of commissioning various systems.
The remaining rigs are still in the queue at shipyard as a reminder, <unk> is comprised of three specific rigs with the names pioneer one two and three Pinar. One is the gas processing module. This is connected to the subsea riser and a dehydrates and prepares the gas for liquefaction. This unit is expected to mobilize and be installed around AGA.
The 23rd Pie.
Pioneer too is the liquefaction module that includes the chart cold box and Baker Hughes compressor, which together changed the vapor into LNG. This unit is expected to mobilize and be installed around August 28, pioneer three houses the accommodations power and electrical control hub and this is the unit that has already been mobilized and installed offshore.
From a marine construction standpoint, all activities have been completed including the installation of the Hot Tap Assembly on the <unk> pipeline, a three kilometer pipeline lateral to our <unk> asset and the anchor mooring installation for our storage vessel. In addition, our floating storage vessel. The Penguin has completed all of its make ready activities and currently in transit to ultimate.
Where it will clear and hook up to its installed moorings later this month.
Next step is to sale units, one and two over the next couple of weeks to their location offshore and then we expect to introduce first gas in September and sell our first cargo in October of 2023, as we've discussed before the <unk> timeline is organized with much greater focus on speed to market that prosecute the various stages in parallel path as opposed to traditional projects.
I'll have much more linear model when looking at additional LNG units given that we've already done all the engineering and design, we believe future modules will be completed in around 18 months. This is what allows us to deploy <unk> two and three modules in the second half of next year, while the cost of <unk>, one will come in just shy of around $900 a ton the future cost of modules in our store.
<unk> for balance of plant is expected to be roughly $650 a ton.
If you turn to slide number nine this is really intended to evidence the value of the strategy that we've employed our decision to build the units. While we're still completing engineering did lead in inefficiencies. However, the resulting benefits far outweigh the challenges we incurred on F. N G. One moving down the slide there are really two primary reasons, why we feel that adding <unk> into our supply.
Hi portfolio closes outsized value for.
First the value of LNG now means that youll effectively own the LNG LNG asset for free well ahead of when any competitive supply could come online.
The graph on the left side of this page demonstrates what I'm alluding to here, we believe that no. Other LNG project with available capacity will come online before 2027, and if you assumed three years at 70 TVT use per year. That's 210 TVT used available for sale the difference between a traditional LNG supply agreement of 115% of Henry hub plus $2 50.
Versus the forward curve is on average around $7 over the next three years, if you multiply that by our 210 TV to use you get approximately $1 5 billion in proceeds and the time between our COPD and when it competing project is online with.
The second point of having your own LNG supply is that it provides greater operational flexibility to serve our customers remember when you have long term SBA as youre locked into loading schedules over a year in advance which provides very little latitude when youre running a global downstream re gas business further your risk curtailments in the wake of operational issues by the supplier that could lead to Nokia.
On impacts in our supply chain as.
As a result, having our own LNG supply that can serve as a complement to our core portfolio of off take agreement is the best way to be prepared to satisfy all of our customer needs with that I'll hand, the call over to Andrew to talk about capacity and customers.
Thanks, Chris Good morning, everyone on page 11, and I have got three slides here that are going to dig in a little bit more on the west went through on slide six around capacity in our terminals.
So slide 11 shows how we calculate the capacity of an LNG terminal at Etsy.
We're going to take the example of Montego Bay, which is our first terminals, So Q4 2016 and CRD.
Mo Bay is 8000 cubic meters of landed storage. So onshore storage and then we have an LNG vessel there and the picture you can see both the bullet tanks in the left part of the picture and then the ship coming alongside.
Mo Bay is.
Serving Jamaica public service GPS on a long term contract for gasify, the Bogue power plant and it is also our main small scale hub in Jamaica. So we serve over 20 industrial and hospitality customers.
The Montego Bay terminal, mostly through truck loading.
On the right side is how we calculate capacity. So we do is we take our 8000 cubic meters of storage and we assumed to re loads a week.
Not really conservative nor is it too aggressive.
About kind of a comfortable pace for our refilling and then we take that 16000 cubic meters of week 52 weeks of the year, we get to 832000 cubic meters a year, we convert by multiplying by 'twenty four into TV to use and we have a capacity of 2004 TV to use so.
I'll flip them to page 12, which basically takes that rubric and shows that across the portfolio on the left side. So these are all of our operating terminals, which totaled about 385 TV to use and then what we're showing are the four expansion that we expect to bring online before year end 2020 for us of Puerto Rico.
Upsize Barker.
<unk> Rana in Brazil, Santa Catarina in Brazil in Nicaragua, all which they can get us to a total number of 920 <unk> to use our using the rule of thumb of 50, TVT musicals, one ton about 18 million tons of re gas capacity in our portfolio that has a greater than 100% increase between now and year end 2024.
