Q3 2023 New Fortress Energy Inc Earnings Call
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Good morning, everyone and welcome to the N F E third quarter 2023 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.
To get US started today with opening remarks, and introductions I am pleased to turn the floor over to managing director of strategy and then Investor Relations. Mr. Chance Pipitone. Please go ahead Sir.
Perfect. Thank you Melinda and good morning, everyone. Thank you for joining today's conference call, where we will discuss our third quarter 2023 results recent developments operational highlights and future here at N F E.
So as Melinda said the call is being recorded I won't be available by replay on the investors section of our website under the subheading events and presentations in the same location you will find our press release regarding our third quarter 2023 results in a corresponding presentation that we will walk through on today's call.
As we proceed through the discussion we will be referring to them to that presentation and then that 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.
Dive into their call. My name is again chance pepitone and joining me today are new portraits energy, our west <unk>, Our chairman and Chief Executive Officer, Chris Jensen, Our CFO, Andrew D D or a managing director of new business and other managers of our senior leadership team was already a great. Thanks, Chad So welcome everybody.
There's a chance maybe mentioned.
Yeah, we have.
A presentation that we put together for our term loan B. That's on our website, there's a ton of great information, there and I'm not going to go back and belabor that but there's a lot of great reference materials. There. So the earnings deck is a as a skinny one this this quarter because of all the material that is out there. So let's let's just dive in.
Actually the by far the best operational quarter that we've had in the history of the company. Many many highlights to talk about it in terms of what we've done on the operating side, but a few things to point out number one first and foremost in our view and many others out there. Our first LNG unit is now firmly in place.
It's been mechanically completed its in the field and is connected to the pipeline into the final stages of of being commissioned.
You really a remarkable accomplishment by the entire team $5 4 million man hours, two and a half year. So a record a very liquid fire in the world by every single measure and something we're quite proud of and obviously a real cornerstone of the supply side of our business and number two you know in Puerto Rico, We completed our two power plants.
Under the second of which was done and completed C. O D. At the end of September our Brandon will talk to that but obviously again a built in record time actually yet.
Right.
Our impact on the AR on the energy system in Puerto Rico, something we're actually very proud of and also a real cornerstone investment for us in the island and something to really build on in terms of our future activities there.
Lastly, I'll have Andrew did you talk about Brazil, we were down in Brazil together last week you know two massive accomplishment is the are the two terminals that we have down there are now mechanically complete they both have fsrus that are headed to be in place in the next 30 to 45 days or so Brazil is a massive massive opportunity for us huge market there'll be.
A lot of commercial activity that will fall out of this but getting all of this completed and it really is the culmination of many years of hard work for us across the LNG, the Puerto Rican and Brazilian markets in many respects, we now have perhaps the two best markets in the world for our business that are fully operational and generating cash flow.
The second highlight of the quarter as we fully financed our balance sheet I did a term loan b. The closed a few weeks ago. This allows us now to focus on on the business at hand of of operating our business. We expect now to have a very direct line to deleveraging the balance sheet and end with operating cash flows and asset.
Sales as we March towards investment grade rating, which is our plan over the next 12 months to 24 months Lastly, and of course the purpose for this call is the earnings call. We had record core operating earnings Chris will detail them in particular, but basically the transformation of our business, where we are now generating cash flow is virtually entirely from our.
<unk> is significant for US Q1, we had $15 million of core operating earnings Q2, we had $49 million and operating earnings Q3, a $195 million and operating earnings I would expect Q4 to be you know double or more of that of Q3 and Q1 to be better than Q4. So we really meant March.
Difficult distance towards.
Producing better high quality cash flows, 100% downstream and in a real a really great way for us to go.
I'll go into the second half of the year.
Page four briefly so the quarterly financial results.
The three pillars of our earnings are quality duration and growth.
As I said before 100% of our earnings coming from our downstream customers $208 million of adjusted EBITDA for the quarter.
Now and and the last stage of the year, our expectation is still the same $1.6 million and adjusted EBITDA for this year $2 $4 billion for next year, the $1 $6 billion about $200 million that we expect to come from gains on asset sales in the fourth quarter. So there could be some volatility there in terms of just the timing of those but those are.
Pretty straightforward, notably of the $2 $4 billion that we're forecasting for next year virtually all of it is already contracted of our $2 4 billion dollar estimate for next year all of it about $259 is already contracted so quality of cash flows coming out of 100% from downstream customers duration of our portfolio in excess of 12 years and the growth we hope.
We currently only use about 25% of the capacity.
Of our of our terminals. So there's a massive potential for organic growth going forward.
Page number five in spite of the operational performance, we are significantly undervalued as it come as a company by every metric that we look at we are the lowest value across the business.
This is something we think will be addressed just simply through producing results in an operating the company, but from an earnings per share basis. So you know our estimate for this year is $2.50 to $3 for the year for next year of $6 $57. So if you apply that to an earnings per share multiple there.
There is no cheaper company than us and the infrastructure place on her if you look at the the enterprise value to EBITDA, which is a good measure of the leverage of the business not only are we the lowest value in terms of the earnings multiple we are by far the least leveraged of crosses across these different sectors and lastly in terms of the growth of the company.
