Q3 2024 New Fortress Energy Inc Earnings Call
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Speaker Change: Good day and welcome to the New Fortress Energy third quarter 2024 earnings results Conference call. Today's conference is being recorded at this time I would like to turn the call over to Matthew Reinhart Managing director. Please go ahead.
Matthew Reinhart: Thank you and good morning, everyone. Thank you for joining today's conference call, where we will discuss our third quarter 2024 results.
Speaker Change: It is being recorded and will be available by replay on the investors section of our website under the subheading events and presentations at the same location you will find the presentation that we will walk through on today's call. Please review. This as it includes important information on forward looking statements and non-GAAP measures with that let me hand, it over to our chairman and CEO of West to East West.
Speaker Change: Thanks, Matt and thanks, everyone for dialing in so as usual, we will refer to the deck as we slipped through here, but let's let's start at the beginning so phase III first with the quarterly financial results. Our Q3, adjusted EBITDA of $176 million that was basically right on top of what we forecast here last summer.
Speaker Change: From an operational standpoint, the quarter was a very placid, one so we.
Speaker Change: Continue to operationalize F LNG.
Speaker Change: Operations, So I'll talk about that in a minute we sold their first full cargo was sold and transport in Europe, we obtained the non FTA.
Speaker Change: Permits in Labor day, which allowed US to then ship to non FTA countries of course, it looks like that band is likely to be lifted.
Speaker Change: Presidential election, but there was a that was a good milestone for us.
Speaker Change: We are reducing our guidance in the fourth quarter modestly due to some maintenance that we've taken here. So we're going to have a lower volumes in F. LNG. The unit is back up and is running well now we've been working on optimizing production, but we're very very happy with the production of it and I'll talk about that in a second but that's good. We also are going to bring.
Speaker Change: Bach Arena and placed into service, which has got some accounting implications, but it's nothing but positive from an operational standpoint from a business standpoint, but Andrew will talk about that in a minute.
Speaker Change: Ah the claim from FEMA is something I get asked about all the time, we continue to have conversations with our western which is our contractor.
Speaker Change: Well as with the core AD with FEMA and expect our as expected. We do think that the resolution of that is pending and is positive. We don't have anything specific to report on it obviously.
Speaker Change: The impact of a FEMA settlement.
Speaker Change: In a quarter in the fourth quarter or first quarter of materially affect what our forecast would be and also to the extent that these new strategic options that we are pursuing but I'll talk about at some length come to bear or they can move things around so actually the ability to then forecast specifically away from operations is a little more complex just because these are such big.
Speaker Change: Large individual transactions so.
Speaker Change: Notable events or slip to the following page.
Speaker Change: Start with faster F. LNG a prior to that maintenance event. We ran for 14 days in AR on an hourly basis of about 105% of nameplate capacity. So working extremely well. This is now the time of the processing to liquefy or these then sit down with the vendors and brainstorm about debottlenecking in operation.
Speaker Change: Changes that you can implement to increase production and we had a big meeting in Houston on Monday exactly on this that went really well.
Speaker Change: Our team is is quite positive that there's a number of short term additions that we can bring into it to add 3% to 5% to 10% of nameplate capacity that is consistent with other people in the industry. This is just a natural process to go through our first get up and running at full at nameplate second make.
Speaker Change: Those adjustments allow you to enhance what you're doing so very very good news there. We're just completing our fourth cargo.
Speaker Change: And believe this morning, one thing about <unk> I've asked some questions. Yeah. The Penguin is about 170000 cubic meters of storage.
Speaker Change: Average ship that we're feeling on our run back and forth to Puerto Rico is about 135000 cubic meters that get that buffer provides us a tremendous amount of operational flexibility. So when there is weather when there was a storm that has gone through and there are swells and do you have to maybe delay a day or here or there that 35000.
Speaker Change: Metres of buffering basically means that we expect to have no.
Speaker Change: Downtime from an operational standpoint, as we load and that's been our that's been our experiences thus far so all going well I'm going to plan, but F. LNG has moved squarely out of the.
Speaker Change: The construction phase into the last stages of commissioning and now operationally, we're performing extremely well for us.
Speaker Change: I'm Gonna leave Andrew to talk about this but you know the.
Speaker Change: The Big construction continues you know the bottom line from our standpoint is on time on budget. The EPC is performing extremely well and there's a tremendous beehive of activity there, but I will I'll, let Andrew talk about that specifically lastly for US you know a big big functional focus within the company has the corporate recently.
Speaker Change: Answering in capital formation that we did in the quarter and culminating with the signing of our agreements here. This morning to kind of finalize it but in simple terms. What we did is we refinanced and extended out 100% of the 2025 corporate debt to.
Speaker Change: Two thirds of the 2026 years into a single class and then extended the vast majority of the revolver.