And the utilization numbers on the right show, how our LNG volumes track through those terminals. So by the end of 'twenty four will have a portfolio of about $3 six MTA of LNG supply going through a re gas portfolio of about 18 MTA of.
Re gas so that's just about a 20% utilization rate there in the yellow box on the right side.
Page 13 walks through a little bit of how we see growth coming from these increases in capacity. So two main ways in which <unk> will grow from here. The first is increased utilization of our current terminals and the second is to enter new markets and continue to grow as we have in the past.
There is a few reasons why we think increasing utilization and organic growth is extremely advantageous for NSE.
<unk> call out that the current term legalization is relatively modest so at about 20% we have a lot of room for growth both operationally and commercially.
This organic growth is highly accretive margins. So in our case not only have we paid for the infrastructure. So this growth doesn't have any incremental capex, but it also has very very low incremental opex because typically we are already paying for the fsrus in the onshore.
<unk> operations, so the margins on any new customers or new volumes that we push at the terminal are accretive to what we currently have and then third is the embedded position. We have in these growth markets that Brandon is going to go through the example of Puerto Rico, which is really a crown jewel in our portfolio at the moment and the sort of development position and the growth that we see over the next few years.
That's going to continue to happen in the rest of our portfolio as we grow with Puerto Rico being a great example of how we see that happening.
On the right side, we will continue to also develop new terminal infrastructure.
In addition to the opportunities we have in Brazil, and Ireland. We're also looking at opportunities in the Caribbean and Central America, where we're traditionally been and then also South Africa, and Vietnam, which both represent high growth high population markets that are exciting for LNG.
We typically target a return on invested capital of over 20% on these terminals. So the relatively capital light relative to the opportunity commercially and then we want to call. It portfolio value, we see in continuing to grow terminal capacity, so as Wes walk through one terminal going to seven.
LNG capacity of 20, <unk> going to 920 this unlocks tremendous.
Opportunities for organic growth across the portfolio and across time, and then that increasing scale and diversity of cash flows makes NFC and much better business as we go I'll turn it over to Brandon.
Thanks, Andrea and good morning. Thank you all for joining as Wes mentioned at the beginning of the call we've been investing in Puerto Rico. Since 2017. So I'll refer you to slide 15, and just a little bit of context, Puerto Rico is a U S Commonwealth with $303 5 million people with amazing culture and history.
It imports over 20 million barrels of <unk> and diesel year to generate power, which is highly unusual compared to the U S. Mainland.
In addition, it has a stated goal of being 100% renewable by 2050, the power generation that exist today as all inefficient unreliable and heavily urbanized and most importantly, it is not positioned to integrate renewable resources. Its the perfect energy transition opportunity to move to natural gas and away from distillate.
In support of increased integration renewables over time.
And if these involvements in Puerto Rico started in 2017 in September 2017, Hurricane Maria category, five Hurricane struck the island and severely damaged the electrical grid like others and if he responded to the call to rebuild and opened its LNG terminal in 2020 next to the San Juan power plant.
In the north of the island in record time for a facility of that type across the world. The terminal supported 300 megawatts of the islands, most efficient and low emission dispatch of power and significantly has generated millions of dollars of savings to date by displacing diesel fuel with natural gas most importantly.
The terminal positioned NFC to quickly respond to the needs of the island to accelerate both the reconstruction of the power grid and the deployment of renewables.
I move to page 16.
In 2021, PREPA privatization got underway.
PREPA is the largest utility publicly owned utility in the U S. With one five customers $4 5 billion operating budget 20000 miles of T&D and five gigawatts of generation across 17 sites. It serves a peak power demand of around four gigawatts two thirds fueled by distillate and about a third on <unk>.
Gas.
Historically, there has been significant underinvestment there that has led to the least reliable and most expensive electrical system in the U S to put it in context somewhat in Puerto Rico is 630 times more likely to lose power than someone in the mainland.
The government has decided.
PREPA needed to be privatized to better use reconstruction funds and accelerate the energy transition and to.
2017, the government of Puerto Rico launched a privatization process in 2021, the government privatize the transmission and distribution system with a private owner the same year NFL decided to compete for privatization in 2022. It took over at one the privatization mandate.
For generation and in July of 2023 of this year. It took over the generation system under the name <unk>, which is an <unk> company.
Today <unk> manages over 83%.
Of the generation system, which is about five Gigawatts 700 people 3 billion operating budget, including fuel and billions of dollars of reconstruction funds to rebuild the generation system. Our mandate is simple improve reliability and lower cost.
I move to page 17.