Our compounded growth great earnings per share in 2022 through 2024, 55% annual growth rates of extraordinary growth rate not only has it been extraordinary growth rate, but we think that the prospects for future growth are absolutely there with the capacity that we have in our terminals and our relatively low utilization.
So with that let's flip quickly into the construction update you know I talked about this a little bit it would be getting what I'll do is I'll turn this over to various members of the team to talk about it but we have a handful of very very significant updates.
The punch line is is that the vast majority of our construction is completed at this point and so but let's just go through I'll have Chris start with the LNG down in Mexico, Yes. Thanks, Wes good morning, everybody. The progress enough LNG. One is nothing short of remarkable we started the process of LNG from a standing start on March nine 2021, and 31 months were.
<unk> did announce that we have gas into the system and expect to conclude commissioning by the end of the year, while the typical LNG project takes on average five to seven years, but thanks to our incredible employees contractors equipment providers and regulators. We're nearing the completion of one of the world's most advanced offshore LNG facilities. So quickly just a brief recap of.
What has occurred and an outline of what happens from here over the last 60 days that remaining two rigs have moved from their construction site in Corpus Christi to their permanent home in Altamira, all three rigs have been jacked up into position connected to one another and hooked up to the subsea pipeline on.
Monday, we opened the valve of the subsea pipeline and moved the first gas molecules into our system.
Nat gas inflows from the Hot tap assembly through the riser to a rig and into our high pressure, let downs out from now through Sidoti the process will be to move gas into the turbines and complete commissioning of the power generation system, and then move natural gas into our pretreatment module gas flows through the mixed refrigerant compressor and enter the cold box where Elena.
He will then be produced once LNG has produced the LNG then flows into a floating storage unit the NSE Penguin, which will arrive on site in about 10 days. Our team has done a phenomenal job completing the various construction work streams methodically and safely commissioning critical equipment and we expect to see the first drops of LNG in the next few weeks Andrew.
Thanks, Chris So turning to Brazil into our downstream business.
We've been talking about Brazil for a while and we're very excited that.
On the next call we have we're going to be able to talk about both terminals in Brazil being in operation. So on page nine we start with Buck Arena.
Buckhead has been mechanically complete for a few months and we also have our fsrus thats been undergoing conversion works in the future in the yard in Singapore, the inner goes Celsius.
Finished mechanical completion under contract at the end of November and we will move to Brazil, and so the terminal will be in operations at the very end of 2023, I'll remind you that embark arena, we already have some long term contracts. So norsk hydro we have a <unk> 15 year contract that will start when the when the vessel arrived and start sending gas in early January 'twenty 'twenty four.
And then we also have a 25 year PPA for a 630 megawatt power plant. We are excited to announce yesterday that we've closed the financing with the Brazilian development Bank.
To fully fund the Capex on that power plant to a 100% financed.
And then will that part of that will start operations. In Q3 2025 currently it's about 37% complete under a fixed price fixed date EPC contract with Mitsubishi and tourists to tell we have another over 1000 megawatts of permits for new power plants adjacent to the terminal.
We are excited to bring this terminal online to change our region at the mouth of the Amazon, which has no gas today and is that.
Totally rely on an oil based fuels and to continue to announce new commercial activity at the terminal.
On page 10, we're talking about Santa Catarina, So all the way on the south of Brazil.
We've been able to make great progress here and on Monday, we announced the <unk>.
The charter of the <unk> winter, which will allow us to bring the terminal online in January of 2024. So we will sub charter that vessel from Petrobras for the for 2024, and then we will start our long term charter with directly with enter goes through the same vessel at the end of the year. So that's what we'll stay in Santa Catarina for the long term.
On the right, we're able to show our progress physically here. So we have the offshore terminal going clockwise, we've got the connection to the pipeline.
Then we have our 32 kilometer pipeline route and then our city getting gas conditioning station, where our pipeline connects to the pipeline system in the region. This is an extremely exciting terminal for us because it's the first time that we're really connected into a full transport pipeline system and that gives us a really diverse set of opportunities in this region, we are base load supply to existing.
Gas customers, both industrial and local distribution companies, we can provide firm gas supply to power plants that don't have firm gas supply today, there's about 2000 megawatts of existing power plants without firm gas supply. We can work with Greenfield tower developers of which there are about 1000 megawatts of permitted plants in the region.
We can also own power plants, theres, a very well regulated and well run a capacity market in Brazil.
That can award long term contracts for power capacity and also for energy and then we can also provide balancing and other services of the pipeline system. So we have a hugely diverse set of opportunities we have a terminal which in both cases, if a broker and Santa catarina as really a five or six year project.
Beginning permitting through construction and into where we are today. So we're very excited to own two of the.
LNG terminals in Brazil to bring these online at the end of the year and look forward to sharing more about our commercial activity on our next call Brandon over to you.
Moving to slide 11 for an update on the Puerto Rico mission.