Speaker Change: 27.
Speaker Change: This is the.
Speaker Change: Lastly, we also completed a $400 million equity raise that I actually personally participated in.
Speaker Change: Difficult amount of investment are back in October as well. What this has done is it basically has.
Speaker Change: Added significant liquidity to the company and also has extended debt maturities that now allows for us to really pursue the next series of things I'm going to talk about here in a very ordinary course of events. So that's great. It was done very collaboratively with.
Speaker Change: Our bondholders and our banks are blessed to have a very very professional and broad based group of lenders that worked with us well.
Speaker Change: Now it sets the stage for us to focus on the strategic goals that we outlined the other day, but before I get to that let me turn over the rest of the updates to Andrew Andrew.
Andrew: Hey, too nice to talk to everybody again I'm on page five just talking about the Brazil construction update so a positive update this quarter.
Andrew: The two which is our 630 megawatt combined cycle plant is just at 80% complete.
Andrew: So really good milestone for us there and you see that.
Andrew: Pictures on the bottom left we've got a real power plant on site and we have almost 2000 people on site last month.
Andrew: So a ton of activity going on we're sort of in the final stages of the electromechanical Assembly everything is on site and now it's just a matter of kind of all the work getting done.
Andrew: Our forecast for this is casually commencing in second half of 2025 and that's the that's a firm date in great EPC agreement, Mitsubishi and Toyota to tell as well so.
Andrew: Everything on track itself, the two for the moment and.
Andrew: Really good progress over the last quarter.
Andrew: Puts us and project, which you remember we acquired <unk> signed.
Andrew: Signed to acquire in December and then I think announced in January of this year.
Andrew: Moved that to decided by Karena and is under construction today, we've made a lot of progress. There. We're actually ahead of schedule. So we plan on being 15% complete at this point and we're actually achieving 25% complete so had great activity if you see the.
Andrew: Pictures on the bottom right you can see there in the top of the four different pads for the large gas turbines and then the big clearance at the bottom is for the substation.
Andrew: Mitsubishi is making great progress on the turbines as well so that progress that practice is really coming together faster than expected.
Andrew: And right now we're ahead of schedule. So it's a very positive update on our construction in Brazil.
Andrew: For the quarter back to U S.
Andrew: So that's over the page in Nicaragua.
Andrew: The last of the terminals that we expect to go operational.
Andrew: Our expectation is still in Q1, the $300 million turning.
Andrew: Power plant, 100% complete the Jedi in the FSU is 95% complete.
Andrew: We expect.
Andrew: That should be completed here in the next month or two the pipeline as you can see has been dredged is being put in place. So just the remaining works really include finalizing the jetty and then connecting the pipelines and the terminals the power plant and we expect to put the freeze our MSR you will go in there when it gets out of the dry dock here at the end of this year. So.
Andrew: A very very very very good update at all from that standpoint, So now flipping to the next section to answer on the strategic update.
Andrew: Let's start with the AR on the page and this is this is a quote from the words that we put out on our 8-K a couple of years a couple of days ago. So on October <unk> 2024, New fortress energy announced a series of financing transactions.
Andrew: Closing are intended to increase the company's liquidity and financial flexibility as we just referred to and Andy will talk about that in a little bit more detail in further into these goals. The company has begun to work to identify strategic partners for one or more of a primary businesses, including projects in Brazil, Puerto Rico, Jamaica, Mexico, Nicaragua F. LNG, one contact the company expects to explore with <unk>.
Andrew: With potential strategic partners financings commercial ventures or asset sales that are intended to enhance the company's liquidity and financial flexibility. That's the 8-K that we issued a couple of days ago, which I think there's a clear job of laying out what our focus in from a delay perspective, what I would what I would I think about this is that while we are folks.
Andrew: On in simple terms is we believe that the sum of the parts of our businesses and units are worth significantly more than the current debt and equity levels of the company.
Andrew: And so our focus therefore is to close that gap by focusing on individual assets that can be capitalized, bringing partners, you know kind of etc to realize that value.
Andrew: The characteristics of our businesses for the most part are number one they are fully constructed or in the <unk>.
Andrew: So Brazil will be shortly.
Andrew: Therefore have very little if any construction risk theyre operating assets with many long term committed customers number two they need a little or no capex.
Andrew: And so the cash flows that they generate which are significant from operations essentially go straight to the bottom line number three they have LNG supply to match the customers. So essentially when you match the supply and the demand.
Andrew: Remove commodity exposure and what is left is simply unmatched business between inflows of product outflows.
Andrew: Gas and power to customers and then just a long term.
Andrew: Contracting between both the supply and the demand and it becomes a religious appear infrastructure.
