Q4 2023 FTAI Infrastructure Inc Earnings Call
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Operator: Good day, and welcome to the Q4 2023 FTAI Infrastructure Earnings Conference Call. At this time, all participants are in a listen-only mode.
Good day and welcome to the Q4 2023 appetite infrastructure earnings conference call. At this time, all participants are in a listen only mode.
Operator: Later, we will conduct a question and answer session, and instructions will be given at that time. As a reminder, this call is being recorded. I would like to turn the call over to Alan Andreini, Investor Relations. You may begin. Thank you, Michelle.
We will conduct a question and answer session and instructions will be given at that time.
As a reminder, this call is being recorded I would now like to turn the call over to Elena and Dreaming of Investor Relations you may begin.
Thank you Michelle I would like to welcome you all to the appetite infrastructure fourth quarter and for full year 2023 earnings call. Joining me here today are Ken Nicholson, the CEO of <unk> infrastructure and Scott Christopher the company's CFO.
Alan John Andreini: I would like to welcome you all to the FTAI Infrastructure fourth quarter and full year 2023 earnings call. Joining me here today are Ken Nicholson, the CEO of FTAI Infrastructure, and Scott Christopher, the company's CFO. We have posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen-only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including adjusted EBITDA. The reconciliations of those measures to the most directly comparable GAAP measures can be found in the earnings supplement.
We have posted an investor presentation in our press release on our website, which we encourage you to download if you have not already done. So also please note that this call is open to the public in listen only mode and is being webcast.
We will be discussing some non-GAAP financial measures during the call today, including adjusted EBITDA reconciliations of those measures to the most directly directly comparable GAAP measures can be found in the earnings supplement.
Alan John Andreini: Before I turn the call over to Ken, I would like to point out that certain statements made today will be forward-looking statements regarding future earnings. These statements, by their nature, are uncertain and may differ materially from actual results.
Before I turn the call over to Kevin I would like to point out that certain statements made today will be forward looking statements, including regarding future earnings. These statements by their nature are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and Investor presentation regarding non <unk>.
Alan John Andreini: We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC. Now, I would like to turn the call over to Ken. Thank you, Alan, and good morning, everyone.
GAAP financial measures and forward looking statements and to review the risk factors contained in our quarterly report filed with the SEC now I would like to turn the call over to Ken.
Thank you Alan and good morning, everyone.
Kenneth J. Nicholson: This morning, we'll be discussing our financial results for the fourth quarter and full year of 2023. And in doing so, I'll be referring to the earnings supplement, which we recently posted to our website. Before getting into the financials, I'm pleased to report that our board has authorized a $0.03 per share quarterly dividend to be paid on April 5th to the holders of record on March 27th. Now, on to the results.
This morning, we'll be discussing our financial results for the fourth quarter and full year of 2023 and in doing so I'll be referring to the earnings supplement, which we recently posted to our web site.
Before getting into the financials I'm pleased to report that our board has authorized a <unk> <unk> per share quarterly dividends to be paid on April 5th to the holders of record on March 27.
Now onto the results fourth quarter adjusted EBITDA prior to corporate expenses came in at $42 4 million up 32% quarter over quarter and representing a new record for the company for.
Kenneth J. Nicholson: Fourth quarter adjusted EBITDA prior to corporate expenses came in at $42.4 million, up 32% quarter over quarter and representing a new record for the company. For the year, adjusted EBITDA was $140.9 million, also a record, and up 60% from fiscal 2022. Our strong performance for the quarter was driven by record results at our two largest companies, Transtar and Jefferson, and the realization of several of the initiatives that we set out to accomplish throughout the 2023 year. But we're equally excited about the prospects for our two other businesses, Rapano and Longridge, which continue to make significant progress on new opportunities that contribute materially to EBITDA and can contribute materially to EBITDA in the year ahead. With the strong results at Transtar and Jefferson, as well as the momentum at Rapano and Longridge, we are now forecasting to exceed our previous target of 200 million of run-rate EBITDA during 2024. In terms of the highlights at each segment, Transstar reported 23.6 million of adjusted EBITDA, its highest quarterly results since we acquired the business in 2021. Operationally, Transstar had an excellent quarter with growth in both car load volumes and pricing while operating costs remained steady. EBITDA margins exceeded 50% in Q4, a first-time accomplishment for the company.
For the year adjusted EBITDA was $140 9 million also a record and up 60% from fiscal 2022.
Our strong performance for the quarter was driven by record results at our two largest companies transtar and Jefferson and the realization of several of the initiatives that we set out to accomplish throughout the 2023 year.