The U S government is very focused on creating a clean and resilient power grid in Puerto Rico.
Federal government and all of its agencies in coordination with the Commonwealth or investing $20 billion to rebuild the power grid that will lead to a zero carbon reliable efficient system, which we expect to be a model for the mainland in the world. The system still requires dispatch will power that can serve the peak demand, which would include power fueled by <unk>.
Gas hydrogen and energy storage there.
As a result, we expect to be a model for how other systems are done.
On page 18.
Focus on the current event.
That we're working on in Puerto Rico in late 2022 in the wake of Hurricane Fiona FEMA call for 350 megawatts of emergency power to stabilize the grid FEMA launched a process to acquire and bring in 350 megawatts of fast power to the island immediately in that process and a fee was selected to provide all of the.
Power generation units and gas for up to two years to provide grid stabilizing power <unk> responded to this call by deploying assets and expertise it installed seven units at palace Saco and 60 days turning on in the beginning of July and is in the process of completing the installation of an additional 200 megawatt.
San Juan where our existing terminal is and we expect that to be completed in the next several weeks to give you context for such a fast deployment NFC brought its experience across the entire portfolio and the developments that we have done to date, our team installed turbines emissions controls substations and other high.
Voltage electric year, a lot of balance of plant and most importantly, fueling infrastructure to support this power and a clean and sustainable way and if you used all the skills and installed the 350 megawatts in record time. This is the fastest project ever accomplished by FEMA of this type in the world.
I move to page 18.
There are several ways that <unk> can help Puerto Rico and U S government reach their goals number one provide the island with short term power to fill immediate need for megawatts, which is capacity now. The best example would be the 350 megawatts that is currently being installed and the additional megawatts that are contemplated to.
Increased this installation over the next several months number to supply any conversions of existing diesel and oil power plants to transition away from expensive in carbon intensive distillate fuels and better position the power system to support renewables.
Example of this would be continuing to support diesel and <unk>, where possible, which is about two five gigawatts of additional installed plant today that is capable of being converted number three participate in any long term power solution. The island will be transitioning to renewables over the next several decades, but still.
Must maintain the installed plant to supply over three seven gigawatts of peak demand, which requires dispatch of a power 75% of the island's mainline is in the San Juan Metro area, where our terminal is which perfectly positions us to expand and celebrate and accelerate that.
That goal the goals are to facilitate the U S government's commitment to invest over $20 billion to rebuild the power grid that will lead to a zero carbon reliable efficient system, which again will be a model for how this area and others around the world similar situation, we will do at the end state we expect <unk>.
Puerto Rico will be renewable power supported by affordable dispatch will power that will be fueled by gas hydrogen and supported by energy storage through NFC and Humira, we want to accelerate that transition with high quality infrastructure that best supports the integration and operation of renewables, Puerto Rico.
He was a great transition example for us and one that we believe we can model in other areas. We believe it can be replicated around the world as others seek to accelerate the same energy transition and with that I'll turn it over to Chris.
Thanks Brandon.
Please turn to slide into 'twenty one.
Financial performance for the first quarter of 2000 excuse me the second quarter of 2023.
During Q2, we had $561 million in revenue and $246 million of adjusted EBITDA, which combined with Q1 had us at $686 million of adjusted EBITDA for the first half of 2023 segment operating margin was $239 million for terminals and 54 million for the ship segment you can find more detail in the appendix the net income for the <unk>.
<unk> was $120 million, which is $58 58 per share on a diluted basis.
This quarter, we sold 25 GB to use and total volumes, which equates to an average EBITDA margin of around $10 per <unk>.
As Wes mentioned the primary driver of the change in EBITDA. During Q2 as opposed to Q1 is the cargo sales, which accounts for about $195 million or <unk>, 95% of the decrease quarter over quarter on a go forward basis from an earnings perspective, we are replacing most of the cargo so earnings with volumes being sold to downstream customers through a re gas terminal.
On a long term basis, perhaps the best example of this is the migration of cash flows derived from downstream contracted sales through our terminals, which will be around 60% of 2023 adjusted EBITDA to over 85% of 2020 for adjusted EBITDA and just to point out. The average contract term is around 12 years with over 80% of the sales being to investment grade counter.
Parties. This is the long term predictable net spread business that we've been building toward.
And finally, a quick comment here on the balance sheet. Since the end of June we've closed on another $500 million of financing, which includes an incremental $100 million.
In the turbine financing, bringing us to 200 in total and $400 million term loan that will be taken out with an asset level financing against LNG one.
And just to note historically the company has funded our growth by choosing to finance our development projects on balance sheet and then once the assets are operational we can back lever them on a discrete standalone asset basis. This is a trend we will continue to execute with that I'll turn the call back over to chance.