Andrew: And lastly, they have visible unclear growth prospects, that's only a fraction of the capacity of the asset itself is utilized these characteristics in sum total are basically the holy Grail of infrastructure investments no construction risk or little significant cash flow with very very long term commitments no capex. So there's no <unk>.
Andrew: <unk> capital go straight to the bottom line long operational histories without incidents and no commodity exposure. So that's that's broadly speaking is the description of our of our assets when you flip to page number nine.
Andrew: We believe that there is significant value in all of the businesses. We've chosen to highlight these three is the most developed the most significant in size, but we're very positive and constructive on the value of all of them and believe that once added together. This sum of the parts, it's quite substantially greater than the current valuation of our debt and equity.
Andrew: These three assets, Brazil, Jamaica, and the combination of Puerto Rico and <unk>.
Andrew: On June one.
Andrew: Have the characteristics, which I just went through their long term supply specifically match with the longer term customer uptake, which mitigates a commodity exposure the projects again with the exception of the the final construction and.
Andrew: Brazil, but the other two projects are completed and our operational and require little or no additional capex and they have very significant value add in terms of material growth opportunities.
Andrew: Each of these are unique assets, but there's a lot of similarities we've invested billions of dollars in building these and taken many years in doing so roughly 10 years in making in Jamaica, seven years, and Puerto Rico five years in Brazil.
Andrew: So the investments that we've made have resulted in these terrific assets and now we think we're very well positioned to go talk to investors about different options for them. So let's look at the page number 10.
Andrew: Kind of going from left to right. The the Puerto Rico and F. LNG assets are the perfect downstream complement and upstream complement to each other as <unk> is now operational and possibly F. O N G to the each have a significant independent value because obviously, we live in a world where there is still a significant difference between.
Andrew: The price of creating LNG and what the market will pay for it but they have far more value in our estimation. When you combine them with the downstream needs of San Juan We have a Jones act exemption that allows us to bring the.
Andrew: Gas.
Andrew: Straight from one side to the other today in Puerto Rico, we have this ADC btu.
Andrew: On why the gas contract that is a that was partially utilized but we're very very optimistic that that's going to change and grow substantially but even today.
Andrew: 70, plus TVT market. There is nine customers LNG supply of 20 years. The contract duration is four years, but we think that there's a there's a good chance that that will change over time. The total owned and managed power capacity across the complex is 9000 megawatts. So it's a huge market, which we have obviously a very significant presence and now we have the supply to match that.
Andrew: Jamaica, which is our oldest and most mature asset 30 cubic use of volumes 25 customers where supply matched against it for 20 years average contract duration 17 years on tower and managed capacity of 330 megawatts right.
Andrew: They're very long term and very very stable and significantly.
Andrew: A chance to grow materially and then lastly, the Brazil complex.
Andrew: Andrew can talk about but in the north you have a massive combination of terminal baseload customer with Norsk Hydro 2.2, Gigawatts of power, It's an island of activity and one of the most.
Andrew: Environmentally sensitive parts of the world with huge long term half day so.
Andrew: So what is the plan the goal for US is simply is to deleverage the company and by doing so greatly simplify for investors.
Andrew: The merits of the assets that we own the refinance gives us the ability to do this in a thoughtful and measured manner.
Andrew: The key elements of that refinance is there to the extent that we use asset sales, we can pay off debt without penalty. So this resulted in effectively a very flexible capital structure to the extent that we pursue asset sales, which is what we're going to do you can also organically.
Andrew: Deleverage.
Andrew: By simply making more money than it costs them to pay the bills, which is of course, a base case, but the asset sales can greatly.
Andrew: To accelerate this process and thats why its warehouses.
Andrew: The form of the strategic transactions could be a number of different forms that can be equity sales of J D is that can be partnerships that could be outright sales of all our portions of these businesses. We've hired advisers on a few of these and expect a very very busy few months as we go for US, Florida on us Fortunately electricity and access to it as perhaps.
Andrew: The hottest topic in the world.
Andrew: Internationally and domestically as well and the only commodity that cannot be purchased as I said before his time, we've invested the time decades of time in these assets and expect it will have a lot of.
Andrew: Interesting things to talk about as we move ahead.
Andrew: With that I'll turn it over to Ed.
Ed: Yeah. Thanks, so volatile, but just trying to provide a pea study.
Andrew: Margin makeup business so on page 12.
Andrew: Just a reminder, and if he really started in Jamaica with the <unk> terminal.
Andrew: In 2015.
Andrew: Which was completed in 2016, we then built our CHP plant in 2017, and then constructing the old Harbour terminal just west of Kingston and in 2018.
Andrew: I would argue was finished in 2019 and then we would see O D. On the power plant in 2020, the map on the left really.
Andrew: Get oriented to our business in Jamaica.