We're equally excited about the prospects for our two other businesses are pioneer in long ridge, which continue to make significant progress on new opportunities that contribute materially to EBITDA. It can contribute materially to EBITDA in the year ahead with the strong results at Transtar and Jefferson as well as the momentum at <unk> and long Ridge, we are now forecasting to exceed our previous target of 200 million.
On a run rate EBITDA during 2024.
In terms of the highlights in each segment Transtar reported $23 6 million of adjusted EBITDA. Its highest quarterly result, since we acquired the business in 2021 operationally Transtar had an excellent quarter with growth in both carload volumes and pricing while operating costs remained steady.
EBITDA margins exceeded 50% in Q4, a first time accomplishment for the company.
Kenneth J. Nicholson: Recently implemented pricing increases and several new business activities, including our new rail car repair facility, have already begun to contribute in 2024, so we expect momentum to continue at Transstar in the year to come. At Jefferson, EBITDA was $14.3 million for the quarter, also a new record. Volumes continue to grow at Jefferson, and we're advancing more new business opportunities than ever. We'll talk in more detail shortly, but today we are in advanced negotiations with a number of new and current customers for incremental business, representing a total of $75 million of annual EBITDA once commenced. At Rapano, the adjusted EBITDA loss continued to narrow, and we made significant progress on our Phase 2 expansion project that will transform our business and long-term EBITDA generation.
Recently implemented pricing increases in several new business activities, including our new railcar repair facilities have already begun to contribute in 2024. So we expect momentum to continue at transtar and the year to come.
At Jefferson EBITDA was $14 3 million for the quarter also a new record volumes continued to grow at Jefferson and we're advancing more new business opportunities than ever we'll talk in more detail shortly but today. We are in advanced negotiations with a number of new and current customers for incremental business, representing a total of $75 million of annual EBITDA.
Once commenced.
As a part of the adjusted EBITDA loss continued to narrow and we made significant progress on our phase two expansion projects that will transform our business and long term EBITDA generation.
Kenneth J. Nicholson: And finally, at Longridge, results reflect the previously scheduled maintenance outage during the quarter, as well as reduced third-party gas sales given the lower price environment for natural gas. Had it not been for the outage, our results would have been in line with our third quarter. I am as optimistic as ever about our business at Longridge, and I believe the macro outlook for modern, efficient power plants is as strong as it's been since we first commissioned the plants a couple of years ago. On the balance sheet, in the aggregate, we had $1.34 billion of debt at December 31st.
And finally at long Ridge results reflect the previously scheduled maintenance outage during the quarter as well as reduced third party gas sales given the lower price environment for natural gas had it not been for the outage. Our results would have been in line with our third quarter.
I am as optimistic as ever about our business at long Ridge and I believe the macro outlook for modern efficient power plants is as strong as it's been since we first commissioned at the plants a couple of years ago.
Briefly on the balance sheet in the aggregate, we had a 134 billion of debt at December 31.
Kenneth J. Nicholson: $560 million of debt was at the corporate level, while the rest of our debt was at our business units. Transstar is completely debt-free, while approximately $750 million of debt was at our Jefferson segment and $50 million was at Rapano. At both of these entities, debt is non-recourse to the parent, carries low coupons and long duration, and is not callable in the event of a sale of the business.
$560 million of that was at the corporate level, while the rest of our debt was that our business units transtar is completely debt free while approximately $750 million of that was at our Jefferson segment and $50 million was that we're calling out at both of these entities debt is nonrecourse to the parent carries low coupons and long duration and is not callable and the amount.
The sale of the business.
Kenneth J. Nicholson: With continued growth in our earnings and favorable capital markets, we're expecting to be in a position to refinance our corporate balance sheet during the 2024 year, which will allow us to reduce fixed charges and increase distributable cash flow. I'll talk through the detailed results at each of our segments and then plan to turn it over to questions. Starting with Transtar on slide 7 of the supplement, Transtar posted revenue of $44 million and adjusted EBITDA of $23.6 million in Q4, up from revenue of $41.9 million and adjusted EBITDA of $17.4 million in Q3. Both car load volumes and average rate per car load grew in the quarter while operating expenses were steady. Fuel expenses were more than offset by fuel surcharge revenue during the quarter, as we recovered some of our higher fuel costs incurred in Q3 with fuel surcharge revenue received in Q4.
With continued growth in our earnings and favorable capital markets, we're expecting to be in a position to refinance our corporate balance sheet. During the 2024 year, which will allow us to reduce fixed charges and increased distributable cash flow.