Just for a bit of context, Puerto Rico does place with about $3 2 million people, but also it shouldnt lose focus there about 5 million people of Puerto Rican descent living in the mainland U S. So an incredible culture highly relevant to the history of the U S. An extreme focus for us and federal government and other.
There is.
Puerto Rico actually has unfortunately, the dubious honor of having the highest electricity prices in the U S and the least reliable power. The average Puerto Rican customer is 500 times more likely to be without power and someone in the mainland U S. After two devastating hurricanes an earthquake and other.
Issues that they've dealt with over the past five years. The federal government has decided to make a $22 billion investment to rebuild the energy infrastructure system in Puerto Rico. After Hurricane Fiona in October 2022, Puerto Rico launched a power system task force to stabilize the grid that included agencies such as <unk>.
EPA and others.
And if he responded to a call by FEMA and the Army Corps earlier this year to install a 150 megawatts of power in palisade co and 200 megawatts in San Juan We are extremely proud to report that we've completed both projects both operating baseload each running over 97% of the time two times more reliable then.
PREPA has existing system, and 25% more reliable and private operators, who operate in the market. It is the fastest large scale power project at the Army Corps has ever accomplished which is actually saying something given their history, our power, which is 350 megawatts operating but about 425 megawatts installed represents over 10.
<unk> of the installed power in Puerto Rico today, and after looking at the stats. This morning, we are providing about 15% of the power that's hitting the grid as we're talking now so what does this mean for the average Puerto Rican citizens. This power that we're talking about the 350 megawatts is the cheapest power on the island, it's the most.
Reliable it serves about 550 households, and most importantly has avoided about $600 million of economic loss due to load shed events that occur frequently in this market. We expect this tower to be a lasting part of the Puerto Rican infrastructure, we think about it as megawatts today and then it'll support renewable energy.
<unk> integration in the future because of our performance. We were recently selected to be part of two groups, who are going to participate in a $5 billion program launched by the U S Army Corps to respond to future events on the island as wet stated at the beginning of the call. This is an amazing example of the NFU mission, which is to provide capital extra.
<unk> and vision to those markets to provide reliable power to folks to improve their quality of life and improve their economic outcome.
This mission complements the head narrow mission, which is our recently launched platform that runs as a private operator, the PREPA generation fleet on the narrow side. We're currently developing 500 megawatts of battery project in projects and over one gigawatt of dispatch will generation improvements on behalf of PREPA to continue the mission of grid.
Modernization, so with that I'll turn it over to Chris to update on La Paz.
Okay, great. Thanks, Brandon just a quick refresher on the highest power plant. This is located at our terminal in Baja California sur ore BCS, which utilizes our proprietary ISO flex logistics solution to move LNG in cylinders from the large offshore storage vessel to the terminal where they are then unloaded incentive power plants.
Owned by the Cfe as we've done for the past year.
More recently, we started executing re gas operations and power generation at our owned plant, which we constructed beginning in 2021 in Q2 Q3, we conducted the 240 hour reliability tests on each of the three turbines and successfully completed grid compatibility assurance measures that were required to place the asset.
Into service during Q3, the photograph on the right side of the page shows our Powerplant, which is comprised of three <unk> 6000 turbines capable of supplying up to a maximum of 135 megawatts into the Bahar power market.
As we have mentioned before we have an agreement to sell the power plant to the Cfe in 2024, but then if you and if he will continue to own the terminal and the supply gas to the power plant until the sale closes in the meantime, and if he retains the cash flows associated with generating power and selling it into the local market as a side note <unk> written.
<unk>, the cash flows associated with generating power and selling it into the local market.
Flip to slide 13, and this is the Nicaragua powerplant the beauty of the Nicaragua development is that every piece of this project has been done by N V. In some shape or form so the power plant is constructed its onsite. It's waiting gas we are currently doing permitting and <unk>.
Initial construction works for an offshore Fsrus terminal this will be similar to the terminal design that we used in Santa Catarina, then we will move.
The gas from offshore through a directional drill to the onshore and then we have existing rights of way to move the pipe from the shore to the power plant. The freeze is currently in the shipyard in arriving on site in Q2 of 2024 and the pipeline will be completed over the course of the next four months.
This contract is or this terminal is underpinned by a 25 year PPA with the local utility and expect it to turn on late Q2 2024.
Go ahead, and turn to slide number 15, whats Youre seeing on slide 15, as the numerical representation of what west has been saying for months. This is that the company is nearing the completion of our approximately $7 billion of capital spend over the last eight years.
We have invested in essential infrastructure in key markets that are poised for increased power development and fuel switching over the near terms. Additionally, we were proactive in our investment in critical equipment and construction of liquefaction facilities that will allow us to increase terminal volumes in spite of the current market, which is no prompt availability for long term offtake. This page shows the.
The remaining spend on F. LNG wanted to which is approximately $400 million through the end of 2024, then we have another $150 million in capex associated with the completion of the terminals and ship conversions when you offset that with the proceeds from the recently closed term loan b and the contractual vessel conversion reimbursement from inner goes this leaves us with a fully funded capital.