Andrew: The months ago Bay terminal is critical because it supplies the bogue power plant as.
Andrew: As well as serves our 21 different small scale customers, which are most of the large industrial customers in Jamaica. The old Harbour terminal is directly connected by pipeline to the.
Andrew: And CHP plant, which we own about 150 megawatts that's.
Andrew: That supplies electricity to Jamaica public service and then also suffice deemed at the gym uncle alumina refinery.
Andrew: And then it's also connected by pipeline to the old Harbour power plant, which is owned by Jamaica Public service, So really we.
Andrew: One in supply three of the major power plants on the island, we supply out of our Montego Bay terminal the basics.
Andrew: Basically the 21 largest industrial customers on the island with LNG and you can see the key metrics on the bottom right.
Andrew: Traditionally we've provided about 30 <unk> year, we have 23 plus customers.
Andrew: We started.
Andrew: All of our long term agreements were initially 20 years and.
Andrew: There are about 17 years remaining generally now.
Andrew: And they have the.
Andrew: Two components, one is a fixed capacity payment and the other is a volumetric payment for the gas that has about an 85% take or pay on the volumes every year I mentioned 17 years average remaining contract duration, we own the 150 megawatts come on.
Andrew: Heat and power plant at Clarendon and overall, we account for about 65% of the electricity supply in Jamaica flipping to page 13, and just gives you.
Andrew: A better sense for our operations. So today, we basically based out of the old Harbour terminal just west of Kingston, We run a shuttle vessel from there up to our Montego Bay terminal about once a week to keep the storage at Mont Tico based supply we receive larger international LNG deliveries.
Andrew: The old Harbour terminal and then we supply gas by pipeline to the three power plants I mentioned on one of which we own and the two others are owned by J P. S. We supply gap.
Andrew: Ghassan or a long term agreement and then out of our Montego Bay terminals, where we run our trucking business to the 'twenty, one industrial customers I mentioned.
Andrew: On page 14, just a few investment highlights on how to think about our business in Jamaica. So we have really long term offtake. So 17 years average remaining contract duration.
Andrew: Public service has been a great partner to us and we've had an extremely productive relationship.
Andrew: Even kind of go through.
Andrew: Difficult economic times like during Covid.
Andrew: We've had a.
Andrew: A great business relation with them and your ability to continue to grow and do more.
Andrew: As you guys might know Jamaica public service is actually owned by Marubeni and create east West power as well as the government of Jamaica.
Speaker Change: We have an investment grade LNG supply so we generally supply Jamaica through a long term delivered contract with shell.
Speaker Change: And.
Speaker Change: Wes mentioned this creates the business that we have.
Speaker Change: I've set out as a mission to create an issue, which is a long term spread business between selling gas and power in Jamaica under the 17 year long term off take agreements and then receiving international LNG shipments from shell under our <unk> contract.
Speaker Change: Delivered into the old Harbour terminal, we have a great operating team so.
Speaker Change: Since 2015, obviously had a great team in Jamaica that runs the terminals runs the checking operations.
Speaker Change: And we've had a great base of people it's grown over time.
Andrew: And if he actually started a program at the University of West Indies to help train people in cryogenic engineering, we've hired a bunch of those people they've been great employees for us and generally a place where we've had hum a super capable.
Andrew: And positive team and then the next step here is obviously continue to grow so we have great opportunities for incremental growth Bunkering is a big one in terms of targeting the switch for four container vessels two LNG supply and then also you know many new opportunities to develop new power in Jamaica continue to grow access to electricity in the.
Andrew: Tree.
Andrew: Turning to supply other small scale customers.
Andrew: Further we think you know as as the market develops.
Andrew: Hub in Jamaica, it can really be a hub for the entire Caribbean, where I was.
Andrew: Sort of well located to access other Caribbean Islands, obviously, our Puerto Rico business.
Andrew: He started it was supplied out of Jamaica, originally which is a great case study for growing other countries out of using this.
Andrew: Terminal in Jamaica, as a hub and all of that incremental growth requires very little capex.
Andrew: Page 15 is a deeper dive on our Monkey go Bay terminal.
Andrew: So it's about a 2004 <unk> terminal in terms of capacity. We built these onshore storage tanks here, which provided about 57 television to use of annual storage. This is where we supplied we supply once a week from our main terminal in old harbour.
Andrew: Here, we re gas and send gas to the Bogue power plant, which is connected by pipeline to this terminal here and then we also run our trucking operations out of the truckload manifold you can see on the left side of the storage tanks. There page 16 is the offshore terminal in old Harbour. So this is just west of Kingston, and that's the 170 K Fsrus.
Andrew: <unk> gallant.
Andrew: This is <unk>.