I'll talk through the detailed results at each of our segments and then plan to turn it over to questions.
Starting with Transtar on slide seven of the supplement transtar posted revenue of $44 million and adjusted EBITDA of $23 6 million in Q4 up from revenue of $41 9 million and adjusted EBITDA of $17 4 million in Q3.
Both carload volumes and average rate per carload grew in the quarter, while operating expenses were steady fuel expenses were more than offset by fuel surcharge revenue during the quarter as we recovered some of our higher fuel costs incurred in Q3 with fuel surcharge revenue received in Q4.
Kenneth J. Nicholson: We're making great progress on multiple initiatives at Transstar to drive incremental revenue and diversify our customer base. The table on the right side of slide 7 of the supplement shows the incremental EBITDA we expect from this year for each initiative, and we total expect these programs to represent approximately $4-6 million of quarterly EBITDA and $20 million on an annualized basis. Now on to Jefferson. Jefferson generated $19.3 million of revenue and $14.3 million of adjusted EBITDA in Q4 compared to $16.6 million of revenue and $7.8 million of EBITDA in Q3. Volumes handled at the terminal grew significantly to an average of 185,000 barrels per day, driven primarily by increased refined products, while crude oil volumes remained steady. Operating expenses were also lower for the quarter as our recent cost savings initiative started to kick in.
We're making great progress on multiple initiatives of transtar to drive incremental revenue and diversify our customer base. The table on the right side of slide seven of the supplement shows the incremental EBITDA, we expect from this year for each initiative.
Total we expect these programs to represent approximately $4 million to $6 million of quarterly EBITDA and $20 million on an annualized basis.
Now on to Jefferson Jefferson generated $19 $3 million of revenue and $14 3 million of adjusted EBITDA in Q4, compared to $16 6 million of revenue and $7 8 million of EBITDA in Q3.
Volumes handled at the terminal grew significantly to an average of 185000 barrels per day, driven primarily by increased refined products, while crude oil volumes remained steady.
Operating expenses were also lower for the quarter as our recent cost savings initiatives started to kick in in the aggregate were expecting $8 million of annual cost savings to be fully implemented by the middle of this year.
Kenneth J. Nicholson: In the aggregate, we're expecting $8 million of annual cost savings to be fully implemented by the middle of this year. Also, during the quarter, we executed a new lease at our Jefferson South Terminal. On our income statement, we recorded a gain in connection with this new lease. To elaborate a bit on this, we do not expect this type of event to be a one-time item. We have a low basis in land at Jefferson South given the attractive purchase price we negotiated in purchasing the site.
Also during the quarter, we executed a new lease at our Jefferson South terminal on our income statement, we recorded a gain in connection with its new lease.
To elaborate a bit on this we do not expect this type of event to be a one time item.
We have a low basis in the land at Jefferson South given the attractive purchase price we negotiated in purchasing to site.
Kenneth J. Nicholson: Where we execute new leases substantially above the book value of the land at Jefferson South, we record a financial gain. At current market lease rates, we expect to continue to record gains like this as we lease up the remaining acreage at the site. We have approximately 200 acres available for lease, so while these gains may not repeat every quarter, we certainly expect to record similar or larger gains in the future. More importantly, the new business environment at Jefferson remains robust, and we're advancing more opportunities for both conventional energy products as well as clean hydrogen-based fuels.
When we execute new leases substantially above the book value of the land at Jefferson South we record a financial gain.
At current market lease rates, we expect to continue to record gains like this as we lease up the remaining acreage at the site. We have approximately 200 acres available for lease. So while these gains may not repeat every quarter, we certainly expect to record similar or larger gains in the future.
But more importantly, the new business environment of Jackson remains robust and we're advancing more opportunities for both conventional energy products as well as clean hydrogen based fuels.
Last year, we secured a new 15 year contract for the trans loading and export of ammonia commencing in 2025. We currently have three additional projects in advanced negotiations with together with last year's ammonia contract represent approximately $75 million of annual EBITDA once operational and have the potential to be transformative for transformational for Jefferson.
Kenneth J. Nicholson: Last year, we secured a new 15-year contract for the transloading and export of ammonia commencing in 2025. We currently have three additional projects in advanced negotiations, which together with last year's ammonia contract represent approximately $75 million of annual EBITDA once operational and have the potential to be transformational for Jefferson. If we're successful in converting these opportunities to business wins, we will far exceed our prior targets of $80 million of annual EBIT. Now on to Rapano.
Yeah.