Plan and excess cash when you add to that the over $2 5 billion in free cash flow from operations and asset sales over the next four excuse me five quarters, you can see the deleveraging inflection point that we foreshadowed with these funds, we will be able to fully pay down our revolver and retire the 2025 bonds, putting it at a leverage ratio of <unk>.
Below two times.
Now please turn to slide 17, and I'll run through the financial performance for the third quarter of 2023 I must admit this is as excited as I've been to report our financial results because as we've been telling you. This quarter was true pure cash flow from our core business no cargo sales no cancellations no noise from asset sales or impairments.
Total segment revenue was $514 million and total operating margin was $250 million downstream operating margin, meaning volumes that we sold through our terminals to our customers was $195 million as Wes alluded to this is an astounding four times what it was in Q2 and 13 times what it was in Q1 and yes, we do expect it to nearly <unk>.
Double in Q4 of this year the ship segment produced another $50 million and operating margin for each of the past two quarters and Thats about what you can expect from here through the end of 2024 net income for the quarter was $62 million or <unk> 30 per share on a diluted basis and as Wes said, we're forecasting between $2 50, and $3 50 for the full year.
Please turn to slide 18, we continue to have a good dialogue with the rating agencies, which have been super constructive as we pursue our goal of further upgrades and eventually an investment grade rating as Wes has mentioned previously they are a great number of benefits to achieving this goal, including one access to LNG offtake and trading markets that are currently reserved for investment grade.
<unk> two decreased cost of borrowing and three greater financial flexibility in the form of covenants and market access our current corporate ratings are double b minus W. Minus the one from S&P Fitch and Moody's respectively and in their recent report Moody's has issued a positive outlook on the corporate family rating on our recent term loan b issuance we were not.
Above the corporate to double B flat from S&P in VA three from Moody's and in the reports the agencies site near term upgrade possibilities as we continue to execute on our business strategy. The emphasize for critical themes stabilization of the Capex profile earnings visibility and consistency operational performance and conversion to free cash flow.
<unk>, leading to continued deleveraging when you look at the five boxes on this page you'll note. Our key highlights include net debt of under $3 billion in target leverage of less than two at the end of 2024.
Increased asset diversity, along with duration of our downstream contracts stable earnings growth in the fourth box high free cash flow conversion of our business, which is expected to be in excess of 60% next year, which will touch on in the next stage in the last box the commissioning of critical infrastructure like F. LNG the power assets in Puerto Rico.
And the terminals in Brazil.
Finally, moving to slide 19, and we have a walk year of adjusted EBITDA down to net income for 2022 through 2024 withstand the adjusted EBITDA line for just a second when you look at 2024, it's important to note that over 85% of these cash flows are expected to come from volume sold to our downstream customers through our terminals.
And 2020 for close to 90% of the volatile. These volumes are already contracted meaning we have over $2 $1 billion of EBITDA essentially backlog.
Now I'll move down the page and net income for 2022 was $185 million for 2023 is expected to be around $600 million and around $1 4 billion for 2024, then we added back noncash depreciation and amortization to get to the amounts you see highlighted in the black ROE, which we refer to as free cash flow before capex.
$328 million in 2020 to 775 estimated for this year and $1 65 billion estimated for next year. What's most compelling about this slide is a precipitous decrease in Capex from 2023 to 2020 for next year with only $400 million of growth Capex and approximately $40 million maintenance Capex, we're forecasting over $1 two.
Billion of cash flow that can be used to delever. The conversion of income to free cash flow is extraordinarily high as we look into 2024 and beyond which will allow us to pay down debt reinvest into new projects or return capital to shareholders with that ill turn the call back over to chance for Q&A.
What I'd like to do is just take a moment to have Ken Nicholson to give us an update on our hydrogen business. We've got the hydrogen folks here in the room with us. There's a lot that is going on there. So there's a couple of slides we put in the appendix, but Ken if you could just give us a brief that too that'd be great. Okay. Great. Thank you essence, it's Ken here folks at slides 21, and 22 in the supplement provide a little bit of an update on.
The latest <unk> zero parts I would say in the third quarter. We continued to establish a lot of momentum with the business, we are well on our way too.
Building and establishing a company that we expect to be the biggest in North America, and what we do and.
By far and away. The most profitable. This is a business that will produce green hydrogen and hydrogen logistics terminals to customers in the energy industrial and transportation sectors, helping decarbonize all of their businesses. The terminals, we're setting up our setup primarily focused on regional demand here in North America, but are also all on water.
And so they have expand ability for exports and there's a tremendous amount of the amount of demand in the international markets and so we just sort of set out the business plan to establish these things for a lot of growth going forward.
On slide 21, just to give you an update on our first site in.
Beaumont, Texas Zero Park one.
This is a site that we.
We had originally planned and designed for 100 megawatts of capacity or up to 50 tons per day of hydrogen production.
We are now increasing the scope of the site two folds to 200 megawatts of our 110 tons per day of hydrogen during the quarter, we signed a 100% offtake deal with OCI, we're big fans of OCI and what they're doing.