Yes, Thank you, Chris let's turn it back to the operator and love to open up the lines for questions.
Absolutely. Thank you gentlemen.
Phone audience joining today, if you would like to ask a question simply press star one on your telephone keypad.
Thanks, Darren will replace your line into our Q and we ask that if you are joining today on a speaker phone.
A return to your handset prior to pressing star and wanted to be certain that youre thinking it does reach our equipment once again, ladies and gentlemen that istar and one we will hear first from Chris Robertson at Deutsche Bank.
Hey, good morning, guys. Thanks for taking the time to take our questions. Today, just wanted to circle back on the Capex guidance for 2000 and Ford here.
Especially with regards to LNG, two and three as those are currently under construction.
Maybe this is the correct.
A question for Chris can you walk through the latest Capex.
Capex guidance.
And talk about the financing of those next year I guess I'm just trying to get to why is capex guidance come down so much in 2004 compared to the.
The last update when these two units are still under construction.
Yes, so great question, Chris I mean fundamentally we've invested over over 35% of the cost of <unk>, two and three already using equity.
So the view is that we should be able to borrow debt against the asset.
To fund the remaining Capex plan.
So and then we also have from a terminal Capex standpoint, we've almost completed all the spend for <unk> and Santa Catarina, Nicaragua, that's all less than a $100 million remaining and then you have on a go forward basis only around $50 million a year.
Hey.
We have about $50 million a year for maintenance Capex on the terminals just circling back to the top of your question, we've funded $1 $3 billion already against F. LNG number one so there's very modest costs remaining this year to complete that asset.
Okay got it yes so.
<unk> <unk> two and three you said that you've already invested over 35% in those two.
That's right that's right yeah, maybe just to amplify a little bit I mean, one of the aspects of the business when you're constructing financing assets on balance sheet. When they are constructed and producing cash flows you can angle. We can go pursue financing on an asset basis. So what we've done with power plants other assets in the past and so one of the significant aspects of the business in the region.
Why the Capex goes down so in.
Honestly is it now that you are going through the construction phase of the operating days the finance ability at an attractive levels of those assets increases markedly and so in total if you look at the total capex that we've invested across the spectrum and the LNG assets is the $1 3 billion and <unk>. One is an additional half a billion or so in <unk> two and three.
That complex in its entirety is then various in asphalt in terms of the incremental capital we need to complete two and three and thus the capex and it needs to go into it is so low so.
It appears to be a precipitous drop in Capex actually is a precipitous drop in capex when I say its the apex. It truly is the apex of all this stuff and as it converts now into income producing assets very very easy very straightforward to finance when you look at the.
At the the.
LNG Liquefy our complex is generally speaking they are financed at approximately 80% loan to value. So if you look at venture global or Cheniere or any of these other complexes that are out there theyre highly destiny on that side. While they are in construction. Those are supported by long term contracts, which is the.
Plus or minus for in our case, we have lots of downstream customers now to support these assets and the asset is essentially complete and so it makes the finance ability of this extremely straightforward.
Got it I guess final follow up.
Your line of questioning is around is there any and any cost savings I guess is the projects that come on store rather than.
The offshore original proposal.
Yes, no massive cost savings right.
Of anything you can get the pioneer premium of interface in Harrison pack, but so the first assets, Chris that is $1 3 billion for a $1 4 million ton liquefy for just under $1000 a tonne for our numbers two and three in onshore and utilize the existing infrastructure those possible down for this year, yes.
<unk> alone, we think the cost for.
Is it down about $125 million to $150 million. Each so that's $250 million across those two and then onshore work as you can imagine is definitely cheaper to complete in the offshore stuff, we won't have any rig modifications or improvements to do here and the site as we talked about on our last call is miraculous I mean this site has already had its geotag.
Tad.
For birthing tanks, everything you would need to really plug and play.
Got it alright, thanks, I'll turn it over.
Next we'll hear from Mike Patterson at Morgan Stanley . Please go ahead. Your line is open.
Thank you for taking the call. My question is regarding your preferred shares on Golar LNG 88, seven fives.
Time ago these were delisted.
They're currently not marginal they can't be solicited they tried it on the page sheets and I'll give you. An example, they trade at about a 16% yield.
Yesterday, it was showing on the market about 14.
I went through at 11 and a half.
It seems like quite a disservice to the shareholders of these preferreds to do that do you have.
The answer with your comments on these preferreds.
Hey, Mike. This is Chris why don't you shoot me a note offline and we can talk to this.
We have put out this information publicly before and I'm happy to talk you through the financials are available.
And we can go through it offline.
Well with all due respect for about three months I've tried to call in E Mail and I'll never do get a return response on this and so can you address how come that Theyre not listed and would you would you consider listing these shares.