If were successful in converting these opportunities to business wins, we will far exceed our prior target of $80 million of annual EBITDA.
Now under upon us.
We continue to narrow our operating loss in our phase one multi year contract to transport natural gas liquids is continuing smoothly as a reminder, that contract with an investment grade counterparty has minimum volume commitments and does not exposed to commodity prices.
Negotiations continue in connection with the much larger phase III trans loading system. Although we are now in discussions with additional producer customers, which should lead to higher committed committed volumes phase.
Kenneth J. Nicholson: We continue to narrow our operating loss, and our Phase 1 multi-year contract to transload natural gas liquids is continuing smoothly. As a reminder, that contract with an investment grade counterparty has minimum volume commitments and does not expose Rapano to commodity prices. Negotiations continue in connection with the much larger Phase 2 transloading system, although we are now in discussions with additional producer customers, which should lead to higher committed volume. Phase 2 can ultimately quadruple the capacity of natural gas liquids handled at the terminal.
<unk> phase II can ultimately quadruple the capacity of natural gas liquids handled at the terminal. So while negotiations have been slower than hoped the scale of the ultimate commercial opportunity is larger.
Confident we'll sign up our first customer for phase II in the next 30 to 60 days and start construction immediately thereafter in the aggregate, we expect phase II to cost approximately 200 million to build funded entirely with tax exempt debt and to generate approximately $40 million of annual EBITDA once complete.
Kenneth J. Nicholson: So while negotiations have been slower than hoped, the scale of the ultimate commercial opportunity is larger. I'm confident we'll sign up our first customer for Phase 2 in the next 30 to 60 days and start construction immediately thereafter. In the aggregate, we expect Phase 2 to cost approximately $200 million to build, funded entirely with tax-exempt debt, and to generate approximately $40 million of annual EBITDA once complete. Closing out with Longreach. Longreach generated $5.1 million in EBITDA in Q4 versus $8 million in Q3 and $3 million in Q2. Power plant operations were impacted by a 20-day planned maintenance outage, while gas production continued to be managed down during the quarter in the currently lower gas price environment.
Closing out with long ridge laundry generated $5 1 million in EBITDA in Q4 versus $8 million in Q3.
Power plant operations were impacted by a 20 day planned maintenance outage, while gas production continues to be managed down during the quarter and the currently lower gas price environment.
Gas prices have under a $1 50 per <unk> our profit on third party sales is less meaningful so we limit production and opt to keep excess gas in the ground.
This month, we expect to <unk> closed a new financing for our recently acquired gas resources in West Virginia.
The new facility is long term with an extremely attractive rate so that positions us well to start gas production when prices recover.
More importantly, we have been actively advancing a handful of significant opportunities with onsite power customers at long ridge, which could have a significant positive impact on EBITDA late last year, we entered into a letter of intent with a data center operator for the lease of a portion of our property and utilization of a substantial portion of our power capacity.
Kenneth J. Nicholson: At gas prices of under $1.50 per mm BTU, our profit on third-party sales is less meaningful, so we limit production and opt to keep excess gas in the ground. This month, we expect to close a new financing for our recently acquired gas resources in West Virginia. The new facility is long-term at an extremely attractive rate, so that positions us well to start gas production when prices recover. Furthermore, we have been actively advancing a handful of significant opportunities with on-site power customers at Longreach, which could have a significant positive impact on EBITDA. Late last year, we entered into a letter of intent with a data center operator for the lease of a portion of our property and the utilization of a substantial portion of our power capacity.
The LOI is the first step to what we expect to be a binding long term agreement and includes nonrefundable deposits a portion of which will hit the P&L in this first quarter on a macro level data center demand in the PJM region alone is expected to grow from three gigawatts of power needs currently to nearly 17 gigawatts over the next six years.
Yes.
New renewable resources will not be sufficient to meet this demand and owners of modern efficient gas plants like long reach has the potential to benefit greatly in the coming years with that in mind. We've also been advancing negotiations with an existing tenant that require up to 200 megawatts of power capacity, we expect to be in a position to execute this LOI in the month of March.
Kenneth J. Nicholson: The LOI is the first step to what we expect to be a binding long-term agreement and includes non-refundable deposits, a portion of which will hit the P&L in this first quarter. On a macro level, data center demand in the PJM region alone is expected to grow from three gigawatts of power needs currently to nearly 17 gigawatts over the next six years.
To wrap up we're pleased with our direction as we entered the year ahead and excited about the things to comment now.
Now, let me turn the call back over to Alan.