They operate today and large petrochemical ammonia and methanol production facility in Beaumont, and we believe supplying them with green hydrogen as they start producing blue and green methanol and ammonia products.
That's a long term deal represents all of our available capacity for now we still have the ability to expand what we're doing in Beaumont and so we look forward to looking to continue to do that we're all set with technology working with folks had electric hydrogen. So the Pam technology is all set and construction is underway.
We will be in a position to turn on the facility late next year and be fully operational as we enter 2025 on slide 22, the bigger the bigger picture is doing more of what we're doing in Beaumont we have.
Two other sites and actually very recently, we're adding a fourth that's not on this slide one of the Pacific Northwest that we are we are advancing rapidly we've effectively secured the site. Its a great site. Similarly in the northeast we have secured the site in the northeast we have a fourth facility.
Also on the Gulf Coast that we think is very interesting and we're in advanced negotiations to secure that site as I said <unk> is fully up and construction is underway.
The other two or three situations.
We'll be all set and starting construction, we expect in the next six months or so if all we do is build the three parks in the Pacific Northwest Northeast and down in Beaumont. This is a business that will generate $150 million of annual EBITDA. The cost to build these facilities are largely debt financed our debt facility today at zero parts is very very low cost.
Very long term actually our borrowing rate at sub 5%.
That only makes it an already profitable project, even more profitable and more accretive on a cash flow basis. So we look forward to continuing to update investors as we as we make our way in developing this company I think.
We're going to see a lot of growth in the future.
Thank you Ken.
If I can I'm going to turn it back to the operator I'd like to open up the lines for any questions.
Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.
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Once again that is star one to signal for a question and we will pause briefly to <unk> Q.
Okay.
And we'll go to our first question from Chris Robertson with Deutsche Bank. Please go ahead.
Hey, good morning, guys. Thanks for taking my question I just wanted to touch on.
The expected EBITDA for you here as we reached this inflection point.
Can you kind of clarify or kind of help US bridge here do you expect any contribution from.
Non contracted downstream assets in that number or any type of open our slot cargos.
Anything that's not quote unquote clean as you said Chris.
Yeah. So short answer is we have one cargo that we do expect to sell in Q4 other than that the remainder of the earnings are all coming through contracts to the downstream customers through our infrastructure.
Okay got it yeah. That's helpful and then with regards to the latest asset level financing for the Bok rate at power project.
More of a lump sum that you'll take in the near term and.
I guess related to that any portion of that would go to repay the Bok arena term loan that's coming up due in February or is that or is that separate.
Yes, So hey, it's Andrew So quick answer is yes, we will with our first draw fully repay the existing term loan and then we will be able to draw over time as we go.
As we complete construction financing so.
Similar to maybe like a term loan a that you'd see in the U S or a mini perm financing, but this is obviously with the Brazilian development Bank and.
And has very.
Long tenure as well so.
<unk> 20 year tenure on the financing.
And in a very advantageous rates I think all in we're below 8% on on that piece of debt.
Okay got it last question for me is just related to the Capex deployed during the third quarter and then kind of the guide for the remainder through 2024, so it looks like.
Some of the Capex is maybe pulled forward here.
I'm just trying to clarify.
It was quite a bit during the third quarter is that I believe related to capex deployed for the development of LNG to and then completing one or.
Kind of what was the Lumpiness there.
Yeah, it's mostly the work that's being done in <unk>. One we had some procurement activities for <unk> two that occurred during the quarter. We also had capex that was associated with the deployment of the turbines for the San Juan power plant. So, yes, it's a little lumpy in the third quarter Youll see some more details as we put out the queue later today or first thing in the morning.
I'm happy to go through them with you Chris.
Alright sounds great I'll turn it over thank you.
If you find that your question has been answered you may remove yourself from the queue by pressing star Q, We go to Ben Nolan with Stifel. Please go ahead.
Yes. Thanks.
I was hoping.
You may be give a little bit of color as to the status on the.
LNG unit with respect to the D. O here you know fully cleared to produce LNG and then also how are you thinking about deploying.
The deployment of.
The second LNG in on or.
Any color you can give around that would be helpful.
Yes, a quick answer is we have resolved and posted on the web our web site.
That the Doa raised last week, we find it just to be a nomenclature issue and they have agreed with us. So it's a non event for US now then.
As far as <unk> is concerned we are looking to put our units onshore altamira and have a positive reaction and interactions with the with the Mexicans remember. This is the this is we are building. Many of these units you can put multiple units offshore but multiple units onshore so calling one in one specific play.
This is what the deal you reacted to and our only point is we have units that can go in either location, we can select to put them in either one as we as we decide.
Okay. Thanks.
Appreciate that color and then and then for my second question was going to ask about the $1 billion of asset sales. Obviously, there's the power plant in Baja but maybe any level of granularity you can add around that and also I guess.
Given the positioning of the company generating a lot more free cash flow a lot less capex sort of maybe talk through the <unk>.
Drivers for.
For some of those asset sales as opposed to just.
Holding on to them and the associated cash flows.
Sure I'll take a crack at it Dan nice to hear your voice so.