Yes, Mike.
The shares are not less or they are less than when we took private the GM LP equity in 2021.
We provide everything required for compliance with those shares and we will continue to do so.
So you are just fine with them trading at 45 cents on the dollar.
Just doing this to the shareholder.
And like I say I'll take it offline, but I can't ever get a call answered responded to at all but it sounds like Youre, just not going to do anything regarding in them right.
Mike Rafi to look at whats Youre, describing but we have we stay in compliance with those shares and we provide all the information that's required on a quarterly basis.
Our next question will come today from Cameron Lochridge at Bank of America.
Please.
Hey, guys.
Good morning, Thanks for taking my question here.
Congrats on getting everything in Puerto Rico.
Set up and it sounds like you have LNG ones moving moving well so congrats on that I really just wanted to ask Werner to circle back on the Capex piece.
<unk> that a little bit I.
Understand.
Some nuances.
And maybe the financing of the Capex in 'twenty three 'twenty four but.
Really I just want to unpack.
The difference in messaging around last quarter's capex guidance and this quarter's 1 billion data points.
Between what you were expecting last year, sorry last quarter, and what Youre expecting now for 'twenty three 'twenty four so just help us walk through that that Delta there if you don't mind.
Yeah, I think fundamentally it's kind of a <unk> describing to the first question that Chris had I mean, we believe that we are able to debt finance the balance of <unk> and three construction using the invested capital that we've already put in place from one and two and three so I think it's just fundamentally a different in a presentation quarter over quarter that this is showing that we are able to use.
The debt capacity that the the units.
Okay.
From a capital structure standpoint, we look at page number four so you've got a total of $7 billion in balance sheet and infrastructure in the company right now.
About 6 billion has been funded over the last handful of years. So massive amounts of infrastructure investment on balance sheet as I said, the big difference really from a.
From a financing standpoint is that once assets go from construction projects to revenue producing the finance ability of them changes materially.
So thats really why we now don't believe it will have material amounts of equity capex at all to invest going forward. We've already made the investment. They are now all turning into revenue producing assets and with that the finance ability then it goes up substantially and you give a little bit of context, just the quality of the business $7 billion.
Infrastructure, which that's the core of the company.
And producing one six in our forecast $2 4 billion and EBITDA next year, that's roughly a 30 plus percent infrastructure yield to my knowledge has the best infrastructure yield on anything at any company.
Aware of in the World and so we've got when you and obviously when you produce those kinds of revenues and long term revenues and customer facing revenues the finance ability of those projects goes out the window and that's essentially what we're seeing play out in front of your eyes right. Now that's why is so transformational.
Got it got it so in other words.
The.
$2 9 billion that was originally slated to be equity Capex is now going to be $1 9 billion of equity Capex and calling of the origin of that Capex is that fair.
That's exactly right.
Okay got it got it.
Okay, and then moving on to Puerto Rico, or really just 2024 guidance generally can you can you give us some context.
It's really a lot coming online this fall from Puerto Rico.
Back half of last year.
We'd be expecting as far as Puerto Rico's contribution to that $2 4 billion.
And also clock arena as well what are we expecting there.
I mean, I'll, let Brian talk about Puerto Rico, specifically, we don't provide specific guidance on a terminal or a country basis.
We produce it.
Andrew walked through kind of what the the volumetric.
Our capabilities are in each of these markets, but for a whole variety of reasons. We don't think its appropriate to show margin for market by market, that's not really a great idea for our counterparties constituents theres lots of different factors.
Factors that apply to that so.
I understand that that would be.
Simpler and easier to model and we appreciate that but there is a host of other.
Competing factors that make it not really possible. So you can see the volumes go through Puerto Rico in particular, and again I'll, let Brian talk about this but in the short term very short term. The short term power will actually be turned on so <unk> plant is up and running it's probably the most reliable power plant on the island right now I think 99.
<unk> plus percent, so it's actually performing like gangbusters.
The San Juan project.
As in the last handful of weeks from being CRD and up and running as well and then there's a whole host of other projects to follow up maybe Brian If you can talk about that.
Great. Thanks really appreciate the question.
As Wes said I think the way we think about it is we've got this amazing asset which is the terminal in the north.
We built it anchored around 300 megawatt power plant adjacent to it but as Andrew referenced earlier, there is amazing embedded.
Capacity in the terminal for expansion and to support other projects I think the Best example is the 350 megawatts that were currently installing on a two year arrangement and then as you can imagine as the Puerto Rico assets that are installed today on island that are using <unk> and distillate is.