Kenneth J. Nicholson: New renewable resources will not be sufficient to meet this demand, and owners of modern, efficient gas plants like Longreach have the potential to benefit greatly in the coming years. With that in mind, we've also been advancing negotiations with an existing tenant that will require up to 200 megawatts of our power capacity. We expect to be in a position to execute this LOI in the month of March. To wrap up, we're pleased with our direction as we enter the year ahead and excited about the things to come. Now, let me turn the call back over to Alan. Thank you, Ken.
Ken Michelle you May now open the call to Q&A.
Thank you. Our first question comes from Giuliano Bologna with Compass point Your line is open.
Okay.
Giuliano are of your telephones mute please UN mute.
Thank you.
So you can hear me now.
Congratulations on a great quarter.
The first thing I'd like to ask is can you talk a little bit.
About the railcar repair facility and why you're excited about the prospects.
New railcar from the expanded robart facility.
Absolutely, yes, good morning. Thank.
Thank you.
Yes, just opened.
Alan John Andreini: Michelle, you may now open the call to Q&A. Thank you. Our first question comes from Giuliano Bologna with Compass Point.
And we're thrilled to have it opened and complete about a $20 million project to build.
Actually that facility was entirely funded by by the state so.
Operator: Your line is open. Giuliano, if your telephone is muted, please unmute it. Thank you. Hopefully, you can hear me now. Congratulations on a great quarter. Well, the first thing I'd like to ask is, can you talk a little bit about the Railcar Repair Facility and why you're excited about the prospects for the new Railcar or the expanded Railcar Facility. Absolutely. Good morning, Giuliano.
Yes.
We're thrilled to have the state's participation in that project. It is the biggest and most modern.
Repair facility really in the entire Western Pennsylvania, Eastern Ohio region, and Thats, a huge region for industrial activity.
We connect with all the class one railroads and so we have access to.
Hundreds of thousands of railcars in.
Kenneth J. Nicholson: Thank you. Yeah, it just opened, and we're thrilled to have it open and complete, about a $20 million project to build. Actually, that facility was entirely funded by the state, so we're thrilled to have the state's participation in that project. It is the biggest and most modern repair facility in the entire western Pennsylvania and eastern Ohio region, and that's a huge area for industrial activity. We connect with all the class one railroads, and so we have access to hundreds of thousands of rail cars you know in the region.
In the region.
We already signed a new piece of business with a major oil company for the repair of tank cars.
I think we will have the facility at full capacity at some point this year at full capacity I think generates at least $10 million of annual revenue.
And generally these types of facilities typically have EBITDA margins above 30% to 40%. So you get a sense for just the EBITDA impact from this one facility I think most importantly.
It is the first of many to come now that we've got this one behind us.
Kenneth J. Nicholson: We've already signed a new piece of business with a major oil company for the repair of tank cars. I think we'll have the facility at full capacity at some point this year. At full capacity, the thing generates at least $10 million in annual revenue.
<unk> portfolio.
We're setting out to open many more in so these things are highly highly accretive I cant say in every case, we will get.
Full participation from the states and regions and in funding but.
Nonetheless, they are relatively low cost ability to be highly accretive. So we're setting out on a big plan to build many more of these and really get into the business.
Kenneth J. Nicholson: Generally, these types of facilities typically have EBITDA margins of about 30% to 40%, so you get a sense for just the EBITDA impact from this one facility. But, I think most importantly, it is the first of many to come. Now that we've got this one behind us across Transstar's portfolio, we're setting up to open many more. These things are highly, highly accretive.
That's helpful and then.
So give us your thoughts on the sale of USDA and.
Let me get back to it but I haven't heard them Sir.
Yeah.
The punch line is.
I think it's.
Any event that transaction closes and we think that our view is it will.
The.
Kenneth J. Nicholson: I can't say in every case that we'll get full participation from the states or regions in funding. Nonetheless, they're relatively low-cost to build and can be highly creative, so we're setting out on a big plan to build many more of these and really get into the business. That's helpful.
I think it's only only good for us.
Nippon Steel is the fourth largest steel manufacturer in the world as an investment grade counterparty.
Part of our contract today with USB LR contract must be assumed by the new buyer.
Kenneth J. Nicholson: And then next, can you give us your thoughts on the sale of U.S. steel and the impact it could have on HRNSA? Yeah, the punchline is, I think it's, you know, in the event that the transaction closes, and we think our view is it will, I think it's only good for us. You know, Nippon Steel is the fourth largest steel manufacturer in the world.
So U S. Steel is certainly a very strong credit advance deal is even better credit so.