We have about $1 billion in total of.
We didn't have dollars in total and assets that we deem to be noncore that on balance sheet. These are things that.
At different points in time were more important to so a brief.
A brief example would be something like our liquefy that we built down in Miami seven or eight years ago that was that was it.
A key part of the construction of the business and was a real proof of concept.
A milestone for us today that produces about 100000 gallons a day. So it's not really a material part of our overall supply of.
The company said that would be one that would be in there.
That category, but for the most part the assets that we're talking about selling produce a little in the way of free cash flow and little in the way in EBITDA. So they're really just good core assets they belong well in somebody else's hands and I think it actually cleans up our balance sheet and provides a lot of incremental.
Cash flow for Us really I'd say my my list of noncore asset sales as four or five in total they're all kind of individual independent events on each one of them and I think and expect that those things will actually come to fruition over the next six months herself for the most part so.
Chris detailed out when you look at the.
The cash flow profile of the company now that our Capex spend is down significantly and our earnings.
Generation is up significantly that plus the.
The cash flow generated from these asset sales will go a long ways towards deleveraging the company and thus take us down the path to our goal of becoming investment grade so.
We'll report on it every quarter as we go along but I would expect.
A handful of sales over the course of the next six months or so there is nothing that we are selling that we think we are sacrificing EBITDA cash flow for so these are all things that are great assets, but they're not they're not at this point in the stage of the company's life material to our future so that makes sense.
Sure I appreciate it thanks a lot.
Hey, guys.
We'll go next to Sam Margolin Wolfe.
Wolfe Research. Please go ahead.
Hi, good morning, everybody. Thanks for taking the question.
My first question's on the downstream growth.
Outlook and I wanted to refer to one of the slides in the in the term loan check because you had an illustrative margin buildup on our program and btu basis in that deck.
So you mentioned markets, where you know you're displacing diesel and Theres a fuel switching.
Aspect and so your margins are substantially higher than that and so I was wondering if you could just talk a little bit about the opportunity in those fuel switching markets, where you have higher embedded margins versus the illustration in that in that deck.
Yes.
I mean, one of the core fundamentals of the business is exactly what you mentioned, which is going into markets that have.
A dominant fuel is diesel and switching them to natural gas as a share of I mean, when we look at the impact in Jamaica for example, switching from diesel to natural gas.
On the plant that we first switch back in 2016 totaled.
Total savings to Jamaica life to date are in excess of $2 billion. So it's a it's a massively positive savings for them and still generate adequate margins for us the current level of oil.
Oil prices and thus the level of diesel that is generated by that and many of these markets is kind of mid twenty's price. So you have natural gas prices Henry hub right now is around three and a half dollar. So obviously from the low to the high there is a massive delta between the two and that's what really drives the behaviors of these markets and when I when I said earlier that I thought that.
Jim.
Puerto Rico, and Brazil, literally it might be the best markets for us on Earth.
For what we do in terms of both switching fuel from diesel to natural gas and also build a new better efficiency power.
It's without question that these are the two most interesting markets for us because it exactly this phenomenon we have.
And the Puerto Rico portfolio that we manage right now there's about 1000 megawatts of power today that burns diesel versus natural gas, obviously, that's a huge savings potential for the Puerto Rican ratepayers to switch to natural gas and for US. It's a very very steady source of new incremental volumes as we like to transfer going forward. So that's base.
Likely the path of the company as I said going from.
$15 million and operating earnings in the first quarter to 195, and then double or more as we go forward is just a massive massive change in the business and it is entirely driven by these longer duration.
<unk> downstream volume so it's a it's a huge huge moment in time for us and how you can really start to see it through the financials and then the Q4 financials. The Q1 financials Youll see the full impact in a number of these markets. Both in in particular in Puerto Rico, and Brazil, and we expect the growth to continue.
Indefinitely.
So it's a great point in time for us.
Okay I appreciate that thanks, and then the follow up is maybe just a clarification question for Chris or whoever wants to answer it but you mentioned that ex LNG to term it sort of a nomenclature.
Issue and these are modular.
Wind assets and so.
Capacity is different across like the.
The names of the reference materials and so maybe if you could just clarify like what.
Total capacity would be at the LNG to as described in the deck and then maybe if you would also share like what total invested capital in the LNG.
Group would be at that completion of that LNG too. Thank you.
Yes, so first off each train is one four times. So we have talked about multiple trains that we're building right. Now we are only focusing on the first one being deployed in altamira offshore and we are evaluating where we will put additional units.
As we've discussed previously we are permitting sites in Mexico offshore, which is the one that's permanent now for two trains we are looking to permit for up to two trains at the onshore at location and we're also permitting two trains at the Louisiana location. So our invested capital is not its I cant.
I pointed to just any one of those locations I would say across the module construction and then specifically to the rigs which are F LNG ones deployment solution.
The total invested capital is around $2 $5 billion and we've disclosed that so we think that that should give you everything you need in order to think about the total paid in capital for each of these units and we haven't broken it out by 234 and five in progress payments, but suffice to say critical equipment has been procured and we have.