Those retire and are replaced then the terminal is there to support incremental power that develops over time. So the way to think about the Puerto Rico strategy evolving is it has a short term intermediate term and then long term aspect and over time, what you should expect is the incremental installed megawatts there.
Being fueled by some type of natural gas hydrogen blend increases over time. So it hits your 3700 megawatt peak demand, even as your renewables and others come online and again, 70% of the population lives in the San Juan Metro area. The NFL.
Terminal is the principal critical piece of infrastructure that sits in that region. So all of that transition will pass in some way shape or form through that asset and so you should expect the contribution to grow over time.
Brandon.
Without a doubt in our opinion the largest energy transformation event in the world and it happens to be a Commonwealth of the United States and so they've got the capital available to do the right things right now.
<unk> has got tremendous resources is an amazing place, but for the electricity and energy system and so at 630 times more likely for the tower to shut off and it would be if you lived in Miami or New York or Chicago, Obviously, that's not the right answer and and we are very very happy to be in I think of it we think that.
There is significant commercial opportunities as a result, but more importantly, there's a significant opportunity to do the right thing for Puerto Rico, I mean, I feel like.
It's got the potential to be Hawaii, because if people don't pay taxes right. So it's got it's got tremendous commercial opportunities as an island and as a as a Commonwealth. We are feel very blessed to be there and we really are in the thick of what is without a doubt the biggest energy transformation any market that we're aware of in the world. So there's a lot more to come in.
Next handful of months and years.
Got it thank you guys.
You bet.
Sam Burwell at Jefferies you have our next question.
Hey, good morning, guys.
I mean, the Capex has been fairly belabored at this point, but maybe.
Yes.
From a balance sheet perspective, it seems like youre, adding on a lot of that and I respect. The fact that it's not like secured against these assets, but there is a material amount of interest expense is going to come with this though like what are your what are you comfortable with adding to the balance sheet in terms of that how much interest expense are you comfortable layering on.
The EBITDA guidance has been lowered so there's.
Probably going to be free cash flow in the back half of the year, if capex is pretty light, but when how soon can we expect for genuine free cash flow generation. So you guys can start paying down the revolver.
Immediately I mean.
Look at the balance sheet, it's actually an incredibly unleveraged balance sheet. So all of the assets that we have basically invested in so the Brazilian assets.
The liquefied, although looking fire stuff that we're working on that's all on leveraged. So you actually are talking about billions and billions of dollars of assets that are unleveraged on the balance sheet and now that you are now putting them into revenue producing generation, you'll now start to put leverage against that and I think by you.
You say that it's.
There's a lot of debt and interest expense I'm not aware of an asset based infrastructure company as low leveraged as what we are on Earth. So I actually think it's exactly the opposite of what you described I think that the.
The big use of capital during the building period has been the unleveraged use of equity capital to fund construction, we've done that on balance sheet right now as these turn on in literally the timeframe for them. Turning on is the next two weeks four weeks six weeks eight weeks is an incredibly short period of time. You then will start to produce material amounts of cash flow and with such little amounts of <unk>.
Capital needed to go into Capex, you should expect immediate.
So that would be deleveraging and cash flow to go to it so.
From a from a timing standpoint.
We're halfway through roughly the third quarter right now the fourth quarter and thereafter, we expect virtually all of the stuff to be up and running and so youll see immediate impacts on cash flow and deleveraging to the bottom line.
Okay fair enough the follow up would be just on the Capex that was deployed in <unk>. It looks like that was.
About 900 million, so what comprised that number.
Yes, predominantly LNG, one two and three that's the bulk of it you should get some capital in Puerto Rico, just as all of these projects. We listed all the projects. We show you what the the capitalism is $3 2 billion in capital that's out the door. So it's actually I mean, it is ironic I think it is literally the opposite of your question.
Is the most like unleveraged balance sheet that I'm aware of for an infrastructure company and now Theyre actual revenue producing we're going to put that against the debt actually we can do so at very very competitive levels right. We financed our box arena Powerplant refinanced our power plants that we installed in Puerto Rico, I mean, it's actually quite straightforward to produce revenue producing assets.
It's harder to finance construction.
Construction projects, that's why we've done it on balance sheet and I think when you think about it we've actually from a standing start as a company, we've managed to build and invest $7 billion into infrastructure assets Thats, what our balance sheet is that is a foundational fortress like balance sheet actually starwood and now you're going to put modest amounts of debt against it.
And bring all the cash flow to the bottom line is going to be.
The word many times it is transformational in terms of the financial picture of the company going forward and it's going to happen right now.
Okay.
And our next question today comes from the line of Martin Malloy Johnson Rice. Please go ahead.
Good morning, I was wondering if you could broadly talk about the Brazil terminal and commercial opportunities to put additional volumes through those terminals.