We like that dynamic I would also say Nippon is.
Core business is operating blast furnaces, I mean, obviously the part of the USDA business that they find most attractive are the blast furnaces in Pittsburgh and Gary.
Kenneth J. Nicholson: It's an investment-grade counterparty. As part of our contract today with U.S. Steel, our contract must be assumed by the new buyer. And so, look, U.S. Steel is certainly a very strong credit. Nippon Steel is, you know, even a better credit.
They wanted to do a lot with those two facilities. So I'm excited about it.
I don't think the transaction's going to close anytime necessarily soon I mean, what we're hearing is it'll be later this year again I think it's only only good things to.
Kenneth J. Nicholson: So, you know, we like that dynamic. I would also say, you know, Nippon is, I mean, their core business is operating blast furnaces. I mean, obviously, the part of the U.S. Steel business that they find most attractive are the blast furnaces in Pittsburgh and Gary. And I think they want to do a lot with those two facilities. So I'm excited about it, but I don't think the transaction's gonna close anytime necessarily soon. I mean, what we're hearing is it'll be later this year.
To come out of that transaction.
That's helpful and then on the Jefferson side can you expand on the 75 million plus of.
Thank you.
<unk> outlined yeah.
Yes definitely.
The $75 million includes four <unk>.
Pieces of business new pieces of business.
Two of them are AD at Jefferson South and two are at our main terminal.
At Jefferson South one has already been executed density ammonia contract.
I described and the second is also.
Kenneth J. Nicholson: Again, I think there are only good things to come out of that transaction. That's helpful. And then on the Jefferson side, can you expand on the $75 million-plus of new initiatives that you outlined? Yeah, definitely. The $75 million includes four pieces of business, new pieces of business. Two of them are at Jefferson South, and two are at our main terminal.
A separate counterparty and even larger hydrogen based fuels contract very very long term and very significant in scale.
I really see Jefferson, south, becoming a clean fuels the hydrogen based fuels hub.
Just with the first contract alone Jackson, South will become the largest <unk>.
Kenneth J. Nicholson: At Jefferson South, one has already been executed; that's the ammonia contract I described. And the second is, with a separate counterparty, an even larger hydrogen-based fuels contract, very, very long-term and very significant in scale.
Exporting facility for our carbon free ammonia in the United States in this second contract that we are in advanced stages of negotiating.
Kenneth J. Nicholson: You know, I really see Jefferson South becoming a clean fuels, a hydrogen-based fuels, you know, hub. Just with the first contract alone, Jefferson South will become the largest exporting facility for carbon-free ammonia in the United States. And this second contract that we are in advanced stages of negotiating will obviously take it to another level. The two other projects are at the main terminal, and both involve crude oil. One involves Waxy Crudes, and that contract is advancing well; we're at the documentation stage, and that's with a new customer.
We'll obviously take it to another level.
Two other projects are at the main terminal.
Both involve crude oil.
One involves waxy crudes and that contract is advancing well we're at the documentation stage.
The new customer and then the final contract, which is also for crude oil at the main terminal is with an existing customer is based on expansion of existing crude oil business, we do with one of our customers.
Kenneth J. Nicholson: And then the final contract, which is also for crude oil at the main terminal, is with an existing customer. It's basically an expansion of the existing crude oil business we do with one of our customers, and I think that one is also progressing well. Look, I think all four of these contracts and opportunities have been executed. One is already executed. I think the remaining three, you know, we should be in a position to execute in the next three to six months. I mean, as you know at Jefferson, when you sign up new, very long-term, you know, deals, these things take some time to negotiate and ultimately ink. But once you have them signed up, you know, they live very long.
And I think that one is also advancing well look I think all four of these contracts and opportunities. One is already executed I think the remaining three.
We should be in a position to execute in the next three to six months.
As you know at Jefferson.
You sign up new very long term deals. These things take some time to negotiate and ultimately inc. But once you have them signed up.
They live very long so I think it's probably the next three to six months.
When we have all these things in place and as I said in my comments if were successful in closing I would think that it will be absolutely transformational for Jefferson and the value proposition there.
Very helpful and then on the cost side are you finally close.
Kenneth J. Nicholson: So I think it's, you know, probably the next three to six months when we have all these things in place. And as I said in my comment, if we are successful in closing all these out, it will be absolutely transformational for Jefferson and the value proposition. Very helpful.
And can you expand a little bit more.
More about the central side and the increase at <unk>.
Yes.
<unk>.
We were hoping to have that contract executed we are very very close.