The ability to maintain schedule to be able to put multiple units both offshore and onshore.
Okay understood. Thank you very much.
Yeah.
Our next question or comment comes from the line of Craig Shere with Tuohy Brothers you May proceed.
Hi, good morning, Thanks for taking the questions.
So first Wes.
Element that a couple of times on the call about how exciting Puerto Rico and Brazil are.
And now have five.
Fully executed markets, including those.
Mexico, Jamaica in Nicaragua, given the whole system when it turned on is maybe 20% capacity utilization.
The question is do you see any any need for further downstream project origination elsewhere in the world.
Or do these markets have the ability to sustain.
Substantial annual growth for years to come.
Short answer Craig that's good to hear that Hasnt client is yes.
The capacity that we have in these kind of core markets is so much greater than what our current productivity is that we have years of growth organically in each one of these markets in Brazil.
If I speak to this better than I, but Brazil is a country roughly the same size of the United States and about the same population they use about 5% as much natural gas alright. So the.
The ability for us to access these markets now with these terminals is really extraordinary I think there are.
There are six.
Natural gas terminals in Brazil, two of them are not connected to pipeline two of the remaining four are owned by Petrobras and the other two are owned by us. So.
It's a dominant position that we have in that market you know.
Same thing in Puerto Rico, where it's even even more the case so.
There, obviously is still a huge huge need in the world for.
Cleaner cheaper power and I and I do think that the this whole question of energy transition of course is a meaningful one but when you have 600 million Africans that have no power when the average.
Energy use in East Africa is 3% of the United States.
There's just a massive disconnect between what people need and what they have access to today and so of course, there will be markets over the over time that'll actually makes sense to us I'd say looking forward from 2020 for 2025 my expectation is that they are not to be any meaningful incremental terminals added other than the ones. We've identified so we need to finish.
The terminal in Nicaragua.
There has been a well publicized.
The filings we've had on the terminal we proposed to build in Ireland.
Ireland is the only country in the EU that does not have security of supply I think it's actually madness. When you consider what does it stay for that economy for there not to be an incremental source of supply and so on.
They came out with a ruling that we disagreed with we just re filed an appeal to it I think a couple of days ago Cam and we expect that that'll be heard in due course and that would be a market that would make a lot of sense for us on many many levels and more importantly make lot of sense for the Irish people. So we're a big fan of that but short answer is that with the existing.
Terminals in markets that we have access to right now we think that there is a massive amount of incremental growth for many years to come simply by executing on it and that's that's really the focus of the company.
And my second question.
I was always very intrigued by the opportunity of LNG deployment.
G. It deployment and stranded gas plays.
Wonder if you could speak to the sticking points.
We're in the Pemex negotiations for Lacoste and prospects.
<unk> outstanding for.
Stranded gas opportunities around the world in coming years.
Yes.
A little bit of historical context.
We own 50% of the Healy ship that was developed by the Golar guys is deployed off the coast of Africa. So that's an example of a stranded gas field thats being produced basically producing LNG today.
Their follow on asset I think was begun in 2017 and maybe in 2019 and is expected to be deployed in 2024 in the second half.
The contrast to that and our activities is actually fairly substantial I mean, we we became <unk> in March 2021, and we have the unit deployed today with gas in the system, that's being finalized commission before the end of 2023, so fast LNG.
Not a misnomer, it's actually the fastest.
Production of a facility like this in the World and we do think that with the worlds energy needs. These stranded gas fields offshore are going to need a lot of activity like we just we just deployed from.
From our standpoint, right now that is not our plan to incrementally put more in place we are we.
We feel like the facility that we have currently in the Gulf of Mexico, plus the proposed development onshore, which is a separate development as soon as we've said many times.
There is one that is adequate for our own needs, but I have no doubt that there is a big need and use for the technology and the capabilities that we have as an organization and maybe wanted to doing that for other people and whatnot, but from a from a capital investment and from a capex spend perspective, we are very focused on <unk>, one and <unk> to it.
This point and have no plans other than that but I do think that the broader question. You ask is does this have applicability to the stranded gas fields offshore the answer's a resounding of course, it does and I think youll see a lot of development for it and I think that the techniques that we've used in creating our own liquefy, we'll be mimicked by others, perhaps and we will see them crop up and different.
That's of the World.
Thank you.
We will go next to Ryan Levine with Citi. Please go ahead.
Hi, good morning.
To follow up on the LNG permitting question.
Clarify whitestone onshore applications or is it not for one or two.
Yes, it's actually Super simple, let me try and clarify because I think this is just a I really think this is just that I don't Wanna confusion. So we applied for permits and receive them on our offshore facility. It happens to be located at 12 miles offshore of Altamira right <unk>, So and we received the <unk>.
Permits were an application for the non FTA is we're also an application for Jones Act, we actually have had conversations with the various government agencies about all of these things and that very much continues on pace.
And the.
Separate topic, we are exploring the potential of putting the units onshore in the place also called Altamira and this is where I think it becomes confusing and my my kind of.