Andrew: World scale LNG terminal can accept all of those sort of large cargo deliveries as you can imagine coming into the terminal here and it's just a few miles offshore and connected by pipeline.
Andrew: The power system in Jamaica.
Andrew: Page 17 is a picture of our CHP plants, so combined heat and power. So here, we use the two Siemens SD 800 turbines, which you can see there to produce electricity that we sell to J P. S. And then the high pressure steam which comes off of that is sold and used in the alumina refining process at the Jamaica refinery, which you can't see.
Andrew: But it's sort of just to the right side of the picture there and is connected by pipeline. So one of the incremental growth opportunity to certainly to sell more gas into the gym uncle alumina refinery, which we're looking to do overtime as well.
Andrew: Page 18, just just shows kind of how important this has been the Jamaica, So I mentioned before.
Andrew: You know as a combination of the power that we supply the gas that we supply and then the small scale fuel that we supply we're about 65% of the overall kind of energy production in Jamaica, So really critical infrastructure for the country.
Andrew: By entering into these ratios from 2015 to 2019 and doing this in a way where we were able to lock long term prices over 20 years.
Andrew: We've been able to have a really good effect on Jamaica overall energy costs, which we think has been reflected a really positively and sort of the overall macro picture for Jamaica. So.
Andrew: The GDP from when we started when it was about 135% it's gone down to about 75%.
Andrew: Huge credit to the leadership team in Jamaica, and everything they've done.
Andrew: To bring it to bring that number down unemployment rate. When we started there was about 14% now it's about four 5% and then they've been upgraded in a number of times from single B rating to double B minus.
Andrew: Jamaica has been an amazing case study for.
Andrew: Economic development and macro development, and we think by making a very smart decision to do long term gas and power at very stable and.
Andrew: Competitive market prices that set a great base to be able to do a number of these sort of positive macro developments.
Andrew: On the right side, you can see when we when we when it came to the country in 2015 natural gas with zero oil based energy generation was 97% of the mix. That's flipped natural gas is about 64% and oil down to 16%.
Andrew: We think over time continues to develop and obviously this kind of base of dispatch will natural gas generation has obviously created the ability to then go do other intermittent sources of generation in Jamaica, and we've seen a lot of renewal develop renewables renewable power development from that time as well. So we calculated about $2 billion overall fuel cost savings of 33% reduction.
Andrew: <unk> in our carbon emissions, and then $36 5 million trees planted equivalent from what <unk> has been able to do in switching from oil based power in Jamaica to natural gas.
Andrew: Page 19 is just a few of the growth vectors that we see going forward in Jamaica Bunkering is really the big one where the old Harbour terminal is just top of Kingston is a super busy shipping lane and we've already seen.
Andrew: Number of kind of spot transactions and bunkering that we've been able to do and as more cargo ships. Both on the container side in the bulk carrier side continue to get.
Andrew: Either built with LNG.
$636 million for the nine months ended September 30th.
Andrew: And finally, moving on to slide number 26, we had $9 million in gap net income and $0.03 a share. When you adjust for a $2 million impairment charge for the Miami liquefier, you result in an adjusted net income of $11 million for Q3, which is about $0.05 a share.
Andrew: On the Miami liquefier, we have received our regulatory approvals and we do expect to close that sale before the end of the month.
Andrew: Finally, the funds from operations for the first quarter was $46 million, or about $0.22 a share.
Andrew: A couple quick comments on the balance sheet. Obviously, Andrew has been at the vanguard with Bondholder Group over the past several weeks, but I wanted to highlight that we've been able to work with our revolving credit, letter of credit, and Term Loan A lenders to agree to a few critical amendments that further show their support for the company and our strategic initiatives.
Andrew: Specifically, on the revolving credit facility, we've extended $900 million into a new tranche that will mature in October 27, thus reducing 2026 maturities and de-risking the balance sheet further. Pricing on this facility is attractive relative to the new bond issuance, and we're thankful for the continued support of our relationship lending syndicate.
Andrew: One last thing I want to flag is that the filing of the third quarter 10-Q with the SEC will be done on Tuesday, November the 12th. As we've discussed this morning, we've reached a binding deal with the bondholder group as well as the various bank facilities that will settle in the next two weeks.
Andrew: However, at the time of the filing, the 2025 bonds and various bank facilities will show as current liabilities on the balance sheet. Once the transactions close and fund, the maturities will extend and accurately reflect the long-term nature of debt classification.
Andrew: We will be putting out a press release when the transactions fund that shows the proforma balance sheet for 930 with the appropriate classification. With that, I'll turn the call back over to the operator for Q&A.
Speaker Change: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure the mute function is turned off to allow the signal to reach our equipment. Again, press star 1 to ask a question.
The first question is from Ben Nolan Westifel.