Maybe the timing of.
Potential announcements around that.
Hey, Thanks for the question so we.
Buck Arena is mechanically complete.
We will see O D. In Q4 of this year and we will immediately start up a contract with Norsk Hydro we see some material expansion opportunities right at the port, which will actually be very accretive to the kind of EBITDA and operating margin of the terminal. There's four other customers a little bit smaller than Norsk hydro, but still meaningful for us they can connect to our pipeline we have.
Hope to find agreements with those guys over the next few months.
Beyond that we would obviously hope to expand our volumes in north hydro overtime.
Still the biggest alumina refinery in the world.
We're obviously providing volumes for their alumina refining process, so calcination and fire their boilers, but theres a lot more growth, we can do with them both on the sort of process side as well as on the power side. So definitely more to do there and then we're 20% complete on our 600 megawatt combined.
Combined cycle power plant, we have another parcel of land, there, which effectively could accommodate another over 600 megawatts.
There are some exciting power auctions coming up in Brazil kind of various flavors. Some that are more capacity based some that are more energy based.
But theyre all kind of interesting for that site.
And so we see a ton of avenue for growth there.
Theres also sort of regional growth.
A few power auctions coming up in Brazil.
Or kind of regional capitals to bring gas in the form of gas to power projects, We think bucker Ana as sort of a sole important point in that northern region of Brazil is really the interesting place to import gas and then distributed throughout the region. So.
A lot happening embark grana and always you know that.
That accelerates when we actually turn on so the.
Celsius is in the yard being converted into an Fsrus now we expect that to arrive.
<unk> Commission and terminal in Q4, so very excited for that with.
With Santa Catarina, we've had great progress on the physical construction side. So we're mechanically complete today, which is very exciting.
An amazing terminal that unlike Barker Hana connects into an existing pipeline system and so we built the terminal as well as about a 33 kilometer pipeline connect into the into the <unk> pipeline system in South Brazil.
So that's very exciting and then that gives us kind of a number of opportunities that we're actually pursuing basically between now and the end of the year.
To sell gas to customers in the pipeline to sell services to some of the pipeline companies who are looking for.
Pipeline balancing and other sort of.
Capacity services, we can provide and then Theres also a power story in the south as well so power plants today that can access enough gas or can't access gas at all.
And then over time the terminal to act as a main important point for gas into the sort of already gas using region of south Brazil. So a lot more to come there and thats really where were accelerating our commercial activity around kind of mechanical completion, signing up contracts over the next few months and getting that asset online Q1 of 'twenty four.
So a lot more to come in Brazil, that's really just the start.
And let's.
Let's spend more time on that in future calls.
The other thing we should probably do enough about us talking about the real impact we have on the environment with the projects that we have the <unk>.
<unk> Rana plant, which is again next to Norsk hydro's biggest aluminum smelter in the world.
Hydro I believe is the largest buyer of oil in South America, and essentially what youre going to do is turn off the oil and turn on the gas and by doing so they will save billions of dollars in fuel cost and they will say.
And thousands of tons of.
Hotel, we look across the portfolio something we have talked about doing it I will make an effort to get this out and on there we have saved our customers billions and billions of dollars I mean, the impact of <unk>.
Country like Jamaica switching into natural gas versus diesel. These last number of years the impact of the Commonwealth of Puerto Rico.
The country of Mexico.
<unk> delivered diesel entities countries is roughly to ask what the price of delivered gases. So it's billions and billions of dollars to these countries and in many cases their cost of fuel is our number one cost as a country. So a we save tremendous amounts of money by investing this critical infrastructure and getting into countries B, we make them.
Much much more environmentally friendly and of course, we all want zero carbon thats, what everyone in the world wants we want that as well and Thats, a big part of our hydrogen initiatives and others, but this is a major major steppingstone to doing so last thing and then I just wanted to go back to the whole question on the finance the infrastructure. The average infrastructure company. So a data center company.
A company with toll roads. The company reports is leverage probably to the tune of six or seven or eight or even nine times leverage.
Our assets are turning on now our leverage by the end of next year is roughly two times, it's a massively different complex and the notion that somehow like highly leverage is just so far from the actual reality of what an infrastructure company looks like and at $7 billion in infrastructure, We're an infrastructure company and our average term of our contracts is 10 years.
And again the way I think about the valuation of this and I'll just do it in simple terms, if Ireland $7 billion in coffee shops my forward.
Sales in my coffee shops be zero, because no one's bonding coffee tomorrow I have $7 billion in infrastructure, whereas the next like 10 years I'm expecting to collect 10, 12, 15 20 billion and growing beyond that so it is essential infrastructure is very long term customer cash flows. The vast majority of it is to investment grade customers.