View of it is that simply the name and the nomenclature with similar enough that I think that the department said, Hey look if youre going to try to shoehorn your onshore development into your offshore permits that's not really the deal has to be independently permitted. We said of course that is not our intention and to the extent that we proceed with the onshore facilities.
File a separate application for that as is required and as appropriate when that becomes necessary. So we filed that publicly they responded publicly and said great. Thank you for that and Thats. The end of the story there was.
Misleading reports frankly that they will put out.
And the Investor community and said Oh My Gosh, that's now puts into question, whether we have the permits and whatnot nothing could be further from the truth in a truly was misleading I was unhappy about that honestly, but from our standpoint. It was just a simple mis misconstrued.
Question from the deal.
We responded to they responded to that at the end of the story.
Actually it's actually pretty straightforward from that standpoint.
Great. Thanks for clarifying and then on the different pathway can you help bridge, the 23rd quarter EBITDA and Capex to your full year guidance in terms of what the.
The implied ramp for the fourth quarter.
Yeah, So EBITDA.
<unk> EBITDA is.
For the year to be $1 $6 billion as Wes said that does include a little less than $200 million of gains on sales of assets that we expect to close by the end of the year, but that leaves you with approximately rounded one $4 billion, which we think that the fourth quarter fills.
Any meaningful drivers embedded in there or any can you break out any contribution expected from <unk>.
Incorporating in your guidance.
Zero zero Ryan the only driver is the full quarter utilization of the new San Juan power plant.
Okay, great. Thanks.
Thanks, Dan.
We'll go next to Chris Robertson with Deutsche Bank. Please go ahead.
Hey, sorry, guys I had one last question is a follow up.
Wes you had mentioned kind of being selected as part of the.
The multiple award task order contract in that $5 billion pool in Puerto Rico.
And Chris I think you might've mentioned being selected as part of two groups. There can you break that out a bit or clarify kind of what that encompasses in terms of the types of projects that that that pool.
We're focused on.
Sure Brian.
Yes, no problem. Thanks for the question this is Brandon.
So specifically the Army Corps as you rightly point out put out a new program, which is $5 billion of expected investment into the Puerto Rican infrastructure over the coming let's say three to four years.
We meaning <unk> competed with two groups on that meaning if you were selected with two groups and so the way to go moving forward is once the Army Corps decides on kind of a portfolio of projects, which obviously they intend to pay for it which should be power generation or other similar infrastructure builds then we would participate.
It is.
Not dissimilar to the two projects that we won in palisade Cowen San Juan So we would expect something similar going forward. So I think the short answer is the Army Corps program is 5 billion they publicly announced it.
They will scope that out over the coming months and then we will participate and compete and so far were to know so I feel pretty good about that.
Okay. So yeah to clarify it could include additional downstream power generation assets.
And not just selling gas into the market.
Correct I think the probably a way to think about it is it's very similar to the two projects that we've completed which is 350 megawatts. They just may be at different locations.
Okay, Great. That's super helpful. Thank you.
Youre welcome.
Great maybe just.
Maybe just to wrap up because I think we're done done other questions.
Nine years since we started the company spent $75 million building of infrastructure have seven terminals that are now up and six of them are operational dominant positions in Brazil, and Puerto Rico. The scale of the business now is truly massive $2 $5 billion roughly in revenue expected for this year and we expect to roughly double that revenue for next year or so.
$2 5 billion going to something close to $5 billion the conversion of that into free cash flow is probably between 40% to 45% and we trade at the lowest multiple.
And any infrastructure company I'm aware of on planet Earth. So it's good to be first it's something I guess, but with respect to the kind of valuation obviously I'm disappointed by it but I expect that will change meaningfully as we actually deliver these results in Q4 and Q1 end points thereafter, and so I think we will we will get the investors that we deserve and will get the valuation that we deserve.
And for those of you that are investors and now I think it will be very well rewarded for it but really a terrific year for us to date I think it sets us up extremely well both the end of the year and for next year with all the big changes not only in Puerto Rico, and Brazil, and other markets around the globe.
Something that that we.
We don't talk about a lot is the developments that we've had in the hydrogen business that is a business that as we.
We think the dominant hydrogen business in the United States on the Green Green side, and see as far as I'm aware and it may well be the only profitable meaningfully profitable hydrogen business that comes out of the <unk> at this point.
The business plan that can and others have come up with is one that I really support which basically is to turn the hydrogen business into a production that actually occurs at the place where it's used so you take first you saw the chemistry problem in the transportation problems and solve for it because you are actually utilizing it right, where you're making it into place. So it's a very very exciting time for the.
And we feel great about the quarter that just concluded and the prospects going forward and want to thank everyone for taking the time to listen and we look forward to updating you on our full year results in Q4 sometime early next year. Thank you.
And that was our final question from the audience today Mr. <unk>.
I'll turn it back to you Sir for any additional or closing remarks, you may have.
Thank you Melinda and thank you everyone for joining us today again, we remain available as always to answer any questions. Please contact the investor relations team and thank you again enjoy the rest of your day.
This concludes today's teleconference. We thank you for your participation you may disconnect your lines at any time.
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