Speaker Change: Yeah, hi, this is Frank Galantian for Venn. Thanks for taking our questions. I wanted to start with the status of the F1-G2. How are you guys thinking about...
Speaker Change: CapEx on that, and has it received all the regulatory approval and a financial agreement with Mexico? And then do you have the ability to toggle development timing to manage cash flows?
Speaker Change: Yeah, I'll actually hit that in reverse order. So absolutely have the ability to toggle timing to manage cash flows, and that's why you've seen kind of the CapEx expected in Q3 and Q4 related to FONG2 decrease.
Speaker Change: So we have, you know, several different mechanisms within the contract for the module construction and the civil construction that allow us to pace CAPEX at our own discretion. So that's very important.
Speaker Change: On the second of the three parts, our relationship with Mexico remains extremely strong. There's been an administration change there recently, and the new leadership of the CFE have reiterated to us their support for this facility and for the overall partnership.
Speaker Change: We've extended our gas supply to them in other parts of the country, in Baja, and so we remain, I think, accounted and trusted on partner with the CFB. Our execution of future permits is still pending, and as they organize...
Speaker Change: Over the course of we expect the next kind of 90 days They'll get back into kind of the regular issuances of various construction permits that would be needed again Nothing just similar to what we've done for FLNG number one and should be received in ordinary course
Speaker Change: On the first part of the project, you know, look, we have the expected capex as we laid out, I think it was slide 24, shows that you kind of go back to full spend rates in January.
Speaker Change: And so again, that will be a discussion with the management team on exactly how fast we want to move forward. But these are, you know, contracts with...
Speaker Change: the construction outfit for the modules, and you've signed fixed-price contracts for the civil construction onshore at the Altamira facility. Yeah, I mean, from a business standpoint, the combination of FLNG2, or even prospectively 3, etc., with the operating FLNG1 asset is something that is obviously a big, big part of the, you know, the process that we're going through in terms of looking at these individual business units. I mean, to the extent you have incremental downstream demand, which of course we do, having more supply there in a more efficient way in a relatively short period of time could be very, very attractive for a third party. And so we know that because we've gotten lots of...
Speaker Change: inquiries about that, but that's one of the things that definitely will be into consideration. You don't have to bundle the two of them together, but there are obviously synergies to doing so just like you find the different trains of, you know, train 1, 2, 3, 4, the different liquefiers. It's the same basic process here, so.
Speaker Change: I think the bulk of the difference was the conversion of either the Aguirre or the Mayaguez power plant.
Speaker Change: Is that the right way to think about that? And then can you give an update on the status of those PowerPoint conversions?
Speaker Change: Yeah, well, our view was that there was a bit of a hiatus there pending the elections. The elections happened, Jennifer was elected governor.
Speaker Change: You know, two days ago, you know, her first speech, she refers to gas conversions and new gas-fired power, you know, being needed, which we think, literally from the beginning, the first minute of the first day, you can get a transcript of her speech, but it actually couldn't have been more consistent, more positive with what we think it is. We think that there are...
You know, a number of very, very simple and obvious
Speaker Change: gas conversions, you know, the first of which will be these megagens, which we think will be turned on here in the next couple of days. You then have MiGWAs, Cavalace, Aguirre, all of these are significant users of.
Speaker Change: diesel, and they basically end up costing Puerto Ricans significant amounts of money on burning diesel versus natural gas. I think that with the new administration, you're going to get a renewed focus on that. The conversions of those, we think, are actually quite straightforward. You know, when you look at Puerto Rico, broadly speaking, I think it is one of the largest
Thanks for watching.
market opportunities of
Speaker Change: diesel to gas changeovers anywhere we're aware of, it could save them literally billions of dollars on an ongoing basis. So there couldn't be a stronger business case for it. And I think that in the next 60, 90, 120 days, you're likely to see a significant amount of activity out of there. And these numbers then will kind of reflect that. The 53 TBTUs is only the base case of what is there at this moment and does not at all reflect what we think that the market opportunity is likely to be in the coming months.
Thanks for watching!
Great, I really appreciate you taking my question. Thank you.
Speaker Change: The next question is from Craig Scheer with Two E Brothers.
[inaudible]
Craig Scheer: Hi, thanks for taking the questions. So I understand some of the parts arguments, but historically the business model seemed to have been build and monetize power plants, but retain downstream import terminals. After the next coming quarters of rejiggering, has that long-term focus changed, and could you see
finally achieving stable recurring modelable operations by maybe 2026.
Thank you. Thank you.
Speaker Change: I'm a little confused about the nature of it. I mean, I think that the basic plan in any of these markets is...
Speaker Change: the same, which is to go in there, provide gas and power.