And I do think it is it is simply a matter of time. It is when it is not if.
Kenneth J. Nicholson: And then on the Rapano side, are you finally close to phase two of Rapano? And can you expand a little bit more about the potential size and increase there? Yeah. Admittedly, we were hoping to have that contract executed. We are very, very close. And I do think it is simply a matter of time. It is when, it is not if.
But as I as I described and I think you obviously picked up on.
As we have been negotiating others, particularly on the producer side have been showing interest and so I think we have the potential.
To expand the revenue base no new no additional cost.
The original.
The contract with just one counterparty.
Kenneth J. Nicholson: But as I described, and I think you actually picked up on, as we have been negotiating, others, particularly on the producer side, have been showing interest. And so I think we have the potential to expand the revenue base at no additional cost. The original, the contract was just one counterparty, would not have used the full capacity of the system.
Would not have used the full capacity of the system and so now having more counterparties involved allows us to operate the crowd.
Cryogenic tank at.
Capacity closer to full capacity.
So where we had previously been an EBITDA estimates that were slightly less than the $40 million run rate I think we are now much closer to that 40 million run rate.
Kenneth J. Nicholson: And so now having more counterparties involved allows us to operate the cryogenic tank at a capacity closer to full capacity. So, you know, where we had previously been in EBITDA estimates that were slightly less than, you know, the $40 million run rate, I think we're now much closer to that $40 million. That sounds good.
That sounds good and then I'd be curious.
Where you are with the cavern permits airvana.
And what do you think that does to the value of our economy.
Sure.
I think it's significantly the value where we are.
Process is continuing.
Kenneth J. Nicholson: And then I'd be curious where you are with the cabin permits, Arapana. And what do you think that does to the value of our economy? I think it's significant to the value. The process is continuing, as you may appreciate obtaining permits for this kind of unique work is a process, but we're deeply engaged with the state of New Jersey in the permitting process.
As you May appreciate.
Gaining permits.
For this kind of unique work as a process, but we are deeply engaged with the state of New Jersey, and the permitting process. We currently anticipate receiving.
The permits in the second half of this year.
Kenneth J. Nicholson: We currently anticipate receiving the permits in the second half of this year. Caverns are a different animal in a very good way from above ground storage. They cost a third to a half of the cost to build above ground. They live effectively forever, and the maintenance of a cavern is significantly lower than the maintenance of an above ground tank.
Caverns are a different a different animal.
And much in a very good way from above ground storage they cost a third to a half of the cost to build above ground. They live effectively forever and the maintenance of a cavern is significantly lower than the maintenance of an above ground tank.
Kenneth J. Nicholson: They also mean that you maintain the above ground land for use for other things like and what have you. It's incredibly efficient. Rapado is a unique asset in that we sit on top of this incredible granite formation. Obviously, we operate one cave today, and that thing has been operating flawlessly, handling butane and propane. We're very, very excited about the new caverns. I think just the act of obtaining permits is a significant driver of value creation, and that value only grows as you start construction and actually build out the caverns. Local Rapano is today one of the bigger gateways in the northeast here for the export of natural gas liquids into the caverns.
They also mean that you maintain the above ground land for use for other things like additional rail and what have you. So it's incredibly efficient for Paul.
Auto is a unique asset that we sit on top of this incredible granite formation. Obviously, we operate one Kathryn today and that thing has been operating flawlessly handling butane and propane and so.
We're very very excited about the new caverns I think just the active obtaining permits is a significant driver in value creation and that value only grows as you start construction and actually build out the cabins look <unk> is today.
One of the bigger gateways in the northeast here for the export of natural gas liquids with the caverns, we will be we will be.
Kenneth J. Nicholson: We will be a very, very close second to our neighbors at energy transfer just down the river, and so I think it's huge for the value creation at Rapano even before we have the things up and running. That's very helpful. And then where do you want to see net gas prices before you start increasing production? Yes, prices have been low at Longridge, particularly in the Unicton and Marcellus formations, for quite some time. And so in the past few quarters, we have not seen a lot of excess gas production. I can't say I have a great view as to whether gas prices are going to stay where they are or go up. I think the general consensus is that they'll creep up from here over the next few quarters.
We'll be a very very close second to our neighbors at energy transfer just down the river and so I think it's huge for the value creation at <unk>, even before we have the things up and running.
That's very helpful.
Where do you want to see Nat gas prices before you start increasing production.
Yes.
Sure.
Prices have been low at long ridge.
For particularly in the net and the Utica and Marcellus.
Formations for quite some time and so the past few quarters, we have not seen a lot of excess gas production.