Our leverage is very low that's the economic proposition of the company and I just want to reinforce that because I think we've talked around that I just want to make sure you hear from me kind of directly what I, how I think of it so anyhow. Thanks.
Thank you.
I appreciate your answers.
Follow up I did want to ask about the hydrogen strategy and maybe if you could give us a flavor for the level of interest from industrial customers.
Take potential for these projects I know your first project is surrounded by industrial customers and also.
Entergy has got a powerpoint they talked about using hydrogen down there.
Hey, Martin, it's Ken Nicholson here.
Good morning, I'll I'll take that question and we actually included a few slides in the appendix of the.
Of the materials I think hydrogen broadly is something we're going to be talking more and more about as.
As we make our way through the remainder of 2023, because theres a theres a lot going on.
Beaumont is doing great you mentioned it yes huge market one of the biggest markets for hydrogen demand. So it's a great place for us to start our first facility.
I would say the commercial conversations are going extremely well our deal.
<unk>.
With our technology provider is.
Net for 100 megawatts of equivalent hydrogen production.
Under that deal we have an option to expand to 200 megawatts I would say it is extremely likely that we will be exercising that option to expand there's plenty of land available for the expansion and is a heck of a lot of demand the demand is coming from refineries and clean fuel producers petrochemical companies in other.
Consumers of hydrogen the site that we are building on in Beaumont is on a nexus of multiple pipeline systems, including several hydrogen pipes and so we have low cost distribution to the entire Beaumont port Arthur market. So.
Going very well I mean, thats the step one in Beaumont.
At the same time, we're progressing a number of new facilities focused on the northeastern U S Pacific Northwest and an additional site.
On the Gulf coast, not that far from Beaumont.
Look I think good progress being made this really should be the largest pure play green hydrogen business.
And the first mover in what is an incredibly dynamic sector.
Great. Thank you I'll turn it back.
And we'll hear from Ryan Levine at Citi.
Thanks for taking my question and squeezing me in just.
Just one clarifying question, what's driving your SG&A assumptions in your forecast time period, and what are the bids.
The drivers if any variance to that.
I mean, the SG&A assumptions are all being driven by kind of an organic grounds up.
Look at the businesses when you start a business Ron from scratch and you.
Build up the capabilities. We've got you bring in a lot of people who bring our systems a lot of process and then over time, you have a real chance to go back and reset it kind of validates how you're organized how you do things what the costs are et cetera, and we feel like.
There are significant.
Potential for savings in our processes.
We mature as a company I think actually the.
The move into Puerto Rico for an era and the associated people that are down. There is also another big factor for US where we've got now a big operating company is essentially a power company. So in many of our activities in terms of back office and whatnot, we think we can.
<unk> rationalized and centralize there and we just feel like there is a tremendous amount of potential in terms of a normalizing that and then and as you move out of this phase of this significant infrastructure spending again.
Billion $7 billion in infrastructure spend and a handful of years. Obviously, there is a tremendous amount of building activity that goes on that now goes down precipitously and with that come down a lot of cost and one off costs and everything else and so you really can rationalize it and I think that you'll see certainly next year for us a much more lean and refined SGA.
Hey.
<unk> that actually generates the same kind of results are much much lower cost.
Is there a certain region within the company that has the biggest opportunity.
Streamline or some of those costs.
It's really on the operations side and when you think about it you've got people, who operate the power plants and people who operate terminals and people who operate.
Logistics stock and as you get more scale in each of these sectors. There should be a lot of cost efficiencies that come into it and that's exactly what we think is going to happen. So just the.
Probably the biggest single cost I think as inefficient, but it's just the nature of high grade the business is on the shipping side, because you need a lot of shifts it to provide a logistics that we've got as we build out these new terminals in Brazil, as we actually modified and crew and through our terminal in Puerto Rico, you take out massive like cost savings by just by simply being more efficient.
How you use those ships.
Yes.
Wish that it was easier to do from a standing start but just the reality of it and my experience is that you need to build it up and be operationally efficient and then you need to really kind of optimized and thats. The phase that we're going through and I think youre going to see over the next couple of quarters really really significant changes in SG&A and significant changes of the shipping side as we get more efficient on those two areas.
Thanks for taking my question.
You bet.
And that is our final question from our audience today, Mr. Pipitone I will turn it back to you Sir for any additional or closing remarks that you have.
Perfect. Thank you Jim and thank you everyone for joining US today, we remain available as always to answer questions. If you would please contact the investor relations team at IR at New fortress energy Dot com. Thank you and enjoy the rest of your day alright. Thanks Sarah.
Ladies and gentlemen, this does conclude today's teleconference, and we do thank you all for joining you may now disconnect your lines.
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