Speaker Change: to people that need it. There's obviously big deficits of access to gas, big deficits of access to power, and so we have, you know, built power in places. We built the power plant in Jamaica, as an example, we're building these power plants and
Speaker Change: In Brazil, we built a small power plant in Mexico. But really, what you're left with is incredibly simple in each and every case. It's basically.
Speaker Change: A discreet supply of gas into the country, a discreet downstream demand from customers, no commodity risk.
a very stable and very long-term set of cash flows.
Speaker Change: and one that can go up materially with little additional capital. I mean, that is literally the holy grail of an infrastructure investment. And so...
Speaker Change: It's a hundred plus million dollars of long-term income. There's nothing small about a hundred million dollars for 17 years. So, we think that these things are worth...
Speaker Change: far, far more as infrastructure investments than they're being rated right now. And we're going to go out and test the market for that. And we feel really good about it. And I think that selling one or two assets
Speaker Change: You could literally end up in a place where you've paid off all your corporate debt and you're in a very, very different place as a company. Even selling one would re-rate it. So this is not a spurious exercise or one which we hope to try out. We are quite confident that we're going to get great interest in these assets. So there's a variety of different things we could do, and we'll go pursue them and stay tuned. So that's the basic plan.
Speaker Change: understood and as far as the value to others and what your long-term plan is for retained assets.
Speaker Change: Do you see the Trump election victory possibly, you know, creating a new renaissance of US, you know, look with action contracting?
Speaker Change: perhaps spurring the market saturation, the moderating long-term pricing that really dramatically adds value to the downstream infrastructure you've built towards the end of the decade.
Speaker Change: And so what it means is we've invested billions of dollars building this, decades building them and whatnot, and you still have a lot of capacity to go. So a lower price, commodity price would definitely encourage more consumption and it would be beneficial to us. So I do think that, and look, we're not experts on the political landscape, but it certainly seems like the ban on the LNG exports is very likely to be eased.
Speaker Change: And, you know, if rates are, you know, more normalized, there's a vibrant economy, there's probably more, you know, LNG to be produced, which is net-net a good thing for the market and for us.
The next question is from Chris Robertson with Deutsche Bank.
and T.J. Gershbeck.
Speaker Change: Hey, welcome. Good morning, everybody. I just wanted to ask a question here with regards to the current FSRU market and how the company is thinking about some sub-chartering opportunities.
Speaker Change: especially as it relates to the Eskimo, I guess where do you guys see the best market opportunities right now globally and how should we be thinking about that in terms of a potential uplift to EBITDA going forward?
Thank you.
Speaker Change: There's still a real premium placed on the FSRU market because there's a lot of need for re-gas capacity and it takes time and money to build new ones.
Speaker Change: We have one short-term charter that's coming off that we think is at a material discount to what the market value is. That would be a big win for us. We think there's other situations as well, but you know that the the kind of hidden value of our long-term Energos portfolio from our standpoint is that we think that there is a substantial amount of uplift from a number of those assets, FSRUs being
the top of the list and
Speaker Change: You know, we want to report on things that have happened rather than forecast about things that could happen, but we think the differences are material. So we did, you know, the one, you know, big, you know, charter into Amshaven, I guess, a couple of years ago, you know, the Eskimo is another one that's on the list. But there should be some good activity to report on, you know, hopefully in the very near term.
I appreciate it. I'll turn it over. Thank you.
The next question is from Martin Malloy with Johnson Rice.
Martin Malloy: Good morning. Thank you for taking my questions. I wanted to ask first about free cash flow looking forward to next year.
Speaker Change: Your CapEx, 70 million net CapEx on slide 24 here. Should we be looking for free cash flow in 25 available for debt reduction north of $1 billion?
Hey Marty, it's Chris. I think, you know, we...
The way you read that prior slide is absolutely correct.
Speaker Change: CapEx and kind of unfunded CapEx of about $70 million next year.
Speaker Change: So, we keep talking about free cash flow, it's important to say you have CapEx, so definition of free cash flow would still be negative, but you have the financings that will support the bulk of the CapEx spend. So I agree that the way to think about it is, as we put on the prior slide, leave it to less the unfunded CapEx, less obviously debt, service, and taxes.
Speaker Change: And so using that methodology, I would expect that to be positive in 2025.
Okay.
Speaker Change: and then there wasn't any discussion around data centers on on the call yet could you maybe give us an update there?
Speaker Change: Sure, you know, we have a ton going on in terms of the asset that we own in YLUCING. We've had a number of conversations with a variety of different tenants for it, one of which I think is a very good fit for us and we're working on it. I've not updated on it simply because we don't have a definitive agreement in hand. We're optimistic we could have one in the very short term.