I can't say I have a great view as to whether gas prices are going to stay where they are or go up there I think the general consensus is nil creep up from here.
Over the next few quarters, so hopefully we'll be in a position to produce some additional additional gas and sell into the market generally we'd like to see gas prices at $2 Amendment Btu before we make significant commitments to gas production. So fingers crossed we get to that level.
Kenneth J. Nicholson: So hopefully, we'll be in a position to produce some additional gas and sell it into the market. Generally, we like to see gas prices at $2 an MBTU before we make significant commitments to gas production. So fingers crossed we get to that level, and we can start producing more gas. Obviously, West Virginia is going to be in a good position to start gas production here as soon as we close out the financing, which I expect to do this month. We don't quite need the $2.11 in West Virginia. The cost of production is a little bit lower, maybe closer to $1.75.
And we can start producing more gas, obviously west Virginia.
Is.
Going to be in a good position to start gas production here as soon as we close out the financing, which I expect to do this month we.
We don't quite need the $2 level in West Virginia, the cost of production is a little bit lower.
Maybe closer to $1 75.
Kenneth J. Nicholson: So we're ready to go there, and prices today are hovering around $1.50 in the PGM region where we are. So we're close, but I think we'd like to see gas prices climb a little bit more before we commit to large-scale production. And then there is one final one.
So we're ready to go there and prices today are hovering around $1 50 in the PJM region, where we are so we're close we're close but I think we'd like to see gas prices climb a little bit more before we commit to large scale production.
Thank you and then one final one.
Kenneth J. Nicholson: As your infrastructure assets mature, as more permits are received, I'm curious, with all the emphasis from PV firms on infrastructure assets, are you seeing any reverse inquiry on any of your assets? Yes, as you noted, I think the market conditions are generally favorable, there's a lot of money in the private equity system and investor base, and a lot of dedicated infrastructure funds that are out there. There have not been a lot of available targets. And so there's a lot of hunting for rail assets, terminal assets, and long, long life, you know, infrastructure assets. And so yes, we, I would say the reverse inquiry, has been a little bit more active than it had been. I think it's a function of what's going on in the market, but it's probably more a function of our assets really maturing and getting to the point where we're getting to a level of scale where independent financing of the assets is more readily achievable, and so on.
Is that correct.
Mature.
More permit services I'm curious with all the emphasis we're getting funds I'm going to start for assets.
Are you seeing any reverse inquiry on any of your assets.
Yes.
<unk>.
As you noted.
I think.
They're there mark.
Market conditions are generally favorable with a lot of money in the private equity system and investor base and a lot of dedicated infrastructure funds.
That are out there there has been not a lot of.
Saleable.
Targets.
And so there's a lot of hunting for rail assets terminal assets and long long lived infrastructure assets and so yes, we are.
I'd say the reverse inquiry.
It's been a little more active.
And it had been I think it's a function of what's going on in the market, but it is probably more a function of our assets really maturing.
And.
Getting to the point where.
<unk>.
We're getting to a level of scale.
Our independent financing of the assets is more readily achievable and what have you. So obviously, we're responsive to that reverse inquiry as.
Thank you.
Kenneth J. Nicholson: Obviously, we're responsive to that reverse inquiry as would be appropriate, but yes, I think the M&A market is a little bit more robust. We're seeing fewer opportunities to buy things in certain sectors, but it also means there's a lot of demand from folks and not a lot of supply, which with our assets, that's not a bad position to be in. That is very helpful. I appreciate it. And that was it for me, and I'll jump back into the queue.
No.
As would be appropriate.
But yes, I think the M&A market is a little bit more robust we're seeing.
Fewer opportunities to buy things in certain sectors, but it also means theres a lot of demand from folks and not a lot of supply which with our assets.
Not a bad position to be in.
Very helpful. I appreciate it.
Ill jump back in the queue. Thank you.
Alan John Andreini: Thank you. Thank you. There are no further questions at this time. I'd like to turn the call back over to Alan Andreini for any closing remarks. Thanks, Michelle. And thank you all for participating in today's conference call. We look forward to updating you after Q1. Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day. This video is an educational video in the spirit of social distancing. Users should seek the advice of qualified physicians and health professionals regarding its use. If you find the video useful, please like, share the video, and subscribe. Thanks for watching it.
Thanks.
Thank you there are no further questions at this time I'd like to turn the call back over to Alan Andreini for any closing remarks.
Thanks, Michelle and thank you all for participating in today's conference call. We look forward to updating you after Q1.
Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.
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