Speaker Change: sentiment and interest in island power, so kind of off-the-grid power to supplement people's access to the grid, has grown, you know, exponentially over the next last, you know, six to twelve months, and it's a hot, hot topic. I mean, this recent ruling by FERC on the Amazon situation at Talon, I think adds to that. You know, we think that the abilities we have as a company to provide
Speaker Change: power in a relatively short period of time that's highly reliable and cost-effective.
Speaker Change: is an extraordinary benefit for us and we're very focused on this first site because it's something we control. We're in the process of filing for permits to allow us to build power, get water, build data centers, etc. And I think that the economic model for it is a compelling one and I think when we have our first
Speaker Change: You know, in the hand contract, we'll talk about it with folks, but we think it is not only a very attractive standalone investment, but a perspective that could be a real model for a number of others to follow. So more on that to come, and hopefully, you know, by the time we have another update here, we'll have something great to talk about.
Great, thank you. I'll turn it back.
The next question is from Wade Suki with Capital One.
Speaker Change: Good morning, everyone. Thank you for taking my questions. Just first, a logistical question, if I may.
Speaker Change: for the ship watchers out there, I know you all mentioned the, I think it was the BW Pavilion was headed to Puerto Rico, it seems to have stopped in Jamaica and the Virgin Islands, kind of help explain if you don't mind.
Rob.
Speaker Change: Understood, appreciate that. And just kind of going forward, safe to assume, you know, maybe a cargo every couple of two, three weeks, something like that. Is that on target?
Thank you very much. Thank you.
Speaker Change: Yeah, I think about 20 days-ish, right? 18 to 20 days is about what full capacity is. We had a really good production run.
Speaker Change: 14 days consecutively running at 105 percent, you know, with with no breaks. We took a downturn, you know, a maintenance cycle to replace a valve that had been getting that needed to be swapped out and fixed. That just came back online. So we're we're back producing now. And our expectation now is is that given the performance that we have seen thus far and the reliability of it, we have, you know, really high hopes that that now only improves and we add a little bit more production over time and it just runs. And that would be the cycle. And this last, you know, the nuance that I kind of.
Speaker Change: I've gotten this question from a number of different people, what do you do when there's wave activity or swells and you have trouble loading? This difference between the $170,000 and $135,000 in terms of the capacity gives you kind of four or five days of window on either side of it, which is a tremendous amount of flexibility to move in and kind of load and do one for the other. So that's where the logistics path for this is.
Speaker Change: As such a simple one and one that is highly reliable, which we feel is exactly what we designed it for but it's working really well.
Speaker Change: It's such a simple one and one that is highly reliable, which we feel is exactly what we designed it for, but it's working really well.
Speaker Change: Awesome. Thank you I appreciate it if I could squeeze one more in.
Speaker Change: Awesome. Thank you. Appreciate it. If I could squeeze one more in.
Speaker Change: Just on SG&A.
Speaker Change: Just on SG&A, obviously a little uptick here, can you help kind of parse that out for us and then maybe help us think about the path forward on SG&A?
Speaker Change: Obviously, a little uptick here can you help kind of parse that out for US and then maybe help us think about the path forward on SG&A.
Speaker Change: Yeah, I would say like the focus on our core SG&A is down three consecutive quarters overall SG&A had a lot of noncash items in it this quarter and also some expenses related to the transactions that we're undertaking and that's why we have kind of the transactional or or integration cost separated it out but overall when I look into 2000.
Thank you.
Speaker Change: Yeah, I would say, like, the focus on core SG&A is down three consecutive quarters. Overall, SG&A had a lot of non-cash items in it this quarter, and also some expenses related to the transactions that we're undertaking, and that's why we have kind of the transactional or integration costs separated out.
Speaker Change: 25, I would expect it to be close to the $25 million or so in core SG&A and a small bit you know $5 million to $10 million of cash and then any noncash costs would run through the TNI stuff.
Speaker Change: But overall, when I look into 2025, I would expect it to be close to the $25 million or so in core SG&A, and a small bit, you know, $5 to $10 million of cash, and then any non-cash costs would run through the T&I stuff.
Speaker Change: Awesome. Thank you so much appreciate it.
Awesome. Thank you all so much. Appreciate it.
Speaker Change: There are no further questions.
Speaker Change: I will turn the conference back to Wes Edens for any additional or closing remarks.
Speaker Change: There are no further questions at this time. I will turn the conference back to Wes Edens for any additional or closing remarks.
Wes Edens: That's great well thanks for your participation and your interest in the company and the call. This morning, we look forward to updating you on this.
Speaker Change: That's great, well thanks for your participation and your interest in the company and the call this morning. We look forward to updating you on this in the near term. Thank you. Have a good day.
Speaker Change: In the near term thank you.
Speaker Change: Sure.
Speaker Change: This concludes today's call. Thank you for your participation you may now disconnect.
Speaker Change: [music].